Sanofi-Aventis (SNY)

Sanofi-Synthelabo, Inc. resulted from a 1999 merger between two major French pharmaceutical companies, Sanofi and Synthelabo. In August 2004, Sanofi-Synthelabo acquired its larger French pharmaceutical rival, Aventis. The combined Sanofi-Aventis (SNY) is now the third largest pharmaceutical company by sales worldwide. The company also has one of the largest research and development (R&D) budgets in the world. Sanofi manufactures and markets prescription drugs in Europe, the U.S. and other countries, employing roughly 100,000 people. Its main products for the treatment of cardiovascular disease and thrombosis include Avapro (a blood pressure medication), Plavix (an anti-clotting agent for acute coronary syndrome {ACS}, myocardial infarction and stroke prevention) and Lovenox (an anti-coagulant/blood thinner). Its lead CNS (central nervous system) product, Ambien and Ambien CR, is used for the treatment of insomnia and other sleep disorders. The company offers Copaxone for multiple sclerosis, while Eloxatin (for the treatment of pancreatic, gastric and non-small cell lung cancer) and Taxotere (non-small cell lung cancer) are its leading products in the area of oncology. Perhaps the most recognizable drugs in its portfolio are Allegra, for seasonal allergy relief, and Ambien. Sanofi-Aventis has a very strong presence throughout Europe, and is growing operations in the U.S.

The combined Sanofi-Aventis possesses perhaps one of the strongest cardiovascular franchises of all large-cap pharmaceuticals. Plavix is indicated to reduce the risk of myocardial infarction (heart attack) or stroke in patients with atherosclerosis (the build-up of plaque and hardening of the arteries). Through a co-promotion agreement with U.S. pharmaceutical company Bristol-Myers (BMY), Sanofi reported Plavix sales of 2.4 billion in 2007. This was an increase of 9% over the full year 2006. Prescription growth is supported by impressive efficacy and safety data demonstrated in the CURE (use with aspirin in ACS) and CREDO (risk reduction after PCI) clinical trials. The sales force should be armed with new data from the COMMIT (acute MI) and CHARISMA (high risk athero-thrombotic events) trials, as well as the recent E.U. label expansion to include the most severe heart attacks (STEMI), to drive strong growth over the next several years.

Plavix sales in the U.S. were up 19% in the second quarter to $1,208 million with European sales growing 6% to 469 million. While the generics in the U.S. have likely now been eliminated, a new threat has arisen in Germany. In May 2008 Swiss generic manufacturer Schweizerhall announced that it was close to obtaining marketing approval for generic clopidogrel besylate in Germany. Sanofi responded by filing legal action against the generic company which indicated plans to bring their product to market by the end of June. On July 29, 2008 a German court upheld the German marketing authorizations granted to generic manufacturers Yes Pharma and Ratiopharm. Sanofi notes that the salt used being used by the generic manufacturers differs from the one used in Plavix and the approvals granted relate to only certain indications of Plavix. Prior to this decision, which Sanofi and Bristol will appeal, the marketing authorizations had been suspended. We estimate total Plavix sales in Germany to be about 350 million, which is split approximately evenly with Bristol. Given the limited indications the generic salt would cover, Sanofi believes approximately one-half of this amount would be at risk in Germany upon a generic launch. However, we would expect a launch in Germany would bleed into other neighboring countries through parallel imports which could potentially double this figure. We believe a generic launch in Germany will come within the next few weeks.

