Sanofi Stumbles After Drug Setback

Sanofi-Aventis (SNY) saw its shares sag Tuesday on the heels of disappointing regulatory news about the French company's experimental drug Acomplia.

On Friday, after the markets had closed, Sanofi-Aventis said the Food and Drug Administration rejected Acomplia as a smoking-cessation treatment and gave conditional approval for the drug as a weight-loss medication.

In a three-sentence press release, the company didn't identify the conditions or set a timetable for meeting the conditions. "Sanofi-Aventis will continue to work in close collaboration with the FDA," the company said.

U.S. investors, coming off a long holiday weekend, choked on the news, sending the stock down 2.7% to $43 by midafternoon on triple the average daily volume for the last three months.

Conditional approvals, known as "approvable letters," aren't rare, especially if a product, such as Acomplia, is the first of a new class of drugs.

If approvable letters require more information about existing data or greater discussions about a drug's label, the FDA's clearance can be granted in several months. But if the agency wants more clinical testing, the delay could last for several years.

The FDA's action creates "substantial uncertainty over what is considered Sanofi's most important pipeline asset," says Alexandra Hauber of Bear Stearns in a Feb. 20 research report. "The next steps are difficult to handicap in the absence of further information from Sanofi."

Hauber has a peer-perform rating on the stock. She doesn't own shares, but her firm has had a recent noninvestment-banking relationship with the company.

Boding Ill

Company executives can expect a grilling from analysts on Friday when they present fourth-quarter and full-year 2005 financial results and, perhaps, offer guidance for 2006.

Until then, analysts are doing their best to read the tea leaves. Hauber noted that the company, in its statement, referred to Acomplia as a "weight management" drug. This definition "doesn't bode well for an indication beyond weight loss, such as a treatment for metabolic syndrome," she says.