Sanofi (SAN) Earnings Call Transcript & Summary

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Okay. Welcome, everybody, and thanks for joining us this afternoon for our next company session, which is Sanofi. From Sanofi, I'm very pleased to be able to introduce Paul Hudson, CEO; and Jean-Baptiste de Chatillon, the CFO of the company. Both are in the same room together, which is convenient in this day and age.

And so I'd perhaps like to kick off with an open question for Paul. You're just over a year into the role now. So perhaps if you could just give us a brief recap on what you think you've achieved in the last 12 months and what your priorities for the next 12 months are.

Thanks, Graham. Thanks, everybody. And very happy to be involved. It's been -- it's somewhat of an unpredictable year with COVID-19. When I took the job a year ago, that was -- I knew we're going to be in the vaccines business, but I wasn't entirely predicting this. It's a good place for me to start because what it has done over the last months has shown me the company at its absolute best. Normally, in my job, it takes 3 or 4 years to have everything how you want it. But in a pandemic, at speed, purpose-driven, you see exactly what needs to happen. The real trick will be how we maintain the purity of purpose, the simplification, the problem-solving and extend it toward the entire portfolio in the upcoming years. But COVID-19 was unexpected. We're the only company, as you know, that is -- in vaccines that's researched its own vaccine to deal with COVID-19. Everybody else has partnered effectively. So we feel very proud of the work done. It was an expected thing to be proud of. When we went into Capital Markets Day last December, we laid out what we thought were hidden gems in our pipeline. I think we can talk about it a bit later. We've seen significant progress, either news flow on the assets themselves or the landscape or competitive set moving towards us favorably in terms of our own position. So we feel much more confident even about the choices we made. Over that year as well, we've seen Dupixent continuous trajectory despite the pandemic, I mean, literally. And you know it says a lot about its profile and its durability. And we were annualizing Q2 at EUR 858 million. I think we were EUR 500 million or less the same period last year. And so we've continued the momentum even though we've been initiated remotely in many markets, educated remotely and shipped remotely. And it shows you confidence in dermatologists. It's an important piece of the jigsaw for us. Because if you remember the story we laid out was we were going to have a EUR 10-billion-plus asset in Dupixent. We were going to use that brilliant medicine to help carry us a little way on our journey. We were going to revolutionize the rest of the business, reallocate resources, make significant savings, delivering our BOI commitments in '22 and '30 without wavering, right? We know we're a show-me story. We also know that people need to see those milestones here. We're very serious about them. We won't get off those. You have our word on that. And reinvent our pipeline by making choices, trade-offs and reallocation at the same time so that the second half of the decade has us down as one of the best pipelines and most valuable, that the mid-stage pipeline is competitive and has winners in it, and that we're managing our cost base more aggressively than we've ever done before to make that happen. If you'd have asked me, can we make this much progress in a year, I would have said upfront, "That's what I would like to do. I'm not sure we can do it." And I think we've shown that actually, yes, it's doable. And the organization has responded to the prioritization way faster than I or we would have perhaps expected. Not declaring victory. A lot to do. Feel more confident than a year ago, of course. And now I have an executive team, maybe we'll finish there, an executive team that is the right blend of external, internal and digital and science that I think can carry us on that journey. So delighted to have taken the job. It's better than I expected.

Yes to that. So you touched there -- and obviously, you've got a number of top line drivers in the midterm as you deliver the cost savings and pull in the pipeline, and Dupixent is obviously key part of that. And you touched on how it's performed through the pandemic. As you look ahead into next year in particular, we're starting to see perhaps a little bit more competition coming into the atopic dermatitis market. JAK inhibitor is launching. We've got some data coming on lebrikizumab, which is owned by, I guess, a credible big pharma company now. So just talk us through how you see that growth continuing in that product and how you get to your at least EUR 10 billion peak sales ambitions for the product.