Sanofi and Bristol remain committed to advertising and promotion for the product. Management noted that the direct-to-consumer (DTC) advertising campaign expanded last year has been very effective in re-accelerating prescription growth. Sanofi is also expanding its hospital focus to drive trends of the mega-blockbuster. Lengthening the treatment course on Plavix is also having a significant impact on sales. Penetration rates stand at 1-out-of-7 stroke/MI patients and 1-out-of-5 PAD patients. We think there is still enormous opportunity for greater Plavix use. Sanofi launched the drug in Japan in May 2006 and in October 2007 the Japanese Ministry of Health approved an sNDA for the indication of ACS for which PCI is being planned. Sales of Plavix in Japan reached 43 million in the second quarter. We expect uptake in Japan to remain very strong with the expanded label. We see Sanofi's portion of Plavix sales growing another 8% this year to over 2.6 billion which assumes a generic launch in Europe in the third quarter. Additional growth could come for use in arterial fibrillation which would open up the drug to approximately 6 million patients which currently do not have access to Plavix treatment. Sanofi expects clinical trial data for this indication in the second half of 2008. In addition Sanofi-Aventis and Bristol have submitted for E.U. approval of a 300mg tablet (equal to four standard 75mg tablets) to facilitate the loading dose for ACS. The application received a positive opinion from the E.U. regulatory agency in March 2008. We expect approval to come in the next few months. The 300mg tablet was approved in the U.S. by the FDA in September 2007.

Aprovel/Avapro, another drug marketed in partnership with Bristol to treat hypertension, posted worldwide sales of 1,080 million in 2007, an increase of 6%. Through the second quarter of 2008 sales were up 14% year-over-year to 311 million. We expect Aprovel/Avapro sales to approach the 1,206 million mark in 2008, growing to 1,310 billion by 2011.

Lovenox, an anti-coagulant/blood thinner analog of heparin, rounds out the very impressive cardiovascular franchise. Lovenox sales grew to 2,612 million for the full-year of 2007, up 7%. Sales in the second quarter of 2008 fell 5% to 637 million. The negative sales growth was a result of a significant amount of stocking by wholesalers in the first quarter due to a lack of supply of heparin during that period due to the presence of contaminated heparin found at a Chinese manufacturer. We expect more normal sales growth throughout the remainder of 2008. Lovenox is experiencing strong growth worldwide with U.S. sales benefiting from increased use in the medical prophylaxis setting. Growth should benefit as additional indications come online. Sanofi received U.S. approval for the prevention of recurrence or death in patients who have experienced myocardial infarction with ST-segment elevation in May 2007. In late January Clexane (brand name in Japan) received marketing authorization in Japan for the prevention of VTE for patients undergoing surgery of the lower limbs. Sanofi has presented a substantial amount of data showing very positive efficacy versus heparin which has contributed to the very strong double-digit sales growth over the last few years. However, despite the impressive clinical data on Lovenox, growth may be significantly challenged as generic competition may be on the horizon. On February 9th, 2007 the U.S. District Court for the Central District of California ruled against Sanofi-Aventis in its patent infringement suit against Amphastar and Teva. Sanofi-Aventis appealed the verdict but on May 15, 2008 the U.S. Court of Appeals ruled against Sanofi, deeming the U.S. Lovenox patent unenforceable. Sanofi continues to consider all its legal options. At this time we are waiting to see if Amphastar/Teva will launch a generic product. Manufacturing remains a significant hurdle for Teva. While several companies have requested marketing approval from the FDA for their products alleged to be generic versions of Lovenox, we have not learned to date of any FDA approval of these requests. In fact Momenta Pharmaceuticals, along with partner Sandoz, Inc., received a not-approvable letter from the FDA in November 2007 in response to their aNDA for their generic version of Lovenox. The FDA noted that the application did not adequately address the potential for immunogenicity of the drug. In late-April 2008 Momenta announced that they received further communication from the FDA regarding their response to the not-approvable letter. Momenta stated that the FDA "indicated their general concurrence with Momenta's approach" and also requested additional data from animal tests (although the FDA has not requested human testing). While Momenta feels they will be able to successfully address the FDA s concerns, the not-approvable letter is clearly encouraging for Sanofi. Sanofi remains optimistic that based on the FDAs strict standards relative to approving low molecular weight heparins that generic companies will have a difficult time in getting a generic product to market. Another potential impending threat to Lovenox is J&J's/Bayer's phase III anti-coagulant candidate, rivaroxaban. Rivaroxaban, which could launch in the second quarter of 2009, demonstrated very impressive efficacy in head-to-head trials versus Lovenox. Meanwhile, Sanofi is working on its next-generation Lovenox product AVE 5026, which is expected to enter into a phase III trial for VTE prevention in 2008. Phase IIb results demonstrated potentially greater efficacy than Lovenox with a comparable safety profile. Phase IIb data measuring dose-response showed AVE5026 dosed at 20mg and 40mg was superior in preventing VTE compared to Lovenox. Successful completion of phase III trials could lead to an NDA filing in 2010.

