I am a strong fan of India, says Sanofi-Aventis' CEO

The past few years has seen several multi national pharmaceutical companies come to India looking to make acquisitions. One such company is Sanofi-Aventis who’s chief executive officer Chris Viehbacher believes ‘India is one of the most exciting countries in the world at this stage.’

“We have been growing our business both organically and now and then through acquisition and we are going to continue to do that,” he said in an interview to CNBC-TV18’s Shereen Bhan. He further adds that his emphasis is on growing the business organically.

Below is an edited transcript of his interview. Also watch the accompanying videos. 
Q: We have seen a flurry of global MNC chiefs visiting India, so that gives us an indication that how strategically important the Indian market is for global pharma giants like yourself. But you have been a regular visitor to India. Has the India story changed in your eyes?

A: Well the India story just gets better and better. As you know we have been investing in growing our business in India for over 50 years. I think it’s one of the most exciting countries in the world at this stage and we clearly want to be a part of it. We have been growing our business both organically and now and then through acquisition and we are going to continue to do that. This is my third trip in two years. I have got half the executive committee with me to really make sure everybody in our company understands the importance of India to Sanofi.

Q: You have been worrying about the market rates here in India; is that sort of growth sustainable? Also, if you were to capture market share aggressively, it would probably has to be done through the inorganic route and there has been lots of speculation the deal with Universal Medicare in the OTC space. But I understand that you have told analysts that you will need to take long hard look before you actually get a deal done in India. Is that because of the kind of valuations that we are seeing in India?

A: There’s a lots of ways of growing you business. We actually aren’t looking at acquisition as a market share gain. We look at acquisitions as ways to build onto our business, to bulk onto our growth platforms and possibly look at where we got holes in the business that we can’t fill organically. But the whole marketplace is growing significantly.

One of the real advantages of Sanofi is this that we are able to produce locally. That means we have a cost base that matches the marketplace. We could sell a generic line through Herckst, we have a broad range of products. Shantha was an extremely important acquisition for us because it gives us a low cost high quality waxing platform, not just for India but globally and certainly for other emerging markets. Universal was our strategy of being a part of consumer health. We weren’t very strong there and the deal allowed us to take the Universal set of products and go globally with them.

We may consider more deals of that nature but for the moment my real emphasis is growing the business organically and I think our local team has been doing a fantastic job about it.

Q: Andrew Witty (CEO of GlaskoSmithKline) was here very recently and he said that he is not willing to pay the kind of strategic premiums that we have seen being discharged in the Indian market; nine time sales was the last big deal that got done. What are your thoughts on the valuations as far as the Indian market is concerned?

A: I think anytime you want to do a deal, the best thing you could do is create value for both sides of the transactions. There are obviously going to be multiples where as a buyer you are not really driving any value out of that and we are not going to be interested in those types of deals no matter where we are in the world.

That having been said, a lot of the deals that Sanofi has done have been companies that nobody’s heard of until we did the deal. You don’t get into the auction process where you are actually interested in building onto you business versus trying to get higher up in the lead tables of market share. Then you actually confine a lot of deals.

I think Universal is a good example of that. This is a deal where I don’t think we overpaid for it. This is an opportunity to grow our business outside of India which I think the company couldn’t do on its own. But equally, this is also important from the point of view of the promoters because we are looking at other things. We are very specialized in gel capsule business for example, so we are looking at line extensions. It’s another way of actually growing the business organically, but there was a strategic nature to it. We weren’t just buying businesses to add sales. There is very much a sense of partnership and collaboration and I think you see that behind our Shantha acquisition as well.

Q: Since we are speaking about the Shantha acquisition, can give us an update of where things really lie as far as Shantha is concerned because it was a deal that’s run into trouble with the WHO, on account of the recall and destruction of the SHAN5 vaccine. So where exactly do things currently stand as far as Shantha Biotech is concerned and how concerned are you?

A: I am right here in Hyderabad and I have an opportunity to review Shantha with the entire team and I can tell you I am as excited about the strategic importance of Shantha as I have ever been. We did have a setback with the recall, but this is where you could see the strategic nature of partnerships. There is fantastic plant and equipment, there is great team in place, but we can drop on some of the expertise of Sanofi pass it to our vaccine companies to really deal with some of the production issues. We are investing significantly in research and development at Shantha. We have a number of vaccines under development that we don’t have anywhere else in the Sanofi Group and those will come to the market over the next 2-3 years.

The World Health Organization gave us a pre-qualification on our Cholera vaccine Shanchol as well as our tetanus vaccine and they had already reviewed the quality system that underlie SHAN5 the product that had been recalled. So this gives us huge amount of confidence that the team has really cracked the manufacturing issues and I think we are going to be back manufacturing vaccines for the world out of Shantha very soon.

