Sanofi (SAN) Earnings Call Transcript & Summary

Welcome to the Sanofi presentation at the 42nd JPMorgan Healthcare Conference. I'm Richard Vosser, European pharma analyst at JPMorgan. It's my great pleasure to introduce Paul Hudson, the CEO of Sanofi here. Before I hand over to Paul, just to remind you that if you put your hand up for questions when we get to the Q&A period. Paul, welcome to the conference.

Okay. Thank you. Thank you, Richard. Good morning, good afternoon. What a warm introduction, Richard. Great job. Really got me in the spirit of things. Fortunately, my content is good. You'll decide. No, it's fine. It's fine. So it's a great pleasure for me to be here, to be sharing a little bit about what's going on at Sanofi. It's a real moment for the company. And we're very excited about what we're becoming and it's good to share it because it's been a long time in the making and we really feel like we're demonstrating that with the new Sanofi. Maybe I'll start with this, one of my favorite slides. Take note because we'll share some thinking about aspirations and where we may be and you know the rules. So take a look at this. So when I joined the company in '19, I really aspired to lead an organization that could be operating like this. We've had bumps in the road. It's not always been easy, not for any company, frankly. But we've really started to put together a real cadence, a real determination about what we can really do in this really special company. We're going to be one of the world's leading immunology companies and that may raise eyebrows as it did back in '19 when we said Dupixent would have sales greater than EUR 10 billion. And where are we now? Already achieved check and sales of around EUR 13 billion is my expectation, this year alone. We're going to share with you some of our key assets and what they mean and what they look like and why we believe in them and how we can stack them up in indications to win in immunology. We've recently, as Q3 last year, we shared that we're going to spend more money in research and development, in particular, development. We're going to increase our spend by about EUR 700 million. It doesn't put us above median, as a percentage of sales but it's deliberate. It's deliberate to make sure that we fully deliver on the assets that we have, no compromises. This company has got incredibly proud history but it has some gravitational pull to the fact that it's not punching through on R&D, at least not perceived as. And we just feel we've reached that moment now. We're where we need to be. We have 12 big shots on goal and I'll share what those in a moment. We'll have 50% more Phase IIIs over the -- increased Phase IIIs by more than 50% over the next 24 months. We've got late-stage assets that really have a shot at doing something important for patients. It's a different company. We're using AI at scale, more than 11,000 people across the company using AI every day for better decision intelligence. We actually -- whilst we were running our development committee led by Houman, I'll introduce him a little bit later, our new Head of R&D, we actually are at a level now where we could ask the AI to tell us whether we should go and initiate a Phase III with an important medicine. And strangely, it came back and said, you should and you should move faster and here's 3 things you should do, which is great for me, by the way, to be able to tell him that. The important thing is weaponizing our decision intelligence, having no regrets of going faster and deeper than others to make sure we make the best choices, is an important part of the transformation of the company. 2023, for most of us in the company, certainly for me, was the first year in the company's history where we had so much scientific news flow, so much progress internally and in collaboration that we really got to see what the company will look like. We really got to see what steady state will be for us. We have great partnerships with J&J and vaccines on E. coli and Teva, a shout out for them on the TL1A and really, really important work. We're excited about the progress with PCV. We advanced Dupixent, of course, now and have submitted for -- with the regulator for Dupixent in COPD. We've advanced an oral TNF. We've advanced amlitelimab or OX40-Ligand. And we've made massive progress just in 1 year alone. And I put it to people, if you really stack up our news flow from '23, this is good as many, if not better than most. And we're very proud of the work that's been going on for quite a number of years to get us in this great situation. Internally, when I share this slide, I often refer to it as my favorite slide since I've been with Sanofi from back in September '19. This is the slide that really sets us up for the most productive and value-creating future possible. I'm not even sure it can be constructed anymore, given the sensitivities of regulators. This is a very important moment for the company to have multiple shots on goal in massive diseases. We can help a lot of patients, we can raise efficacy bars, we can extend intervals, we can do so much. And this is, I think, without equal in terms of our commitment to immunology. I won't forget, vaccines too. We made staggering process -- progress. We've never had this many Phase IIIs in the air at one time in vaccines, in the company's proud history. Goes all the way in immunology across the transplant to neurology. And it's really startling how much progress we made. I can pick out, people always say, what is your favorite asset? I'll get to that in a moment, or your favorite child? I think it's often described. There is such a richness and depth that we will deliver successful medicines for patients and for value creation in the key TAs. To dimensionalize it, that's often what people seem to think is one of the most important things. We tried to just loosely bucket it in the EUR 2 billion to EUR 5 billion range and the EUR 5 billion plus range. We have a lot of conviction. We work with Regeneron on Dupixent. I'll talk about that in a moment. But Regeneron did an incredible thing creating Dupixent. They've been a tremendous partner. And we've challenged each other at every stage to get the very best out of that medicine because of what it means for patients. And we've all learned