Sanofi

Sanofi-Aventis :

An Analysis of the hostile takeover bid by Sanofi-Synthélabo

Question 1)

Pharmaceutical Industry Context :

Today, the pharmaceutical industry can be split in two parts, the industry of generic drug, and the industry of new drug.

Here is a table who compare both:

| Industry of generic drug | Industry of new drug |

Performance criterion | The market share | Product specificity |

Condition of success | Economies of scaleDelocalization | MarketingTechnology |

Definition | Volume industry | Specialized industry |

All the pharmaceutical industry is built around one point, the duration of a patent, actually the duration of a pharmaceutical patent is regulated by international and national law but also by the convention of Helsinki and fixed at 20 years. So the strategy is to develop a lots of molecules per year and invest huge amount to product blockbusters drugs to insure a good ROI during the 20 years of full commercial exploitation.

So, to insure such investment, the laboratory need to have a huge treasury. From that observation, small laboratory are bought by bigger ones to survive, the buying company gets all the patents of the small laboratory and can produce them in bigger quantity, but also market them easily with their huge networks.

But with all the crisis and the crises of the debt, governments are trying to reduce all their expenses including medical expenses of their citizen by reducing the refunding of drug or taxing the laboratory or forcing pharmacies to give a generic drug instead of a marketed one.

By doing that, the market of generic drug is increasing constantly, and it becomes difficult for laboratories to get bigger market shares, so they try to reduce the cost of production and making economies of scale by delocalizing the production.

To avoid difficult fight on the generic market, laboratories try to develop more and more new molecules.

But the development of new molecules to treat new disease...