In February, Sanofi (SNY) made an announcement that it had intentions to spin off its drug ingredient manufacturing unit into a separate company. The spinoff would accommodate over 3,100 employees and own factories in the UK, Germany, Hungary, Italy, and France. Its existing 11 API facilities already subcontract for other drug companies. Sanofi intends that five of these facilities will be retained to manufacture APIs for Sanofi drugs while the remaining 6 factories will be spun off. The company went on to say that the active pharmaceutical ingredient (API) spinoff would be become the second-largest API globally, making sales of about $1.1 billion by 2022. Sanofi would own a 30% stake of the company while the remaining 70% will float on the Paris Stock Exchange for public investors through an IPO. The company intends to have an initial public offering (IPO) for its spinoff in 2022 on Euronext Paris.
Concerning the reason for the spinoff, Phillipe Luscan, executive vice president at Sanofi cited that Europe had a shortage of pharmaceutical ingredients, unlike China and India which produce about 60% of the world’s active pharmaceutical ingredients. Therefore, spinning off its API would allow the new spinoff to stand on its own and explore its full capabilities.
“This new entity would be agile as a standalone company, and able to unlock its growth potential, especially in capturing new third-party sales and all the opportunities of a market growing at a pace of 6 percent per year,” he said. This would enable Europe to maintain long-term access to drugs.
Sanofi CEO, Paul Hudson believes that Europe deserves to a major global standard API that can provide European countries with necessary active pharmaceutical ingredients rather than depending on China and Indian APIs with the rest of the world.
“When I talk to ministers of health for major European countries, they say one of their biggest challenge is out-of-stock medicines, particularly generic medicines, where they accepted bids from China and India so low that those plants can’t be upgraded… and consequently, they go out of stock over time.”
The Sanofi spinoff could be a good investment opportunity for many investors as it would become the second-largest active pharmaceutical ingredient manufacturer, with Switzerland’s Lonza Group as the largest API manufacturer. Also, it would be an API market center for European pharmaceutical companies and neighboring countries, diverting the attention from China and India, within its region. Before Mr. Hudson took over as CEO in 2019, the company had been underperforming its competitors in the market, with a 6 percent decline. Since his takeover in 2019, the company’s shares have increased over 17 percent and is determined to do more.
According to Mr. Hudson, Sanofi wouldn’t only do a spinoff, but also, include drug development on sensitive areas such as cancer, heart disease, diabetes, and other rare diseases. All of these are targeted at improving the Company’s performance and making better returns for its investors. Sanofi has also assured its potential investors that the Spinoff is most likely to generate €1 billion ($1.1 billion) in sales by the year 2022.