Yes. So look, I said we're at EUR 858 million in Q2, and we've got -- we've got NBRx and TRx data into Q3 that show us that our trend is strong, right? So you know that. So we'll be annualizing its -- in the not-too-distant future, we would hope to get to EUR 1 billion a quarter. And this has become a serious medicine for the company, indeed, out of any innovative medicine that's already been launched. We haven't even rolled in all the indications. We're less than 4% penetrated of atopic dermatitis when we're going to be annualizing EUR 3 billion to EUR 4 billion this year. So that's pretty incredible, but you've still got 94%, 96% of the patient population to go. We've got chronic spontaneous urticaria, prurigo nodularis. We've got COPD, which we didn't put in the EUR 10 billion. And we'll be one of the first medicines -- first biologics to be approved in COPD. We've touched on it. Derms are safety-first, always have been. And so the profile is absolutely critical. So it took TNF a long time to make headway. That's why the 12s and the 23s did better than the TNFs in psoriasis. That's why we are out front in atopic. We can get people back to normal lives, and they want to do it safely, and they want to do it remotely on this occasion. So we know that if you're a Jack-in-a-black-box warning and all the things we flagged from the very beginning, you're going to belay the line. So -- but if that noise helps the penetration deepen, and as market leader we take the majority of that, then that's only good news for patients and it's only good news for us. As for the IL-13s alone, 80% to 90% of patients have a co-morbidity of a type 2-driven disease. 13 won't be enough. We know that. It's well documented. Lilly, I think it was that you mentioned, well organized and disciplined. I have huge respect for them. I have competed with them many different times, and in derm, funny enough. But in the end, their profile won't be what it needs to be. But they're well organized, and we're respectful. Again, when you're low single-digit penetration of AD, you really do want a little bit of competitive noise to drive that up. So we will always be the market leader in atopic dermatitis, and the market will continue to grow. So incredibly well positioned with new opportunities that not all the competition can get to. So very confident -- very, very confident in where we're at and will remain that way.

On those new indications, you've obviously got a fairly wide breadth in terms of the size of the patient populations that you can go after, but perhaps also, the risk profile. So some of them, perhaps they're more clearly defined as type 2 inflammation market. Some of them are perhaps -- the evidence is less well understood. So perhaps we could just talk through which ones you feel are high probability and -- but maybe smaller patient size, which ones are maybe bigger patient size, lower probability and your level of confidence in each.

So I think the -- when dimensionalizing, safety is not our issue. It will be other competitors. It's not our issue. We're placebo-like. And I think if you're a physician pushing on into prurigo or CSU, then you really know that you're confident enough to be able to do that. Prurigo is quite difficult to treat. The numbers are perhaps a little bit smaller, but it's still incredibly meaningful. And we think the type 2 component will play a big part. Where you start to see differences in play maybe around chronic spontaneous urticaria, which I think Xolair and others play a part. But the truth is, it's safety-first for those patients, particularly in CSU. And so if you can get there -- and the other biologics are not -- I wouldn't say they have a better safety profile than us, frankly. If you can get there, we will see what the dermatologist thinks about giving them over the long term. But don't underestimate these skin conditions just being horribly debilitating and quickly reversible with the right medicine. So CSU patient population is large. So we assume we'll get the most severe. And again, the atopic dermatitis -- severe atopic population is large, and we're in single-digit penetration. I don't worry about the pools. In actual totality, you make for your modeling. What I drive on is penetration of the pool. We know RA is at 40% or 50%, what, 25 years later. We know psoriasis is, what, 20%, 5, 8, 10 years later. So we know that penetration of the known patient population is eligible and is really critical. And then as you go into COPD, I touched on it earlier, the economic burden of COPD is significant. And there are no biologics. So if we work on those that have had a hospital admission even in the last year, it would be significant, an exacerbation. These are horribly debilitating and the economics make sense. So we will be first and possibly even best-in-class, depending on the patient profile. So it's hard to stress -- I've worked in a lot of biologics, as you know, to have a medicine with this safety profile and this efficacy profile is entirely unique, and to be underpenetrated and still be annualizing at EUR 3 billion to EUR 4 billion. And we have a long way to go. It has to give you a sense of where we're going to end up, which is EUR 10 billion plus, plus COPD again. So -- and of course, we're into children 6 to 11s in asthma. We're in for reimbursement in China in half the time it took Novartis with Cosentyx. So we are really showing what we're capable of as a company when we're single-minded. Plus -- and I got to be genuine about this, so you know, it's also the pull from physicians and payers. They -- Dupixent is important for them.

