Sanofi Aventis, corporate strategy
Summary INTRODUCTION PART ONE – COMPANY OVERVIEW 1. Presentation of the company 2. Key information 3. The 2004 “final” merging PART TWO – ENVIRONNEMENTAL ANALYSIS OF PHARMACEUTICAL INDUSTRY 1. Pharmaceutical industry : globally a market under over pressures 2. Characteristics of market environments in general 3. Characteristics of changing market environment 4. A PORTER Analysis PART THREE – SANOFI AVENTIS INTERNAL ANALYSIS 1. Matrix-oriented approach a. A SWOT Analysis b. A BCG matrix : Analyzing Sanofi-Aventis Product Portfolio 2. Specific analysis a. Structural aspects and flexibility b. Financial analysis : leverage for company growth PART FOUR – SANOFI AVENTIS STRATEGY PLANNING 1. Environmental consequences 2. Sanofi Aventis current strategy a. Globalization b. Evolution of product positioning c. Reinforcement of corporate culture CONCLUSION – RECOMMANDATIONS FOR SANOFI AVENTIS CORPORATE STRATEGY 1. Did Sanofi strategy SUCCESSFULLY REACT TO NEW STAKES? 2. Recommendations for companies a. Key-success factor requirement b. Recommendations SOURCES: BIBLIOGRAPHY
Introduction As an intern student working at Sanofi-Aventis in 2006, I had the very interesting opportunity to discover how pharmaceutical industry worked. Acting in R&D and more particularly within the department in charge of the whole portfolio strategic management was extremely rewarding. It brought to me consistent knowledge about what can both internal and external elements of the company can influence its strategy. Due to this remindful experience (which I consider to be the best until now) and the particularity of pharmaceutical industry to be dependent of several factors, I decided to choose Sanofi Aventis as company for this analysis.
Nowadays, Sanofi Aventis is one of those companies which have to cope with totally new stakes: globalization and its consequences appear to be the most influent element of those new stakes.
We will analyze Sanofi Aventis Corporation and try to figure out how the company acts within its environment. After a synthetically approach of Sanofi Aventis in both internal and external aspects, we will try to measure S-A’s strategy in order to get to its objectives. To finish with, we will try to present new recommendation to this leading company, in term of strategy.
Part one – company overview 1. Presentation of the company Sanofi Aventis is a company working in pharmaceutical industry. Created in 2004 from the merging of two European companies, Sanofi Aventis is today the number one in Europe, and is part of the top 5 world leading company in its sector. Sanofi Aventis self-given mission in pharmaceutical industry consists in providing a wide portfolio of medicines, in accordance to new pathologies and behaviors of occidental populations (increasing age, risky behaviors such as obesity…) Developing innovative medicines answering to changing human needs Producing and retailing those medicines. Sanofi Aventis product portfolio is based on 7 main therapeutic areas, and several other activities such as generic medicines.
2. Key information
a. Key-figures In term of sales, this French company represented a 27.6 billion € turnover in 2008, and hires nearly 100.000 employees. According to Sanofi Aventis 2008 annual report1, Sales are organized as below:
top 5 turnover (2009 )
Vaccines 10% (2,9 b€)
Sa n. ..
No v.. .
Block Busters 50% (14b€)
Pf ize r
Other medicine s 40% (14 b€)
World medicine market is estimated at 712 b€. With a total of 242 b€, top 5 of pharmaceutical industry represent 1/3 of the world market. b. Products positioning Activities of company are divided into 7 Strategic activities and the firm has a strong R&D culture (Research represented more than 17% of turnover of Sanofi Aventis 2008 Budget). • Central nervous System • Thrombosis • Cardio-vascular • Internal Medicine • Oncology • Metabolic diseases • Vaccination In term of positioning, Sanofi Aventis retails high added-value products. New R&D objectives are to progress, on the one hand, for new developed countries diseases (obesity, diabetes, etc.), and on the other hand for new demographic diseases in emerging countries (malaria, Yellow Flu, etc.) Beyond those traditional activities, the company is currently entering on new markets. As an example, this year, the company bought Zentiva2, a Czech generic producer, with the double objective of producing its own medicine as generics and targeting new developing countries. 2009 was also the year when Sanofi Aventis began its development on new markets: OTC “over-the-counter” markets, and animal medicines. 1
Sanofi Aventis Annual report 2008. N. pag. Sanofi Aventis Website. Sanofi Aventis, 31 Mar. 2009. Web. 24 Nov. 2009. . 2 "Sanofi Aventis détient 94% de Zentiva." La Tribune 25 Feb. 2009: n. pag. Web. 24 Nov. 2009. .
