One of the world’s largest drug companies just fired its boss over a bad quarter, a worse relationship with the board, and the company's own wrong-headed resistance to change. It looks like a huge mistake.
Christopher Viehbacher was brought in to run
Sanofi-Synthelabo became a big player in the late 90s thanks to Plavix, the blood thinner, and Ambien, the sleeping pill. It bought Aventis, itself a conglomeration of French and German drugmakers, in 2004, giving it what turned out to be one of the big surprise hits of the decade: Lantus, a long-acting insulin that is now Sanofi’s best-seller with $8 billion in annual sales.
But when Viehbacher arrived, the company was stodgy, and seemed completely lost when it came to research and development. It had no real presence in creating gene-targeted cancer drugs, an exploding area, despite the fact that it was Aventis that had launched Taxotere and Eloxatin, two of the biggest chemotherapy drugs.
Viehbacher immediately set about putting a floor in stock by reaching out to investors, eventually giving the longest-term guidance of any drug company. He decided to bring in new R&D muscle, hiring Elias Zerhouni, the former head of the U.S. National Institutes of Health, to run the R&D division and Andrew Plump, a rising star from Merck, to run basic research.
He widened an existing collaboration with Regeneron, the Tarrytown, NY-based biotechnology company, right as the company’s research pipeline was expanding. That collaboration accounts for two of the biggest potential hits Sanofi has in late-stage testing: for high cholesterol, and for rheumatoid arthritis. A vaccine for dengue fever emerged from the company’s own labs and has potential to become a big seller.
In 2011, he purchased Cambridge biotech company
Viehbacher, a slim fast-talker, has more swagger than any other big pharma CEO, and sometimes he overstepped. Early on, he spent hundreds of millions of dollars to buy a company called BiPar Sciences that had a promising drug for ovarian cancer. The drug failed, and turned out not even to hit the molecular target BiPar said it did. Viehbacher said that the deal helped move Sanofi back into the oncology space anyway, acting like a flag planted in the ground that helped him recruit better researchers. Lately, he has had trouble coaxing promises earnings per share growth out of his company. He overpriced one of Regeneron’s drugs, for colon cancer, and had to cut the price after a public uproar. While it’s outperformed Glaxo, Sanofi has lagged the ARCA Pharmaceutical Index over his tenure. And this quarter, Sanofi said that Lantus won’t grow as expected next year due to price pressures in the U.S.
But Sanofi’s board doesn’t seem to be holding him to account for any of that. They seem mad that he made too many moves without them (see that swagger thing) and that the job cuts he’s executed – a reality at every single big pharma firm—were extending (gasp!) to France. Also, he recently moved from Paris to Boston. And that has resulted in an ouster that is so sudden it risks scaring investors and partners like the all-important executives at Regeneron. Sanofi shares on the New York Stock Exchange are down another 5% in pre-market after falling 9% yesterday.
It may be that the rift between Viehbacher and his board was too wide to be repaired -- see that move to Boston. But instead of firing him abruptly the board should have negotiated a plan where he got to try to put some codas on his tenure. Promises that the strategy – which sprung from Viehbacher, not the board – is going to continue will ring hollow until Sanofi finds a replacement. In the dealings I’ve had with Sanofi, being told that a decision needed to be filtered back through Paris meant it was going to get bogged down in bureaucracy, whereas Viehbacher himself was able to move quickly and decisively. Losing that will make the stock, in the words of Leerink analyst Seamus Fernandez, “dead money.”
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