Sanofi Could Plummet On Imminent Plant Shutdown

| About: Sanofi (SNY)

Sanofi (NYSE:SNY) plans to start laying off factory workers and will eventually shut down its Kansas City manufacturing plant at 10236 Marion Park Drive.

The plant will be closed by August 2016. However, this is four years later than the company originally expected to shut it down. Original estimates, given in 2009, had the plant closing completely this year. Over the next few years the 337 employees that run the plant will lose their jobs, beginning with 112 layoffs at the beginning of July. This is the approximate date that the plant was originally scheduled to shut down on. Following that there will be further layoffs on Dec. 31, 2012, June 30, 2013, and Dec. 31, 2014. After these last layoffs, the plant will finally shut down completely and no longer be in working order.

The plant was able to stay open for longer than expected due to agreements with other drug suppliers to make medication on a contract basis. However, now that part of the business is closing off the company is ready to start shutdown procedures in earnest.

The reason for the planned shutdown is that the plant suffered a significant decline in the volume of Sanofi products that were being manufactured there. In short, the plant is no longer serving a profitable purpose. This led to Sanofi deciding to put the plant on the market. However, the plant was on the market for a year and no buyers stepped forward to purchase it. This led to the decision to simply shut the plant down for good. This is all part of the company's $1.56 billion cost-reduction effort that also included plants in Dagenham, the U.K., and Textitlan, Mexico. The employees have already been informed of the proceedings.

The plant is 36 years old and Sanofi has owned it since 2000. The plant manufactures Allegra and other solid-dose medications, and it used to be considered one of the company's key facilities. Alas, with the drop in production those days are gone and it is time for Sanofi to cut its losses and move on to more profitable things. The four-year shutdown process appears to be the company's best option as the plant is no longer serving a meaningful purpose. At this point, it is unclear what exactly Sanofi plans to do with the building once operations there have been permanently shut down.

The question that stockholders need to consider is whether or not this is a sign that Sanofi, in general, is beginning to decline. This is only one plant, but the fact that production at the plant has been so low indicates to me that the company is not able to keep ahead of the game. In my opinion, Sanofi is beginning to suffer. On the other hand, one could read this as a positive sign that the company does not want to hang on to unprofitable deadweight. In that light, it seems that Sanofi has the best interests of investors at heart. A closer examination of the company is needed if we are to decide if this is a good or bad direction for Sanofi to take.

Sanofi competitor Pfizer (NYSE:PFE) recently tried to get back into the development game with its new drug tofacitinib. The company claims that this drug significantly reduces the swelling associated with rheumatoid arthritis. However, the FDA questions the results of the study because the company used x-rays as the method for determining if the drug slows down the progression of the disease, and this is simply not enough to decide whether the benefits of the drug outweigh the risks, which include cancer and infections. The outcome remains in the balance, with the industry watching.

Johnson & Johnson (NYSE:JNJ), although one of the few companies not suffering from the problems caused by patent expirations, has suffered a run of seriously bad luck recently. Several of its biggest products were recalled for a variety of reasons, and many of these top-selling drugs have not yet made it back to the market. A change in the management structure of the company has led to an increased interest in acquiring other companies that will boost the company's revenue.

Following a rejected private bid a short while ago, GlaxoSmithKline (NYSE:GSK) recently made an aggressive offer of $2.6 billion to take over Human Genome Sciences (HGSI). The cooperative relationship between the two companies may have just become substantially more brutal. Despite what Human Genome probably hoped for, the offer is at the same price as before, except this time it was made as a direct approach to the company's shareholders. The offer will stay open for 20 days and, despite this hostile move on the part of Glaxo, the company hopes to settle the matter on friendly terms in the long run. This follows the news that Glaxo has absolutely no intention of acquiring the small firm AstraZeneca (NYSE:AZN). This leads you to wonder what exactly the larger company sees in Human Genome that it does not see in AstraZeneca. This is probably due to the fact that AstraZeneca has suffered a number of drug development setbacks recently. While AstraZeneca's rivals diversify, it continues to rely exclusively on prescription medications for its revenue. All of these factors result in the company being a prime takeover target, but Glaxo publicly opined that it was not interested in such goals.

Sanofi remains a question mark at the moment, as investors must decide how to handle the news of the manufacturing plant's shutdown. Its competitors are not making any enormous moves at the moment, so that helps, but those companies are one successful drug away from being boosted up again. Sanofi will need to keep its other plants at normal production, and invest the money its saving from this new development into research and development.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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