c. A short view of Sanofi corporate culture Originally, Sanofi Aventis is composed of two main cultures: French and German. However, the company is also sharing worldwide cultures as the company is present in more than 100 countries all over the world. Anglo-Saxon’s culture remains also very present in the group, as the American mentality dominate the majority of companies in this domain. Corporate values of Sanofi Aventis are based on Human relationship: solidarity, progression of humanity, and Ethics. Generally, Sanofi Aventis’ staff is aware of that and most of the time, it shares those values. To finish with, corporate culture of the firm is to offer its employees the possibilities to realize themselves within their works, and the company appears to be a leading company in term of quality of work and motivation in France. d. Company worldwide Sanofi Aventis is present in more than 100 countries3. Its main localizations are: France, USA, Germany, and Hungary. The company is particularly developing new industrial compounds in BRICs (Brazil, Russia India and China) as those countries are preferred target in both industrial and commercial activities. e. Competitors: similarities, differences Sanofi Aventis it the 5th leading company in its industrial activity. Other companies’ structures, cultures, and positioning are very similar. However, Sanofi Aventis is the only European, while other companies are most of the time American (Pfizer, Novartis, etc.). Sanofi Aventis is also in competition with generic producer, which are generally small and low cost producers. 3. The 2004 “final” merging Sanofi Aventis is the result of a multiple series of merging and acquisitions, which ended in 2004 with the final merging between Sanofi-Synthelabo and Aventis. After this merger, external growth operations remained present but smaller (ex. Acquisition of Zentiva in 2009, etc.) Laboratorie s Deusse Robert & Carrières
Synthelabo (1970) Sanofi (1973)
Achat de Sterling Winthrop (1994)
Sanofi Synthelab o (199 9)
(2 0 Celanese (1987) Aventis 0 Hoechst Marion Merrell 3 (1999) 4) Sanofi Aventis "Code Conduct Suppliers." (1995) N. pag. Sanofi Aventis, n.d. Web. 24 Nov. 2009. Rhône. Fisons (1997) Poulenc Roussel-Uclaf (1974)
Institut Mérieux (1994)
Part two – environnemental analysis of pharmaceutical industry 4. Pharmaceutical industry: globally a market under over pressures Pharmaceutical industry is a highly profitable market. On the same time, this market is particularly challenging as both internal and external environments are acting for or against companies. In this second part, we will analyze the environmental (external) elements of pharmaceutical industry, and will try to explain why this market is subject to much more pressures than other ones. 5. Characteristics of market environments in general f. A particular segmentation It is easy to measure effectively the type of clientele of the pharmaceutical markets. The first need referring to the various segments is indeed connected to their medical diagnosis. So, the first segmentation of the market of the pharmaceutical, concerns the therapeutic axis: in every disease its formulation exist. The second axis of measure of the segmentation concerns the origin of the product used. A user can privilege for example an original medicine, from a research company, to his generic medicine equivalent. g. A non-cyclical market The not cyclic nature of the market of the medicine insures to companies a particularly useful safety. Indeed, the need in medicine is above all, motivated by the state of the patient. In this way, the companies which develop these medicines have the guarantee to never see their turnover collapsing following a recession of the market, and can foresee some cyclic events (for example, the waves of flu during certain periods). h. A highly “brained” and R&D oriented market The development of new molecules requires for the company important means in particular in scientific equipment, but also in working staff. The pharmaceutical environment requires knowledge, skills, more high than in the major part of the other markets. As such, 20 % of the employees of the big companies such as SanofiAventis, or Pfizer, studied during a minimum period of four years after the Baccalaureate (or A-level). For the big actors such as Sanofi-Aventis or Pfizer, the implementation of a R&D department and its functioning are like central pillars for the health of the company. All the products ranges must be constantly renewed, to preserve its turnover in spite of the progressive entry of the generic medicine products at the end of 5 years (date establish by the European Union, and USA) In this way, more than 17.500 employees work in industrialist research and development of new substances at Sanofi-Aventis.
