Sanofi's Market Value Plummets by $21 Billion Following Abandonment of 2025 Profit Projection

29 Oct, 2023

Sanofi's Market Value Plummets by $21 Billion Following Abandonment of 2025 Profit Projection

On Friday, Sanofi's stock witnessed a substantial downturn, resulting in a 20 billion euros ($21 billion) reduction in its market value. This decline followed the company's decision to abandon its 2025 profit target as part of a strategic plan to list its consumer healthcare business, with a renewed focus on its core innovative drugs division.

Sanofi has announced that it is currently evaluating potential options for separation, with the primary approach being a capital markets transaction to establish a publicly listed entity based in France. This strategic decision aligns with the company's commitment to directing increased resources toward the advancement of immunology and inflammation medications. As a result, Sanofi has opted to prioritize long-term profitability over its earlier goal of achieving a 32% operating profit margin by 2025.

The news triggered a 15.5% drop in Sanofi's shares at 12:35 GMT, marking their lowest level in over eight months. This market reaction intensified the pressure on CEO Paul Hudson, who had taken the helm four years ago with the mandate to revamp the company.

Notably, Sanofi's shares are currently trading at a 12-month forward price-to-earnings ratio of 11, which is a discount compared to AstraZeneca's 16 and the global pharma index of 17, according to LSEG data. Analysts have voiced concerns about the substantial reduction in earnings expectations for the next two years.

CEO Hudson emphasized that the core innovative drugs business had made significant progress, allowing it to operate independently without the dependable cash flows from consumer products. The company had already set the consumer business on a path to becoming a separate division shortly after Hudson assumed leadership in 2019.

Sanofi expects its 2024 adjusted earnings per share (EPS) to experience a "low-single-digit" percentage decline due to higher taxes and a "significant" increase in development expenses. Although there is a projected rebound in EPS for 2025, it falls short of the previously targeted margin.

The timing of the consumer business listing, slated for the fourth quarter of 2024 or later, is designed to maximize shareholder value. Sanofi will focus its increased spending on clinical drug trials on immunology and inflammation, building on the success of its growth driver, Dupixent, a drug for eczema and asthma developed in partnership with Regeneron.

Sanofi plans to target cost savings of up to 2 billion euros ($2.11 billion) from 2024 through 2025, with the majority of the savings earmarked for innovation funding. In the third quarter, the company reported a 10.4% decline in business operating income, totaling 4.03 billion euros, slightly below analysts' average estimates.