Sanofi (SAN) Earnings Call Transcript & Summary

I'm Sachin Jain here from the European team at Bank of America. My pleasure to kick off with the next company, which is Sanofi. We have Mike Quigley, Chief Scientific Officer. I think many of you may be less familiar with Mike. So I'd ask Mike to perhaps give a minute or so background on himself and then I'll get into questions. So with that, Mike, over to you. Thanks for your time.

Thanks, Sachin, for having me, and good morning, everyone. A pleasure to be here. Mike Quigley, Chief Scientific Officer, Global Head of Research at Sanofi. I joined Sanofi coming up in about 2 years ago. Remit within the organization is everything from early discovery through handoffs at Phase I both internal and external innovation. And really, I came to Sanofi 2 years ago, and I'm sure we'll get into some of this today with the goal of sustaining a high-quality output pipeline from the research organization in a way that's much more efficient and effective than has hopefully been done historically within the organization. And I think, even more important as we think about where Sanofi is going in the future, that stability and long-term output and durability thereof is going to be increasingly important.

Thank you very much. So I'll kick off big picture, and then we'll drill into some of the later stage, may be less close to and then we'll do sort of circle back to research. So I mean, the biggest picture question on everyone's mind is new CEO, new Head of R&D, what's filtering down to you as the mandate and objectives. That's a super broad question take it as you will.

I'll run with it. Belen enroll, obviously, since April. Paulo has joined us now 3 weeks ago as the Head of R&D. And I'd say starting with the CEO mandate, it's clear coming in that Belen had a purview enterprise-wide assessment around R&D, but also the group level, sort of where we are, where we should be going. Through that process, it's reaffirmed key core areas of focus going forward, I&I, rare diseases and vaccines and an ongoing effort around thinking through what additional spaces, both therapeutic areas and white spaces, if you will, that the company should move into based on our internal expertise, opportunity, strategic fit, et cetera. So that effort is underway. You would have seen, obviously, in the context of Paulo's remit coming in with Belen now again, just 3 weeks ago. Prior to his arrival, we made some critical decisions in our late-stage pipeline, terminating amlitelimab, itepekimab and balinatunfib. What I would say is Paulo, even 3 weeks in, is already leading the effort on an additional rigorous assessment of the late-stage development portfolio, the initial focus thereof. I would imagine Paulo coming in, he's a rigorous scientist, experienced in sort of broadly global organizations, late-stage development, that will be the immediate focus as we think about not only expanding into areas as I articulated, but making critical and rigorous decisions on our current pipeline going forward. I think the criticality of sort of where we are within the organization, you should expect for us, but even more so going forward, quicker decision-making, transparency, more of an underpromise, overdeliver mindset as we think about how we approach scientific excellence within Sanofi going forward.

Can I just touch on the parallel piece? So does that mean we should expect more, sort of pruning of Phase II, Phase III as we sort of enter the back end of this year, whether that be 3Q or full year?

What I'd say is the outcomes have not been determined. I think what we're going through and what Paulo is driving is sort of deep assessment of 2 things in particular. I mentioned scientific rigor. I think an honest assessment of where we are from a risk balance portfolio. Historically, we've been first-in-class or best-in-class driven mantra. I think what you'll go into -- in our, both the end of this year, but also in a future-looking statement, where we're much clearer about articulating what the risks are in our programs. And being measured in how we deploy capital for those programs. So whether or not there's a pruning or a reassessment of the relative capital allocation for some of these portfolio programs, I think that will play out. And obviously, we'll announce more information when it becomes available.

And then I don't know whether this is correct, but I sort of heard the pending [ Paulo ] starting sort of proof of concept or Phase III starts were all put on hold. Is that still the case? Or are you sort of still stuff flowing through?

What I would say is it's generally business as usual, key strategic decisions around Phase III starts, obviously, the capital required for those. We're not necessarily put on hold, but they certainly were given the chance for Paulo to weigh in, and that's occurring as of last week for many of our programs that net in the mid- to late-stage start. I think it's prudent as we think about any new leaders coming in. But again, back to that introduction of more rigor as we think about risk assessment and balance of our portfolio.

Okay. And then as investors are very squarely focused on what you're going to do externally to bolster pipeline, and we'll hear that in due course. But just again, organizationally, I don't know whether it fits within your area, do you get involved in that? Sort of screening of targets you involved from a team perspective, what's the mandate? Just any color there.

