In with the New

When Chris Viehbacher arrived to take up the reins as CEO of sanofi-aventis, he found a company with an image problem that had forgotten how to communicate. Now he plans to change all that, as Marie Shields finds out.

“There will still be blockbusters, you just can’t count on them in terms of timing”
-Chris Viehbacher

You could say Chris Viehbacher has been around. He started his working life at PriceWaterhouseCoopers, then in 1988 he moved into the pharmaceutical industry with GlaxoWellcome, which later became GSK. He holds both Canadian and German passports, and has lived and worked in the US and Canada, as well as Germany, France and the UK.

But it’s his latest move that is big news. Last December he left his position as President of GSK’s Pharmaceutical Operations North America – after being passed over for the top job in favor of Andrew Witty – to become CEO of its French rival, sanofi-aventis. The move caused shock waves throughout the industry – the previous CEO, Gerard le Fur, had been in the position for only 18 months.

When Viehbacher’s appointment was announced, there was a widespread view that he was being brought in as a kind of savior, to turn around a troubled company. Immediately after the announcement, sanofi’s shares rose as 6.8 percent, their biggest gain in more than two years. There were a number of reasons for this, in addition to Viehbacher’s strong personal charisma.

The company’s share prices dropped in 2008, following the rejection in the US of Acomplia, a treatment for obesity, which had once been seen as sanofi’s most-promising drug. Last July, sanofi and partner Oxford BioMedica said their TroVax medicine had failed to meet the target of a kidney cancer study, and development of Multaq, a heart drug, was delayed after US regulators rejected it. Investors became understandably disgruntled and the company obviously felt that a change was called for.

Building up
While he admits that sanofi-aventis has recently suffered from a bit of an image problem, Viehbacher insists he has a strong foundation to build on. “I had two months between leaving GSK and starting at sanofi, and as part of the analysis I carried out during that period I found a number of strengths coming into the company I would not have known about. When we presented our fourth quarter results, where we talked a bit about the strategy, even people in France who’ve known the company for a long, long time discovered new things.

“The first was that we have a leadership position globally. We’re often perceived as being a company which is very franco francais, very French, but actually this is the company that’s got the number one position outside the US and Europe. It was one of the first companies into China, it has a major position in India, big positions in Latin America, and a major position in Africa.

“When you think that in the future more than 50 percent of a global pharmaceutical market growth is going to come from outside of traditional markets, sanofi is positioned with not just the market share, but also with the people, resources, local market knowledge, government contacts to benefit from this period of growth.

“We’re also a lot more diversified than people realize. We’ve obviously got a leadership position in vaccines, and a position in OTC that I don’t think anybody realized we had, either inside or outside the company. It provides a basis on which one can build. We have fledgling operations in generics, which we have since reinforced, and we have quite a significant older product range that continues to grow, and which really supports the business globally.”

Let’s talk
What then, was the problem? Viehbacher feels that one of sanofi’s mistakes in the past has been a lack of effort to communicate with investors and the general public. “Sanofi is a company that experienced significant success for many years, and didn’t pay attention to the need to communicate. It’s when you run into difficulty that you suddenly realize that you’ve got to explain where your strategy is and where the strengths of the company are,” he says.

“Management didn’t focus enough attention on it, and we never expressed a vision about where we wanted to go. We had the building blocks lying on the ground, but there was no plan to make the house and no real explanation of what house we were going to build. There’s been some work needed on architecture and construction. But at least the fundamentals were there; it’s just a question of now building upon those and turning them into something.”

There also needs to be more emphasis on external growth, Viehbacher explains. He says he wants to see the company open up more to the outside world. “We were a company that was more focused internally; a company that lived within its own walls. We didn’t embrace enough of a customer perspective, we didn’t embrace enough of a partnership perspective on looking for new products. We were looking principally inside in our own research for new product opportunities, and we weren’t spending a lot of time communicating with the outside world.

“One aspect of my plan is to bring the outside world into the company and open it up to what’s out there. We have just carried out a pipeline review within our research and development organization, and we examined it not just from the traditional point of view of safety and efficacy, but we also looked at the value to customers. Cutting 14 out of our 65 projects was a clear strong signal that we’re only going to progress those medicines that are not only safe and efficacious, but also add value to patients. So there is a need to change the culture.”