along that journey. We know how to develop drugs in immunology. We know how to do it. If you think how far we've come since 2019 to be at a point with all these indications and the excellence of which has been operated, we've learned a lot. We know how to do these things. Regeneron has been a great partner on that journey. So for the excitement for me, the OX40-Ligand, which could change the game and is clearly the best profile in that space. Frexalimab in MS and of course, in type 1 diabetes and the oral TNF, which is a slightly higher risk project but it's never been done. It took us quite a few attempts but we now have the opportunity to put before biologics in almost all of the major TNF indications, an oral TNF. And imagine what that means for expanding patient pools and populations, we're in orals, we're in monoclonals. And as you know, the probability of success of a mAb is in the 70% to 80% range. So this is a deck stacked for success. We'll have some failures, don't get me wrong but this is a deck stacked for success. People often say to me, well, Paul, if you do well with this medicine, it cannibalizes this medicine. If you make progress here, how can you possibly stand up all these medicines next to each other? Well, the reality is quite simple. And this chart -- or the next 2 charts but this chart in particular, is the one that often industry observers just fail to completely understand, which is the biologic penetration of those eligible in the moderate-to-severe patient populations is low. While Dupixent will achieve EUR 13 billion in revenues this year, the penetration of those that deserve it is 9%. And So 91% of the patients that should be on Dupixent are not receiving it. That penetration gap, that patient pool is why multiple assets are needed. It's why competition is needed because we need the noise, the education, the investment to raise the boats. And that's why when you look right across here, there's over 100 million patients that are eligible. And so far, just single-digit millions are getting treated. This is a big deal. This is the fundamental building block of why we'll go on to be so successful. We chose at our recent R&D Day to give an example of psoriasis. We're not really in psoriasis but we wanted to help people understand, okay, so you have these underpenetrated markets but how can you launch so many biologics against the same patient population? And we took some time. I had the privilege 1,000 years ago to launch Remicade as part of my career. And Remicade still does very well. And the reality is, patients are heterogeneous. The reality is that improving selectivity, interval, safety, these things, evolved markets grow patient populations. We know just cleanly looking at this that more than, I think, 5, 6 or 7 of these medicines in psoriasis are all blockbusters. Many of them are IL-17s. When you think about how they can all coexist it's because patients want to raise the efficacy bar and do different things. And they know that if they go back to their physician because they're 95% clear but not perfect, they know that they will say to the physician, what else do you have for me? I'm getting used to being near normal in terms of skin clearance and there's a switch opportunity. It's just how it is. So we fully understand the underpenetration and we fully understand how to coexist important medicines for patients. And if you get those 2 things right, you can do something extraordinary. We haven't had a long history of launches. It's been a few decades that the company has really not got the cadence going but now we're in the rhythm. There is no rust on the launch machine at Sanofi. What we've done with Beyfortus is simply sensational. It's 3x the best-ever pediatric vaccine launch. And not only that, we could have played it easy by just looking after the most vulnerable infants but we chose not to. Our team chose to protect all infants. And the data we're seeing from across Europe and the U.S. is staggering. It's flatlining admissions into the emergency room for babies. It is absolutely incredible and kudos to the team for doing that work. We've launched Altuviiio. We've launched Tzield in type 1 diabetes. We've launched all of these medicines and done particularly well. But the reality -- in Q2, we said we'd have more than EUR 400 million in there second half of 2023 in revenues. We upgraded that to more than 500 million at Q3. And I'm excited to share at full year results on February 1, how much progress we actually made because it is impressive. Why is that important? Because if you're stacked in the diseases that count, if they're underpenetrated, if you know how to position and you know how to launch, then you have a very bright future. I just thought I'd put this slide in because Dupixent clearly will grow until its end. It's one of those once in a career medicines that has efficacy and incredible safety and bring such hope and relief to so many. I like this chart because while you may understand the numbers around Dupixent and many of you have been involved with Cosentyx, myself and you see many of the medicines, these are just 31% on the left of Dupixent share of prescriptions is not in atopic dermatitis. It's of all diseases in dermatology, which tells you just how successful this medicine is and will be. We were the fifth biologic to launch in pulmonology. The fifth advanced therapy. We're now the leader. So it's not always been easy. People say, you must have it easy. It's a great medicine, far from it. We were fifth in and now lead on new patients. This shows you what we're like at executing. It's pretty staggering. Over 0.75 million patients on Dupixent, 9 approved indications, again, breaking new ground on COPD, really not hesitating. A truly amazing execution machine. So we're putting the pieces together of what we like to think of as the new Sanofi and it's coming together very well. On December 7, we tried to help people understand what the future could look like for us. Because while we're proud of Dupixent's success, we also know that in the next -- in the '30s, it will lose its intellectual property. And we know that we need to be ready for that, like all companies, many companies, in fact, having challenges. So we just put it out there for people to understand why we think