i. Higher participation of Legal and Political States are particularly present in pharmaceutical industry, and are acting powerfully in both political and legal environments. First of all, in Political environment: While pharmaceutical industry is going worldwide, national interests are hugely protected. Governments take an important part of the negotiation. As an example, during Sanofi-Aventis merger, French government encouraged the acquisition of Aventis, while German government was trying to protect the germanbased Aventis interests. Another example is the parallel between production localization and retailing areas. Most of the time, local countries demand the installation of local industries or infrastructures in exchange of the authorization for the company to retail its products. But where States generally play an important role is in legal environment: in western countries, health institutions are most of the time directed by states. Two different institutions exist: Institutions for entrance onto the market (FDA in the US, EMEA in Europe): bring the authorization for
Other institutional actors: The pharmaceutical market is under influences of 4 mains actors, which have each their role, their types of products, their clientele. First, we distinguish the institutes with public money of which allows developing a basic research. Among these institutes, we can quote in France the Curie institute and the Pasteur institute both placed in Paris, and specialized in the oncology (cancers) and the viruses. Another group of actors weighs very heavy in the market of the pharmaceutical. It is about Generic medicine firms, which produce and sell formulations of which the formula is down on the public domain. Finally, major Actors of this market in term of Turnover as political weight or research, the " big of the sector ", who are, following the example of Sanofi Aventis, Pfizer, Roche,… the most important actors of this market. j. Focus on PESTLE Analysis (5Cs) Political
• Political tendency to cut-off public health expenses • Political tendency to promote good health behavior (tobacco, food, driving…) • Protection by State qualified of “unfair competition”
• • • •
Competition of generic markets Explosion of OTC and Para-medical markets. Negative currency evolution. Questioning of traditional medicines business
New diseases and needs: obesity, diabetes, nervous sicknesses. Improved standards of living New behavior: OTC consumers, food medicines, etc…
• • •
• • • •
Time of development is increasing: more costs, less time for sales. Less medicine innovation and opportunities Opportunities: Bio technologies.
Balance “good” vs. “bad” effects: acceptance institutions more prudent. Improvement of acceptance prerequisites. Counterfeiting medicines are developing in emerging countries Counterfeiting medicines are reaching developed countries (buying on the internet).
Conclusion The PESTLE Analysis shows that pharmaceutical industry market is particularly dependent of all environmental factors (except. Ecological). Globally, those environmental factors were traditionally very optimistic (i.e. good relation between companies and States) but on the other hand, quantities of new pressures are hugely jeopardizing this market. 6. Characteristics of changing market environment a. Market segment is changing • States are going to reduce drastically their health expenses. • People are more and more aware of health products • Standards of living are changing and some pathology may make new segments: obesity, diabetes… • People are more and more interested by OTC products and healthy food.
