What's the Deal at Solvay?

Aug 01, 2009

On April 22, following a flurry of press reports, Solvay, the 150-plus-year-old Belgian chemicals/plastics/pharmaceuticals conglomerate, confirmed in a note to its employees that it had put its Pharmaceuticals division up for sale. Sort of.

"In anticipation of the profound changes that the future promises," the note read, in part, "Strategic considerations for Pharmaceuticals include the following options: Keep the status quo; seek new acquisitions; divest; float on the stock exchange; partner with another company... To date, no decision has been made and could not possibly be made in a professional manner. Each option must first be tested; this supposes a strategic assessment and a detailed valuation. In this context, we have asked specialists to assist us with this process." The specialists in question were not a team of shrinks but lawyers and bankers from Morgan Stanley, Citigroup, and Rothschild.

Alas, Solvay's apparent decision to abandon the meds sector is a sign of the times. With the global economic crisis battering the firm, sales at its top-selling Plastics division fell 6 percent last year, while Chemicals climbed only 2 percent. By comparison, Pharmaceuticals positively soared at $3.78 billion, or 28 percent of the company's total sales—a 4 percent increase over 2007.

So why sell Pharmaceuticals?

It's not for lack of interest—at least not on the part of Solvay's current CEO, Werner Cautreels. A former head of global R&D, Cautreels took the company's reins in 2005, steering Solvay through its $1.56 billion acquisition of French pharma Fournier, which delivered a fat fenofibrate franchise.

Cautreels, who started out as an analytics chemist, has also tried to right the ship with a more cost-effective business model. Still, what he would really like to talk about is Duodopa (levodopa/carbidopa), the once-in-a-career drug for late-stage Parkinson's disease that he's launching in the EU (and some day, FDA permitting, in the US).

Cautreels has already had his share of expensive R&D disappointments. Last November, for example, after Sanofi's billion-dollar debacle with its anti-obesity "wonder drug" Acomplia, Solvay quietly shelved its own cannabinoid type 1 antagonist, which had been languishing in Phase II. In 2007, FDA nixed its schizophrenia compound, bifeprunox, which the company was codeveloping with Wyeth to grab a piece of the giant atypical antipsychotics market. An FDA advisory committee also gave a thumbs-down to a novel atrial fibrillation molecule, Pulzium (tedisamil), which the EU approved in May. All three drugs no doubt looked like safe bets—even potential blockbusters—by pre-Vioxx risk/benefit standards. And even though increased scrutiny by FDA regulators has doomed many a product, explaining these failures to his board cannot have been pleasant for Cautreels. Therefore, he is understandably wary about Duodopa's fate.

On the Market

Rumors of a Solvay sale first surfaced in March, when the Financial Times reported that Chris Viehbacher, Sanofi's new CEO, who has made no secret of his lust for a midsize addition, had made an offer to Solac, the family-owned holding company that controls 30 percent of the Belgian giant. However, as Solvay's stock price has ranged between €41 and €97 per share over the past 12 months, the asking price—€100 per share—struck analysts as wishful thinking, at best. Consensus is that the pharma unit could eventually fetch Solvay about $7 billion.

Abbott was said to be the other avid suitor. Solvay and Abbott currently comarket cholesterol-busting TriCor, as well as the newly approved, sustained-release, patent-extending version, Tri-Lipix. But in mid-July, when acquisition rumors resurfaced just as Pharm Exec was going to press, Abbott denied any interest in the Belgian drugmaker.

But that's not all. According to the Financial Times, Nycomed, the privately owned, Zurich-based drugmaker, and an unidentified Japanese pharma have also come calling. For them, Solvay would offer cost savings, a sales platform in Europe, and access to a wide range of emerging markets.Though its portfolio boasts no single-blockbuster (and is generally criticized as underperforming), its cardio crop broke the billion-dollar mark in 2008, and Androgel hit half that. Meanwhile, Solvay's cardio and CNS pipelines are decently stocked.

Still, conducting business with a "For Sale" sign out on the front lawn can be trying, even if it adds bounce to the stock price. Solvay's efforts to keep its head low—inking small deals, issuing €500 million in debt, fighting generics lawsuits against Androgel—while the business press buzzes about potential buyers have proved awkward, leading the Three Brothers Health blog to dub the Belgian firm "The Pharmaceutical Bridezilla!" (A July 16 press release sniffed: "As customary, the Solvay group does not wish to react to the rumors reported by the press today.")

His company may be tight-lipped, but when he sat down with us, Werner Cautreels was refreshingly candid—on Big Pharma, FDA, and more.

Walter Armstrong

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