we will grow, certainly EPS through that moment whenever that moment may come because of all the things that I've already shared. We'll have greater than EUR 10 billion sales of new medicines by the end of the decade, long before the patent expiry. We will double the size of the vaccines business by the end of the decade. And even though the pace of growth will be double-digit CAGR for Dupixent through 2030, imagine that on a medicine of this size. We want people to understand that while we know that it's an important medicine for us, we've been preparing for 2019 for life after or life alongside depending on how we go in our defense of its IP. So we are really setting ourselves up for something very special. There's a lot talked about of ESG. There's a lot of encouragement in KPIs. I think we would all agree 2 things are very important. I'm proud of Sanofi that we get them right. It's not been easy but they're important for a couple of reasons. One, 100% of our studies have the patient voice in the creation of the study. So there is nothing where a lot of smart people sat around drinking cappuccinos in headquarters and designing studies without that patient sensitivity of what it actually means. 100% of the studies. 100% of studies now have a D&I objective. And why should we do that? Is that poll just to check a box? Absolutely not. Our patients that inevitably and eventually will be treated with the medicines represent society, of course, they do. So making sure that all walks of life appear in how we think about designing studies, it's important because they'll be the ones receiving the medicines in the end. At the end of October, we also tried to remind people that our focus now is on becoming a pure play biopharma company. Our consumer team have done an incredible job. They have simplified their business. They have simplified their SKUs. They have skinned it down to grow faster. They have made acquisitions. They have become leaders, I think, in some of their marketing and customer insights. We've taken a business and we've really shown we can grow as fast as the market, if not faster, depending on the category and kudos to them. But the long term, we think it's important for people to know that we will not be diversified, that we don't need to do that. And in fact, it's perhaps not even what our consumer team would like us to do. They want to go and stand on their own 2 feet. In many ways, they are doing already. They're eager for that moment. We declared at the end of October that we will take a capital markets play. We hope to list in Paris. We're open minded about what that looks like. It's what's best for consumer and, of course, what's best for Sanofi. But in the end, where we'll be is a pure-play biopharma company. We were specific on the time line. We said it will most likely be at the earliest Q4 of this year, at the earliest because we're ready, we're quite far down the line. So we're determined based on the fact that our scientific progress is strong, based on the fact we know how to launch and we certainly know how to execute and we know how to be tech powered that we are ready to be a pure-play biopharma company. As for capital allocation, we declared this as our list back in 2019. JB and I, in Boston at our first Capital Markets Day and it still holds true. We've been very single-minded, given the history of the company, we had no real desire to blink. We had no real desire to make a trade-off. It's one of the reasons why we decided to double down on R&D because our success have been strong. This stays the same. Open-minded about BD and M&A, growing dividend, of course, and thank you for those that invest in us but continue to make organic investments, continue to keep the drumbeat going. And where needed, we'll do a buyback but on avoidance of anti-dilutive decisions that we've made so that everybody remains whole. So maybe just the last couple of slides. We are becoming a development driven, tech-powered biopharma company. That's what we're becoming. Some days, it feels more tech bio than biotech, given how much AI and data we're putting at the heart of the decision making. How we're removing the unconscious bias in the decision-making, how we are trying to be much more demanding about the decisions and the hurdles that we expect people to jump. We will continue to reallocate. We'll continue to build out our hubs in lower-cost areas. We'll continue to modernize everywhere we can because every dollar then will be reallocated because it must go towards R&D. We will deliver on that greater than EUR 10 billion, of course, in new sales by 2030. And why this chart, maybe didn't count it, maybe did count it, there were 12 assets on the chart -- my favorite chart. Not all of them will work or perhaps they will work but not how we would like or to compete. We declared last year that we need 3 to 5 medicines to deliver EUR 2 billion to EUR 5 billion in revenue. Remember, the POS of mAbs, which is 3/4 of that list, is greater than 75%. For some of those mechanisms, say, the IL-13/TSLP, [indiscernible] those pathways are already approved. So the combination has never been done but the pathways are approved. So the POS is even higher. So our confidence that we can get this done is very high indeed. As for guidance for '24-'25, we said we may see a low single-digit decline in '24 because we're resetting the company for the long-term value creation. And we were clear, although people would always like it to be even more clear that we'll see a very strong rebound in 2025. And you can count on us for that. Everything has been within our control and everything has been determined to try and make sure we can get this done. So maybe just to close out, extremely proud of how far we've come. It feels like a lot longer than 4 years that we've been on this journey but we are becoming a new organization. We have incredible people. We've got an incredible pipeline, particularly around immunology. We're doing some absolutely world-class work. I'm very happy about that. We're delivering the underlying performance. And think about how many companies are executing flawlessly, launching perfectly and building out a world-class pipeline simultaneously, right? It feels very good to be leading Sanofi at this exact moment. Thank you very much.

