Sanofi (SAN) Earnings Call Transcript & Summary

Excellent. So good afternoon, everybody, and thank you for joining. I am Wimal Kapadia, the EU biopharma analyst here at Bernstein. It's my great pleasure to introduce Paul Hudson, CEO of Sanofi; and Jean-Baptiste de Chatillon, CFO of Sanofi. So thank you both for joining today. I know it's been a very busy month for conferences within health care. So I really appreciate your time in your busy schedules. So before we start, I'll just deliver housekeeping, I would like to remind investors that they are able to submit questions through the joint live Q&A link available to the left-hand side of your viewing screen. I will try and incorporate these questions as we move through the discussion. So please do participate, and it's nice to see several questions already posted online. So thank you very much for that. You can also provide feedback through the share and view investor sentiment link, which have immediate access to the poll results. If you do, the link will also appear at the conclusion of the fireside chat. So please feel free to provide feedback at the end. If you are facing any technical difficulties, please reach to your sales contact or corporate marketing. With that, I will hand over to Paul for a few introductory remarks before we start the discussion. Over to you, Paul.

Yes. Thanks, Wimal. It has been a busy season. It's a pleasure for us for Jean-Baptiste and I because frankly, we have a lot to talk about. We have a lot to share. We have a perspective on our business. And we're happy to make the time, and we'll keep the upfront comments short so that we can get into the Q&A because we know people are normally preloaded and ready to go. As I celebrate a year in the job, the entire time sat next to this guy, which has been a pleasure. We are really starting to feel like our transformation is underway. We know that people -- many people have thought Sanofi is a show-me story or wait and see or whatever else the vernacular, it doesn't feel like that for us. You've got a CFO and a CEO that feel like we're new and nothing is off the table. You got a head of R&D and the Head of Drug Development, new, nothing is off the table. You've got Head of Consumer Health, Head of Human Resources and Talent Management and Head of Data and Digital new, nothing is off the table. So we feel like we are really stepping up to do what people have always hoped would happen here. Some little proof points this year, the only vaccine maker to be making a vaccine for COVID-19 in-house. The only one on a proven platform, shows a bit of our ability to respond and move at speed. Dupixent continues even through a crisis like COVID, you'll have seen the NBRx and TRx data. You saw we were EUR 858 million in Q2. This is the story that will just keep going. And it doesn't because it's got no competition from a safety and efficacy perspective. Yes, people will emerge, but not as complete as us. So we're excited about the EUR 10 billion-plus story. Beyond that, we've accelerated vaccines. We've accelerated assets in our pipeline. We've got breakthroughs in hemophilia coming that's a market that's moved to us. We hopefully, we've simplified our relationship on our BTK by trying to make the acquisition of Principia, we'll close soon. Another acquisition that we did earlier with Synthorx, just showed we're serious about science. Feel the company has really responded, really responded. We put 2 markers in the ground. We've said 2022 and 2025, our BOI. We've set it out. And we've told everybody, if you're waiting to see, we'll deliver those numbers. I have no doubt. On top of that, we'll reinvent a pipeline and deliver over the near term. And that's what we're committed to do and the executive committee is committed to do. So with that, it's been a year that's been absolute pleasure, and I'm looking forward to those that follow. We have so much more to do. Wimal, back to you and into the questions.

Okay. Thanks very much, Paul. So lots of great topics to discuss just from that intro. Let's start with costs. I think this is one of the first things you had a focus on when you joined the firm. So I guess, what has surprised you the most with respect to the cost structure at Sanofi when you first took over as CEO? Just can you give us a little bit of color and maybe Jean-Baptiste can also step in. What progress -- how much progress have you made on the journey you're on? Are we ahead of expectations from the plans you laid out late last year?

So just upfront to give you a quick comment that I think it was sort of a public conversation that Sanofi was -- had too much cost, but nobody really understood the deep reasons for that. We think customer-facing and in our R&D, we were reasonably efficient. But our central costs, our infrastructure costs as I got into the company realize that we have a lot of investment that could be working harder for us in revenue generation or science development. That was really just a function of the history of the company and how it's created 300 acquisitions over 3 decades, leads to a [ pattern of quilt ], frankly, behind the scenes. Massive opportunity for us, absolutely massive, not only in the data that will come from the simplification, but in the cost reduction we're overcomplicated. And J-B can share with you his views on central functions and other things. The fact that you start with cost, Wimal, first question is the thing we need to overcome as a company. Because the story about Sanofi is still well, at least they can reduce costs. So we'll get a return on the story holds together. And we'll deal with it, and we'll put the markers down, but there's much more to our story than that. But let's talk about how we're dealing with that. Jean-Baptiste?

