The Sanofi-Synthélabo Group

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The Sanofi-Synthélabo Group

174, avenue de France
75013 Paris
France
Telephone: (33) 1-53-77-40-00
Fax: (33) 1-53-77-42-96
Web site: http://www.sanofi-synthelabo.com

Public Company
Incorporated: 1973 as the Sanofi Group
Employees: 29,200
Sales: $5.62 billion (2000)
Stock Exchanges: Euronext Paris
Ticker Symbol: SAN
NAIC: 325412 Pharmaceutical Preparation Manufacturing

The history of The Sanofi-Synthélabo Group began in 1973, when the French state-owned Elf Aquitaine oil company consolidated a number of cosmetic, healthcare, and animal nutrition firms into a corporate subsidiary, the Sanofi Group. This undertaking marked an ambitious program of diversification that created a state enterprise capable of competing in the healthcare industry on an international scale. In the past two decades Sanofi has grown from a moderate concern into a major player in the French pharmaceutical industry. After merging with Synthelabo in 1999 the company sold off its cosmetics business and began focusing exclusively on pharmaceuticals. Today the combined company is the fastest growing pharmaceutical firm in Europe.

Managing Diversity: 1973–82

Although Sanofi was created in 1973 in order to form an amalgamation of companies, it was only in 1979 that all of its pharmaceutical activities were regrouped under a single organization. This tactic represented an effort to strengthen research activities and overseas market penetration. Three companies, including Labaz, Parcor, and Galor, all previously affiliated with Sanofi, were now wholly absorbed, and for the first time Sanofi gained a separate stock market quotation through the issuing of public stock on the Paris exchange.

While currency exchange fluctuations caused Parcor to register a profit decline in 1979, that same year Sanofi reported an overall increase in company profits. The following year Sanofi increased its holdings by merging with the Clin-Midy division of CM Industries, a manufacturer of pharmaceuticals, veterinary, chemical, medical-surgical, and food products. This action significantly increased Sanofi’s research and development budget and expanded the company’s size by 50 percent. Sanofi now ranked among the leading pharmaceutical companies in France.

By mid-1980 Sanofi’s profits reached unprecedented heights. A 56 percent increase over the previous year’s figures was attributed to benefits gained from the reorganization. Although the sale of pharmaceuticals accounted for a majority of Sanofi’s activities, a significant increase was generated from the sale of cosmetics and veterinary products.

Between the years 1978 and 1982 Sanofi’s international sales improved by 275 percent. By gaining access to two of the world’s most important markets, the United States and Japan, Sanofi’s overseas activities generated nearly half of the company’s consolidated revenues. A joint subsidiary formed in 1981 with U.S.-based American Home Products was followed by a similar agreement established with the Japanese groups Meiji-Seika-Kaisha and Taisho. Through the operations of these joint ventures, $104 million was generated from the sale of just three drugs. In addition to expanding pharmaceutical operations, Sanofi was successful in tripling its foreign sales in the cosmetics division.

Sanofi’s research and development activities, supported by a 34 percent increase in expenditures during 1982, produced a number of potentially profit-making drugs. Among the products undergoing clinical testing were an antiarrhythmic, a third-generation cephalosporin, and a treatment for certain forms of cancer. In addition, research proceeded on a psychotropic drug and on an anticonvulsion drug. Sanofi’s pharmaceutical research took place at five laboratories in France as well as at facilities in Brussels and Milan.

One of the most important developments in Sanofi’s research activities was the 1983 inauguration of a biotechnology center in Labège, the largest of its kind in France. At the same time the company acquired a minority interest in Entremont, a dairy products firm engaged in researching biotechnological applications. In particular, Sanofi was interested in Entremont’s investigation into the production of milk compounds through biotechnology. These two developments marked an important step toward building Sanofi’s future position as the biotechnological center of all of Elf Aquitaine’s activities.