Yes. Happy to comment on that. I'd say from a sort of BD perspective, R&D front center, the core of everything we do in BD. I think R&D helps assess with the broader group strategy around 3 key areas: so strategic fit, obviously, scientific merit and unmet need as we think about where any particular asset would be positioned and then obviously, financial -- potential financial return on that investment. Within the deep diligence that occurs, R&D diligence comes first. So once R&D has signed off on that scientific merit, the molecules, the development path, the unmet need and making sure that we meet that TVP target value proposition in the context of that asset then comes the commercial and financial sign-off. That's been the case, will continue to be the case. And that rigor, I'd say, in relative risk assessment even being sharpened in the context of that approach.

So how much time are you now spending on BD or your organization? How much time is Paolo spending on that? And sort of what areas of you been pushed to look at early, late therapy areas, new therapy areas? Just any sort of color would be very helpful.

Happy to. Yes. So I referenced it already, the commitment from a strategic mandate perspective. So clearly, I&I vaccines, rare focus in there. It's balancing our internal portfolio where we are from an expertise perspective where we can capitalize on our footprint. Both from a commercial but working backwards from a development perspective, you can imagine that's all in scope. And there, obviously, our internal portfolio is a bit harder, for lack of a better term. So then it becomes puzzle piece fitting and what makes sense and complementary in nature. Those white space areas, I have particular increased breadth in research. We have efforts in oncology, neurology, ophthalmology. So you can start to sort of see that shape. You ask me how much time. I'll answer in the context of what I think a healthy research and early development portfolio consists of, and that's a nominally 50-50 split of internal versus external innovation. I think there's -- we should not kid ourselves that the innovation solely occurs within our own walls, but rather use various levers we have to sample that external environment. So quite a bit of time -- of my time is spent. Paulo , obviously, not surprisingly top of mind as we're thinking about what that development pipeline bolstering could look like as he's getting into the organization.

I don't really understand how BD processes where I've been involved, but just how involved do you get in sort of even later-stage assets in doing the sort of background, preclinical validation, whatever. And is that going up as well as your typical early-stage deals?

Both. And I think the -- back to the rigor and the quality in late-stage opportunities, if you don't have a deep understanding of the mechanism and even as we think about market access, the differentiation that might go all the way back to the molecule behavior and hitting that TPP and TVP, I think all bias aside, research is actually very well positioned to really dig into those and we do currently for anything we brought in. I referenced even recent Blueprint deal as having the entire value chain on deck from a diligence perspective.

So you just give me a sense of who the key people are within Sanofi now that would be at the table on BD from early, late financial, commercial? Is that a new team? Is it the same team? How much has that changed?

Absolutely. So structurally, and I think it's because it's -- I think it's a benefit, which is why I'm starting with that. BD now sits along with M&A under the CFO. So that's close connectivity, including ventures and Sanofi capital investments. So all the various levers we have to expand our portfolio in one unit. And that doesn't mean they're not in close collaboration as always, with R&D. Actually, we've been strengthened through that sort of organizational move to make sure R&D, as I said earlier, is front and center in the context of those BD and more broad conversations. Key people, obviously, Paulo coming in, Head of R&D, signs off from an R&D perspective, just like Francois in the financials and depending on where it sits within our GBUs up through Manuela, for instance, in specialty. So you do have some new players at the ExCom level, some same, some new. And I'd say what we've done over the last 2 years has brought in and will continue to do so, the right lens of expertise in our development TA heads. So those have largely all been new. Certainly, since I've joined the vast majority of them. And the same is true of the research organization. Many of my leaders are largely new over the last couple of years. They're bringing in that scientific rigor and expertise.

So any sense you can give of how much time that sort of BDXCo is spending on early stage stuff, which has been what Sanofi legacy has done? How much there's a renewed focus from your time and the BDXCo, I'll just frame it as that, are now screening this breadth of $15 million to, I don't know, $25 billion, $30 billion deals, I think, has been roughly referenced. So like how is that? Is there a shift and you've been given a mandate of like we need to get XYZ done by XYZ time? Just trying to get a sense of urgency and shift in focus.

Maybe twofold. One is we will never move simply because of time and sense of urgency, right? We move for the right opportunity, the right assets, strategic fit, scientific unmet need, and it makes sense financially. So that is the guiding principle regardless of any arbitrary for a better word time line. I think it's an honest assessment to say that if I were up here even a year to 18 months ago, when I first joined, the focus was squarely on bolt-on Phase I/II assets. And you would have seen that in the deal flow that we brought about. I think fast forward where we are today, there's obviously been some headwinds, some of which we came out with Q2 in terms of terminations in our late-stage development portfolio. So I think there's a healthy balance of looking at what could complement the sort of mid- to late-stage development, not without or at the exception of any of the early stuff. So I'd say today, we're certainly phase agnostic as long as it fits both strategic sort of pillar with respect to therapeutic areas, but also the right scientific fit and the right financials for us.