Yes. The importance of cutting cost is that it's not important if it's not to do something. What prevents Sanofi to perform in market or what prevents sometime to be quick enough in the development of drugs is the overweight of central structure, it's a bureaucracy, which it's a cry from the -- from our teams. And that's not so uncommon in big companies. But if you don't do anything about it, it just got worse and worse. We were touring with 4 countries when Paul arrived. And the common denominator in countries was we spend half of our time fighting with one another within Sanofi in country. And when we finished, it's another half time to fight with the region, which is overencumbering us. So we announced our new go-to-market model, we cut the regional level. We simplify. And of course, it means that we are reducing headcount, which is tough or not very common in Sanofi, especially when it's structured. But we are doing this really to give the right level of energy to our commercial teams, to our R&D team because that the end game is to reinvest this money behind Dupixent growth beyond vaccines growth. And by the way, it's proving so far to work well. So that's really what's behind. That's what I had the opportunity to do in other sector. And when you do it with -- under the leadership of someone like Paul, who knows how to explain to the whole Sanofi, why we are doing this. I mean it's really great because we can -- we can go as far as we want, which is a great starting point.

No, that makes a lot of sense. And we will get to the pipeline vaccines shortly. But it is a topic I often discuss with investors is around the API spin. And there's been some recent commentary suggesting this could be sooner. I guess in then the '20-'22 time frame, so can you just give a little bit more thoughts here how much of a positive impact that could have on the organization? Just because when I take a step back, I think, it's a very smart move to do this to maximize the capacity utilization of your existing facilities of that spinco, there will clearly be lots of demand for this second source of supply closer to home within Europe. So just any updated thoughts there on time lines? And what it could actually mean for the organization, the remaining organization post the spin?

So a little bit -- I think you know what you're referring to in terms of the recent commentary, more media training required. The -- we have shared our time. I'll let J-B talk about the time line. But the truth is it's a brilliantly elegant plan, and the timing is exquisite. Because we're seeing real improvements in the underlying business, and we are seeing a huge need, crying out from ministers of health across Europe, about medicines made in Europe for Europe. You know more than 60% of APIs made in China and India. And I think people felt exposed. And then, of course, as you go into COVID-19, they start to feel it, really feel it as they go out of stock. And every health minister I spoke to said, "The out of stock of essential medicines was unacceptable." Now so as driving prices below what was we were able to manufacture and that was unacceptable. So we're on some ways to address that. We're very excited about this initiative. And also, I think wasn't the intent, but it also should show everybody we're not frighten of taking on infrastructure cost in Europe, looking at credit ways to move ourselves around and that we have more agility than perhaps people expected.

Let's be clear, our heart -- our core mission is innovation on science, it's not chemistry. And by the way, we were not doing it at the right level of performance. And it was not so visible because it was merged into the big IA function. And as soon as we pull it out, it starts performing better because it's more visible, it's more benchmarkable. And so it's moving fast. We are doing the carve-out as we speak. Time frame is not changed. H2 -- H1, sorry, 2022. And yes, great spirit around it. Realization from the team that they were not operating at the right level. It's a bit cruel sometimes to face reality, but they could hide, knows they want to transform this business, and they are doing it as we speak. It will help us to be more nimble. We have also -- well, there are many other things. We are changing also the organization of the IAPs with putting it by GBUs. The EP portfolio in gen med, specialty care with specialty care. And that is really helping to get the agility we want to go to. I could take some other proof points that we are executing on the divestment of some of our EP portfolios, as we promised. And it's working quite well, even though as the COVID, I was pretty afraid that it would freeze any transaction. Now we are signing a deal month. And all of this participate of the consistency of the strategy to change the mindset and really play to win in Sanofi, which was not the case. And I guess that's an interesting segue because we could show you how it works now in R&D, jumping on some of our assets. In MS, our BTKi, it was crazy because before Paul arrived, it was like in the limbo, like everything else. I don't know it's good, bad. The minute we bet on it, okay? We were lucky. We get great results in the Phase II readout, but we were already prepared to win with the asset. And we have launched multiple Phase III studies on this asset, which was never the case in Sanofi because that was very risky, but we are ready to take more risk to deliver much more value. And this is still quite underestimated in the market because it's new for Sanofi.

So Wimal, I got a CFO that's learning the science too fast. So...

That's what. We're getting there.

I have to be careful. I know, I know I got to watch out for it. But between us, it's becoming quite an important partnership in knowing where to double down and knowing where to rip it out and ...

