Sanofi (SAN) Earnings Call Transcript & Summary

Okay. Let's get started. My name is Mark Purcell. I'm one of the European pharmaceutical analyst here at Morgan Stanley [indiscernible], my esteemed colleague next to me as well. And we have the pleasure to have Sanofi, Dietmar. Thanks so much for joining us again. And before we get started, for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to Morgan Stanley sales representative.

So Dietmar, thanks so much for joining us again. We really appreciate it. We saw a press release today, you've got an R&D Day on the 7th of December. So we don't have still your thunder, but we want to get your insights into what to -- how to think as we close out the year. But I guess at a sort of high level, I was going to ask you a little bit about IRA and I was going to ask you a little bit about the new Head of R&D. And if we can start there, and we'll sort of dive into more details. But there's been a lot of questions on IRA and how it might change the strategy of the various companies and areas like oncology, rare diseases, kind of vascular diseases, these are some of Sanofi strengths. And clearly, you're looking -- and you've been very active in terms of bringing on through [ BD ], different platforms and things like that, which might be impacted here as well. So how has it changed the way you think in your organization, things that are R&D from a strategy and from a prioritization perspective?

Yes, the IRA is obviously an important topic. And in [indiscernible], it's a politicized and an arbitrary system of looking at pricing, right? For us, as we are focusing more and more on biologics, more than 75%, 80% of the molecules in our portfolio are biologics at this point. The impact is more limited. But just stepping back, when you think about the time you have to benefit from a product on the market, you have to rethink your strategy with regards to how fast do you develop, right? How much -- how do you spend to bring molecules forward quickly? And that's especially true on the small molecule side. As I said, we're not as affected by that, but that's how it will impact R&D strategy, I think, more broadly. And we see the reactions from other companies that are hit to a larger extent. Obviously, for us, it's not that much of a topic at this time.

Yes. And do you feel that you'll be doing parallel as opposed to sequential studies to try and speed up if there's sort of multiline opportunities, I guess, [indiscernible] of your assets?

Yes, that's exactly right. If you have assets that are affected, you need to think about if you have several indications. And oncology is a key example because, in oncology, you're often going from a late line indication, then you're working your way up to the second and first line, et cetera. That's where it becomes most obvious in the small molecule setting, especially. What you have to think about is, how can you do more in parallel, how can you be faster specifically? And that means also that you're front-loading your risk more. And that's where it changed the strategy. Are you accepting that risk? How do you build the portfolio, How do you manage risk in your portfolio? I think those are really important considerations.

And in terms of saying like immunology, where you're clearly really strong with a broad portfolio, the sort of luxury of doing a sort of single finding study in a sensitive indication before moving into a broader program, presumably that's out of the window now as well or you have to be more fleet to foot in terms of sort of moving into multiple indications upfront?

In immunology, you have this really how we're thinking about it, phenomenon of the immunological node that you want to address. And if you have a molecule that really does that effectively, you have what we call a pipeline in a product, pipeline in pill, pipeline in an injectable. And especially for the orals, again, you need to think about are you doing more in parallel. If you -- a good example is Dupixent, which is not affected, right? It's an injectable, it's a biologic. But that has a really broad program. It has a really broad program across type 2 inflammation. Obviously, we started with diseases like AED, like asthma, like chronic rhinosinusitis. You've seen the data in COPD more recently. But those are programs that have been built over time. So there, the question also is, if you have molecules like that, do you need to develop them faster?

Yes. Very clear. There's a new head of R&D. I just asked you, you have spent time talking to each other. So -- but Houman comes from a venture capital background, so slightly different sort of character compared to John Reed. And John Reed, I guess, spent a lot of his tenure sort of prioritizing various aspects across the pipeline sort of bringing in platform capabilities with you. How are things going to change or not change? Sort of where are you in terms of the transformation? And what do you think -- what kind of new ideas do you think that Houman is going to come and bring on board?