One wildcard product in the cardiovascular division is Multaq. Multaq (dronedarone) is a new class III antiarrhythmic drug under development for atrial fibrillation. In late August 2006, the company announced that it received a non approvable letter from the FDA for the product. Sanofi continued with development and presented results of the phase III ATHENA trial in May 2008 at the World Congress of Cardiology conference. Results showed that Multaq met its endpoint by significantly reducing the risk of cardiovascular hospitalizations or death from any cause by 24% compared to placebo. Multaq also significantly reduced the risk of arrhythmic death by 45% and the risk of cardiovascular death by 30% on top of standard therapy compared to placebo. It failed, however, to show a statistically significant benefit in reducing death from any cause, a secondary endpoint. If approved we think Multaq could eventually achieve blockbuster status. The ATHENA data was submitted with the refiled NDA and European registration filings in June 2008.

Eloxatin (chemotherapy agent) and Taxotere are the company's two key products for oncology. Eloxatin posted sales over 1.5 billion in 2007 while Taxotere sales came in at almost 1.9 billion. Sanofi-Aventis is expanding Taxotere s use from non-small cell lung cancer into other areas such as adjuvant breast cancer, gastric cancer and hormone refractory prostate cancer. The company has been vigorously marketing Taxotere as a superior alternative to Bristol s Taxol (paclitaxel). This has led to significant market share gains in the first-line indication. Sanofi presented data from a clinical trial at ASCO 2006 demonstrating an improvement in overall survival in patients with advanced non-small cell lung cancer. The company has also focused on expanding its Taxotere pipeline to drive growth with the gastric indication approval in March 2006, and the head & neck cancer approvals in both the U.S. and E.U. in October 2006. The company continues to seek additional applications for the product and in September 2007 the FDA granted approval of Taxotere for the treatment of head and neck cancer in pre-chemo/radiotherapy and pre-surgery patients. The EMEA followed in October issuing a positive opinion for this indication. The FDA approval and EMEA positive recommendation were based on the positive results of the Tax 323 and Tax 324 phase III trials, published in the October 25, 2007 issue of the New England Journal of Medicine, which showed Taxotere significantly improved overall survival of patients with advanced head and neck cancer. The recent encouraging news surrounding Taxotere along with positive phase III data in adjuvant breast cancer with Genentech's Herceptin drove us to increase our long-term sales forecasts. The company recently presented data at the San Antonio Breast Cancer Symposium which showed Taxotere in combination with cyclophosphamide significantly improved overall survival out to seven years compared to standard chemotherapy treatment in women with early-stage breast cancer who had surgery. Sanofi supplemented this with additional phase III early-stage breast cancer data at ASCO 2008. After five years 91% of patients (post surgery) treated with Taxotere plus doxorubicin and cyclophosphamide were still alive compared to 86% of patients treated with a standard FAC (5-fluorouracil, doxorubicin, cyclophosphamide) regimen. The results were statistically significant. At ASCO 2007 Sanofi presented phase III data demonstrating Taxotere's survival benefit in patients with metastatic hormone resistant prostate cancer. Sanofi has two next-generation taxane drugs in phase III development that may work to extend the franchise beyond patent expirations coming later this decade. Excluding the effect of exchange rates, Taxotere sales grew 10% in Europe, 16% in the U.S. and 20% in other countries combined through the second quarter of 2008. Total sales were 503 million in the second quarter, up 6% on a reported basis.

