Healthcare

“People knew I was different”

Etienne Jornod, former CEO and Chairman of Galenica and , looks back over 25 years. He will soon be making headlines with some new projects.

RUPEN BOYADJIAN AND ARNO SCHMOCKER

Even now, Etienne Jornod gets agitated Attack as the best form of when he talks about the events of 16 defence December 1999. “That was the most Jornod set out his arguments. The rather important day in my career and in cartel-like drugs market had been Galenica’s history as a company.” The fact deregulated in the mid-1990s. The that the extraordinary AGM of the drug wholesaler’s exorbitantly high margin wholesaler was even taking place on this of 17% was unsustainable. With a chain day and that the plans of the Jornod- of their own, they could pool purchasing chaired board of directors would be efforts, sell their products actively on signed off – a “total revolution”. the market and thus demand bigger Over 500 pharmacists, all discounts from the manufacturers. shareholders in Galenica, had poured into There was also the danger of foreign the Forum Fribourg on the road to Marly. chains elbowing their way into The mood was extremely tense. The main and attacking Galenica’s bones of contention were two items on position as market leader. the agenda: the abolition of the rule in the articles of association that prevented «Anyone who owned 100,000 Galenica from operating its own Galenica shares back then is now pharmacies and the listing of all shares on a multi-millionaire.» the stock exchange – including those of the pharmacists, who made up two thirds Appearances can be deceptive: Etienne Jornod The dissenting voices were loud. of the share capital. has no plans to relax any time soon. Ultimately, the pharmacists were being forced to accept a new competitor from within their own ranks. One leading And now here came someone who resistance is also reflected in the pharmacist from Zurich attacked the had worked for the company since 1975 development of Galenica’s chairman of the board of directors head and had previously “only” done a pharmaceutical activities, which have on: “Mr Jornod, what you’re saying isn’t chemist’s apprenticeship. And yet: “Even been run separately under the Vifor true. I know that the Germans won’t be back then, people knew I was different.” Pharma umbrella since spring 2017. coming.” In the end, 77% voted in favour. This was also demonstrated when he Back in the mid-1990s, they were still a And, soon, the Germans did come: less called his management team together for niche business and small fry in terms of than two weeks later, Germany’s Phoenix the first time at the Victoria Jungfrau group sales – but they were already chain acquired Amedis, the number two hotel in September 1995. However, the contributing 45% to total operating on the Swiss market. executives who assembled were hardly income (EBIT). Vifor grew its iron The success that followed also given the chance to enjoy the luxury of supplement into a global market worth showed that Jornod had been right: “Any this exclusive establishment in billions, which it now dominates with a pharmacist that owned 100,000 shares Interlaken. Equipped with T-shirts, tents share of over 70%. back then is now a multi-millionaire.” So and a VW camper van, they were sent on These iron products, which were the UK’s will have made a a scavenger hunt that ended in the not patent protected, were gradually lot of money. It took a 25.5% stake during Emmental. “That’s what the future’s going given protection and further developed the IPO and became an anchor to be like. You need to sense where the where possible from as early as the shareholder and partner rolled into one. market’s going and anticipate,” said beginning of the 1990s onwards. Rising Galenica had no retail expertise, whereas Jornod, as he welcomed his team at the cash flow opened the door to both new the Brits did – Jornod calls it “a marriage finish line. markets and investments in new made in heaven”. products. “The most important one, Even the appointment of the man «The pharmacists felt betrayed – Ferinject, only cost us CHF 20 million to from French-speaking Switzerland as it was as if the NZZ had stooped to develop,” Jornod says. He points out that chairman of the board of directors and Vifor has invested a total of CHF 600 CEO in 1995 was unusual in some tabloid journalism.» million in Ferinject to date and has respects. Galenica was something of an collected several billion Swiss francs in institution amongst pharmacists, where And it was not long after taking licensing income. you wore a suit and tie to the AGM dinner. office before Etienne Jornod ruffled his Just as he had in drugs wholesale, The company’s balance sheet was pharmacists’ feathers too. Galenica Jornod also focused on alliances in his “extremely healthy” according to Jornod, began supplying doctors and chemists pharmaceutical business, in research and and it held 50% of the distribution authorised to dispense drugs development as well as marketing. By market for therapeutic products. And yet: themselves. “The pharmacists felt landing the biggest names for Vifor, he “Galenica was fusty, had no strategy, and betrayed,” he said – it was as if the NZZ was making the small company big in the there was a lack of entrepreneurial had switched to tabloid journalism. process. In 2015, he secured the in- thinking.” Jornod’s ability to stick doggedly licensing of Roche’s Mircera product. The to his objectives despite meeting most significant step, however, was the joint venture with Fresenius Medical market still very much in its infancy into details. The lesson this taught him: Care (FMC), the world’s largest operator a business worth billions, just as he had “Never again have I made a decision of dialysis centres. This was to become previously with his iron supplements. without understanding it first.” the key component of Vifor’s strategy. Initial progress was slow, a few analysts Despite his passionate dedication, expressed doubts, and the share price Jornod can afford to let go. He says that «My personal project will be collapsed. he never missed a day of work at bigger than Galenica was back Galenica for 40 years but has not been Perennial doubters back since leaving the board of directors then, when the company was in 2017. “And I’ll be doing the same at worth CHF 240 million.» The doubters who have pursued Jornod Vifor,” he says, a few hours before his throughout his career are a source of final AGM, which is being kept small due Back in 2008, a US competitor irritation for him. In 2008, for instance, to the coronavirus. was on the verge of launching its own when Galenica was acquiring the US His next big decisions lie before iron supplement, before Ferinject was biotech firm Aspreva – which one him, not only in his role as chairman of ready to go. However, Jornod was able to Goldman Sachs financial analyst called the board of directors of the NZZ. Jornod seal a deal with the CEO of FMC, which an “empty shell” – its share price is planning a long-term project together controlled 70% – i.e. the majority – of the plummeted by 40%. This opened the with a private, family-owned company in market with its own centres and external door for Martin Ebner, who remains an area he knows well. Nothing is official customers. “When the competitor from Vifor’s main shareholder to this day with yet, however. There is only one thing he the US was ready to launch, it was too a 20% stake. is prepared to divulge: “The project is late,” he says with a mischievous laugh. Jornod is vindicated by stock bigger than Galenica was back then, Two years later, the joint venture Vifor market success. Over 25 years, when the company was worth CHF 240 Fresenius Medical Care Renal Pharma Galenica/Vifor has steadily increased its million, and it’s got more potential.” (VFMCRP) was established, with Vifor profit before minority interests by at holding a 55% stake. In 2019, VFMCRP – least 10% every year. This is reflected in which Jornod calls the “joint company” the best performance of all the 53 stocks for simplicity’s sake – generated income that have been traded on the Swiss stock of CHF 731 million, equating to 39% of exchange over this period (see charts). total group income worth CHF 1.9 billion. However, the departing CEO is Much of the CHF 2 billion plus not immune to flops. He has appointed that 2017’s sale of Galenica brought to too many people from big pharma who Vifor was invested by Jornod in Relypsa, did not bring anything to the company, thus adding the potassium binder he admits. Jornod also mentions an IT Veltassa to its portfolio. In doing so, the project that took far too long and that he Executive Chairman hoped to turn a signed off without understanding the

