By Mimosa Spencer
PARIS—Sanofi-Aventis /zigman2/quotes/206928357/delayed FR:SAN +1.36% SA said Wednesday it plans to maintain its pace of acquisitions and focus on small and midsize targets, as the French drug maker reported a better-than-expected 10% rise in fourth-quarter net profit, spurred by sales of key drugs Lantus and Lovenox, as well as an extra boost from vaccines.
"We're not particularly limited in size," Chief Executive Chris Viehbacher said of the company's acquisition plans. "The bigger the deal becomes, the more a company gets bogged down in integrating it, so I continue to believe smaller to midsize is certainly the way to go."
Net profit for the three months to Dec. 31 rose to €1.8 billion ($2.48 billion) from €1.63 billion a year earlier, beating analyst expectations for net profit of €1.76 billion.
Sales climbed 3.8% to €7.36 billion from €7.09 billion, lifted by fast growth in the vaccines division—one of the company's platforms for future growth—as governments stockpiled vaccines for the pandemic AH1N1 swine-flu virus.
Sales of the swine-flu vaccine totaled €362 million in the latest quarter, bringing the full-year figure to €465 million. Wayne Pisano, head of the company's vaccines unit, said he expects sales of the pandemic flu vaccine in the first four months of 2010 to reach levels similar to annual sales last year.
Sanofi said it expects its "business" earnings per share to grow at constant rates of 2% to 5% this year, excluding the effect of potential generic competition to its blood thinner Lovenox. Mr. Viehbacher pledged last year to match 2008 sales by 2013 despite a drop in revenue from expiring patents on key drugs. Among Sanofi's top-selling drugs, sales of its cancer treatment Eloxatin and heart treatment Plavix weakened in the fourth quarter due to competition from generic alternatives.
Drug companies are scrambling to find sources of growth to fill in for the high-margin, blockbuster drug business that is slipping away as patents expire. Like its peers, Sanofi has been weeding out its research investments and putting an emphasis on acquisitions to bolster its research-and-development pipeline. The company made €6.6 billion-worth of acquisitions in 2009, and is currently in talks with Merck /zigman2/quotes/209956077/composite MRK -0.23% & Co. on the "highly probable" merger of the companies' animal-health businesses, according to Sanofi executives.
Mr. Viehbacher said the drug maker aims to spend more of its R&D budget on collaborations with outside biotechnology companies and academic groups and less on maintaining its own labs and infrastructure.
The move is another sign of the industry's push to make its R&D spending more efficient. Mr. Viehbacher said he is aiming to reduce Sanofi's "fixed costs" for R&D, which he said include staff, buildings, lab supplies and other expenses, and invest more in deals with outside groups working on experimental drugs. This strategy will give Sanofi more flexibility to shift resources when research projects fail, he said.
"You've got to give people some time to see whether they deliver results, but if they don't, you have to be able to move your budget and put it into more promising alternatives," he said in a phone interview. "That has been very difficult to do because we've been linked to big sites with lots of fixed costs. So that's a part I'd certainly like to move downwards," he said.
He said reducing fixed costs doesn't "necessarily" mean cutting jobs. "It could be that we don't necessarily reduce staff but we have certainly fewer sites," he said. "There's an awful lot of costs like cafeterias and security related to sites. So we will move to fewer numbers of sites."
Sanofi said it expects cost savings and reductions in R&D to generate €2 billion in 2013.
The drug maker already announced last year that it would close or divest eight of its 27 research labs. Mr. Viehbacher said there has been some "headcount reduction" since those plans were announced, but he declined to give figures.
The company still spends more than half of its R&D budget internally but will lower the percentage over time, Mr. Viehbacher said. Over the past year Sanofi has signed research partnerships with a host of outside biotech companies, agreeing to help develop their experimental drugs and sell them if they make it to market.
Sanofi's total R&D spending as a percentage of sales fell to 15.6% last year from 16.6% in 2008, and that level could potentially drop further in the future, Mr. Viehbacher said. "We've certainly said that we thought of 2008 R&D expenditure as a high-water mark," he said.
Sanofi will decide which drugs it wants to invest in, "and if it adds up to 10% [of sales)], that's what we'll spend. If it adds up to 15%, that's what we'll spend," he said. "The bigger factor for me is not the ratio to sales, but the ratio of fixed costs to total spend."
Jeanne Whalen in London contributed to this article.
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