Sanofi bucks industry trend by pledging to keep 'stand-alone' consumer unit

Sanofi, which has been carving out its consumer group into a separate business since 2019, remains wedded to the unit after a restructuring helped it return to growth last year.

Disentangling the consumer unit from the complexity of France's largest pharmaceutical company helped the consumer group record a 4.6% year-on-year rise in 2021 sales, CEO Paul Hudson said. It followed a historic slump in over-the-counter sales for cough and cold medicines across the industry in 2020 as a result of social distancing and other pandemic-related regulations.

"Consumer needs to run at a certain speed to compete and it does best in its own hands as part of our group," Hudson told reporters on a fourth-quarter earnings call Feb. 4. "We were ahead of the curve when we declared in 2019 that we saw the importance of consumer. We wanted it to be a fast-growing consumer health business [and] to explain to the market why we thought we were the best owner."

Trend for streamlining

The CEO's review of the consumer unit coincided with a trend for pharmaceutical giants like Johnson & Johnson and GlaxoSmithKline PLC to simplify their diversified structures and double-down on lucrative franchises, such as cancer and rare disease, driven by pioneering science, data and technological advances. Unveiling his strategy after joining the drugmaker from Novartis AG in 2019, Hudson said Sanofi's focus would be on vaccines, research and development and Dupixent — a psoriasis medicine that the CEO projects will exceed annual peak sales of €10 billion — while exiting traditional areas of expertise like cardiovascular and diabetes research.

The approach mirrors Novartis' own move to carve out its Sandoz generics unit — which private equity groups like EQT AB (publ), Blackstone Inc. and The Carlyle Group Inc. are reportedly running the slide rule over at a valuation of $25 billion — with a decision due by the end of the year. Brentford, U.K.-based GSK, meanwhile, will spin out its consumer unit by mid-year, after turning down three bids from consumer goods giant Unilever PLC reaching £50 billion, which the drugmaker considered to undervalue the business.

"If the GlaxoSmithKline Consumer Health spinoff goes well, we believe it is likely that Sanofi could spin off its consumer health business as well, which is a reasonable extension of the internal separation that is ongoing," HSBC analyst Steve McGarry said in a Nov. 1 note.

McGarry cited the potential for this spinoff, combined with a spinout of Sanofi's pharmaceutical ingredients business that Hudson said is expected "in just a few months," as reasons for upgrading stock in the Paris-based drugmaker to a "buy."

Sanofi's fourth quarter saw consumer health sales rise 5.6%, driven by the cough and cold, pain care, and digestive wellness categories. Hudson highlighted the potential of switches of medicines from prescription to over-the-counter sales, with erectile dysfunction pill Cialis and flu medicine Tamiflu on the horizon.

"Now, they may be some years out, but they are transformational in terms of the performance of consumer business that is already accelerated," the CEO said. "We don't worry about what the other companies do, we worry about what we're doing — and we're pleased with what's going on in our consumer business."

Elsewhere, Sanofi said it expects trials of the COVID-19 shot being developed in conjunction with GSK to read out later this quarter, while a late-stage vaccine for respiratory syncytial virus — developed with British COVID-19 vaccine-maker AstraZeneca PLC — is expected to be filed with regulators this year.

Accelerating R&D

The French drugmaker spent more than €12 billion on acquisitions in the last two years to bolster the group's pipeline of early medicines, said CFO Jean-Baptiste de Chatillon, who added that the company will ramp up R&D spending by around half a million euros in 2022. "It's very significant, we are really reallocating our cost base towards innovation on science," the CFO said.

Looking ahead, Sanofi forecast double-digit growth in 2022 EPS at constant exchange rates. "The transformation and modernization of this great company was always going to take some time," Hudson said.

"We're going to build an industry-leading and sustainable pipeline," the CEO said. "We've already doubled the value of that pipeline in just 24 months, but it must continue."