Great. And the other big top line driver for you is obviously vaccines. Vaccination rates took a hit in Q2 because of COVID. Just talk us through what you're seeing on recovery and your expectations for the flu season this year, what you're seeing so far in terms of shipments.

So we said we could be, from a volume perspective, a record influenza season. You know we had a very successful Southern hemisphere season. And of course, there's plenty of articles that's saying with PPE and with hand sanitizer, maybe the actual incidents will be lower than previous years. The truth is, as you know, you're vaccinated before you get flu. So we are seeing foot traffic in retail in the U.S. aligned with our expectations at this point. So we know that the preorders are a record. But of course, the patient needs to turn up and get vaccinated. And it's too early to call that. But maybe at Q3, we'll be able to give a bit more richness about what we've seen. But the early indications are very positive. We were able to rise to the challenge of more doses. We were asked everywhere. And of course, we have a differentiated high dose, which you'd be pleased with how many countries have said even before reimbursement, "Can you get it available for us?" Because they know there's a vulnerable patient population. So what we suspect is record orders, very successful flu season. And we're a little bit, a lot -- partly because of the vaccine and partly because of hygiene, a very low amount of flu in the end.

And I think you talked about around 20% extra doses this year. Can you help us understand though how much of a mix benefit you might get on price and revenue from shifting to the high-dose vaccine, which is priced higher? And does that -- is that largely done? Is that -- like that's what was going to drive you historically. Is that largely done? Or is that still a driver for the flu season this year?

It will be another -- Graham, you're right. It will be another step change this year. We are looking at achieving 80 million doses of flu in the U.S. and more than 30 million differentiated flu in the U.S. this year. And we have received -- has come on orders from Europe in anticipation of the reimbursement on the Fluzone High-Dose, which is called in Europe, Efluelda. So yes, we will have a significant impact from the mix, which comes on top of pre-agreed last year for 2020 season's price increase in the U.S., plus the extra output from our manufacturing site, which was programmed with a higher level of preorders of [ eggs ] and -- which is topping it up. It's a very good yield in our manufacturing site, which is the dream combination. Yes. So let's see how we deliver a successful season for Sanofi.

Great. So...

He loves the yield. I get a daily update on yield as we're going into the season because we knew how important it was going to be to satisfy. So -- and we were ready, right? We went early in prep, and we were ready. And in case it gets forgotten, we shipped first this year. And while it may not mean much to you and your analysis, it's the first time in 3 years we shipped first in the U.S. And whilst it perhaps doesn't change the outcome of the dollars, it reinforces what I'm increasingly able to believe is a high degree of operational accountability in general. And so those milestones matter in an organization that's trying to prove that it can get things done.

Great. And question for J-B probably here. So Sanofi has managed to keep its 30% 2022 operating margin target intact despite roughly 100 basis points of margin dilution from the Regeneron divestment, and also, obviously, disruptions from COVID. So just talk us through how have you managed to, effectively underlying, raise that guidance. Is there -- some of it not being reinvested? Or have you just continued to pull out additional areas of savings?

It's quite obvious that it's not because we are less ambitious on our reallocation because we -- you see that [ our best interest ], we are hoping to close the deal with Principia at the end of the month. And it's clear that we are effectively adding to the pipeline in terms of OpEx cost for this year and next year. So we are not stopped by reallocating. On why, it's very much linked to what Paul said in his first answer, is that the feeling within the teams is very good. And when you see what we reported as progress, almost EUR 1 billion savings in the first half of 2020, it gives us even more appetite to accelerate and be able to reinvest and stimulate the growth of the company. It shows in Dupixent figures. It shows in Vaccines figures. So yes, we are ready to accelerate, not to slow down.