Viehbacher has also been looking at R&D structure. He says it’s important to keep in mind that there is a lot of fantastic science going on outside the company. “The model – if there is such a thing – is to say you’re going to be doing some research inside, but you’re also going to be doing a lot of research through collaboration. To a degree, outside research is still seen as adding to internal efforts, and to that I say, ‘There are plenty of companies outside and they’re doing plenty of things. Why replicate that?’”

Companies still need to do enough of their own research to be able to understand the research being carried out externally, and big pharma companies will always have some depth of expertise that smaller outside companies don’t. Viehbacher stresses, however, that for him, the discovery research model is very much one of osmosis, and not so much about creating smaller units and organizing the structure. He believes in moving money and resources across a range of projects and teams, some of which may be internal and some of which may be external.

Time to collaborate
It’s for this reason that Viehbacher is willing to allocate up to 50 percent of his research resources to outside collaborations. He gives the following example: “When we put forward a proposal to build a biotechnology factory in France, I said, ‘I’d like to make sure that this factory is also available to other biotech companies who might want to use the facility.’ That’s in an interest for us because we might be able to partner with some of those companies.

“Right now a lot of those companies are forced to subcontract the manufacturing to people who specialize in manufacturing, but who aren’t necessarily interested in partnering. They’re just doing it to make as much profit as they can. Traditionally business development has centered on the idea of adding something to the company, where we don’t think the pipeline is enough. But when we think our own internal pipeline is enough, then it becomes harder to bring in new products to the company.

“After 20 years, I can say with certainty that you can never have enough pipeline. There isn’t a company in this industry that has enough pipeline, and enhancing that and working collaboratively outside has got to be a way of life – and a constant way of life, not just something you do on an ad hoc basis to supplement your own. The model we must move away from is this notion of ‘We’re going to just keep throwing money at a black box’ – which is the way I often perceived research and development in my past years – and hope that we can do everything from A to Z, from discovery through to commercialization.”
 
With external collaboration, there’s obviously a process of competition that doesn’t occur with internal projects. It’s through this competitive process that some of the best ideas come out, and weaker projects often get weaned out. Companies don’t always put the same level of due diligence and rigor behind the choice of internal projects, because they’re committed to sites and committed to teams.

“This might mean we need to bring a lot more rigor to which are the best ideas to invest in,” Viehbacher says. “Then we need to get behind them, make sure the teams have passion and conviction, and give them the latitude to decide. The construct of a team may differ from one therapeutic area to another, but at the end of the day are betting on teams and their ideas. It’s a question of how do you identify those, encourage them and put some stress on the testing of those ideas?

“You have to let them run and try to keep as little process and bureaucracy as you can from impeding those efforts. Then after three or four years, you see what results they have come up with. That’s also something that in our industry we haven’t been good enough at – looking for the results early on. As an industry, we do development pretty well; it’s the discovery research piece that we’ve got to go back and look at from a people point of view.

“You’ve got to be able to voice a problem before you can solve it. To a degree, we’ve been dancing around a number of issues in this industry and haven’t wanted to face up to them. We do need to acknowledge, for example, that we don’t have enough new products to replace the ones we’re going to lose. And we probably have not been realizing an appropriate return on the money we have been spending on research and development, and we probably do need to spend a lot more on research and development in terms of how we restore the creativity and productivity there.

“Nobody has really gone far enough, in my view, of saying, ‘We’ve going to address this.’ We’ve been taking baby steps, when we need to be a little bit more radical.”

Diagnosis merger
The industry has recently seen a spate of mega mergers – Pfizer/Wyeth, Roche/Genentech, Merck/Schering-Plough. What does Viehbacher think of this trend, and is it one he’s considering buying into himself?

“One way or another, we all have to think about where we’re going to get sustainable growth from, and everybody starts off with a different set of cards.” he explains. “You have some companies that have become almost purely small molecule-based in Europe and the US, and when you’re facing a patent cliff and you don’t have an awful lot of other things in your hand, you pretty much have to do something to continue to survive. Pfizer has said, ‘We need to be more diversified. We need more biologicals and vaccines, for example, and OTCs,’ which they didn’t have, and so it was a way of getting that.

