Sanofi to stick to bolt-on deals amid pharma M&A buzz

By Natalie Huet

PARIS (Reuters) – French drugmaker Sanofi reported lower-than-expected first-quarter earnings on Tuesday and said it would not let an M&A buzz in the sector distract it from its strategy of targeted, reasonably priced acquisitions.

The company posted quarterly results weighed down by adverse exchange rates and a drop in sales of vaccines and animal health products it said was in part attributable to seasonal effects.

But it posted double-digit growth in sales of its diabetes, consumer healthcare and rare diseases drugs and confirmed its full-year guidance for earnings growth of 4 to 7 percent at constant exchange rates.

Chief Executive Chris Viehbacher told reporters he would continue to look at bolt-on acquisitions in emerging markets, consumer healthcare and animal health – but not at any cost.

“If we can continue to bolt onto our growth platforms we’ll continue to do so. That supposes we can find acquisitions at a price that delivers value to Sanofi shareholders,” he said. “Quite honestly, when I look at the prices paid that’s not always possible to do.”

Pricing pressure from cash-strapped governments and tough competition from generics has prompted many drugmakers to consider divesting certain non-core business units, triggering a wave of mergers and acquisitions in the sector that has reached $153 billion so far this year. Pharmaceutical stocks have been buoyed in recent weeks by talk of a potential $100 billion (59.4 billion pounds) battle for Britain’s AstraZeneca , which is being suited by Pfizer . Such a deal would be one of the largest-ever in the industry.

CRITICAL MASS Sanofi, meanwhile, is striving to shake off the impact of patent losses on key drugs and betting on “growth platforms” – including rare diseases, over-the-counter treatments and animal health. Its big cash pile has prompted speculation by bankers it could complement these through acquisitions.

But Viehbacher said while it looked like “mega-deals are back” as some drugmakers shake up their portfolio to weed out or beef up businesses that haven’t reached critical mass, Sanofi is already a top player in all of its growth platforms.

Asked if the group was sticking to its guidance of spending 1 to 2 billion euros a year for acquisitions, he said: “There’s lots going on in the environment, that doesn’t necessarily mean that changes our strategy on M&A.”

“We’ll continue to look at emerging markets, and OTC in particular. Animal health is always a bit tricky because there’s such a level of consolidation that it’s difficult sometimes to find assets where there isn’t too much overlap and antitrust concerns,” he added.

Adverse foreign exchange rates slashed 6.2 percentage points off sales growth. Sales in emerging markets grew 5.5 percent at constant exchange rates and climbed 7.5 percent in the United States but remained muted in Western Europe and Japan.

Sanofi, which was already hit last year by a manufacturing problem at a vaccine plant in Canada, said its performance was affected this quarter by a calendar effect delaying sales of its 5-in-1 infant paediatric vaccine Pentaxim in Mexico and China.

Sanofi has also seen its popular Frontline tick and flea control product hit by generic competition and despite the recent launch of a follow-on product, NexGard, sales at its animal health unit fell 1.6 percent at constant exchange rates.

Viehbacher said the “frigid” weather in North America was a factor in the slowdown and said he still expected the business to return to growth this year.

Sanofi’s business net income, which excludes items such as amortisation and legal costs, fell 3.2 percent to 1.547 billion euros ($2.14 billion) on sales of 7.842 billion, putting business EPS at 1.17 euros per share. Analysts polled by Reuters had expected EPS of 1.20 euros a share on sales of 8.08 billion.

(Reporting by Natalie Huet; Editing by Andrew Callus)

Sanofi to stick to bolt-on deals amid pharma M&A buzz