Sanofi's Prospects Get Leaner

The stock falls a day after an FDA panel says a weight-loss drug shouldn't be sold in the U.S.
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Shares of

Sanofi-Aventis

(SNY) - Get Report

skidded Thursday, one day after the company suffered a major setback for its weight-loss drug Zimulti.

A panel of outside advisers to the Food and Drug Administration recommended unanimously Wednesday that the agency reject the obesity drug because Zimulti's

risks were greater than its potential benefits of reducing weight in obese patients.

The medical experts said the company had failed to provide enough proof in its clinical trials about the drug's safety, especially its risk of triggering suicidal thinking.

At least four analysts cut their ratings on the French drug giant. Shares were off $1.33, or 3.1%, to $41.74, and the stock fell as low as $41.09. Volume was much heavier than normal.

The FDA is expected to rule in late July on Zimulti, which is sold in foreign markets under the trade name Acomplia. The FDA isn't required to follow advisory committee recommendations, but it usually does. The panel's unanimous opposition seems to leave little room for Zimulti's immediate endorsement.

"Approval

is unlikely until the next decade at the earliest," says Alexandra Hauber, of Bear Stearns, in a research note. Hauber reaffirmed the underperform rating that she has had since October.

She doesn't own shares, but her firm has had a noninvestment banking relationship.

Hauber removed potential U.S. Zimulti sales from her economic model through 2012, but she kept her foreign-market sales intact.

Merrill Lynch downgraded the stock to neutral from buy, cutting U.S. Zimulti sales from its five-year forecast and also reducing revenue predictions for the European Union. In comments echoed by other analysts, Graham Parry said Sanofi-Aventis' other drugs in development appear "insufficient" to offset the damage that will be caused by big-drug patent expirations between 2011 and 2013.

"The negative outcome also compounds our broader industry concerns around FDA's attitude to drug safety," Parry says in a research note. "This highlights increased safety hurdles that new products must now overcome." Parry doesn't own shares. His firm has had a recent investment banking relationship.

What's Next?

The FDA could reject Zimulti, or it could request more clinical trials. That could delay a U.S. launch by several years and add a considerable sum to development costs. Sanofi-Aventis is conducting several clinical trials, including a major one on cardiovascular risks, but it wasn't immediately clear if these tests are designed to evaluate psychiatric side effects.

The company "will have to either drop development or wait until it accumulates more safety data," according to

BioMedTracker

, an independent publication that analyzes pharmaceutical products and R&D. It says Sanofi-Aventis might be able to use results from an ongoing study of some 17,000 patients.

"We think they could well continue the trials depending on what the FDA indicates they will need." However, results won't be available until 2010.

Sanofi-Aventis said after the panel ruling that it "will continue to work closely with the FDA to address the committee's recommendations." The company didn't comment on how the panel's opinion, or a negative FDA decision, might affect its financial results for the year.

When it issued its first-quarter results last month, the company predicted full-year earnings-per-share growth of 6% to 9% "barring major adverse events" and excluding one-time items.

Adverse events included the possibility of unfavorable U.S. court rulings on patent-infringement suits to protect its anticoagulants

Lovenox and

Plavix. Both cases are pending.

Sanofi-Aventis licenses Plavix to

Bristol-Myers Squibb

(BMY) - Get Report

for U.S. marketing, but it handles all marketing for Lovenox, which is its best-selling drug. Plavix ranks second.

Company executives told shareholders at the annual meeting in May that U.S. approval of Zimulti and a victory in the Plavix case were the two key events for 2007.

Sanofi-Aventis and analysts had been predicting that Zimulti could be a multibillion-dollar-per-year product as long as it reached the U.S. The drug is approved in 37 countries and sold in 18, the company said. Larger markets include countries in the European Union.

Zimulti had been subject to multiple regulatory delays in the U.S. following its initial application in April 2005. The FDA granted conditional approval in February 2006 but stopped short of full clearance.

Subsequently, it was revealed that

the FDA was worried about clinical trial results showing that 26% of Zimulti users experienced some psychiatric side effects vs. 14% of patients receiving a placebo. Increased suicidal thinking was a key side effect.

Sanofi-Aventis told the FDA advisers that it would institute a program to make sure Zimulti wasn't prescribed for people with a risk of depression, suicidal thinking and other psychiatric problems.

The panel's vote against Zimulti offers an unsettling signal for several other drugmakers working on antiobesity medications using the same strategy as Zimulti. The Sanofi-Aventis drug targets the brain, seeking to block signals that help regulate how the body monitors food intake and how it uses and stores fats and sugars. Zimulti focuses on a part of the brain called a cannabinoid receptor 1.

Companies working on similarly acting drugs include

Merck

(MRK) - Get Report

,

Pfizer

(PFE) - Get Report

and Bristol-Myers Squibb. The Merck and Pfizer compounds are in late-stage clinical testing. The Bristol-Myers Squibb drug and two other Sanofi-Aventis products are in midstage testing.