Yes. I got to give a lot of credit to J-B for helping us manage that because there should be some tension for us in our P&L because we want to make sure we deliver the R&D and we want to add to the science. But it's good to have the fixed points that we've already committed to in '22 and '25 because it helps the organization navigate. There's a big difference between cost-cutting and doing what you say you will do and reinvesting in science. And so we're trying to mobilize people for that, which means reallocation as well as reduction. And we've got the right level of tension between those forces at the moment. And that's -- we're -- even if we were to exceed the numbers that we've already committed, we will still keep the tension because then you want to keep adding and having a more impressive pipeline over the long term.

And has COVID brought out additional savings? So is it sort of new opportunities, new ways of working? So if you can quantify how much of your savings target now could actually come from things which you maybe didn't think of pre-COVID?

Yes. It's clear that it's helping. It's helping a lot on -- we disclosed EUR 110 million out of almost EUR 1 billion of the first half was COVID-related or could be reversed if -- when the COVID crisis goes away. But that's just a little bit because the bulk of our savings are structural, and the more we dig into our processes and reduce the real benchmark, the more we find very structural ways to improve our ways of working. You see, there are COVID context like ways of working and homeworking versus square meters and headquarters and everything. Well, you see, we have been looking at that from the beginning of Play To Win. And I think we will be ready to move and show some capacity of reaction, which will be very visible in 2020 and 2021.

Yes. And Graham, one of the challenges for us is we deliberately chose BOI which we won't get off in '22 and '25. I keep restating that, but it's important that everybody knows. Because when there are moments for us to take a competitive advantage by investing a little in one place, we'll take it. And where there's other places, we'll dig harder to finance that. And I think -- I'll give you a good example. We've put in our new Chief Digital Officer who is looking at maintaining our network infrastructure and the amount of third parties that help us do that and how we can rationalize that and return money to investment or to the bottom line. They're the sort of important things we need to take, which don't jeopardize our commitments, don't jeopardize the running of the company and get completely reinvested in the commitment of the science. And I've learned a little bit on my own personal journey. And those are the things that nobody notices that make a huge difference. And so you should trust us. Out of COVID -- some of it are directly COVID and some of it is because of COVID, we get to ask some questions that were not asked before as people have time to reflect. And this is the right moment for square meters but there's a lot of things that are connected to that.

Great. And perhaps we can switch gears to the pipeline. So one of the other big things you've been looking to do is regenerate R&D in the pipeline and refocus Sanofi's efforts there. You've now laid out the 6 priority assets. But at the same time, you've been keeping your R&D somewhat flat. So the pipeline is obviously expanding. So when does R&D start to have to go up again?

So it's a great question. The -- on the priority assets in particular, we showed it with the 4 Phase IIIs on MS. By the way, all 4 are recruiting patients now despite COVID. Though we're not going to be linear. If we think we have a winning position in a treatment area, we will go all in. So that's how it is. It's not automatic that R&D goes up when you spend more on certain areas. You can also cut back in other areas of R&D that are no longer priorities. So it's not a completely exact piece of math. But for us, as long as we maintain our commitments, if we could take from other places in the business, and that meant additionally in R&D without getting off what we've said we will do, then we would look to do that, but only if we have a winning position. You've got to remember, we made some tough calls didn't feel tough, but the organization were getting out of being the fifth GLP-1. And it feels like a long time ago we did that. But you get my point. You get my point that, that would not be a great use of our dollars in the current context. But pushing on as fast as we can to earlier lines with the SERD or Parkinson's with venglustat, they're worthwhile. So that's how we're making the mix. I don't know if you've got anything to add, J-B?