A Drug-Development Powerhouse

Simple. Before Sanofi acquired French rival Aventis last August, Sanofi didn't have a strong sales presence in the United States. It decided to outsource the marketing of its top-selling drug, Plavix, a blood thinner that prevents strokes, to the U.S. juggernaut Bristol-Myers Squibb (BMY). With Bristol's help, Plavix posted U.S. sales of more than $3 billion last year, while the name Sanofi stayed off the radar — over here, anyway.

But that's beginning to change. The Aventis acquisition gave Sanofi an experienced sales force. Now a double-barreled company with a $112.95 billion market cap, Sanofi-Aventis is beginning to buy American magazine and television advertisements with Pfizer (PFE)-level frequency.

And Sanofi's product pipeline shouldn't disappoint the marketing folks. The company boasts 128 products in development, including 48 properties in phase II or III clinical trials — at least 10 of which should yield new data in the second half of this year. It's easy to see why, in June, Esquire called Sanofi's R&D program "the best pharmaceutical pipeline in the industry." Of course, that might be a bit like the Journal of the American Medical Association calling Bono the seminal rock artist of our time, but either way, who's going to argue?

Where the skeptics can make their case against Sanofi is in its legal battles to preserve patents. Its Plavix patent has been challenged by generic manufacturers in the U.S. and Canadian markets, who say the compound is similar to another compound created by Sanofi whose patent has already expired. In March, Sanofi prevailed in its Canadian case. But if it were to lose the upcoming analogous case in the U.S., its revenues would be untouched, since Plavix is marketed by Bristol-Meyers. But Sanofi's earnings per share, now projected at about $2.85 for 2005, would likely decline by about 12%, say analysts. Even with the company's dividend yield of 2.01%, those numbers are daunting.

On Wednesday, meanwhile, Sanofi's shares were hit hard by another legal skirmish — this one over the patent for Lovenox, an anti-clotting agent and the company's fourth-best selling drug in the U.S. The loss of the Lovenox patent exclusivity in a U.S. District Court decision in California could open the door for the privately held California-based Amphastar Pharmaceuticals to market a generic version of the drug. The news sent Sanofi-Aventis stock plunging to $41.17 on Wednesday, a 4.9% drop.

But a promising new diet drug called Acomplia could make up for any earnings losses and then some. The drug has been shown to lower six of the nine cardiovascular risk factors. Most noticeably, Acomplia helps patients lose weight. But Sanofi says it also helps control their food intake; helps them quit smoking; increases their HDL, or "good cholesterol," levels; reduces their triglycerides; and is effective in treating diabetes — a disease with a patient population that more than doubled from 1980 to 2003, to roughly 18 million.

Results from the drug's final clinical trials were released at the annual meeting of the American Diabetes Association in San Diego on Sunday. Sanofi has applied for approval to sell the drug in the U.S. and international markets, and analysts expect a launch in the first half of 2006.

How does this wonder drug work? Acomplia attacks weight loss and diabetes differently from most diet drugs. By acting on the brain to control hunger, patients effectively eat less. And since the same area of the brain that controls hunger also controls other addictive behaviors, some patients who take the drug are more easily able to quit smoking cigarettes. "[Acomplia] represents what Sanofi is hoping to do — to treat old diseases with new drugs with new mechanisms, new ways of working," says Gbola Amusa, an analyst at Bernstein & Co. "Obesity has been around for a long time, and nothing really works. It's time to try something new."

The projected annual sales numbers for Acomplia represent an enticing opportunity for investors. Two weeks ago, Sanofi-Aventis Chairman and Chief Executive Jean-Francois Dehecq told Reuters, "For such a product, in my expectations three [billion dollars] is not too much." Amusa estimates that by 2010, Acomplia will generate 4.2 billion euros per year in revenue ($5.2 billion). "A lot of people who are focused on Plavix, I would argue, should be more focused on Acomplia," he says, "because it will be more important to the company."

More important, indeed. With an additional $5.2 billion in annual revenue, could you blame anyone in management for ordering dessert?