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Sanofi to Slash Workforce in France

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Sanofi (SNY - Free Report) recently announced that it plans to reduce its workforce in France by approximately 900 positions by 2015. Sanofi intends to put this plan into action through early retirement plans, mobility proposals and repositioning in France. Sanofi discussed this plan as a part of a restructuring project in France.

Sanofi has undertaken this project with the objective of increasing the success of research activities, improving the performance of the vaccines division, Sanofi Pasteur, and optimize efficiency by streamlining support functions.

We remind investors that earlier this year, Sanofi saw two of its key products losing patent protection. With both Avapro and Plavix facing generic competition, Sanofi’s business net income is expected to be negatively impacted by around €1.4 billion in 2012. Additionally, several other products of the company including Lovenox, Xatral and Taxotere are already facing generic erosion.

In order to address its generic concerns, Sanofi reviewed its cost base and implemented a new operating model. The company conducted an extensive review of its research and development operations in order to reallocate resources to the highest growth and most promising development programs. The new operating model should result in significant cost cutting in R&D and SG&A.

Sanofi delivered cost savings of €2 billion by the end of 2011. The company remains on track to generate additional cost savings of €2 billion by 2015. The company expects to realize one-third of this saving by the beginning of 2013. The company has also been working on allocating resources to the highest growth and most promising development programs.

Our Recommendation

We currently have a Neutral recommendation on Sanofi. The stock carries a Zacks #3 Rank (Hold rating) in the short run. We are pleased with the company’s efforts to develop its pipeline. We expect Sanofi to continue to contain operating costs in order to increase earnings in the face of weakening sales of some of its biggest products. We also expect the company to pursue bolt-on acquisitions.

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