French multinational pharmaceutical company, Sanofi's new chief executive is expected to show how he aims to get the firm back on track, when he presents his five-year strategic plan on November 6. The pharma was hit by lagging diabetes sales and boardroom rows.
Olivier Brandicourt, 59, who took the helm of Sanofi in April, will also have to meet shareholder demands for the company to remain diversified while controlling costs and keeping a look-out for acquisitions.
‘Sanofi's Anti-cholesterol drug, Praluent recently secured approval in the U.S and the European Union.’
AdvertisementWhen working at both Pfizer and at Bayer Brandicourt managed a number of divestments which analysts have described in the past as successful, including Pfizer's sale of animal health unit Zoetis as well as Bayer's blood glucose monitoring business.
Most immediately Sanofi faces growing competition in the treatment of diabetes, especially in the United States, the world's biggest pharmaceutical market.
The company warned in April that sales in its diabetes division, one of its major revenue and profit earners, would fall this year.
And Toujeo, a next-generation insulin launched at the end of March in the U.S to follow patent-expiring blockbuster Lantus, is still expected to weigh on costs.
The company also has other strategic commercial launches it needs to succeed with, such as an anti-cholesterol drug, Praluent, which has recently secured approval in the U.S and the European Union, and dupilumab, a monoclonal antibody designed for the treatment of skin diseases and asthma.
Industry analysts believe that still gives Brandicourt scope to cut costs and to refuel the drug pipeline using a balance sheet that is stronger than many European rivals.
While investors will be invited to a day of presentations in Paris on November 6, some details could emerge as soon as this week when Sanofi publishes third-quarter results on Thursday.
"We see upside potential from new CEO Brandicourt's first strategic update, for which market expectations remain moderate but which could bring potential cost savings in the new, simpler organization," Morgan Stanley analysts said in a recent research note.
In July, Sanofi announced a simplified structure from next January built around five global business units (GBU).
"If the company still wants to remain diversified, the model needs to be agile," said Vincent Genet, a partner with consulting firm Alcimed, citing the need for more effort to cut costs and simplify operations in the group's divisions.
The company is also hoping to clinch a deal with unions to boost productivity at its French plants by 20-25 percent over three years, union sources told Reuters on October 7.
"A 5 percent cost trim could boost 2017 earnings per share by 11 percent and by 8 percent over 2017-21," Morgan Stanley said. In 2014, Sanofi reported "business" earnings per share, which stripes amortization, impairment and other costs, of 5.2 euros.
Shares in Sanofi are up around 21 percent so far this year compared with a 14 percent rise in the Stoxx 600 Europe Health Care sector index.
Acquisitions, Asset Sales
Morgan Stanley analysts also say the group has the capacity to raise total debt of up to $40 billion for possible acquisitions, four years after buying Genzyme - a Massachusetts-based company which focuses on rare diseases like multiple sclerosis - for $20.1 billion.
"Should Sanofi use this firepower to buy a company close to current multiples, we calculate that a theoretical earnings per share accretion of around 20 percent in around five years", they said.
"We expect Brandicourt to elaborate on how and which types of deals could be done, and envisage a continuation of company's current strategy of mid-size acquisitions rather than one larger acquisition," they added.
But so far, Brandicourt has kept investors guessing about his exact intentions.
During Sanofi's general meeting in May he said the company needed to remain competitive in the areas where it "can and must win" and pledged Sanofi would maintain a broad product portfolio whereas other European competitors such as Switzerland's Roche or Denmark's Novo Nordisk have chosen to specialize.
And analysts say while the company wants to remain diversified management could yet decide to sell some non-core businesses such as generics or animal health to help fund expansion in other areas such as oncology, where Sanofi has teamed up with U.S Regeneron.
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