b. Sales going international • Developed countries are not profitable anymore as innovation is going to be expensive, hard, and uncertain. • New segments are developing in emerging countries, with new pathologies: Malaria, etc. c. Competition going worldwide With development of technologies and know-how in Developing countries, Traditional companies such as Sanofi Aventis, Pfizer, etc. are jeopardized by new competitors. Thos new competitors are generally generic producers. Their success is mainly due to a lower cost of development and production, while general policy in developed countries is to focus on health costs reduction. Moreover, traditional companies are jeopardized by several injuries caused by counterfeiting. This counterfeiting is a major brake for company’s implantation in emerging countries: lack of trust. d. Going more and more high added-valued Since 2009, and according to a consensus of actors in the market4, Pharmaceutical industry encounters an important slowdown in term of R&D. For more than 1,000 new medicines retailed, it appears than no medicine really provides a major therapeutic innovation. On the other side, R&D costs are increasing, and duration of the development jumped from 10 to 13 years in a decade. e. The stakes of R&D changes New entering medicines on western markets are subject to an approval from national institutions. In Europe, this is the European agency for medicines (EMEA); in the US, the Food & Drugs Administration (FDA). Due to a lack of medicine improvement and an increase of medical counter effects, those institutions are more and more vigilant about medicine retailing. This can have a strong impact on companies, as they generally development of medicines takes more than 13 years. As an example, the failure of Acomplia entry on market, caused to Sanofi major injuries. Acomplia was supposed to be the Sanofi Aventis blockbuster for the next decade.5
7. A PORTER analysis Conclusion: Sanofi Aventis is not threatened by the risk of potential entrants of by the lack of power of negotiation: in fact, the company is situated on a stronghold, and manages the whole chain of production. However, the company activity may be jeopardized by the position of states as “counters” (national health insurances) which are going more and more aggressive, and by the poorer innovation provided by R&D. POTENTIAL ENTRANTS: Very low: 4
Several Persons interviewed by me within Sanofi Aventis, in July 2009. means Of Sanofi's Acomplia." Fierce biotech. N.p., 23 Oct. "EU Drugs Regulator Recommends Suspension 2008.Web. 24 Nov. 2009. . 5
SUPPLIERS: Very low: • Suppliers do not have any power of negotiation
• Most of prescriptions given by doctors, based on the national social
INTENSI TY OF RIVALRY SUBSTITUTES: Very high: • Needs for new developed pathologies are not essential needs. • Product
Part three – sanofi aventis internal analysis 8. Matrix-oriented approach a. A SWOT Analysis STRENGHS
8 blockbusters still selling well A diversified R&D portfolio Leader In Brazil, Russia, India, China and Mexico emerging countries R&D restructuring initiated in 2007 turning group efforts towards bio technologies Creation of a OTC department Financial strengths: low debts, financial independence,… OPPORTUNITIES Ageing of population and risk behavior (such as unbalanced diets) Population increase and improved standards of living in emerging nations New taste for OTC medicines and Para-medicals. Development of partnerships (universities, institutes…) Global market remains “atomic”: lots of small companies to be bought!
Loss of some patents. Growing dependence upon the main group blockbuster products, whose number is decreasing year after year The FDA refuses to allow marketing Rimonabant (Acomplia). Same in Europe. R&D productivity is decreasing Sanofi Aventis’s structure not flexible and too expensive for new generic standards. THREATS The generic drug market which is now competing with public-domain medicine Government decisions meant to downsize health expenses Government decision to fight against health less behavior: tobacco… Lovenox and Plavix generic drugs will soon be on the market Counterfeit medicine
b. A BCG matrix: Analyzing Sanofi-Aventis Product Portfolio
High Growth Expectations
Low Growth Expectations
OTC ETS K MAR NA TRADITO eL c r o f eiDn rR&
VACCIN MEDICINES S High position on Exploit market Exp
l oi t
Low position on Consolid market ate
Before 2003, Sanofi Aventis was counting on the very profitable and very growing activity of traditional R&D-oriented medicines. At this time, this strategic activity was interesting and R&D provided sufficient innovation. Now, R&D activity is showing a big deceleration: R&D department are not able to provide sufficient medicine in order to equilibrate companies’ portfolio. Conscious of this weakness, Sanofi Aventis reacted by launching 3 other activities : the OTC market, which is less dependent to institutions; the generic market, as Sanofi knows that generic will strongly compete with R&D product very soon (here, generic are in dilemmas, as this strategic activity could cannibalize traditional markets), and animal medicines. The 2009 BCG mapping appears to be a little bit more equilibrated. The objective of Sanofi Aventis, here, is to make its activity more secure: by limiting impact of structure in case of failure, and by finding new secure ways of being profitable. 9. Specific analysis c. Structural aspects and flexibility With a staff of nearly 100,000 persons, Sanofi Aventis may have several difficulties in term of flexibility. Flexibility of the company is subject to its structure. Even if Sanofi Aventis’ structure appears to be particularly useful as it bring plenty of economies of scales, this structure is particularly dependant of Sanofi Aventis’ success to keep a minimum quantity of activity. While company continues to have sufficient product portfolio to develop and retail, there is no problem. However, in the future, it is possible that Sanofi Aventis have to face a critical reduction of its traditional market, due to high uncertainty. As a consequence, I consider S-A’s structure as literally too rigid. As an example, by the past, this company has used to sign very attractive social contract with staff. However, according to our BCG matrix, it is shown that Sanofi Aventis is trying to moderate risk due to its structure. On the other side, the company tried, last year, to limit structure by closing a business unit and cutting-off a 500 persons’ site near from Paris, France.