I mean, first of all, we are proud of the transformation journey there that we had already up to this point. If you look at Sanofi, like 5 years ago, I'm with the company 4.5 years now. If you look at 5 years ago, it was primary care cardiovascular. It was not the same strong focus that we have now in first-in-class, best-in-class innovation. Immunology was virtually nonexistent for us. So what we have now with a strong focus and its aspiration to be the leading company in immunology with good success in other areas like vaccines, like neurology, rare disease, et cetera. It's an entirely changed company. And that's not only when you look at the portfolio, that's also when you look at capabilities, how are we developing drugs, both in the research setting, but also in the development arena. I think we've really had a great transformation journey behind us. I think nothing will change with regards to let's drive immunology, let's drive innovation, let's drive really bringing impact from medicines to patients. That's obviously the aspect I'm coming from. At the same time Houman has a great -- yes, he is coming from a VC background, but he has got a great scientific background, great medical background. He is a very original thinker. So I'm really looking forward to working with him and seeing what kind of new aspects is he bringing to the table. But even with these initial interactions, I'm very sure that the focus on innovation, on bringing impactful medicines to patients, on driving and leading in immunology will not change.

Okay. And in terms of the balance between internal, external, which is a question we've been asked. I guess there was the recent [indiscernible] which went to a competitor. Do you feel there's going to be any change there in terms of the external R&D focus?

Again, we've always had, as you know, we've done so many deals over recent years in order to build the portfolio in order to also acquire capabilities from a research perspective. I've always been saying 99% of the innovation is external, and we need to tap into that external innovation. So having somebody with 2 months background with that openness for external innovation, I think it's a great plus. So I'm really looking forward to that.

Great. Let's dive into a couple of products. I'll start with [indiscernible] and then I'll hand it to [indiscernible]. The first one is on your OX40-Ligand for atopic dermatitis. I guess [indiscernible] has been such a success. The safety has been one of the key aspects. This is about sort of increasing, I guess, the dosing intervals, sort of extending that. It's about efficacy. And then on the safety side, hopefully, there will be at least comparable. But there's a competitor. They're ahead, big 3,000 patient program. Bob was on the stage a couple of sessions before. So can you sort of help us understand your perspective here? I guess, on that side, they think that you're targeting the OX40 receptor is something that gives you selected depletion of OX40 activated T cells. Whereas from your side, I think you're saying that you don't [indiscernible] if you've got a safer product. So it's going to come down to the balance of efficacy and safety and for the dosing, and we don't have a lot of visibility in terms of how you're transitioning from Phase II to Phase III. So there's a lot of questions there, but it would be great because it's such an important program in the context of Dupixent and LOE, be great to get your broader perspective and what we should think about as you move into Phase III?

Yes. The [indiscernible] program, I'm really bullish on. You mentioned some of the key arguments already. We believe there's a key difference in targeting the ligand versus targeting the receptor. The key difference being the -- what we have is a nondepleting antibody that is not impacting regulatory T cells, right, which then leaves, for example, the anti-infectious response intact. We'll also manage some of the potential autoimmunity aspect that you could have if you [ enact ] regulatory T cells. We've not -- we've communicated top level about the Phase II study in AED. I'm very encouraged by the data. We're going to see the data. We're going to present the full data at a conference later this year. And I think amlitelimab has really broad potential because we're only starting to realize the importance of the OX40 pathway. Obviously, we've always been thinking about BD as a type 2 inflammatory targeting assets. OX40 is broader than that, right? It can go beyond type 2 inflammation. We need to obviously present the data. I'm very encouraged by the data. I think there's potential beyond atopic dermatitis. And you gave them the clue before about the R&D Day. We will present more at the R&D Day really what the plans for the molecules are, and I think there's broader potential across several indications.

And have we seen any -- or have you seen any sort of early stage Phase I data or other indications to give us a hint of what you may say on the 7th? Any investigator studies where they've seen OX40 being relevant in other?

Well, you know that we've expanded the program into asthma, right? Again, we're waiting for data in that setting, and we are looking forward to really talk about the additional indications we're looking at.

Got it. And then, I guess, on -- staying in [indiscernible] on itepekimab, the IL-33 for COPD. Can you sort of just help us understand a little bit about the Phase II program and positioning. I guess question number one. You did a [indiscernible] analysis. Just -- I guess we get asked the question, was that similar to the [indiscernible] analysis you did with [ BOREAS ], the [indiscernible] trial? So I guess sort of start there sort of Phase II perspective and anything you can say about the Phase III program?