Okay. So let's dig into this a little bit. So how would you describe -- and I think for an organization the size of Sanofi, it's something that I would personally say takes a lot of time. How do feel Sanofi are on the journey to turning around the R&D engine? You commented yourself that we need to see improvements from this perspective. So how do you feel you are positioned? What are you most excited about? Not from an asset perspective because we will get there. But just from a broader R&D perspective, and where do you still require major investment in time and money along this journey?

Let me just make sure I always provide perspective, which is BOI commitments in '20, '22 and '25 mean that our real excitement come as the current wave of mid-stage assets mature in the '23-'24, we have winners. Do hope we have time to talk about why we think they're winners. And then we rolled back in new Phase IIIs on the acquisitions of some of the science we're bringing in house, which is a bit earlier. John Reed is new, Dietmar Berger is new Head of R&D, Head of D. And we are rapidly prioritizing and setting a higher hurdle for progress through the development milestones. I think historically, the company has been a little bit, let's try and do a little bit everywhere. You just simply can't do it. So you have to pick the places where you think you can change the practice of medicine, and then you need, as J-B said, you can't blink. You do 4 Phase IIIs in the BTK, you do it because you're not going to do one, then the other, then the other. There's no time, and you're wasting the opportunity. So you do 4 Phase IIIs together. To do that, you have to have some guts so that's why you stopped the fifth market GLP-1. Not stop it, you handed back mid-Phase III. We're a company that was borne out of cardiovascular diabetes. And yet, we recognized that, that was going to be dilutive indefinitely for us. And there was no point, it wasn't going to add to the scientific narrative. So that's hard for the company emotionally, but is what it is. And we need to get behind different science because what got us here will get us there. So we've been much more brutal on what we kill. There is no emotional attachment. There is a pathological obsession with being first and best, change the practice of medicine. We're seeing it in the assets that we have. We're seeing their value, I believe, appreciate already even in the year we've been prioritizing them. We've stripped away all of the c*** that was alongside and some of the bureaucracy. John has simplified the governance committees from 30 to 3, can't even imagine. We're moving much faster. We were in Phase III on the BTK 4 months after the Dupi readout. And that's unheard of for us. So speed is going in, which was required. Brutal prioritization is in, which was required. Looking at science earlier with a much more visionary view on where diseases will go, with showing that Synthorx IL-2, BTK, of course. So it will take time for that cycle to get to where it needs to be for us to consider the cadence to be world class, but we can't wait for that. So all of the proof points and tollgates are held to a high standard now. And I think the company is responding pretty well even in a year. We're not running a flag up the pole, but we're saying, "We like the progress made. Now let's industrialize it so that we feel like it remotely makes the right decisions," and that's the next part of the journey for us.

That makes sense. Makes sense. Perfect. Okay. So let's start on some of the assets. Let's start with Dupi. So like you said at the start of the presentation, doing phenomenally well. And I was -- in my mind, I'm always thinking what the product could have looked like. I know it's doing well with COVID, what could it look like without COVID in 2020? So I'm just curious to hear how far this product can go? And there's a few components to that. So when I think about the biologic market within atop and asthma, we're barely scratching the surface, particularly within atopic dermatitis in the severe population for using these biologics. So even with, let's say, we have a more competitive environment in the future. I'm sure you'll comment on the JAKs and their safety profile. But how far can Dupi go? How far can biologics go within this market? And with the placebo-like safety profile of Dupi, what should we really be expecting in the base indications? And then we can always talk about the incremental upside that will come from future -- potential future indications?

So I think you summed it beautifully. To be honest, we declared EUR 10 billion-plus last December. There was a few raised eyebrows. Consensus is nudging along towards where we are, and we'll see whether we stay, what we've stated. You said yourself, we're like 3% penetrated of the AD population, eligible AD population, and Q2 sales were EUR 858 million. So let's be unkind and say that we get to 9%, and we're at EUR 2.5 billion on a quarter.

Yes.

Now we know that this is interesting because we've got evidence RA took 25, 30 years with TNF to get to 50% penetration. We know that in psoriasis, it was faster, but they're just a 20% penetration. So it's not a leap to see that this market could get to 20%. We're at 3% and even with competition, if we take 70% of the market, we're already way above 10%. I mean the numbers are mind blowing. So we say EUR 10-plus billion because we simply don't know.

Consensus is not there yet.

Yes.

But we'll grow because, Wimal, we -- the discussion we are having with several analysts and they are all getting -- when they do their math, they're getting to EUR 20 billion or plus.

Yes.