Q: So would it be fair to say that the WHO worries are behind you as far as Shantha is concerned?

A: I think so. We are now in the process of doing the clinical trials because we essentially redeveloped the SHAN5 vaccine. So we are into the clinical trial process and we have already announced that we will be bidding for the UNICEF tender for the 2013 to 2015 time frame.

Again for us, this is extremely important. There is such a huge market in emerging markets for vaccine because there is no better investment you can make in healthcare. But you can’t access that market with high priced vaccines. You got to have vaccines that are affordable everywhere and Shantha offers us a platform where we can get the cost of production down, so that these vaccines really become affordable to the masses. At the same time, we bring the Sanofi quality image behind that because everybody’s got to have total confidence in vaccines.I think we are going to be unique in the market place.

This has been for me an extraordinarily important and strategic acquisition and I am very proud of the teams and the work that they had done to get us back on track.

Q: I want to talk to you about the regulatory landscape in India. There is a proposal that the Indian government is looking at which subjects that FDI into the pharma sector be capped. Is that a good idea? Do you believe that the Indian government has legitimate concerns?

A: Well I think that would be a concern. I think that wouldn’t be good for India’s terrific reputation. There are a lot of companies that would certainly say that this is a different approach.

When you look at facts, there is no real need for it. Sanofi has been here since 1956 and we have created 5,000 jobs, local manufacturing, we are a net exporter from India. We have taken a company like Shantha, kept local management, and strengthened it with the transfer of knowhow. We have spent another USD 300 million in Shantha over the last 2-3 years both in research and development and upgrading our manufacturing processes. If you look at the Universal deal, we continue to work in collaboration with the promoters; a third of our sales are under price control in any case. Look at Shantha - the price of vaccines haven’t gone up by a single rupee.

So I think there are some people who are creating concerns around that, but I invite people to look at the facts. This investment has been good for India and India is a very important economy in the world. People are both interested in importing as well as doing business in India and I think it’s important for India to continue to convey the message that it’s open for business.

Q: The biggest worry that the government has is that MNCs will come and acquire generic companies and then prices are going to move up. You were absolutely right about the fact that while a large number of our drugs are under price control, this apprehension doesn’t seem to die down. What’s your message going to be the government?

A: Again I think you have to go back and look at the facts. There is a well-known product in India called Lasix. This is a product that was introduced by Herckst, it’s been around for year and years and is one of the most popular products in India. The price of that has been price controlled for years and yet we continued to produce it. If you look, India has amongst the lowest prices in medicines anywhere in the world and that really hasn’t changed despite significant foreign investment over decades. So I really don’t think that that is a concern. I think in any case there is a very competitive marketplace here. I think even in a free pricing environment you are not going to see that happen. There is just too much competition.

What’s important is that a company like ours has local manufacturing. Given that prices are so low; unless you actually produce locally you really can’t compete. I think the real promise for India and as you look at Foreign Direct Investment is I think India is coming to a crosser. I think India really has an opportunity to be big in research and development. There is a very strongly emerging biotechnology industry. We have done for instance deals with companies like Glenmark. All countries are looking at competitiveness and innovation is at the core of that and I think India is extremely well placed. It has significant investments in education, very smart people, good capital formation and I think that’s really where the feature for India is - the biopharmaceutical space. Yes we need affordable medicine that exists but there is a fabulous opportunity really to accelerate investment and innovation in biotechnology.

Q: You have done two R&D deals with Glenmark. Are you satisfied and happy with the progress that you have seen on that front and would that be the route that you would like to take here in India?

A: I am a very strong fan of India and particularly the education process. Science is all about really smart people. Science is all about investing in education and you are seeing very strong companies like Glenmark.

We collaborated with Glenmark for research on a monoclonal antibody in autoimmune diseases. This is very exciting because if the companies like Sanofi are going to continue to really work in collaboration with biotechs around the world, we are looking to find best science. We have come to India and we have come to Glenmark because we found that terrific science. So very happy with that collaboration and we would love to do more deals of that nature in India.

Q: 15 other pharma giants like Novartis and Pfizer are upping their holdings within their Indian subsidiaries. Is that going to be something that Sanofi would continue to do? You have already upped your holding in Aventis in India but an eventual delisting, would that be the possible route that you would take?

A: No plans for that. I think we are very proud of our Indian heritage and being quoted on the Bombay Stock Exchange we think is extremely important for us. For instance, the Universal deal was done through our publicly traded company and that’s pretty unusual for an MNC. But we did it because we wanted to do something good for our local shareholders. So I think we are very happy with that arrangement and we have no plans to change that.