SANOFI AVENTIS’ STRUCTURE: A LACK OF FLEXIBILITY WHICH IS A RISK IN CASE OF TRANSFORMATION OF MARKET.
d. Financial analysis: a leverage for company growth i. Financial independence (low debts) Sanofi Aventis has a very low debt rate. Moreover, we can see on this document that there is a particular desire to flow-out debts years after years. As a consequence, Sanofi Aventis is particularly independent and the company may get this as an advantage when opportunities or threats will present.
[Source:] "Sanofi Aventis - Debts." Sanofi Aventis investors website. 30 Sept. 2009.6 ii. High profitability Net sales Operating income In % Net income after minority interests In %
Q3 2009 7,400 2,955 40% of sales 2,229
Q3 2008 6,853 2,640 38.50% of sales 1,923
30.1% of sales
28% of sales
Gap % +8% +12% +15.9%
Perfect figures for the group this year: While turnover has been progressing of 8%, operating income and Net income after minority interest has been increasing at a rate of 12 and 16%!
iii. Stakeholders’ stability
Repartition of Stockholders http://en.sanofiaventis.com/investors/share/shareholding_structure/shareholding_structure.asp
L'Oréal 9% Employees 1%
According to the repartition of Sanofi Aventis’ stockholders, we can see that nearly a quarter of Sanofi Aventis’ in-paid capital is owned by particular actors: companies, employees, and Stat treasury. This brings to the company an incredible stability, which permits to make of Sanofi Aventis shares a safe haven in period of crisis. As a conclusion to the three previous points, we have seen that Sanofi Aventis ensured a good management of its structure. First of all, on the operational side, as Sanofi Aventis continues to make huge profit. Then, on the operating side, as Sanofi Aventis have at its disposal several possibilities in term of debts and investments.
Part four – sanofi aventis strategy planning 10.Environmental consequences • • • •
Questioning of Sanofi Aventis’ leadership in general Jeopardizing company’s activity in regard with its important structure Questioning of company’s former strategy to answer new stakes. Questioning of company’s traditional market
11.Sanofi Aventis current strategy a. Globalization • Take a prior participation in emerging countries in order to sell medicines. • Find in those merging countries a new opportunity for building infrastructures and finding new “brains”.
b. Evolution of product positioning • Try to enhance R&D innovation. • Take position on new kind of medicines for emerging countries. c. Reinforcement of corporate culture • Try to standardize international corporate culture as Sanofi Aventis is a worldwide company. • Be an ethical company.
