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Sanofi - The Biggest R&D Spenders In Biopharma

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Company: Sanofi
2011 spending: $6.24 billion
2010 spending: $5.9 billion
Change: +5%
Percentage of revenue: 13.5%

Note: Sanofi's number crunchers calculate its R&D expense as €4.8 billion in 2011, including vaccines and animal health, compared with €4.55 billion in 2010.

Sanofi CEO Chris Viehbacher likes to illustrate the kind of challenge he faces with R&D with a useful figure. "On average," Viehbacher told a biotech crowd earlier this year, "studies have shown that if you spend a dollar on research and development it will return 70 cents."

The status quo, he has insisted since taking the helm, offers a sure path to disaster.

Viehbacher wants to change that equation dramatically, and he's been retooling the research arm of the business under Elias Zerhouni. Last year, that strategy called for an uptick in R&D expenses on the pharma side of the business. Just looking on the pharma side of R&D, which is carved out from vaccines and animal health, expenses jumped from €3.89 billion to €4.1 billion. But the game here is going to be decided by new drug approvals rather than cost-cutting. And at the end of 2011, Sanofi ($SNY) was touting 5 drugs submitted for an approval, including Zaltrap (aflibercept) for colorectal cancer.

By February, Sanofi counted 18 drugs in the pipeline that the pharma giant felt could win an approval by the end of 2015. And this year, as the full effect of the patent cliff becomes apparent in eroding profits, Sanofi is going to need a high percentage of blockbusters to make up for the sliding numbers.

Even ahead of some stellar Phase II data, the pharma company was zeroing in on its PCSK9 inhibitor, which is racing Amgen ($AMGN) to the market. The PCSK9 inhibitors are designed to dramatically lower LDL, or "bad" cholesterol. While generic statins will continue to command a large share of the market, hard-to-treat patients as well as a group with dangerous levels of LDL represent a sizable business opportunity--even though forecasts are all over the map on peak market potential. Sanofi is partnered with Regeneron Pharmaceuticals ($REGN) on this program.

Two top prospects were added in buyouts. Lemtrada for MS--acquired in the $20 billion Genzyme acquisition--will likely compete with Biogen Idec's BG-12 for the attention of the market, especially as Novartis' Gilenya faces scrutiny for potential safety issues. And when Viehbacher recently laid out his top drug prospects to the Boston Business Journal, he added a mid-stage dengue fever vaccine acquired when Sanofi bought out Acambis.

Any R&D review also includes the late-stage diabetes drug lixisenatide (a GLP-1 drug dubbed Lyxumia), another MS drug dubbed Aubagio-teriflunomide, which troubled analysts when it failed to best Rebif--as well as the JAK-2 inhibitor SAR302503 for myelofibrosis. Interestingly, Sanofi also joined the backers of Warp Drive Bio, a biotech startup. That kind of partnering activity clearly hits a sweet spot at Sanofi, where R&D silos have been out for several years now and open research ecosystems are in.

Restive analysts have heard all the talk about new directions, though. Now they want to see R&D deliver on some big approvals, and follow up with impressive sales numbers. That won't be easy.