But given the breadth has increased and slightly broader therapeutic focus you sort of mentioned on our ops being added. Do you have the expertise to do that? And is there any sort of particular area you're focused on initially?

That's a good question. So I'd say, I'd anchor back to the core areas in terms of initial focus. And maybe just to draw the distinction you referenced in other therapeutic areas. Those are active efforts within research. I think to varying degrees, you'll see early clinical development opportunities coming out of the internal pipeline. In the oncology, I'll reference a mid-stage PD-1 IL-15 asset, for instance, we'll have additional ones coming up in neurology. That's not a commitment per se to those therapeutic areas in earnest, but rather we will, as always, find strategic ways to assess and progress any of promising medicines as they emerge. So just to draw a distinction between my research TAs and the 3 core development TAs I referenced, I&I vaccines and rare. That being said, in terms of areas, I think the near-term opportunity is really those that are opportunities that are adjacent to the expertise we've built, in particular, in the development and commercial organizations. So back to the rare franchises. Clearly, the expansion of that could be complementary to what we're doing internally. Same is true within the I&I diseases. Obviously, we're most prominent in the context of dupilumab, but more broadly in the dermatologic and respiratory space. I'd sort of expand that to say that, that's something we know what good looks like from a diligence perspective back to the rigor. And so those are areas that, obviously, as we constantly survey, we might be an opportunity out there.

Okay. Spend a lot of time on BD, but there's a lot of investigator -- thank you for indulging I'm going to just shift on which is slightly adjacent, but any comments you can make on how you're feeling with your [ Tarrytown ] colleagues. So anything going on now Belen's referenced a conversation ongoing, there's been some hurdles. Just any perspective you can give there?

Sure. Happy to. Early conversations with our partners at Regeneron in terms of the alliance and what should go into the alliance to maximize the opportunity there, both with them, particularly dermatology, respiratory, may be a slight opportunity to expanding gastroenterology in terms of where that Dupixent footprint resides. I'd say, a prototypical assets that could be brought in from the Sanofi portfolio in [indiscernible] , obviously, TSLP IL-13 nanobody and respiratory diseases. It's not been decided that, that will enter in, but to get to the sort of flavor in the shape that we couldn't mine from the Sanofi portfolio under discussion, and we'll continue to sort of evolve those conversations and obviously, when decisions are made communicate appropriately on how best to maximize that.

Just [indiscernible] met within that debate as well

Today, Berbati does not sit within that conversation, in particular, as we think about the evolution of TNF OX40 ligands with 2 distinct targets, and the prosecution within the Sanofi portfolio in that case in the [indiscernible]

Okay. And then how much time are you spending do you delicing the pipeline that Regeneron has talked to. So super deep, the extended duration assets, is that now being looked at as your perspective, would we want those to go into the alliance. And I think there's still some confusion as to what is in or out of the alliance, particularly the IL-4 receptor debate.

Happy to expand. And again, ongoing conversations. We certainly -- I would say the team collaboration is strong with respect to our partners at Regeneron and Sanofi. We are digging into the long-acting IL-13 as we think about complementaring and maximizing the alliance you have [ Linzecamig ] on the respiratory side, for instance, in that example around COPD and asthma and obviously, the long-acting IL-13 monotherapy IL-13 playing out per se in the respiratory space, but obviously, would have a role in the dermatology space. So you can start to think about or see how we might shape, again, all ongoing active negotiations but how we might shape the complementarity of those 2 assets, for example in that. And there's continuing, whether it's the Super Duty or anything else that they might have, we're ongoing in terms of conversations.

Could you clarify for me then where -- I mean is it still uncertain whether IL-4 receptor is in or out of the alliance? And now you say it's in the sit-out -- it shouldn't be that complicated. Is that sort of a topic of conversation it's all related to the ongoing negotiations and clarifications, I guess, more appropriately.

What I would say from our perspective is what makes the most sense scientifically -- we know the type 2 access is incredibly important in type 2 driven diseases and respiratory and dermatology. And so for us, that's how we're framing maximizing that allowance and the types of assets that would be brought into it or could be brought in to it.

Okay. That's very clear. And then the last question, is the discussion with your colleagues advanced enough yet to be collaboratively investigating external assets?

Certainly in scope. Absolutely. Yes. I think the internal ones obviously have more data at hand from either side to be able to dig into, but there's always a possibility to bring in external assets into the collaboration.

So can I just check the timing of that? So the assumption has been that you probably need to fix the collaboration for mining externally, but it sounds like they're sort of parallel tracks and it could all happen together. Is that fair or incorrect?