“Merck’s Peter Kim recently said in an interview that they want more pipeline. Everybody starts with a different position. For us, we’ve got a lot of elements upon which we can grow. I don’t necessarily need to do a big deal to seek that out; and in fact if you are trying to get away from dependence on blockbusters you want to focus on those businesses that have different competitive profiles and different barriers to entry. And they’re not necessarily going to be easy businesses either, but they’re going to have a different longevity and a different perspective in terms of growth.

“My first objective is to continue to build on this notion of a global health-care company as opposed to a pharmaceutical company based in the US and Europe, and therefore have an acquisition strategy that builds upon those things where we already have a strong presence. Like vaccines, like emerging markets, like OTCs and generics, where we’ve been weak but where we can strengthen ourselves. I don’t think the size of the acquisition necessarily matters. It’s a question of we all are looking to strengthen our companies as we face patent expiries, and some of us, like sanofi, have things upon which we can build internally; some of us have to seek more externally.”

Viehbacher says that the big question, whether you’re buying big, medium or small, is still going to be around innovation. He believes most companies are struggling with the question of how do we come up with an innovation model that is sustainable? He doesn’t think anyone has found the solution, but he stresses that innovation is something that needs to worked hard at, and that you can’t let merger and acquisition activity completely dominate that.

Diversify and multiply
Since becoming CEO, one of Viehbacher’s constant refrains has been that he aims to turn sanofi-aventis into a diversified health-care company with a more global reach. What exactly does this mean?

“If you think about strategy you essentially start off with a certain number of things,” he says. The first is: where is there an attractive market, and you come down to that by looking at what are some of the mega trends amongst consumers? What are some of the disease areas of unmet need? What’s the evolution in the marketplace in terms of payers and insurance companies and regulations? And you try to then marry that with where you’ve got some sort of capability, presence or experience, and try to focus in on those market areas that are the most attractive.

“On the pharma side, we’ve gone too long where we start with a medicine and go look for a customer. If you look at the fundamentals of the health-care market, it’s huge. There is going to be economic growth at some point; we do have the economic crisis, but even in the economic crisis you’re still seeing quite a number of markets growing, although not as much; for example, in countries like China who suddenly decided that they need to significantly increase the level of investment they have behind health care.

“If you look at the aging population as a mega trend, if you’re looking at obesity, you’re looking at a trend for wellbeing, you’re looking at time compression, you’re looking at urbanization of populations. You’re suddenly seeing that there is going to be a focus on health care, but on a certain type of health care, and that our style of living is creating new health-care issues. To me, health care – especially if you don’t define it too narrowly – is fundamentally a strong area. And you’ve also got major diseases that still are not well treated – such as diabetes, oncology, Alzheimer’s disease.

“Therapeutically you’ve got some very interesting areas, but then of course not everybody can afford the same level of health care. We’re seeing an increased presence of government regulation trying to go after some of the private sector in terms of over-the-counter, or in countries where there’s no real social security or health insurance today – which is true of most countries in Asia – and you have to ask, can you get into more services, OTCs, generics, some devices? There are all kinds of growth opportunities out there, and the strategy is around going after those versus just saying well, we’re a pharmaceutical company.”

Another constant lament within the industry is the lack of new blockbusters. Viehbacher points out that blockbusters are unlikely to disappear completely. “The model that didn’t work was betting on the blockbusters; relying upon them for your success. There will still be blockbusters, you just can’t count on them in terms of timing. You’ve got to also then organize yourself, because there’s no question that there’s no better business in terms of profitability, with low levels of resources needed, than when you’ve got a blockbuster. If you’ve got one you’re in a great place, but you can’t always count on those.”

Increasing productivity
Another area that Viehbacher feels the industry should be looking at is the strength of its R&D. With this in mind, sanofi recently carried out a portfolio review. “Our intention was to do what a lot of other companies had already recognized, and that is that you can’t develop a new medicine unless it adds value to patients,” he explains. “In so doing we’ve established new processes where the market is represented at the decision table as to when we advance a product – nothing revolutionary there. The next step is to ask five questions of R&D. The first two we’ve already answered: do our products add value, and who needs to be at the table when we make decisions?

“The third, fourth and fifth questions are: how do we restore creativity and productivity back into our organizations? How do we make sure our organization is as interested in seeking science outside the company as inside? And, what are the new technologies and areas for investment that we want to be in? Science is moving on – where do we want to place our bets?