Yes. The Phase II data for itepekimab, the study was really started because we believe that IL-33 is playing a role in COPD. What the Phase II data helped us understand is that the prior smoker population, which is about 70% of COPD, is a population that demonstrated strong impact of itepekimab with a 42% reduction in exacerbations in the study, which, in my mind, is unprecedented in COPD. And that's specifically in the prior smoker population. In the Phase III program, we have 2 Phase III studies, we call them [indiscernible] 1 and 2. We've communicated earlier this year that we had an interim analysis. We've passed the interim, we passed the futility. That was what I call a meaningful interim analysis across the 2 studies, across [indiscernible] 1 and 2, which then makes me really excited looking forward to see the Phase III data between itepekimab and Dupixent, right? We are addressing with the possibility with 2 biologics to literally address the vast majority of COPD between the prior smokers, but not limited to the type 2, right, or the full prior smoker population with itepekimab. And then the Type 2 COPD population with Dupixent. So I think we have a really interesting opportunity, important opportunity to change the treatment paradigm for COPD patients.

And can you combine them together?

That is an interesting one. You know that patients with COPD are already receiving multiple therapies. We're always talking about the LAMA, LABA, ICS, the classic therapies, the inhaled corticosteroids, et cetera, et cetera. So there is combination therapy already in COPD. And the question should be, is there a patient population that does require 2 biologics, potentially there is.

Okay. And in the spirit of the IRA conversations we started off with, others are pursuing things like diabetic kidney disease, acute respiratory syndrome, other things with an IL-33 antibody. Again, I don't want to steal your thunder for the 7th, but should we expect additional clinical trials or at least Phase IIb trials to start in the near future?

We believe it's an important mechanism. IL-33, we've already spoken about asthma, and we are looking at additional indications, yes.

Okay.

Yes, moving on to multiple sclerosis and your BTK inhibitor, tolebrutinib. So recently, you gave an update to investors indicating that your [ relapsing/remitting ] studies as well as the secondary progressive sclerosis study, we are with the readout in the middle of next year. And there is still the primary progressive study, which is on a clinical hold with the FDA. So just if you could tell us what you learn on the safety profile of this drug for this process and [ education ] with the FDA, maybe I will start there.

Yes. The tolebrutinib, in my mind, is a really important molecule. It hits its BTK. And it is the only BTK inhibitor that crosses the blood brain barrier at a level to really impact pharmacology, to really inhibit BTK, for example, in microglial cells in the brain. So the underlying scientific hypothesis is important, and we believe that progression of multiple sclerosis is linked to activity in these microglial cells and the other components of even innate immunity, right, in the brain. And BTK can target both the adaptive and the innate immunity. So I think that underlying hypothesis is really important. We did see some cases of liver injury. We've spoken about that at prior meetings as well. What we've done over the recent months basically is trying to really understand some of that toxicity and most importantly, understanding how can we mitigate it, right? How can we test patients? You've already seen at this point that the liver toxicity of BTK inhibitors is broader because it has been seen for various BTK inhibitors, interestingly, especially in MS, especially in this autoimmune phenomenon that's already ongoing. We've always said we think it's an idiosyncratic immune reaction that we're seeing. So a linkage to the autoimmune nature of the underlying disease, it's possible because we've not seen the same phenomenon broadly with BTKs in oncology, right, where you have more of an immunosuppressive environment. So at this point in time, we've, I think, learned how to risk mitigate, how to address some of the toxicity since we have our mitigation program. We've not seen any of the same toxicities anymore. That's what encourages us also for the ongoing studies. As you said, we've fully recruited the relapsing remitting and the secondary progressive. The progressive study was always recruiting a little slower. Those are the most difficult patients to recruit. So that study is still ongoing. And we're just looking forward to see the data because eventually, this is a benefit/risk question, right? It is really a question, what type of benefits do you bring to these patients with these medicines? And currently, patients with secondary progressive MS have nothing. There's no therapy approved in the secondary progressive setting. So I even feel it's important that we develop these medicines and we look at what type of benefit can we bring to patients.

Thank you. And another exciting [ asset ] for me still [indiscernible] therapy so it's still early stage. We only have seen some of the Phase II data against placebo. But based on this data, how do you think this drug is fitting in the [indiscernible] paradigm for MS and in particular, where does it fit among -- do you think it can fit among the high efficacy end of the spectrum from its [indiscernible]?

