May 9, 2011 / 5:24 PM / 6 years ago

Sanofi bets on emerging markets

<p>Chris Viehbacher, CEO of Sanofi, attends a news conference to present Sanofi-Aventis' 2010 annual results in Paris February 9, 2011.Charles Platiau</p>

NEW YORK (Reuters) - French drugmaker Sanofi (SASY.PA) expects sales from emerging markets to represent an increasingly important part of its business over the next five years, partly offsetting sales lost to generic competition in the United States and Europe.

Sanofi currently derives roughly a third of its sales from emerging markets, which is significantly higher than its peers, and the company now sells more in emerging markets than in the United States or Europe.

Speaking at the Reuters Health Summit on Monday, Sanofi Chief Executive Officer Chris Viehbacher said he believes the company has a competitive advantage in the 80 or so emerging-market countries, in part because the company has had a presence in many of those markets for more than 50 years.

"Sanofi has a range of tail products and production networks that six or seven years ago would have been seen as non-strategic by most pharma companies but they have now turned out to be hot properties because if you can produce locally you can achieve the same level of margins on an operating level as we do in Europe for example."

On average, the company is achieving operating margins of 39 to 40 percent, Viehbacher said.

"I was astounded to find that in emerging markets our margins are sometimes higher than in Germany or France."

Many European governments are cutting the price they will pay for drugs, and the cost of the volume production can be higher than in emerging markets.

"I think emerging markets are on a growth track," Viehbacher said. "It's not going to be all smooth, but over the next five to 10 years they will become a bigger growth driver."

The company's administrative network also gives it an advantage, Viehbacher said.

"It is important from the point of view of depth of management, distribution, government affairs."

Over the past two years the company added 10,000 people to its emerging markets business, bringing the total to 40,000, and it now has a sales force of 19,000. That will probably increase, he said.

"This industry gets most of its sales from the U.S., Europe and Japan, with a combined population of about 1 billion," he said. "You sit in Shanghai and see 1 billion in China, another billion in India and another billion in other parts of Asia. The numbers are mind-boggling."

Populations in China are increasingly moving from rural areas to the cities, and seeking more healthcare with urban jobs.

"The whole lifestyle changes in cities, and that means an increase in diabetes, and cardiovascular disease is on the rise," he said.

Sanofi sees emerging markets as one of its key "growth platforms" in future years. Others include vaccines, diabetes and rare diseases. Viebacher said he believes these growth platforms could account for more than 70 percent of the company's sales by 2013.

Viehbacher said the company will make acquisitions in emerging markets, but that good assets are not easy to find.

"The price of assets is clearly going up," he said. "We've been able to find some assets but you really have to hunt."

The company's broader acquisition strategy will revert to the type of small deals it was conducting prior to its $20 billion acquisition of biotechnology company Genzyme Corp.

In the meantime Viehbacher is focusing on integrating Genzyme, which makes drugs for rare diseases. He said he has paid retention bonuses to some key Genzyme managers but over the long term the key to keeping Genzyme employees is to maintain Genzyme's culture.

"People at Genzyme have an extraordinarily strong culture," he said. "People feel they have a noble mission, and the key to keeping people is to be seen to be investing in the mission of the business."

Reporting by Toni Clarke, editing by Matthew Lewis

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