Restless Sanofi investors want to see it get its M&A act together

Sanofi CEO
Sanofi CEO Olivier Brandicourt says the drugmaker will not overpay to land a big deal.

Sanofi’s Olivier Brandicourt has said acquisitions will help the French drugmaker grow as its diabetes franchise takes a beating in the U.S., but the CEO has been unable to pull off a major deal. Now some investors are getting restless.

Sanofi was first outbid by Pfizer for cancer biotech Medivation and then Actelion snubbed the French drugmaker as soon as Johnson & Johnson returned with renewed interest in a deal. Brandicourt, at the economic forum in Davos, Switzerland, defended his record to Reuters, saying that Sanofi is not going to overpay to do a deal.

Brandicourt said the investors he has spoken with appreciate the company’s fiscal discipline. “When I see investors they seem to be very happy for us not to have spent $14 billion on Medivation," he said.

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The executive apparently hasn’t spoken with Frederic Rozier, a Sanofi investor and fund manager with Meeschaert who expressed frustration during a conversation with the news service about Sanofi’s inability to pull off a significant buy.

"A lot of fund managers and historic shareholders are fed up with Sanofi and tired of seeing the stock in this 'vegetative' state," Rozier told Reuters. "Cost cutting is not enough, we want to see growth in sales, that's where we need to see progress."

For years, Sanofi relied on big sales from its market leading Lantus diabetes med. But Sanofi’s diabetes business has been under pressure from competition and payers for several years. In the company's Q3 report, Brandicourt told investors he expects sales in that category to fall 4% to 8% on average from 2015 to 2018. With its diabetes drug revenue shrinking, Sanofi is seen in need of a growth driver until new drugs and its pipeline can produce some big winners. But the company has had some serious issues in those areas as well.

A U.S. federal court judge this month ordered Sanofi to quit selling its Praluent PCSK9 cholesterol drug after competitor Amgen won a patent fight against it. Sanofi and partner Regeneron have appealed but the legal limbo has put the future of the drug, and its potential blockbuster sales, in jeopardy. Another potential blockbuster from the two, a IL-6 inhibitor that is expected to compete with AbbVie’s Humira, has been delayed by a complete response letter tied to manufacturing issues.

Investors will get a better idea of how things stand when the drugmaker reports earnings Feb. 8, but some are expecting to hear more about cost control than growth. While investors would like to hear that Sanofi has another big M&A target in sight, at least one thinks that if it can’t or is unwilling to pay what that kind of deal requires, a series of small buys might be a better growth strategy.

"At the moment, the company is being overtaken by other groups that are offering more money," Rudi Van den Eynde, with asset management firm Candriam, told Reuters. "One can applaud that Sanofi is financially disciplined but it is a pity that it misses its targets ... it doesn't help in terms of credibility. Alternatively, Sanofi could purchase smaller companies, along the lines of the strategy pursued by Japan's Takeda. It would be more realistic."

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