Conclusion – recommandations for sanofi aventis corporate strategy 12.Did Sanofi strategy successfully react to new stakes? Sanofi Aventis current strategy was designed in order to correspond to stakes between 2001 and today. However, Pharmaceutical market is changing and the next decade shows new opportunities and threats. Then, Sanofi Aventis took into consideration that the firm, instead of a large size, was menaced by uncertainty, especially concerning product development and legal management. So, this new consideration will also drive new company strategy for next years. 13.Recommendations for companies a. Key-success factor requirement Mid-term objectives of Sanofi Aventis are more complex than a simple research for profitability: According to me, the next 10 year of management within Sanofi Aventis should be to improve security of activity. Today, its activity appears to be too much under multiples pressures from multiple environments. • Ensure a stabilization of company structure in order to make its longterm management more secure. o Industrial structure o Staff o Product portfolio • Have a good participation in new emerging market. o Brazil o Russia o India o China • Find out new ways for ensuring a good innovation of R&D (however, this case is much more to be analyzed with a technical approach). b. Recommendations Here are some elements Sanofi Aventis should, in my opinion, improve in order to reach those objectives: i. Emphasis on Emerging markets Emerging countries represent a huge opportunity for growing companies.
On the first hand, those countries (especially BRICs) are target of choice for selling new medicines: They present demographical stakes, and treatment of sicknesses such as Malaria or Aids is a challenge for those countries. In order to finance those needs, countries can count on a reliable economical growth. On the other hand, those countries are good targets for implementing reliable structure at a lower cost. BRICs countries represent an opportunity to hire “brains” for Research & Development. Generally, those two points are bounded: Setting up infrastructures in a local country is generally the argument permitting to negotiating access to this market. ii. Ensure partnership in order to moderate risk We have seen that companies were threatened by the randomly management of new medicines: From Discovery and preclinical studies to commercialization, a new medicine can encounter several problems. By ensuring partnership with other companies or institutes, Sanofi Aventis could mitigate the risk of development. However, this strategy must be supported by a strong “Legal Affairs” system, as new legal risks are added by partnerships. iii. Assume a growth in local non-outsourcing activities On the one hand, we have emerging countries which are growing but present risks: problems of intellectual property, privacy, etc. On the other hand, we have traditional markets being jeopardized by several factors. A good solution for the company is to invest a part of its activities in local nonoutsourced companies: as an example, investing in local dental laboratories. This has the advantage to take benefit from a more stable market, which guarantees a part of company’s structure. iv. Enhance “Legal Affairs” Department By the past, Sanofi Aventis has been victim of a lack in its legal bundling project. In 2006, the group has encountered legal confrontation with Bristol Myers Squibb, a competitor with which Sanofi Aventis developed a blockbuster: Plavix. During the same year, Sanofi Aventis saw its future blockbuster, the anti-obesity Acomplia, refused by legal jurisdiction. A refusal which was confirmed in 2008 in both Europe and North America. With better preparation of legal elements, Sanofi Aventis would maybe avoid those important issues. v. Increase flexibility within company • Optimize costs • Study the possibility of working on other strategic activities if needed. • Etc. vi. Use financial independence & high profitability as a growth factor With this incredible financial independence, Sanofi Aventis often disposed of opportunities for buying out companies under attractive conditions. My recommendation are to continue to exploit this tool, and maybe try to merge with companies presenting valuable new innovative medicines : a way to equilibrate the lack of innovation from the company.
And also… • Continue to bring high capacities for R&D. • Continue to provide medicines dedicated to developed countries. • Continue to develop information concerning medicine in emerging countries.
Sources: work cited • “EU Drugs Regulator Recommends Suspension Of Sanofi’s Acomplia.” Fierce biotech. N.p., 23 Oct. 2008. Web. 24 Nov. 2009. . • Persons, Several Persons. Personal & profesional interview. July 2009. • Sanofi Aventis Annual report 2008. N. pag. Sanofi Aventis Website. Sanofi Aventis, 31 Mar. 2009. Web. 24 Nov. 2009. . • Sanofi Aventis “Code Conduct Suppliers.” N. pag. Sanofi Aventis, n.d. Web. 24 Nov. 2009. . • “Sanofi Aventis - Debts.” Sanofi Aventis investors website. Sanofi Aventis, 30 Sept. 2009. Web. 24 Nov. 2009. . • “Sanofi Aventis détient 94% de Zentiva.” La Tribune 25 Feb. 2009: n. pag. Web. 24 Nov. 2009. .