Biotech and Pharma

Sanofi shares rally on new margin goals, narrow drug focus

Key Points
  • Shares in Sanofi rose on Tuesday after the French drugmaker said it would focus on vaccines and treatments like its promising eczema medicine Dupixent to grow sales.
  • The drugmaker's business revamp is seen as potentially leading to spin-offs.
  • Long a leader in the diabetes market, new CEO Paul Hudson is ending research in diabetes and cardiovascular diseases.
Sanofi CEO Paul Hudson, November 19, 2019.
Gonzalo Fuentes | Reuters

Shares in Sanofi rose on Tuesday after the French drugmaker said it would focus on vaccines and treatments like its promising eczema medicine Dupixent to grow sales, in a business revamp seen as potentially leading to spin-offs.

Like pharmaceutical rivals from Britain's GlaxoSmithKline to Switzerland's Novartis, the company, which also announced cost savings targets and a goal to boost margins, is trying to zoom in on potential blockbuster drugs.

Long a leader in the diabetes market with its prescription medication Lantus, Sanofi has struggled in recent years to keep up the pace in this field with new treatments, and revenues faltered as patents expired.

It now wants to reverse this course under new Chief Executive Paul Hudson, poached from Novartis in September, ending research in diabetes and cardiovascular diseases.

Sanofi is investing in its more buoyant businesses like rare diseases and making a further push in the cancer market, snapping up U.S. biotechnology firm Synthorx in a cash deal worth about $2.5 billion.

Sanofi shares were up 4.7% in morning trading, at 85.73 euros each. The company is due to set out more details of its strategic plans later on Tuesday in Cambridge, Massachusetts.

Year-to-date, shares are up 18% compared to a 25% rise for the European healthcare sector..

It highlighted the potential for some new launches like Dupixent, an eczema treatment approved in other therapeutic areas such as asthma, which it said could reach over 10 billion euros ($11.02 billion) in sales from under 1 billion euros in 2018.

"We are encouraged that Sanofi is prioritizing Dupixent," analysts at Credit Suisse said in a note.

Sanofi also announced a target to reach a core operating margin of 30% by 2022, up from 25.8% last year, and ahead of some analysts' targets, including those at Jefferies.

The group said it would carve out its consumer health business, home to over-the-counter products such as influenza treatment Tamiflu, as a standalone unit with its own operational dynamic, on top of three other main divisions.

Hudson did not comment on what this meant for the unit further out, although Sanofi has been considering a joint venture or an outright sale among options for the consumer health business, sources have previously said.

"The market is likely to take (that) as confirmation that the business will leave the group at some point in the future," analysts at JPMorgan said.