(Reuters) – Sanofi shares fell on the Paris Stock Exchange on Friday after the French drugmaker abandoned its operating margin target for 2025, as part of a plan to list its Consumer Health business and to increase research and development spending.
“Sanofi is studying possible separation scenarios, but believes that the route most likely to be taken would be that of an operation on the capital markets through the creation of a listed company whose headquarters would be in Paris,” the laboratory said in a statement.
As part of an effort to spend more on drug development in immunology and neuroinflammation, the company abandoned its 32% business operating margin target for 2025 in order to focus on “long-term profitability”.
Sanofi shares fell 15.34% to 85.05 euros at 08:08 GMT, its biggest drop since September 1994.
The timing of the potential listing, which Sanofi said would not occur before the fourth quarter of 2024, would be set to maximize shareholder value creation. The group said it would consult employee representatives on any planned operation.
Although the split has the potential to be welcomed by investors, the reductions in profit ambitions over the next two years are “quite substantial”, notes Terence McManus, fund manager at Bellevue Asset Management in Switzerland.
“Sanofi has historically had low productivity in research and development. It remains to be seen whether current management has been able to change this narrative enough for investors to also support this investment.”
The announcement comes after Kenvue, a larger competitor in the consumer sector, was spun off from Johnson & Johnson this year, and after Haleon was spun off by GSK and Pfizer in 2022. Bayer, which has had new management since June , has faced calls from several investors to divest from its consumer businesses.
INVESTMENT WILL WEIGH ON PROFITS
At a news conference, Sanofi Chief Financial Officer Jean-Baptiste Chasseloup de Chatillon said the investment in research and development would be significant and would also weigh on profits for 2024, but he declined to provide numbers.
The pharmaceutical group has in fact warned that its adjusted earnings per share (EPS) from activities in 2024 will be “roughly stable” compared to 2023 levels, due to the increase in research and development expenses and a higher tax rate.
For JP Morgan analysts, although the listing of the “Consumer Health” division is a positive point, the warning on EPS in 2024 implies that it will be 7.97 euros, or 9% less than the latest Consensus Vara at 8.80 euros.
Sanofi said it was targeting savings of up to 2 billion euros between 2024 and the end of 2025, the majority of which will be reallocated to financing innovation and growth.
In the third quarter, Sanofi reported a 10.4% drop in operating profit from activities to 4.028 billion euros, slightly below the average analyst estimate of 4.1 billion euros compiled by the group.
The company confirmed that it expects an increase of around 5% in its activity EPS in 2023, excluding currency effects.
The negative impact of exchange rates on 2023 earnings is expected to be between 6% and 7%, compared to 6.5% and 7.5% previously expected.
(Reporting Ludwig Burger; French version Mariana Abreu and Kate Entringer, edited by Blandine Hénault)
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