Expanding Sanofi’s Pharmaceutical Business: 1983–89

In addition to advances in the field of biotechnology, Sanofi continued its program of acquisition. In 1983 Choay, a pharmaceutical company specializing in the area of venous thrombosis, was acquired by Sanofi. Sanofi now gained access to a new line of important pharmaceuticals. The animal health division also increased its holdings through the acquisition of Institute Ronchèse, a manufacturer of vaccines and other veterinary medicines.

By 1984 Elf Aquitaine’s increasing biotechnological activities compelled the state-owned oil group to reorganize its company structure. Chairman Pecqueur transferred most of Elf Aquitaine’s activities in this area, from healthcare to agricultural products, to the control of Sanofi. While Atochem, Elf Aquitaine’s chemical subsidiary, maintained control of biotechnological activities in the area of industrial products, Sanofi solidified its role as the center of Elf Aquitaine’s innovative technologies.

As a first step in creating Sanofi Elf Bio Industries, Sanofi merged with Rousselot, a gelatine, protein, and glue producer in which Elf Aquitaine formerly held a majority interest. Through the action of this merger, Elf Aquitaine’s stake in Sanofi increased to 62 percent. To increase the financial standing of Elf Aquitaine’s biotechnological developments, Pecqueur announced plans to double the company budget in this area to $22 million.

By 1985 Sanofi posted an annual sales figure of FFr 15 billion. This marked a significant increase from the FFr 2 billion generated yearly during the 1970s. Yet Sautier, commenting on the weak European market and price controls for pharmaceuticals on the domestic market, initiated a program of internationalization with the hope of recouping investments on foreign markets. Two important targets of this overseas market penetration were the United States and Japan. Thus a sizable amount of cash savings was set aside for any acquisition suitable for this expansion. Additional foreign acquisitions included a Brazilian subsidiary of Revlon, as well as a 50 percent interest in a South Korean company.

Other significant events that occurred during 1985 included the introduction of the first low molecular weight heparin. This product, developed by the Choay subsidiary, marked a significant step in the prevention of thromboembolic diseases. In addition, Diagnostics Pasteur, a subsidiary in the area of medical equipment, released the Elavia test for detecting the antibody to LAV, a virus associated with AIDS.

Two successful U.S. acquisitions following Sautier’s plans for expansion included the Dairyland Food Laboratories, a Wisconsin dairy company, and Dahlgren, a large crop seed producer. Both companies managed a successful biotechnology program. The following year a 35 percent bid for Barberet & Blanc, an Antibes-based specialist in carnations and gerberas, further strengthened Sanofi’s operations in plant and genetic technologies. Barberet & Blanc, a small family operation located on the French Riviera, had developed expertise in “in vitro” plant-growing techniques as well as creating new carnation varieties resistant to deadly fungus.

Thus, through a series of acquisitions of small but high-technology concerns, Sanofi gained expertise in the area of biotechnological processes in food additives, dairy products, and large crop seed sectors. Some 25.8 percent of Sanofi’s 1985 sales resulted from products developed out of these technologies. In addition to benefits from this product orientation, Pecqueur’s plan to internationalize Sanofi’s operation resulted in 50 percent of the company’s sales being generated from foreign markets.

During the same time that successful biotechnological products emerged from Sanofi’s laboratories, the sale of pharmaceuticals continued to account for 46.8 percent of group sales. In the United States, the Food and Drug Administration approved the marketing of Cordarone, a major anti-arrhythmic drug. This drug was marketed through a joint venture between Sanofi and American Home Products.

As Sanofi continued to broaden its activities and generate profits through the sale of healthcare products, cosmetics, additives, seed sectors, and animal pharmaceuticals, the company implemented an employee profit-sharing program. In the late 1980s, a company savings plan and a share purchase option completed this program.

By the end of the decade, the future of Sanofi depended on the company’s continuing success in developing innovative products and penetrating foreign markets. The company maintained a strong position as a leading French pharmaceutical concern. As Sanofi’s diverse activities suggested, the company would continue to hold this position in the years to come.

Company Perspectives

The Sanofi-Synthélabo Group is a major player on the world’s pharmaceutical market, especially in four fields of expertise: cardiovascular/thrombosis, central nervous system, internal medicine and oncology.