In the meantime, Eloxatin remains the No. 1 prescribed drug for colorectal cancer. Colon cancer sales should benefit from the updated labeling information approved by the FDA in May 2008. Prescribing information (PI) will now reference the MOSIAC trial data which compared Eloxatin plus 5-FU/LV to 5-FU/LV (standard chemotherapy) alone in stage III colon cancer patients who had had their primary tumors surgically removed. After six years those treated with the Eloxatin regimen had a statistically significant 20% lower risk of dying relative to patients on chemotherapy alone. The new PI will also state that patients treated with Eloxatin at 5 years were 22% less likely to relapse after a 77-month follow-up. New opportunities for Eloxatin are in pancreatic cancer and gastric cancer. More than 90% of the U.S. patients have been converted to the new solution formulation from the dry powder. We hope this will help slow the impact of generic Eloxatin already present in all the major European markets. At ASCO 2006, Sanofi presented data from a combination study of Eloxatin with Genentech's Avastin demonstrating increased overall survival (OS) in metastatic colorectal cancer. Sanofi was back at ASCO 2007 with data showing that compared to irinotecan-based chemotherapy, Eloxatin-based chemotherapy significantly improved long-term (five years) OS and time to disease progression (TTP) in patients with metastatic colorectal cancer. While we expect sales in the U.S. to continue to grow, European sales will likely continue to fall significantly. Sales in the U.S. grew 5% in the second quarter to 220 million, while European sales fell 39% to 59 million. We expect sales to fall 13% for the full-year to 1,317 million.

Sanofi's oncology pipeline includes two promising late-stage candidates, TroVax and Aflibercept (VEGF Trap). Sanofi is partnered with Oxford BioMedica with TroVax, a novel anti-cancer vaccine designed to stimulate production of an anti-54T immune response. Phase II trials in metastatic renal cancer were released in June 2008 and looked encouraging. However, dosing was discontinued in the phase III trials (TRIST) for renal cancer in July 2008 at the recommendation of the Data Safety Monitoring Board. A higher, yet non-statistically significant rate of death was seen in the TroVax arm. The Board noted that an analysis suggests that there is not any difference in the safety profile of TroVax relative to placebo and that the deaths appear to be limited to a poorer prognostic group. Although dosing has been stopped, the study will continue with the potential for a change in protocol relative to the number of doses required in the study. The companies will meet with regulatory authorities to discuss the potential for further development of TroVax in TRIST as well as in other indications. Phase III trials in colorectal cancer had been expected to begin in 2008. Aflibercept, an angiogenesis inhibitor, is being co-developed with Regeneron Pharmaceuticals. It is in phase II trials for advanced ovarian cancer as well as phase III trials for advanced colon cancer, advanced pancreatic cancer, advanced prostate cancer and advanced NSCLC.

Sanofi-Aventis also possesses one of the strongest diabetes franchises in large-cap pharmaceuticals. Long-acting insulin drug, Lantus, delivered 15% growth in the second quarter, benefitting from strong sales of the new LantusSoloStar disposable pen. Sales came in at 576 million for the quarter. Sales ended 2007 at 2.03 billion, making Lantus the first insulin brand in the world to surpass the 2 billion sales mark. The impressive growth of the product has been a result of very strong uptake in the U.S. Even in the face of the fierce competition from Byetta, Januvia and Janumet, Lantus continues to be the world's best selling branded insulin product with roughly 30% market share in the U.S. We think Lantus can achieve over 35% share before sales begin to peak. Data at the June 2006 ADA meeting showed that Lantus is superior to Humalog (Eli Lilly) in preventing overall hypoglycemic events. Results from two head-to-head studies presented at ADA 2007 showed that Lantus, when added to metformin and/or sulfonylurea, significantly reduced free fatty acid levels in type II diabetes patients compared to pioglitazone and had comparable effects to rosiglitazone. The flow of favorable data should continue to fuel market share gains. The company recently launched SoloStar, an insulin injection device which increases convenience of use. The company attributes much of the recent solid sales growth to the recent introduction of the injection pen in France and the U.S.