Yes, that's exactly what we believe. We believe it fits in the high-efficacy category of MS. And that's where the unmet medical need is, right? And we think that for two reasons. One is when you look at the underlying mechanism, Frexalimab works on, again, both innate and adaptive immunity, specifically the interaction between B and T cells. And I would argue that we still don't entirely know how the pathologic mechanisms of MS work, but we know that B-cells play a role, T cells play a role, microglia plays a role. Obviously inhibiting that interaction between B and T cells even peripherally is really important and then the impact on other components of the innate immunity also is important, and that's exactly where Frexalimab is. When you look at the Phase II data that we have, that we have presented at the recent meeting of the MS Society at the CMSC meeting, we've seen strong activity on the formation of gadolinium-enhancing lesions. I think even unprecedented activity, when I look further out, we have the week 12 and the week 24 data, really strong activity there. So we're highly encouraged by the data that we've seen, also the safety data that we've seen that has been very, very encouraging. We didn't see any safety issues based on a small early study, of course, based on the Phase II study. So we need to demonstrate that into the -- in the Phase III. But I think the profile of the drug at this point is very encouraging. And that's where I think if that fits into the higher efficacy group of medicines that are available with a really good safety profile, I think it absolutely can play a key role in the treatment of MS.

And when we think about the design for the Phase III, what are the kind of key considerations you're thinking about?

Yes, I think the most important question, and again, we will communicate that fully at a later point is where is the unmet medical need and what type of programs do you put together when you think about relapsing/remitting, progressive and secondary progressive in MS. As I said, I think Frexalimab has the potential to be a broadly active drug. The large unmet medical need is in the progressive setting. So that's one aspect to think about. And then there's an aspect beyond that, which is, as we talk about MS therapies, also from a regulatory perspective, what are the right endpoints to look at, we believe progression per se across the board, even relapsing/remitting patients progress is a really important parameter to look at, and that should be a consideration also for the Phase III studies.

And maybe switching back to [indiscernible] early stage. Everyone is very excited about your overall standard drug. So you started the Phase II [indiscernible], and I guess the question is, if the data you get in psoriasis in Phase II is in line with your expectations, could we see you starting a broad Phase III program across all the indications or at least the vast majority of indications where today you see [indiscernible].

Yes. That's a great question. The TNF molecule, the oral TNF inhibitor, in my mind, is an important one because it's differentiated. Many people have tried to come up with an oral TNF, have failed in the classic way. This molecule is differentiated because it inhibits a specific trimeric form in the circulation, which then leads to inhibition of TNF receptor 1, but not receptor 2. So it's differentiated as a more selective TNF receptor blocker, which we hope. And we see that in the early data, allows us to maintain efficacy, but to avoid some of the safety issues that we see classically with TNF inhibitors. For example, we believe that anti-impact responses should be maintained because we focus largely on TNF receptor 1, not 2. So the molecule is differentiated. We've not fully presented the data, but we presented top level at this point that we've hit on efficacy, which means this is an active and competitive TNF blocker. And again, we feel very encouraged by the data that we see because we feel this opens up the full spectrum of TNF-related disease, meaning rheumatological -- rheumatoid arthritis, ankylosing spondylitis, psoriasis, psoriatic arthritis, but then also looking at IBD, for example, ulcerative colitis, Crohn's. So this is one of the cases where, definitely, we need to think about a broader program. We've not communicated details of the program yet. I hope we can do that later this year obviously, but this is a molecule that I think is very exciting, and I'm really looking forward to developing.

And do you want to take it from here?

Yes. I've got two more left and I'll hand it back to you, I guess we also -- it sounds like an exciting molecule. I'm just not sure exactly where the focus is because there's so many different utilities, I guess. And one of your competitors has been talking about the importance of covalency when it comes to a potentially differentiation on liver tox as well -- but on the liver signal we just discussed. But you've sort of got Phase III trials in ITP. You've got AED, you've got asthma, you've got hives. I mean it fits the bill in terms of all these parallel trials, we've started talking about with an IRA perspective. I presume you could go into [indiscernible] data only thing to go by also into [indiscernible] potentially as well. So how should we think about this molecule? Which area do you feel is the most exciting and the biggest unmet need and maybe the clearest route to first-in-class best-in-class?