“I’m not going to define all those; we do know we have some issues. I’m meeting with some of our scientists right at the bottom of the company. We have anywhere from nine to ten hierarchical levels between the head of R&D and the scientist. That means a lot of our best people have become managers, and you get a promotion in the company by becoming a manager, not by being a great scientist. We’re not doing enough to recognize innovation. We’ve got some great people, but it’s very hard sometimes to get a project advanced if you really believe in something, because you’ve got to go through so many steps.

“We’re trying to go back and have a very basic look from a human point of view at who are the people who can succeed, how do we test whether they’re going to succeed, and how do we give them a chance in our organization and give them enough latitude? We’ve become quite risk-averse as companies, and you’ll very often hear that we’re trying to manage the risk of the companies. And to a degree that makes sense – certainly when you get to development you want to manage risk.

“One of the reasons we’re having difficulty in discovery is that we’re still pursuing a lot of the same targets, and at some point you have to branch out and go after some non-validated targets, some new frontiers of science. We haven’t allowed enough of a risk profile at that level of the organization to branch out into new areas. If you look at the targets in oncology, in metabolic disease, and in CNS, and you compare how many companies are going after the same target, it’s incredible.”

Recession-proof?
It is unlikely that any industry will emerge completely unscathed from the current recession, and recent rounds of job cuts among pharmaceutical companies are an indication that they too are feeling its effects. The Pfizer/Wyeth merger resulted in the loss of nearly 20,000 jobs. GSK eliminated 800 research positions late last year, and recently announced it could shed up to 6000 more jobs across its global operations. AstraZeneca also said in February that it would cut its workforce by about 6000 positions. Sanofi-aventis, while it hasn’t yet made major reductions to its R&D staff, has cut nearly 1000 sales jobs in France, and several hundred more in the US.

When asked about the possibility of further job reductions as part of cost-cutting measures under his leadership, Viehbacher refuses to be drawn. “We will certainly go through a process of looking at how we can reallocate and reorient our resources, and that may end up in fewer resources. But nobody’s going to invest in this company because we cut costs. One of the lessons I’ve learned in the last 20 years is if you want to provide shareholder return you have to present a company that’s got a sustainable growth prospect. If you just go through endless rounds of cost cutting you end up with an organization that becomes very distracted and very demotivated.

“We’re becoming more of a global company. We’re going to focus a lot more of our growth into emerging markets and places like vaccines and OTC. Those all have ripple effects within a company; if you’re suddenly in generics, the manufacturing organization has got to be able to support a hundred launches a year versus fifteen; a launch being the launch of an SKU, not a new molecule. And so you’re going to have to have a different organizational model – you don’t necessarily want to smother your generics businesses.

“You want to provide some different perspective. You’re going to be doing a lot more outside collaboration. What is the type of person, what is the type of competency you need for that? I think we’ll probably end up saving some cost, and this company has done that very effectively over the years.

“We’ve got the lowest SG&A ratio in the pharmaceutical industry. Sanofi has never stood up and beat its chest and said, ‘We’re going to eliminate all these jobs.’ It has just quietly and effectively managed its costs, and we did that again first quarter. To me cost management is just part of good management. We’ll continue to do that, and there are certainly opportunities to take some costs out of the business.

“An endless round of cost cutting is not necessarily helpful, and it doesn’t create value longer-term. It has to be to get the company growing on its feet again.”

Optimistic outlook
Despite the challenges his company and the entire industry are facing, Viehbacher is optimistic about the future. In his opinion, there is too much focus on the patent cliff, when the future is in health care. “In our company we’ve got a lot of talented people and we’ve got a lot of financial resources. There are a lot of patients out there, and we’ve got the medicines and vaccines to help them.

“We’re going to be a company that grows well on into the next decade. We need to get past the blockbuster phase, but the base business that we have and our ability to partner and do acquisitions gives me an awful lot of excitement for the future.

“Health care is still something that matters more than anything else – there is huge unmet need out there. It’s a massive marketplace, and if we’re a little bit creative and a little bit flexible in how we go after it there are big opportunities.”

Despite the initial controversy surrounding his appointment, Viehbacher seems to be settling nicely into his new role. As he looks forward to the rest of his family joining him in Paris this summer, perhaps this ‘man on the move’ will decide to stay put for a while.

“One of the reasons the industry is having difficulty in discovery is that we're still pursuing the same targets. At some point you have to branch out and go after some new frontiers”
-Chris Viehbacher