Thanks, Paul. We're moving to the Q&A session. If you have a question, please put your hand up and then we'll try and get a mic to you. Maybe I'll start. Paul, you mentioned the business development or capital allocation priorities. At the R&D Day in December, the internal pipeline was highlighted. You highlighted it here today. Any changes in the priorities for that business development, external, bringing in external innovation on that basis?

Well, I'll let JB comment. I'll just say upfront that we -- it has to be game-changing science. It's not about buying something, for example, that just increases your interval to every 6 months. It has to be something that is really fundamentally going to change something for patients. We can take more risk in immunology because we have such a stack of great medicines. We can really be deliberate about carving out individual patient populations. But we're open-minded. You've seen the TL1A deal with Teva, great deal. You've seen E. coli deal with J&J. There's no hesitancy where we can use our capability and excellence to get it done. JB?

I think the 2 deals you just mentioned are good illustration of what we want to achieve and we are active as we speak, of course, as we always are on -- it will have to be, as Paul is saying, really where we can win.

You mentioned the Beyfortus launch, which is obviously doing exceptionally well. I mean how should we think about the ramp of that product? There's been some supply. The demand is outstripping supply. How should we think about that as we go forward?

Well, we planned and it's really fascinating. Firstly, you we launched a mAb into a immunization and vaccine space. And there was some concerns that, will that be accepted. Now we hear from a lot of young parents, we want it because it's a mAb, because we understand the tolerability. I don't want my newborn having some challenges with its -- with an injection site reaction or fevers or chills or whatever. So we -- so we're thrilled at the -- we were ready for a big demand. We were like 2, 3x ready. But we were surprised positively that the volumes are just massive because people can see. When you look at the data, there's some data just been published actually in [indiscernible] that shows that this can end up being one of the -- sadly, one of the most challenging RSV seasons in recent history. But that in the 0 to 12 months range that there are no cases of RSV because we have almost a 90% coverage, say, in that autonomous community. Whereas if you're over 1 and a toddler, the cases are massive. So you're just getting this real time seeing on what's going on. There's no issue with manufacturing. There's just -- it's one of those things where I'd have shouted at people if they had over manufactured. We did a 3x. Then of course, it's even bigger than anybody ever dreamt. So it will catch up, some point this year will catch up and we'll be able to protect almost all infants across the world over the next sort of 12 to 24 months. That's pretty amazing. So we're thrilled with how it is. And again, don't forget, this is Sanofi and this is, sometimes people think we're a little unfashionable or not like other companies, interesting. I said it, when I was making comments, we could have just gone after preterm infants and really just focus where it was easy but it's like all infants, all infants, irrespective of demographic or socioeconomic standing, our desire to get to all infants. And that's not an easy thing to do, particularly with mAb, we're doing it. I'm really proud of that. Any questions for Houman?

Well, I was going to ask 1 question. I was going to build on that and then maybe a question for Houman. So you mentioned there, of course, the development of higher infection rates beyond that first year of life. So do we get more second year usage of the mAb or do we need your vaccine in development for that patient population?

Yes. Look, I think what we've learned very quickly and there's obviously competition, particularly in older adults. We think that we can be the player in RSV, I mean, to be clear. And it may be in combination in older adults to give more protection across more diseases but we've seen enough now to know exactly what needs to be done. We're doing the programs in toddlers. And so we will get there and we'll do it very well. I wanted to just introduce Houman because he's our new Head of R&D. He comes out of venture, a physician scientist and perhaps not the typical profile but still great. And affectionately known internally as first in human. But he bringing agility, urgency, challenge, fresh eyes, raising the bar. It's important part of how we make sure that we are really distilling the very best. Do you have a question for him?