Easily. Easily. This is not price into Sanofi right now. And that's a very interesting piece because it's going to grow. And of course, we need to improve our communication. We're not good enough there. But you see the idea of the math and the reality on the proof point of what's happening in the market is going to trigger something pretty soon.

Yes. It's interesting because I can't imagine any of the people on this call, particularly who does the math, comes out with the number less than 10. Even if you just take an average of biologic penetrations and give us market leadership, you massively exceed that. So people are just in denial. And then you come back to the high-quality asset itself, right? Give us the -- your first benefit. Okay, we take it. But the fact that our efficacy will be unmatched. The fact that we're IL-13 and IL-4 so we're across all type 2, and 80% of AD patients are comorbid, 13 alone won't get you there. JAKs have a black box, doesn't matter what you tell me, the risk-benefit profile in derm is different than RA. So they may get failures, they may get a late line, but let's stop overindulging the competition in this space. You said it yourself upfront that then COVID came along. And you're like, "Oh, how big could this thing be?" I was sat there thinking that's unfortunate timing. Beyond the tragedy, which it is, we're doing our best on a vaccine, Dupi was flying. Dupi hasn't really changed. It is probably the highest performing innovative medicine, all therapeutic areas through COVID, I would imagine, right?

It is.

That is performing. Ask yourself why? Simple. No other medicine is -- no other biologic particularly has the safety and efficacy profile we have, which is why it's being initiated remotely, which is why if you look at the script trend, we continue strongly into Q3. So there has to come a point where people go, okay, we've not always been in love with Sanofi. But we can't argue with the fact that if this was in any other company's hands, we'd already have it sky high over EUR 10 billion. It's okay, we'll earn the right. We'll keep moving. We'll show you. But I mean, seriously, at some point, people have to step up and say, "Okay, we're ready to say that you have the best-in-class, probably best in disease, you have multiple indications. And you haven't included COPD." Now we share it, I buy it. We'd rather not share it, but we didn't invent it. So we'll take it the way it is, and we'll keep moving. But seriously, it's time to relook at people's assumptions on Dupi.

To be fair, and I'm not just saying this, every time I update my market model, we do go up a little bit higher longer term, so...

That's kind. That's kind. Get some ambition.

So look, I'm with you on atopic dermatitis, where I think there's a little bit more debate is asthma. I think the competitive environment there is a little bit more challenging, and we do have assets in the pipeline that do look potentially quite interesting. So is that somewhat a reflection of your view as well in terms of the potential contribution from these 2 larger -- the 2 largest indications?

Yes. Look, I don't use this analogy often because I've not been in this situation before, but you look at Humira's evolution, the additional indications, the competitors that came in and is impressive how it was managed. And we think about that. We think about how that was managed. We have experts that were part of that journey. And yet, it didn't always have the best-in-class profile. And Dupi is standout. There'll be indications where it's more competitive. Asthma is a good one, right? The IL-5s have a role to play. Not in all type 2 inflammation, but they have a role to play. And we'll find ourselves a market leader across all indications, but we'll share some markets. AD is 2.3 million patients, asthma is 1 million. Eosinophilic esophagitis will end up all 100,000, all ours. Nasal polyps really in the end will end up definitively ours. Chronic spontaneous urticaria will be more competitive, but we'll have the best data and the best profile. Prurigo nodularis is the same. COPD will be the only biologic. So on the evolution of the medicine, we haven't even started yet, right? In the evolution of the medicine, I think people need to recognize that our exposure is very indication-specific, is unlikely to yield anything less than market leadership or close to. So that's why we have to be confident. Nobody has the safety profile that we have, none of the new mechanisms. Nobody works across type 2 like we do. So it is what it is. I understand that competitors desire to try and look like they can play in the market because it's the sexy market. But really, genuinely, we're unique and differentiated and will be indefinitely.

Okay. So actually, a question from the audience tied to your positive commentary. So any thoughts on life cycle management for Dupi, given it will be so significant to Sanofi [ it had a patent expiry ]. So I mean, I guess, putting into context, we're still several years away from that. But how are you guys thinking about life cycle management for what is going to be one of your biggest drivers?

So are you pitching the questions or you want me to comment?

I want you to comment, yes.

