Sanofi CEO Bets Outside U.S., Gears Up for Flu Pandemic, and Seeks To Learn From Biotech

6/19/09Follow @xconomy

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in collaboration with the TB Alliance. We have a research and development facility in Toulouse, France, which is focused on infectious disease in general. TB in particular. Notably, multidrug resistant TB. On the Sanofi-Pasteur side, we have a TB vaccine candidate that we have obtained from the Statens Serum Institut in Denmark, SSI, which we are developing collaboratively with Aeras, which is also in partnership with the Gates Foundation.

X: It’s been said a lot here at this meeting, it’s been 40 years since the last TB drug was developed. Why do it now, why the urgency now, why is it in your interest from a business perspective?

CV: Pharmaceutical companies have traditionally focused on Europe and the U.S. Now, Sanofi has already been very present in markets outside those areas. We get roughly one-third of our sales today from outside the U.S. and Europe. It’s more than anybody else has. If you take Sanofi-Aventis sales outside the U.S., Western Europe, and Japan, we have roughly 6 billion Euros in sales in 2008, that’s roughly $8.5 billion. We have roughly $1 billion in sales in Africa. You see a lot of European countries who are more present there. It’s largely because as European companies, we grew out of our natural markets much faster than American companies. Therefore, we were looking for more markets. Because of the multi-cultural heritage of Europe, there’s an ability to adapt to those markets in a better way.

So we were always there. But now everybody is interested in those markets because of the different changing patterns in economic growth. So you are seeing emerging middle classes in a number of markets. We know the investment in healthcare correlates with GDP growth. It may start from a much lower level. We’re talking about some countries that spend less than $500 per person per year on total healthcare costs. But, there’s significant growth there. There’s an estimate that 50 percent of the pharmaceutical industry growth will come over the next five years from outside the U.S. and Europe. So suddenly people are getting much more interested in all these countries. And we’re really looking at the healthcare issues there. When you start doing that, you start looking at TB among others. That’s why we’re present with malaria, TB, Dengue, and others.

X: Do you think the revenue of these potential products can really justify the investment in R&D?

CV: Yeah, it can. What we do are a couple things to make this work as a business model. First, on R&D, this is why partnerships with groups like Aeras and the Gates Foundation are important. And this has changed over the last 10 years. Largely, it’s because HIV changed a lot of things. It created the public-private partnerships. It created some of the pools of money like the Global Fund to Fight AIDS, Tuberculosis and Malaria, like PEPFAR [President's Emergency Plan for AIDS Relief], like UNITAID. So there’s new money in the system to help defray some of the risk investment in R&D. Then you have to be able to produce these products at a price that has some relevance to that patient in local markets.

We sell today, roughly 50 percent of our volume outside the U.S. and Europe. We manufacture about 40 percent of our total volumes in those same countries. So we manufacture most everything in those countries. Malaria, the fixed dose combination, by manufacturing in a plant in Morocco, we’re able to get the cost down to a point where we can sell it on a nonprofit basis for $1 for 3-day course of treatment, for adults, and 50 cents for children. But what we do is, those who can’t afford it, we sell on a no-loss, no-profit basis. We also sell the product under a second name, which is sold to people who have more money to pay for it. So tiered pricing is more than just, well, this country is a GAVI-country and we give it that price, and another country is a middle-income country, so they get it at another price. We actually are able to segment within markets, and within disease areas, to see when there’s an ability to pay. Those who can’t pay, it’s essentially on a not-for-profit basis. But there are those who can pay. So we come back to looking at Africa. We have $1 billion in sales there, and it is profitable. And growing. It grew at 13 percent rate last year.

X: Is this part of Sanofi’s strategy to get around the patent expirations you face? The business is heading off a cliff, right, in the U.S. and Europe, for a lot of pharma companies?

CV: Absolutely, it’s going to do that. If you look at those markets today, patents don’t play much of a role anyway. We bought companies in Latin America this year. We have leading market positions in Latin America that are so-called generic companies. But as my general manager in Brazil would say, yes, but 95 percent of what we sell at Sanofi-Aventis isn’t patent-protected anyway. We have found a business model … Next Page »

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