In a pre-dawn rush, Sanofi (NASDAQ:SNY) CEO Chris Viehbacher has been cut loose just days after rumors surfaced that Sanofi's board was actively considering the move. The board's decision to hatchet Viehbacher comes six years into Viehbacher's tenure, and into the thick of one of Sanofi's biggest obstacles: overcoming patent expiration on its mega blockbuster diabetes drug Lantus.
The decision to remove Viehbacher is surprising given Viehbacher downplayed rumors of his ouster during Sanofi's recent third-quarter earnings conference call. Because Sanofi's share price is tumbling amid uncertainty over the company's future leadership, let's take a closer look.
Under the hood
Viehbacher had his work cut out for him when he joined Sanofi from GlaxoSmithKline (NYSE:GSK) in 2008. Sanofi was an insular French company that many considered too focused on local markets, and not focused enough on global opportunity. By hiring Viehbacher, Sanofi's board hoped to change that perception, and elevate itself into a major player abroad, including in the United States, which is the largest market for pharmaceuticals in terms of sales.
Viehbacher came to Sanofi after running GlaxoSmithKline's U.S. pharmaceuticals business, a role that positioned him perfectly to elevate Sanofi's status in America and among Wall Street elite. During his tenure, Viehbacher orchestrated billion-dollar blockbuster deals designed to diversify Sanofi's revenue. In 2009, he acquired consumer goods company Chattem, the maker of Rolaids and Gold Bond, for $1.9 billion. But Viehbacher made a much bigger splash when he bought the rare disease biotechnology powerhouse Genzyme for more than $20 billion in 2011.
Those moves significantly increased Sanofi's product lineup and led to Sanofi's sales surging from around $40 billion when Viehbacher came on board to a peak of more than $47 billion in 2012.
However, sales have been sliding during the past couple years as Sanofi's legacy products have increasingly had to face off with generic counterparts, and the board appears to have finally lost confidence in Viehbacher's ability to engineer a return to growth. In 2013, Sanofi's sales sagged 5.7%, and its EPS tumbled 17.8% from 2012. Even when removing the effects of currency translation, revenue still dipped 0.5%, and EPS fell 9.8%; but a corner appeared to have been turned this year.
In the third quarter, Sanofi's ex-currency sales and EPS grew 5.1% and 10.3% year over year, respectively. That growth was led by a 25% jump in revenue at Genzyme, and a 13% lift in consumer goods sales; however, this proved insufficient to quell the board's rising skepticism. Instead, the board apparently focused more on decelerating diabetes sales growth, which slid to 8.3% growth in the quarter, and dragged down year-over-year growth through the first nine months, to 12.5%. That deceleration in sales growth is particularly concerning to Sanofi because the $2 billion in quarterly sales of Lantus account for 17.8% of Sanofi's total revenue.
Sanofi will be run for now by Serge Weinberg, a former venture capitalist, who previously served as chairman of Sanofi's board. Weinberg will oversee Sanofi just as two important new drugs make their way through regulators. The first is Genzyme's Lemtrada, a multiple sclerosis treatment that some think could have high nine-figure sales potential. The second, and arguably more important, is the FDA decision early next year for Sanofi's Lantus successor, Toujeo.
Lantus, a once-daily, long-acting insulin, is the globe's top-selling diabetes treatment, but it loses patent protection next year. That's got Wall Street worrying that a significant portion of Sanofi's sales could disappear by the end of 2016. To blunt that risk, Sanofi developed Toujeo as a Lantus alternative. In clinical trials, Toujeo did a better job than Lantus at controlling nighttime blood sugar levels
Sanofi is also likely to file for U.S. approval of its PCSK9 bad cholesterol busting drug alirocumab by the end of this year. That drug, which was developed by its partner Regeneron (NASDAQ:REGN) could have blockbuster sales potential given how widely used statins have become.
Weinberg will also be tasked with executing the launch of MannKind's (NASDAQ:56400P706) Afrezza, an inhaled insulin that had a circuitous path through regulators before winning FDA approval earlier this year. Sanofi agreed to partner with MannKind on Afrezza in August.
Sanofi has a number of intriguing opportunities, but its future will remain cloudy until Veihbacher's permanent successor is announced. If Sanofi selects a capital market friendly pharma executive cut in Veihbacher's cloth, than equity markets will likely applaud. However, the selection of an old world internal candidate that could dent Veihbacher's globalization efforts would likely be seen as negative. Regardless, the plate is full for whoever ends up in the corner office.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.