As of now, Lantus growth seems to be un-impacted by the recent launch of Amylin's Byetta or Merck's Januvia and Janumet. This will be something to closely watch throughout 2008, especially given the results of Amylin's Byetta/Lantus 52-week head-to-head study which were released in September 2007. The study demonstrated superior improvement in beta-cell function and weight loss in the Byetta population versus the Lantus group which experienced weight gain. The company has already started to see declines in sulfonylurea (glucose control) drug Amaryl now that U.S. generics have launched. Another impending potential threat to Lantus' market share is Norvo Nordisk's injectable liraglutide which could launch in early 2009. The once-daily dosing makes it more convenient to Byetta's twice daily and a more substantial threat to Lantus. Longer-term, Byetta has a long-acting, once-weekly dosing formula in the works which could launch as early as 2010. Sanofi-Aventis authorized generic manufacturer Prasco Laboratories to launch a generic Amaryl in early October 2005. Nevertheless, we believe that branded Amaryl will be able to maintain decent market share given its low cost relative to other diabetes treatments.

Sanofi-Aventis' biggest pipeline drug is Acomplia (rimonabant) for diabetes, smoking cessation and obesity. The obesity indication market offers a large, under-served opportunity. Sanofi-Aventis has presented impressive data at several ADA meetings on the cholesterol-lowering and diabetes benefits of the drug. Further data was presented from a study called SERENADE (Study Evaluating Rimonabant Efficacy in Drug-NAive DiabEtic Patients) showing that Acomplia significantly improved blood sugar levels in type II diabetes patients. Sanofi followed this up with a presentation of its phase III ARPEGGIO trial at the 2008 ADA session in June 2008. Data showed that Acomplia plus insulin reduced A1C levels by an average of 0.89% relative to baseline and by 0.64% relative to patients taking only insulin. Acomplia also tripled the number of patients reaching the goal of A1C < 7% relative to insulin alone. In addition Acomplia patients lost an average of 2.56kg of body weight relative to the insulin-alone group. Serious adverse events were lower in the Acomplia group but anxiety and depression was more prevalent in the Acomplia arm. Rates of hypoglycemia were similar in both treatment groups. While the diabetes efficacy data looks promising, the quest for an obesity indication appears grim. In June 2007 an FDA advisory committee voted (14-0) against granting approval to Zimulti (Acomplia s proposed trade name for the U.S. market) for the treatment of obesity. The FDA advisory committee raised concerns regarding the safety profile of the drug. According to clinical data, an increased rate of psychiatric adverse events (depression, anxiety, and insomnia) was observed in patients taking Zimulti compared to patients on placebo (26% vs. 14%). Additional concerns were based on the possibility of there being a link between Zimulti and suicidal thoughts. Not surprisingly, the company withdrew its new drug application and is now working on collecting additional data on the candidate s risk benefit profile. More discouraging news regarding safety of the drug came out in June 2008. The Medicines and Healthcare Products Regulatory Agency (U.K. regulatory agency) reported that the drug was linked to five deaths since the May 2006 launch of the drug in the U.K. The report also linked Acomplia to adverse reactions in 720 patients since May 2006. While the report is part of a routine surveillance program of all newly approved drugs, the news may negatively affect uptake going forward. We expect to see more data on Zimulti from several ongoing trials in the 2008 2010 timeframe including that from the CRESCENDO study, expected in 2011. The CRESCENDO study is evaluating the efficacy of rimonabant in reducing the risk of major cardiovascular events in abdominally obese patients with risk factors. Sanofi intends to file for this indication in 2011. The filing for the diabetes indication is expected to occur in 2009. Meanwhile, Sanofi is yet to provide information on its plans for resubmitting the NDA for the obesity indication. We note that Sanofi had previously received an "approvable" letter from the FDA for Zimulti in mid-February 2006. Acomplia is currently approved in 42 countries. The CHMP recently confirmed Acomplia's positive benefit-risk profile and issued a positive opinion on the labeling update. In addition, the EMEA's positive opinion to include type II diabetes trial results (based on the SERENADE study) into the label was recently endorsed by the European Commission. Acomplia will be contraindicated in patients with ongoing major depressive illness and / or ongoing anti-depressive treatment. The recommended amendments will be fully implemented once the European Commission's decision is available. The language of the initial label and the speed at which Acomplia gains reimbursement may slow the ramp for the first few quarters and we've also cut our longer-term sales forecast for the drug significantly. Another issue that may adversely affect sales are the recent reports in the U.K regarding potential safety concerns of Acomplia. The drug should receive approval in England and Wales following the recent statement from the National Institute for Health and Clinical Excellence recommending use of Acomplia for obesity. We currently expect the drug to ramp gradually over the next few years and see sales of 105 million in 2008, growing to 305 million in 2011.