I think first things first is understanding in context of negotiations, the current assets at hand. At the same time, I think it's prudent to understand what else could be brought in to maximize that alliance, both from a development perspective but also a commercial innovation perspective. I would just frame that respiratory dermatology and a bit of gastro metrology in terms of what might be in scope and makes the most sense as we shape that collective portfolio.

Okay. And I was going to access a much gastro, I hadn't really appreciated. Could you just touch on that just the EE indication that's okay, fine. Okay. Sorry, 1 question on the slide there, feel free.

Okay. I just have a question. Several years ago, you acquired Translate Bio, which is mRNA technology. You have a vaccine franchise, strong franchise. Why don't you launch neoantigens individualized vaccine using mRNA in oncology.

Certainly, I would broaden it back to your question, translate. We're making use quite effectively of that platform broadly within the vaccines, pharma collaboration internally at Sanofi. I'll reference and you'll see it emerge in our early clinical development pipeline in vivo CAR T efforts using that platform combined with some other lipid nanoparticle platforms that we brought in and as well as our nanobody technology. So that's an example where we're maximizing that in the context of that pharma vaccine design I think in the recent data, as we think about early- I, stage II cancers where a vaccine with a combination of checkpoint could make sense. I think that context and example is under a broader discussion that I referenced earlier as we think about what the right therapeutic area, in particular, in development and the commitment makes sense for Sanofi going forward. But it's not lost on us, in particular, the PD-1 I-15 assets that we have in Phase II could be complementary. So those discussions are active and ongoing. And obviously, we'll communicate when we make decisions.

Anymore? This might be a question more for Thomas. But one other question I get is, should we be expecting an update on these -- on the strategy by year-end, there's been a debate CMDs not a CMD were the current thought process?

Maybe Thomas can complement. I think we're committed to an evolving communication as we make strategic decisions and prioritizations as opposed to a single snapshot in time. I think it's on us to make sure we communicate. I'd point to Q3 earnings in October as the next opportunity to give an update on the decisions we made and sort of future-looking ambitions for the organization.

Okay. I think -- so that's similar to what we sort of saw in Q2, where we sort of saw a couple of slides CEO. This is the evolution of thought process, we should expect something similar 3Q rather than a big flash event which has had mixed success with peers in recent days. Okay. Perfect. All right. I'm going to move on to perhaps an area of your closer to your expertise. So just interested as to in your 2 years that you've -- 18 months, you've been, what have you changed? And where do you think you are on the journey of improving the early-stage research and asset flow into development?

Yes, happy to. Maybe a couple of reflections, and I think it should be consistent with what I've articulated in a go-forward fashion. Sanofi over the last 8 or 9 years as I came in and sort of looked at the data set, it won't be a surprising view I've had a lot of leadership changes, in particular, R&D, heads of R&D and with that comes a necessarily reassessment of the strategy. The knock-on effect that has in the context of the cycle times that I operate under. So anything I start today in research doesn't show up to the clinic for an average for plus years. The cycle time and a success scenario of anything we start shows up on the market in 14 years. So the knock-on effect of those heads of R&D and head of strategy changes have a significant impact on the perceived productivity of a research organization. So my goal over the last 2 years is actually to create a more resilient research organization with the ultimate goal of sustained high-quality output over time. You will have seen in our Phase I pipeline, a significant gap. The first in human starts over the last couple of years have been quite honestly, dismal. And then 1 out of 3. You'll start to see that build back and that's -- we've done some things internally. We've set up some collaborations and accelerated those starting this year in 2026, from a first human start and continuing on '27 and '28. That will be the first proof points. Quality of those decisions and productivity is always a lagging indicator. So you'll bear with me as we come through Phase II transitions with the rigor that we already discussed. And the last thing I'd say is, historically, Sanofi, to an extent, has been good at partnerships, particularly in the development stage assets. But from a research perspective, has had more of a noninvented tier status, right? We brought in Ablynx and platforms and those have proven fruit. But I've moved the organization to being much more nimble and making sure we can source effectively external innovation and you'll start to see more of that in terms of announced partnerships coming up that are more platform-size deals, meaning larger portions of a portfolio that make a lot of sense to prosecute with a partner, for instance. So more to come what I think that's been my focus. The last thing I'll say is decision-making, whether it's AI-enabled or just [indiscernible] decision-making is probably where the most value gets destroyed in the research and early development space. So that's been a big focus of ours and how we view our pipeline and how we make decisions. There's rigor included, but there's also timeliness of decisions and opportunity cost and dynamic capital allocation components of all of that, that we've looked to significantly strengthen over the last 2 years.

Within the context going back to BD, is there a review from who's coming in that yes, there's been a progression, but we actually need to bolster the R&D platform. Whatever may we look at is not only basis assets commercial, but also coming with a research platform.