Sanofi-Aventis: Merger strategy

Thèmes abordés

Stake- merger- sanofi-aventis- risks

Résumé du document

This case study allows us to analyze the implementation of a strategy of merger. Firstly, it permit us to observe what the external factors are that can lead companies to merge, then it highlights the risks inferred internally by such a strategy and lastly it gives us some ideas on how these risks can be managed. Based on that, the plan of our analysis will be the following:
This case study underlines the various aspects inferred by the Sanofi-Aventis merger. In order for us to be able to analyze the benefits and risks of such an operation, a precise and global analysis of the pharmaceutical industry is obligatory.
The pharmaceutical industry is a specific market segment and its analysis is essentially based upon tree distinctive variables: R&D, patents and generic drugs.

This industry rests on the idea of constantly proposing new drugs and treatments in response to population needs. In this sense, Research and development is the base of this activity. As the CEO of the IPSEN Laboratories, Jean Luc Belingard explains, "R&D is at the very heart of the matter, it is our very identity". This quote shows well the importance attached to R&D. In fact, a pharmaceutical company's increase in turnover is highly dependent upon its capacity to launch new innovative drugs. If the company wants to grow, it must constantly manufacture and produce new drugs, but this demands constantly higher research costs. According to the "Pharmaceutical Research and Manufacturers of America", the average costs of development of a new molecule had raised from $ 138 million in 1975 to $800 million in 2000. This can be explained by the fact that major molecules have already been discovered and today research is aiming to discover even more unknown new molecules in order to create new "blockbuster drugs" sold throughout the world. As a result of these constantly increasing costs, we may also see that the number of product launches is globally dropping and pharmaceutical companies have much more difficulties in producing new molecules. This increase in production costs is closely linked to the new expensive methods used such as genetics and screening, the drug launch protocols and the integration of product launch costs such as marketing.

Extraits

[...] Once a patent expires, generic manufacturers start producing a copy of the drug and promote their own version to pharmacies. These generics being produced with lower R&D costs, they are often cheaper and rapidly gain important market shares. On their side governments also have an impact for they usually encourage the use of generic drugs with regards to reducing their national health expenditure. As a result, once a patent expires to 90% of net sales inferred by this drug fall in favor of equivalent generic drugs. [...]

[...] As far as cultural issues related to corporate behaviour are concerned, we can deal with integration. Indeed, J.F Dehecq wants each national subsidiary to keep its ‘national identity', since he wants to use multiculturalism as a competitive advantage. Based on this idea, “everyone can speak their own language” since the requirement for a unique language to be spoken may lead to reduce capacities and miss strategic opportunities if everybody does not master equally. However, sometimes, such a decision may prove problematic. The absence of a unique language may prevent crucial knowledge sharing between national subsidiaries. [...]

[...] In fact, a pharmaceutical company's increase in turnover is highly dependent upon its capacity to launch new innovative drugs. If the company wants to grow, it must constantly manufacture and produce new drugs, but this demands constantly higher research costs. According to the “Pharmaceutical Research and Manufacturers of America”, the average costs of development of a new molecule had raised from $ 138 million in 1975 to $800 million in 2000. This can be explained by the fact that major molecules have already been discovered and today research is aiming to discover even more unknown new molecules in order to create new “blockbuster drugs” sold throughout the world. [...]

[...] Then, it is likely that researchers' wages decrease but it is also likely that Aventis's researchers will rather be against a decrease in their wages. Therefore, budget integrations are to be carefully managed by executives if avoiding this risk. According to a major analyst, this merger is also risky since it could not lead to the increase earnings per share estimated: earnings per share forecasts are too optimistic”. Lastly, this merger is risky since it has generated a significant debt that may not be recovered as rapidly as promised by J.F Dehecq. [...]

[...] ) and its management structure”. Also, one would argue that even if a matrix structure favours better knowledge sharing, flexibility and allows for dual dimensions, it also makes decision making time longer, definition of job responsibilities less clear as well as cost and profit responsibilities. Since the time for decision making is one of the most important critical success factors in the pharmaceutical industry, as argues J.F Dehecq our firm, once a decision has been made it is implemented the very next morning. [...]