Sanofi chief says he could have done a better job outlining R&D plan

Sanofi chief executive Paul Hudson has admitted he could have done a better job explaining aspects of a multibillion-euro investment plan to shareholders, ahead of a meeting where he will try to sell them on spending more to develop 12 potential blockbuster drug candidates.

Hudson is under pressure to prove that pouring additional billions into drug research internally will solve Sanofi’s innovation woes, as opposed to splashing out on deals to acquire top-level science, after shares dropped almost 20 per cent when the plan was announced in October.

He said he should have stressed that the investment will be focused on spending on clinical trials of better than expected drug candidates in its pipeline.

“I think something that I should have explained better at earnings was that almost all of the increase in investment in R&D is in D. Because that’s where the action is for us. And that’s what drives the next wave,” he told the Financial Times.

The French group took investors by surprise when its R&D investment plans were unveiled six weeks ago, alongside the consequent scrapping of its margin target for 2025. It spent €6.7bn on R&D last year, up from about €5.5bn in 2020, and plans to spend up to an additional €2bn over the next two years.

“We’ve not stopped trying to acquire externally, but we’ve reached that important point where we think our own science is as good, if not better, than things we could pay $10bn or $15bn for,” he said.

Hudson plans to woo shareholders by touting 12 potential blockbuster drug candidates when he meets with them to present details of the plan on Thursday. He added that investors were surprised by the timing of the announcement of company’s new plan, but not by its intent.

He said Sanofi would double down on immunology, saying investors do not realise how many potential medicines could be found in the area. These include a potential oral drug similar to AbbVie’s megablockbuster Humira injection, used to treat arthritis and Crohn’s disease, which Hudson said could end up being the biggest medicine ever created solely by Sanofi. 

Hudson said the company had shown it was good at development, giving it an “A+” for how it runs trials, compared to a “B-” for its ability to discover new early-stage drugs.

His biggest challenge is convincing investors about Sanofi’s ability to deliver on development objectives. The British executive, who received backing for his plans from recently appointed chair and former Société Générale chief executive Frédéric Oudéa, said it was “fair” that investors “want their cake and would like to eat it” — meaning both short-term returns and investment to ensure long-term prospects.

The company needs to launch new products to replace its blockbuster asthma and eczema drug Dupixent, where Sanofi’s exclusive rights run out in the early 2030s.

However, the company’s big recent launches — including Dupixent, Altuviiio and Beyfortus — were done in partnership with other pharma companies, and the perception among many investors is that Sanofi does not have a proven record on solo launches.

“One of the fears that people have is: you guys are going to increase your R&D spend but I don’t have evidence of prior money spent on homegrown assets generating a return,” said Emily Field, analyst at Barclays. “That’s the biggest worry for investors.”

Hudson remains bullish, however, arguing that the success rate of mid-stage trials has increased by 50 per cent, bolstering the numbers of candidates in the crucial phase 3 during the four years since he took over as chief executive with a mandate to turn the company around.

“You have a choice. Do you partner on those assets or do you resource them to go all the way?” he said. “This is the moment where the company becomes a scientific leader again, an immunology powerhouse, and we just haven’t been there before, perhaps not even in the company’s history.”

During Hudson’s time at the helm, Sanofi has disposed of non-core operations and refocused on developing treatments for cancers, rare diseases and immunology. A spin-off of its consumer care division has been raised for next year, which analysts at Jefferies estimate could be worth between €18bn and €20bn.

The launches this year of Altuviiio, which is used to manage bleeding, Beyfortus, which prevents a widespread respiratory infection in infants, and Tzield, a treatment for type 1 diabetes, have helped boost confidence. 

But Sanofi shares trade at a discount to peers, reflecting concerns about its high dependence on Dupixent as well as about its pipeline. It will trade at about 10.5 times earnings per share in 2023, less than the average for large European pharmaceutical companies of 22 times, according forecasts from research group Intron Health.

Sanofi’s sales declined slightly in the first nine months of the year, falling 0.4 per cent to €32.2bn, despite strong growth for Dupixent and Altuviiio, while net income declined 2.1 per cent to €8bn.

Hudson also touted the prospect of an oral version of hit drug Humira, currently in phase 1 development, which hit peak annual sales of $21bn in 2022. There are now many generic versions of the drug, which was launched in 2002 and is also used to treat various forms of psoriasis, but Hudson believes there would still be a significant market for a pill that treated the same conditions.

“We’re the only company that will be able to make them in a tablet, [meaning] you can remove some of the side effect issues,” said Hudson.

However, the increased spending on development does not mean Sanofi will stop looking for deals, with a focus on either assets that come with low R&D expenses or early-stage developments that will not require heavier investment until after 2027. “We can comfortably make acquisitions . . . the bottom line is we’ll continue to add external science.”