Again, I think this is a once in a generation medicine. And everybody needs to get over themselves. It's in our hands. We know how to do this. There's a much higher degree of expertise in the company than I expected. A lot of ex-AbbVie, Novartis people that have been around biologics. The drug development plan, the life cycle management plan for a brand that's only been around 3, 4 years is very sophisticated. It's taking on everybody, and it's breaking new ground. The medical plan is equally impressive. We will continue to add to the weight of evidence. We will be the winner. And the -- everywhere we play, we will always be the safest, always. So it is -- we're not naive. There's some areas where the competition will [ add to weight the voice ], which will allow us to go deeper even if we sacrifice a bit of share into diseases that need educating. I remind you, again, it's very difficult when you're at EUR 858 million in Q2, and you're 3% penetrated for us to accept where consensus is right now. But we'll earn the right. We'll keep developing. And it's steady now. It's steady news flow in new indications that keep coming. And the next half a decade, we'll just see new access to new patient populations and work done to access them from an education perspective.

Perfect. Okay. Excellent. So let's move on to some of the pipeline assets, which I'm personally very interested in. So before we even get to the BTK, because I'm sure you want to talk about that, Paul, is nirsevimab. So this is an asset I really like, and I think the market is probably misunderstanding a little bit. So I guess, how should the investors think about this product? Could it actually truly become part of the immunization program across all new bonds? And how far can it actually go? Because when I think of pediatric vaccination rates like DTP, we're at 90-plus. So is that a realistic target and ambition for this product?

So I was involved a bit with Synagis in a previous life. So I know what it is like to be for the very severe end, the preterm babies and the value proposition that comes with that. I think we have to accept that with a monoclonal antibody and with our expertise, we're at a moment where we have to decide, do we want to have the ambition to vaccinate as many newborns globally as is humanly possible? What does that mean for guidelines? And what does that mean for pricing? And I think we -- for all of us that are purpose-driven, I think our ambition has to be to protect as many babies as is possible. Now with that mind, you have to be able to demonstrate that you can do that. And we think the evidence that was published, don't forget that's published in the New England Journal. New England Journal shows you the level. This is class defining in terms of protection of vulnerable newborns. So we know how to do it. We're first. We know what it looks like. And what about the competitive set, right? They are maternal vaccines. And I applaud the effort and energy that goes into developing a maternal vaccine. But let's be brutally candid about the number of variables associated with that. You're assuming then if you're going to take the maternal vaccine approach in RSV, that you're going to conceive on -- with a one eye on when the season might be. So when the baby is born and the mother has been vaccinated, it is covered during the RSV season. That is a lot to compute. You're also assuming that the protection is passed on successfully from mother to child and can protect the child for the season irrespective of when that baby is born. Simply too many variables, too many variables. I mean, honestly, put that up against this, a safe and effective monoclonal antibody given preseason to newborns. There is no issue. There is no competitive set. So again, there's a lot of noise around there, but you can't possibly compare a maternal vaccine with a monoclonal antibody given at the precise moment. It just is an unfair comparison. And so we, knowing that and how well differentiated we are, we have to also accept our responsibility to make the vaccine available globally. And therefore, the economics that come from that and how we manage that is part of the consideration. I think we have to have the aspiration of being in national guidelines.

Okay. That makes a lot of sense. And I guess, I always felt that even if there were -- even if maternal vaccine was to make it to market, there's still the potential for those 2 products to be used together in some sense because of the timing around the administration of it and when your baby is actually born, there's an argument that you would still need a product like nirsevimab regardless.

So on a pessimistic case, I think you'd be right. I think I realized it's a good moment for me to reflect because I think nirsevimab in any other company's hands will be declared the winner already. And so I'm coming to terms with the fact that Sanofi may not have the reputation that everybody thinks it will knock it out of the park when we have the best-in-class asset. The truth is a lot of the questions I get asked about are winners that wouldn't be asked of another company. And I'm trying to help people understand that we're not the same company, different leadership, different approach, different competitive spirit. And that we won't accept anything less than winning in the markets where we think we have the best asset. Nirsevimab is the best treatment for RSV, full stop. So everybody else can go and stand by the sidelines, that is just how we feel about it, and it will be the best thing for newborns. Likewise, our SERD will be the best in breast cancer. I think we have to -- you all have to give us a little bit more credit for knowing how to do this stuff. I recognize we have to earn that trust based on the fact that our recent history doesn't make it a given. But we aim to give enough proof points for people to say, "Okay, they can compete. They can be first and stay there." And that's what we're going to do.

Okay. And in terms of time lines for nirsevimab, how should we think about it? And has COVID really delayed that? Because I guess one of the pushbacks I get is it's 3, 4 years away. Is there any possibility that we could see this product come to market sooner? Or has that kind of dissipated because of COVID and the fact that we haven't got that same RSV season as we typically potentially would have this year?

So submission is planned for 2023.

Okay.