Sanofi-Aventis possesses one of the world's leading vaccine operations, with total sales of 2.78 billion in 2007, an increase of 10%. Sales in the second quarter increased 7% to 657 million. Sales of Sanofi-Pasteur joint-venture products with Merck increased by 39% in the second quarter to 274 million. The strong growth is a result of the recent introduction of Gardasil in Europe for the treatment of HPV infection. Gardasil is currently available in 19 European countries and we look for vaccine sales to continue to benefit from additional launches. Sanofi is also partnered with Merck on the two recent approvals of Zostavax (shingles) and Rotateq (rotavirus). Menactra, the first quadrivalent conjugate meningococcal vaccine, turned in second quarter sales of 92 million, up 2%. Sales were negatively affected by the timing of public sector sales which are expected to occur in the third quarter. We expect Menactra to continue to help drive vaccine sales going forward. The vaccine received approval from the FDA in October 2007 for use in children 2 to 10 years of age, it had previously been approved only for people ages 11 through 55. Sanofi continues to build out its vaccine business and hopes to add to its portfolio with its recently announced agreement with Institut Pasteur to develop a vaccine against malaria. The malaria vaccine project is currently in the preclinical stage. The company also recently (November 2007) expanded trials to develop a dengue fever vaccine after seeing encouraging results from early trials for the prevention of the mosquito-borne disease affecting up to 100 million people each year and resulting in 24,000 deaths, mostly among children. Also in November Sanofi moved its new cell-culture based influenza vaccine into phase II trials which, assuming future approval, should help continue to build out its influenza franchise. The fourth quarter also brought news that Sanofi was teaming up with Acambis plc to develop a West Nile disease vaccine, a growing concern since it arrived in the U.S. in the 1990's. The vaccine business should immediately benefit from the June 2008 FDA approval of pediatric combination vaccine, Pentacel. Pentacel is the only four-dose vaccine indicated for immunization against diphtheria, tetanus and acellular pertussis in children the four-dose schedule for these immunizations is a significant advantage over the 23 shots required with single-entity vaccines. We like what we see in the vaccine pipeline and expect a significant ramp, especially in influenza vaccine sales over the next several years. This should be aided by the recently completed construction of a new influenza vaccine manufacturing facility which, once operational, will more than double the current annual production capacity to over 100 million doses of vaccines. Sanofi will also beef up its Chinese presence with a new vaccine manufacturing facility to be built in Shenzhen. During the first quarter Sanofi announced that the U.S. Department of Health would purchase almost 200 million of avian flu vaccine antigen. This should help push total vaccine sales up 9% in 2008 to over 3 billion. We model over 4 billion in vaccine sales in 2011 thanks to the ramp of Gardasil, Flu vaccines, and several new products in late-stage trials.

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