The Sanofi-Bristol-Myers Squibb Worst-Case Scenario

Bristol-Myers Squibb seems to live permanently with the rumor that it is about to be acquired by Sanofi-Aventis. The last time this old saw popped up was in the fall of 2008. At that time BNET said "Perhaps it's time to consummate this relationship."

This time around, let's look at the worst-case scenario:

BMS is suddenly more tempting than ever for buyers. It looks like Eli Lilly's nascent blood thinner prasugrel may get only a restricted label, not the widely approved use that would knock BMS's Plavix off its blockbuster pedestal.

In acquiring BMS, Sanofi would pick up the $1 billion in cash that BMS got from Eli Lilly's purchase of ImClone, which BMS partly owned. And BMS retains some rights to Erbitux successor products in that deal.

So, full steam ahead for Sanofi? Um, not so fast.

Plavix (developed jointly with Sanofi) just developed a new risk downside with the news that the FDA wants to determine whether it is less effective in some patients due to their genes or use of heartburn drugs. Plavix is essentially a massive problem for BMS, rather than an asset, because its patent expires in 2011, and with it its revenues. BMS is working on a replacement for Plavix, apixaban, in a joint venture with Pfizer. But the fact that Pfizer looked at BMS and then walked away in favor of Wyeth, raises the question of whether apixaban is really Son-of-Plavix. (It might only be Son-of-Prasugrel.)

Lastly, a BMS takeover could potentially ruin Sanofi, which has until now sensibly been acquiring growth companies like generics maker Zentiva. Sanofi has a nice mix of medium-sized products. Most of them are growing and it is not overly dependent on any single one of them. (Plavix is only 11 percent its portfolio.)

More importantly, Sanofi gets $4.15 from every dollar it invests in sales and marketing, and that return is increasing. BMS gets only an anemic $3.03 and is declining. So a combination of the two would ruin Sanofi's productivity.

The temptation for Sanofi is to eye BMS and think, "we could do better with their resources than the current management has." The fat, after all, is all on the BMS side.

It's not clear whether BMS realizes this, as to hear them tell it they think they're the productive ones. Here's BMS's Q4 earnings call:

CFO Jean-Marc Huet: Maybe I will just start off in terms of productivity ...

Productivity, like Jim said, is something which is really becoming part of our culture, so rather than just single out productivity I think that what you are seeing on each and every line item, we are becoming more productive. So if you take the $2.5 billion of productivity initiatives, I think we mentioned in the press release that just north of $1 billion has actually been identified and executed upon, $2.5 billion has been identified; so will get close to that number as the year goes by. But, we are being productive in all senses of the world and that also permits us to continue to invest and investing will be within R&D.

The only other question is whether Sanofi -- like a 90-pound model eyeing a plate of bagels -- can resist the temptation to blow its track record and swallow BMS.

• Want more of BNET Pharma's "Worst-Case Scenarios"? Click here:
• The Pfizer-Wyeth Deal Worst-Case Scenario
• The Pfizer-Shire Deal Worst-Case Scenario
• The Pfizer-Amgen Deal Worst-Case Scenario
• The Pfizer-Allergan Deal Worst-Case Scenario
• The Lilly-ImClone Deal Worst-Case Scenario
• Should Sanofi-Aventis Buy Bristol-Myers Squibb?
• The Worst-Case Scenario in the Roche-Genentech Bid
• Why a Pfizer Takeover of Bristol-Myers Squibb Seems Unlikely
• Odds May Be Against a Pfizer-Bayer Deal