Sanofi’s (SASY.PA) board ousted its chief executive of six years at a special meeting on Wednesday, two days after it emerged he had fallen out with the French drugmaker’s chairman, wiping more billions off its market value.
The management turmoil comes at a particularly awkward time for France’s second-biggest listed company, after it warned on Tuesday that growth in its key diabetes business would likely stall next year.
The board said on Wednesday Sanofi would continue the strategy of international expansion pursued under Chris Viehbacher, blaming his dismissal on his management style and poor relations with the board.
But some analysts fear the company may become more insular.
“Viehbacher tried hard to change the DNA of the company but the board won in the end. Sanofi will become more parochial now,” said Navid Malik, head of life sciences research at Cenkos Securities in London.
Shares in Sanofi were down more than 4 percent in morning trade. That takes their decline over the past three days to more than 15 percent, wiping almost 17 billion euros ($22 billion) from the company’s market value — or more than the entire market capitalization of French carmaker Renault (RENA.PA).
Sanofi said Chairman Serge Weinberg would take on the CEO role until a replacement for the ousted German-Canadian Viehbacher was found. Weinberg said on a conference call there had already been contacts with potential candidates in the pharmaceutical industry and nationality would not be a factor.
“We want to choose the best possible boss for Sanofi, so we’ll take the time that’s needed,” Weinberg said, adding the board would strive to go “as fast as possible”.
Sanofi’s first non-French boss, Viehbacher transformed a national champion into a global business, largely due to the $20 billion acquisition of U.S. biotech and rare diseases company Genzyme in 2011, which tipped the enlarged group’s center of gravity away from Paris and towards Boston.
But his straight-talking and sometimes brusque management style raised the hackles of trade unions, and a source close to the board told Reuters this week that it was unhappy at the lack of communication from an “authoritarian, solitary, secret” CEO.
Viehbacher did not inform the board when he recently oversaw a review of what to do with an $8 billion portfolio of off-patent drugs in Europe, most of which are produced in France. The options studied leaked to the press and fired up tensions.
Weinberg said the unanimous decision from the board’s 15 members to remove Viehbacher stemmed mainly from his management style and poor cooperation. He also cited problems with Viehbacher’s execution of group strategy, pointing to inventory problems in Brazil last year, a slowdown in sales in China and Tuesday’s warning on its diabetes business.
The fact Viehbacher moved to Boston in June did not help relations improve, but his change of residence was not the root of the dispute, one source close to the board said.
Uncertainty over Viehbacher’s role first surfaced on Monday with the publication of a Sept. 4 letter he sent to the board asking for clarity about his position.
A source close to the matter said Wednesday’s board meeting lasted only 30 minutes and was relaxed. “Chris Viehbacher thanked everybody and said he respected the board’s decision. He seemed prepared,” the source said.
French cosmetics group L’Oreal (OREP.PA) is Sanofi’s largest shareholder, with a stake of 9 percent. Officials at the company were not immediately available to comment.
Some investors were disappointed Sanofi did not set out a plan on Tuesday to offset problems at its diabetes unit with cost cuts. However, Citi analyst Peter Verdult said scope for significant cuts were limited by the need to invest in the new drug pipeline. It is also difficult for Sanofi to cut its domestic cost base in France, due to strict French labor laws.
One lever Sanofi could pull would be to make further acquisitions, according to Bernstein analyst Tim Anderson.
“Generally speaking, in the pharmaceutical sector, larger M&A deals tend to happen when companies are in difficult straits and this is where Sanofi seems to be at the moment,” he said.
Sanofi has stayed somewhat on the sidelines of a global tide of mergers and acquisitions in the industry over the past year.
Weinberg ruled out mega-deals, saying these rarely created value, but said the group would keep looking at targeted acquisitions to strengthen its existing businesses.
“It’s not because we haven’t acted lately on this front that we won’t do so tomorrow, but we are not interested in big operations, in what we call mega-mergers,” he said.