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Shares in Sanofi fell 19 per cent on Friday after the French pharmaceutical group announced a lower profit outlook and a spinout of its consumer care unit as it seeks to focus on drug research.
Sanofi reaffirmed its earnings per share guidance this year but projected a decline in the low-single digits in 2024 partly due to increased R&D investment. The group abandoned a target of 32 per cent operating margin in 2025 in order to focus on “long-term profitability.”
“We understand there is short-term disappointment and that the market wants certainty, but that would mean not maximising the company’s value,” chief executive Paul Hudson told analysts on Friday.
Shares in the Paris-based company were briefly suspended after the market opening, declining to €81.44 a share and a market value of €103bn, putting pressure on Hudson.
Sanofi said a split of the consumer unit could take place as early as the end of next year, most likely through a listing in Paris. The division, which produces over-the-counter pain management and allergy medications such as Doliprane and Allegra, accounts for just over a tenth of Sanofi’s total sales.
“The timing is driven by the desire to maximise value creation and reward Sanofi shareholders,” the group said in a statement.
The move to spin out the consumer arm comes four years after chief executive Hudson joined the drugmaker with a mandate to turn it round. Shortly after taking the helm, the British executive said he would focus on speciality medicines for cancer and rare diseases, moving it away from the mass-market products that had been its core franchise. Sanofi has since restructured the consumer division to be a standalone business within the company.
Sanofi shares had gained about 24 per cent since Hudson was appointed, roughly in line with the growth of the CAC 40 index of blue-chip French companies. Rival AstraZeneca’s shares have gained 40 per cent in the same period, while Pfizer and GSK have fallen by 9 per cent and 13 per cent, respectively.
“This downgrade will take some time for the market to digest,” said Naresh Chouhan, analyst at Intron Health. “The company is clearly in turnaround phase and has executed well [commercially] on key drugs, delivering new pipeline and cost control, but much of that was in the price already.”
Other drug companies have looked to part with their consumer health businesses in recent years in order to release funds to invest in cutting-edge treatments for cancers and other diseases. Johnson & Johnson spun off consumer health unit Kenvue this year while GSK and Pfizer combined their consumer businesses to create Haleon in 2019.
Sanofi has marketed new prescription drugs — including haemophilia treatment Altuviiio, and Beyfortus for respiratory syncytial virus in young children — as it works to bolster its pipeline. The company also acquired a type 1 diabetes treatment as part of its $2.9bn takeover of Provention Bio in March.
Investors had worried about the company’s dependence on its hit eczema and asthma drug Dupixent, which it developed with Regeneron. They also disliked the company’s decision to stop development on what was expected to be a promising breast cancer drug after a disappointing trial last year.
Sales fell 4.1 per cent on a reported basis to €11.96bn in the third quarter, the company said, pulled down by negative exchange rate effects. Operating income dropped 10.4 per cent to €4bn in the period, slightly below consensus estimates published on Sanofi’s website.
The company on Friday said it planned to invest close to €7bn on R&D this year, up from about €5.5bn in 2020. Significant increases are planned for as soon as 2024 with a focus on immunology, speciality care and vaccines, though no specific figure was provided. It will also target cost savings of €2bn from 2024 to the end of 2025, which will be reallocated to invest in innovation.
“We said that when we earned the right to invest more in R&D, we would . . . We’re doubling down on our science and innovation where we can make the biggest difference for patients,” Hudson said.