I do have a question actually, Paul. Thanks for the prompt. I mean maybe there from your first few months, 1 quarter or so, what do you see in terms of the Sanofi R&D that I suppose, what changes are you going to bring? What do you see is good? How do you see the profile? We've obviously seen the R&D Day with substantial new products coming. But in the processes, where do you see things changing under you?

So thank you for the question, unprompted. Three areas. I think one of the things that we see -- when I came to Sanofi, I was very pleasantly surprised by our late-stage pipeline. We have an excellent team and a fantastic late-stage pipeline. I think at the risk of repeating what you said, Paul, I think if you -- in a really dispassionate way, look at our dominance in immunology, becoming an immunology powerhouse is truly remarkable. And I just want to remind everyone not to consider it as an asset-by-asset basis. But if you look at the way we're building a platform along with Brian, sitting in the audience here, to ensure that patients walk through Sanofi products, both in combination and all the way through the treatment in immuno-inflammation, both in terms of biologic and small molecule therapy. I think we are truly differentiated and we're building the connectivity between research, development and commercial in a way that I could not believe possible. So there's -- that's the milk and honey. The second part of it is that in order to sustain that pipeline, we don't have an infinite money tree. And so dynamic capital allocation is exactly what a venture capitalist brings to the table. And we are monitoring the portfolio very carefully. And then finally, it's the use of AI and you will have seen that, Richard, to do dynamic portfolio reallocation. And this is something I really want to emphasize. From the first day a molecule is incepted to the day it gets to the patient and beyond, it's all mapped out from day 1. It's kind of a remarkable thing. And we just need to call out Thomas Triomphe, part of the value, one of the things that -- amongst the dynamic capital allocation theme that I brought out, the intersection between vaccines and R&D is ever closer and tribute to you for what you've done to Beyfortus and your team.

And at the R&D Day, there was a large number of Phase II and Phase III programs that are going to start in '24 and Paul, you called out obviously the increase in R&D spend. But if those start to work -- you talked about capital allocation. But if those work, then how do we see R&D spend in '26? I can understand '25 is the readouts. But if they go forward, do you need to spend more?

So 2 comments on that. And I've got one for JB to my left. R&D spend will stay flat beyond '25 just to be really clear. And we're very careful, what you'll see is the tolebrutinib [indiscernible] Phase IIIs finish, other things will come to fill that space, point one. But that's a super clear message. It's not the magic money tree and we will continue being careful about our dynamic capital reallocation. But I just want to also be clear, as Brian would say if he was up here, that what we've taken is a very thoughtful approach to life cycle management of those molecules. What we haven't done, if you look at R&D Day, is do a string of pearls, do an indication after an indication. We are really thoughtfully under Paul's leadership building out the franchise approach of these drugs. And I've said that once already in the last 3 minutes. But if you look at anybody in the industry, the ability to build small molecule with biologic combos, walk through strategies, being able to look after patient heterogeneity, thinking about patient stratification, making sure that TPPs align, thinking about pushing the efficacy bar and durability, I would say that we are -- I come to this new and I don't come to it with rose-tinted eyes. I think we're the industry leaders in immunology in that regard. And I -- last comment, I don't want anyone -- I don't want anyone to forget immunology I&I means vaccines and that's important. But we're not forgetting our provenance and heritage in rare disease either. That's important and we continue to be committed to our patients with rare diseases.

Yes, I think just to add a comment if you indulge us, Richard, is that I see it in the analyst reports, you see it everywhere, there tends to be an asset-driven description of winners and losers. It tends to be this versus this. And it's good for the small people that know how to do the side-by-side trial comparisons where appropriate. What we're doing is something a bit bigger than that now because we don't need to win with everything. We need to participate at scale with multiple assets to give patients more choice on efficacy, convenience, selectivity. And we don't -- if you just acquired an immunology asset for tens of billions of dollars, you must win. You have to win. And all -- you have to go against standard of care. We've created an ecosystem now in immunology internally where we can deliver multiple shots and have very important medicines with really generous peak year sales that will help us get these things done. And nobody has really looked properly at what we put together and good really because we will pleasantly surprise everybody as we move along because it's a really nice position we put ourselves in, been hard work, not for you, you just inherited it. But we've worked really hard and you don't mess it up, different thing, but we worked really hard to make that right. And I think we're really proud of the people in Sanofi and where we're at.