Yes. [indiscernible] is another BTK inhibitor that we've also acquired. It's different from tolebrutinib in that tolebrutinib is a covalent binder, whereas ibrutinib is what we call tailored covalency so it's more than an off binding, but it still maintains good activity at the target and at the kinase, at the BTK. We started a broad program actually not because of the IRA at the time, this is the program we started some time ago. But because you really wanted to understand exactly your question, where does BTK inhibition play a role in immunology, right? And the first study that we'll read out for us. So that program is ITP, right, immune thrombocytopenia at the Phase III stage next year. But we have this broad program, and you mentioned it, AED, asthma, CSU, other types of diseases really to understand what is the rollout of an oral BTK inhibitor. We will have to see the data, right, to really understand where can we make a difference. The big -- besides having a differentiated mechanism with BTK inhibition versus other immunologic mechanisms, the big differentiation also it's an oral. So we need to think about can this be a safe oral in some of these diseases, right? And we can all think about if we had a safe oral, for example, for asthma, right, what would that mean from a prospective treatment paradigm? And we think about this with the patient journey in mind in asthma patients go from classic therapies, inhaled therapies, ideally to an oral, right, that we don't have a lot of active orals available. So that's where the molecules would fit in and then to a biologic. So really thinking about this journey and can we fill this gap, this unmet need of a safe oral, for example, in asthma therapy? And the same is true for the other indications. So it made a lot of sense to evaluate the drug more broadly in different types of signal-generating studies, and then we'll look at the data and we'll decide on what can we move forward.

Got it. And the last one for me was the IL-13 [ T-cell ] sort of [indiscernible] -- you've got a number of bispecifics in your pipeline - and I guess I'm trying to get my head around, does that result in more specificity hitting two things compared to the component parts? Just to find on the sort of safety trade-offs between going bispecific versus 2 separate antibodies?

Yes, there's different components to that. One is, obviously, we talked about combinations before in COPD. So combination is a really important concept. Generally, thinking about combinations, you can do two things. You can double down on a pathway right, and really try and impact that pathway even more or you can try and hit on 2 separate pathways. In the current world, doing that with one molecule has immediate advantages, right, from a cost perspective, from a clinical trial perspective, on perspective of potentially achieving synergy right? And that's where IL-13 T-slip is a perfect example. We have other molecules in the pipeline, like, for example, TNF-alpha OX40 that goes along the same rationale. IL-13 T-slip tries to take what we've seen with addressing an IL-13 pathway in addressing a TSLP pathway and really applying that to a disease like asthma, right? That's where we did the early signal generating study. We did the study in asthma because we know the field intimately and the inhaled nitric oxide FeNO gives them the possibility to do a really quick study and know what we have. And then we talked about that at our recent Q2 call. The data that we've seen, the reduction in FeNO with IL-13 TSLP is actually unprecedented. You can put that side by side, and it's a cross-trial comparison, of course, but you can put that side by side versus what you achieved with [indiscernible] or what you achieved with pure TSLP. And it appears that the effect is not additive but synergistic. When you look at just the depth of the reductions, you see an unprecedented reduction. That's where we have high hopes that this could be an really highly, highly efficacious molecule in asthma and then, of course, a molecule that can also be used beyond asthma in other types of diseases. Just as a side note, what this also does it actually does validate our Nanobody platform, right? And this is a molecule that is active that we can use clinically and that gives us a really good way of trying to address different targets within one molecule.

One last question for me.

Okay. So last question quickly on the [indiscernible] left. Sanofi Oncology, you are looking at a proof-of-concept data [indiscernible] data for your [indiscernible] ADC. But beyond that, how much of a focus oncology is for the organization today compared to [indiscernible] where we can see the investments going through?

Yes. Oncology for us at this point is much earlier, obviously, as a portfolio. We have molecules that -- we have an oncology portfolio right now commercially, right? We have Sarclisa. We're waiting for important data during the second half of the year. There will be another interim analysis for the [ ENRON ] study in [ transplant ineligible ] first line. There will also be more data in transplant eligible that we're looking forward to -- that's one component of the late-stage portfolio. Then we have [indiscernible], which is our antibody drug conjugate. We were waiting for Phase III data also during the second half of the year. But then we have, I think, an important early-stage portfolio that is focused largely on 3 components on T cell therapeutics and K cell therapeutics and antibody drug conjugates. And that early portfolio, I think it's important to develop further. So it's an important part of the -- of our overall portfolio, but it is much earlier. And obviously, we're trying to realize the benefit with that early portfolio over time.

Great. Thank you, Dietmar. Thanks for joining us again. It's been a pleasure.

Thank you.

Thank you, everyone, for listening as well.

Thank you.