Striving to improve health, the Group’s mission is shared by all employees. Our strengths include a widely-recognized Research and Development capacity which has always been part of our core strategy, linked to presence throughout the world and a culture of initiative.

The Next Big Step: Mergers and Acquisitions in the 1990s

At the beginning of the 1990s, Sanofi found itself at a crucial juncture in its short history. Recognizing that its core business would ultimately lie in pharmaceuticals, the company began plotting its first steps toward creating an international presence in the rapidly growing drug industry. To achieve this goal, the company would need to set its sights on acquisitions. The company took a big step in 1991, when it entered into a strategic partnership with American drug company Sterling Winthrop, itself a subsidiary of Kodak. Although not a traditional merger—no money was exchanged, and the joint enterprise was run by a team of executives from both companies—the alliance allowed Sanofi to gain an important foothold in the lucrative North American drug market.

At first many industry experts were skeptical that such a “non-merger” could work, since it was not clear who would ultimately be leading the venture. Nor could the product of such an alliance be considered a major consolidation. Prior to the agreement, Sanofi and Sterling placed 35th and 37th, respectively, among pharmaceutical companies. What was more significant, however, was the fact that the two companies combined ranked tenth overall in research and development spending, committing more than $500 million annually to developing new drugs. Furthermore, the companies shared similar research philosophies; both utilized a “mechanistic” experimental approach, which involved comprehensive screening of chemical compounds. At the same time, each company had experience in unique specialties, Sanofi with thrombosis, Sterling with cancer treatment. The complementary natures of the companies’ research interests, along with the similarity of their methods and their shared ambitions, helped push concerns about managerial logistics into the background.

After a year, the agreement was beginning to bear fruit. Operating under the name Sanofi Winthrop, the two companies had established joint ventures in 14 countries by January 1992, with operating units scattered throughout Europe and North and South America. By early 1992 the alliance ranked in the top 20 internationally among pharmaceuticals. In 1994 the venture turned into yet another golden opportunity, when Kodak decided to sell Sterling Winthrop to Sanofi outright for $1.68 billion.

Although Sanofi was now firmly committed to pharmaceuticals, the company had no intention of dumping its other core businesses just yet. Its cosmetic segment, bolstered by the purchase of Yves Saint Laurent in 1993, still boasted excellent sales. Sanofi CEO Jean-Francois Dehecq, however, clearly viewed these other divisions primarily in terms of financing the growth of the company’s pharmaceutical interests. At the same time, if the company wished to continue growing in this market, it would eventually need to sell some of its divisions in order to finance further acquisitions.

The year 1996 was another critical one for the emerging pharmaceutical company. With ten products in late-stage development simultaneously, Sanofi was poised to explode onto the international scene. It was clear, however, that its small size would soon prove a liability if it did not expand its sales and distribution networks, particularly in North America. To this end, Sanofi acquired the Bock Pharmacal Company in July

1996, doubling its U.S. sales and marketing force. This deal was hardly enough, however, to catapult Sanofi into the elite of pharmaceutical corporations. The industry was undergoing intense consolidation in the mid-1990s, with more than $100 billion in mergers and acquisitions occurring between 1994 and 1997. Dwarfed by such numbers, Sanofi was clearly a prime target for a takeover.

Sanofi took a major step toward holding off such an acquisition when it merged with rival French pharmaceutical concern Synthelabo in 1999. The deal allowed Sanofi to sell off its other businesses, and by the following year the company was focusing exclusively on pharmaceuticals. At the same time, Sanofi was gradually moving away from its parent, Elf Aquitaine. Over the course of the 1990s Elf saw its share in its subsidiary fall from 61 percent in 1990 to 52 percent in 1994, and finally to 35.1 percent with the Synthélabo merger. Entering the 21st century, Elf Aquitaine was committed to holding onto its remaining shares in Sanofi until 2004. But with three blockbuster drugs on the market and net profits soaring, Sanofi-Synthélabo was offering some proof that a medium-sized business could survive on its own in the high-powered pharmaceutical industry.