Markets

Sanofi CEO Viehbacher Wants More Cuts; Drug Reps' Necks on the Block

By Jim Edwards

Updated on: February 10, 2009 / 10:32 AM EST / MoneyWatch

Sanofi-Aventis's Q4 earnings call tomorrow could set the stage for a dramatic few days at the company, according to Bloomberg, as CEO Chris Viehbacher told analysts and his staff that Sanofi needs to cut operating costs and possibly buy a small or midsize firm. Viehbacher wants to get $1.3 billion in cuts out of his operation.

Sanofi staff, who already saw a round of layoffs in December, should brace for the worst. And those staff -- particularly the drug reps -- would also have a right to be angry. Over the last year or so, they've produced more revenue per dollar of salaries than almost any other major pharma company.

In fact, Veihbacher's real problem is the stock market. Bloomberg:

Sanofi fell 28 percent last year, the worst performance among Europe's top five drugmakers. The stock has dropped 7.2 percent so far this year, compared with a 2.1 percent decline for London-based Glaxo. It rose 62 cents, or 1.4 percent, to 45.30 euros at 9:58 a.m. in Paris.

While there is no doubt that Sanofi needs to buy something to replenish its pipeline -- 35 percent of its revenue is threatened by generics -- that threat isn't as dire as it is at somewhere like Bristol-Myers Squibb. Sanofi's threat will take six years to play out, according to Bloomberg.

So it's worth asking whether Viehbacher has "New CEO Disease," the psychological affliction that grips incoming chief executives and forces them to make major corporate strategy decisions just to demonstrate that they're new, even if those decisions might not work out. (We saw the disease run rampant at Eli Lilly with John Lechleiter; the phage developed more slowly in Pfizer's Jeff Kindler.)

The speculation over where Viehbacher will turn for an acquisition is already running up the stock of small companies based on rumors -- Indian generics maker Piramal had to put out a statement saying that reports of Sanofi's interest in the company were unfounded. Here's a look at Sanofi's operating costs. In Q3 2008, the company made â‚¬6.8 billion in revenues after spending â‚¬1.6 billion on sales and marketing. That means for every euro Sanofi spent on reps and distribution, it earned â‚¬4.15 back in revenues. That yield is higher than all of the following companies: AstraZeneca, BMS, Merck, Lilly, Abbott Labs, GlaxoSmithKline, Schering-Plough, Novartis, J&J, Wyeth, and Pfizer. As for R&D expenses, while it is misleading to match quarterly expenses to revenues because of the years-long lag in results, Sanofi's margins are the same or lower than Pfizer or Wyeth's.

So unless Viehbacher has a really horrible Glaxo-sized surprise hidden in his Q4 report tomorrow, it is difficult to conclude that his main problem lies with sales reps. Nonetheless, it is their necks that look likely to be on the chopping block in the coming days.