However, the logistics services provided by its Galenica is a safe haven subsidiaries Galexis and Alloga form the backbone of its operations. They also play an important role in ensuring that Set up in 1927 as a joint procurement Switzerland is efficiently supplied with drugs and enjoy a 50% market organisation by pharmacists from French- share. speaking Switzerland, the company has Galenica has grown sales by around 3% a year over the past grown to become a broad-based provider decade, thus outperforming the market, and has increased its operating margin with great regularity. of healthcare services. Its retail business Galenica is one of only a with pharmacies accounts for some handful of companies that has not revised its 2020 forecast It is expecting sales growth of between 1% and 3% 40% of its sales but 75% of its operating downwards. despite further reductions in the prices of therapeutic products being profit. Its portfolio also includes services imposed by the authorities. Operating profit (EBIT) is forecast to rise such as vaccinations and blood by 3% to 6%. The dividend looks set to be kept unchanged at the measurements as well as care in the home, very least, which would suggest a return of between 2.6% and 2.8%. with its sales channels becoming In other words, Galenica offers investors an above-average increasingly interlinked (“omnichannel degree of security during the coronavirus crisis. Its shares, which distribution”). Growth in its retail activities is outstripping that in its were issued at CHF 39 each in April 2017, have been in demand original business, thanks not least to smaller-scale acquisitions. since early 2019 and especially during the current crisis. They have gained some 17% this year alone. This rise is reflected in an impressive price/earnings ratio of 24x for 2020. AS

Take Vifor Pharma for steady nerves

Although Switzerland’s third-biggest pharmaceutical company consistently The company is on a firmer footing nowadays thanks to a delivers good results and exceeds broader product range. And, in light of a nicely full pipeline, its expectations, it shares tend to fluctuate management even felt confident enough last year to commit to wildly. They react strongly to general growth figures covering the years to 2025. market turbulence, such as that seen in The company has set itself the goal of becoming the first late 2018 or more recently at the onset port of call for iron deficiency, kidney diseases and cardio-renal of the coronavirus crisis. drugs. However, investors with a medium- It is already leading the field in the first two areas and is now enjoying and long-term horizon are able to growth in the cardio-renal business thanks to Veltassa. A study that participate in its growth story, which for is expected to show that the potassium binder also reduces the risk over 20 years played a major part in the of heart failure is likely to smooth the company’s move into pure impressive performance achieved under cardiology, although results are not anticipated until 2022. the same umbrella as Galenica (see charts At CHF 700 million, the largest contributors to sales last year above). At an estimated price/earnings ratio of 24x, the shares are were the two iron products Ferinject and Venofer, followed by the not overpriced. Vifor is aiming to grow sales by 10% and EBIT by EPO Mircera. Despite being a small company, Vifor was able to 25% in 2020 and has not yet revised its targets despite the crisis. license the drug in from Roche because its joint venture with Fresenius Medical Care gives it preferential access to more than 4,000 dialysis centres all over the world. RB