Sanofi CEO Olivier Brandicourt has put forth a plan to refocus and reshape Sanofi with the goal of generating compound annual growth of 3 to 4% over 2015 through 2020? So how does he plan to achieve that goal? DCAT Value Chain Insights (VCI) examines the product and manufacturing strategy of Sanofi.
Driving the company's strategy is a need to seek additional revenue growth following patent expiry of its top-selling product, Lantus (insulin glargine), with hopes that its next-generation long-acting insulin, Touejo, can step up to the plate as well as other key product franchises in diabetes cardiovascular diseases, vaccines, and rare diseases.
Sanofi held an investor relations seminar on November 6, 2015 to outline the company's strategic roadmap for the period 2015-2020. Through a process of refocusing and reshaping the organization and investing in key launches and businesses, Sanofi expects to deliver a sales compound annual growth rate (CAGR) of between +3% and +4% over 2015-2020, with a target of mid-single digit growth in the second half of this period. The company also is continuing with a plan, first announced in July, to simplify its global organization, with a plan to achieve cost savings of EUR 1.5 billion ($1.6 billion) by 2018.
"The pharmaceutical industry is undergoing a transformation unlike anything we've previously seen. Continued consolidation in the sector has created a more competitive environment over the last few years and, at the same time, science has never been more exciting. In this context, I am defining new priorities for Sanofi. The company will remain diversified, but with a portfolio refocused on areas where we can win, and innovation driven to improve lives of millions of people," said Olivier Brandicourt, chief executive officer, Sanof, in a company release. "Along with a more streamlined and accountable organization, we are taking clear measures to ensure success as we launch a strong set of new medicines across several therapeutic areas. By building on the successes of these products, we are confident that Sanofi will be well-positioned for sustained, long-term growth. Sanofi is also seeking external opportunities to enhance its growth profile."
Sanofi's long-term strategy rests on four pillars: reshape the portfolio, deliver outstanding launches, sustain innovation in R&D, and simplify the organization. Sanofi's portfolio will be reshaped in three different ways. The company will sustain its position in diabetes and cardiovascular, vaccines, rare diseases, and emerging markets. In diabetes, Sanofi plans to develop its insulin franchise, which includes Lantus, Toujeo, and LixiLan, strengthen its pipeline through external opportunities (e.g. in-licensing agreements with Lexicon and Hanmi) and lead the market shift to managing diabetes outcomes. The company said that its collaboration with Google Life Sciences is a good example of the latter.
Sanofi plans to move to five global business units (GBUs) beginning in January 2016 following mandatory labor consultations. In addition, Sanofi plans to reshape its plant network to match business evolution with increased emphasis on its growing biologics portfolio. The simplification of the organization worldwide and and a more focused portfolio should allow cost savings of EUR 1.5 billion ($1.6 billion) by 2018, which will be largely reinvested to support growth initiatives. Two-thirds of these savings are expected to come from simplification of the organization worldwide and from a more focused portfolio, and one-third is expected to come from investments.
As part of that simplification, the company is using a share services model consisting of one Sanofi Business Services Organization that consolidates core process delivery activities of some support functions (human resources and finance), some expertise functions (procurement, real estate, and facility management) and institutes standardization and consolidation to create an end-to-end process across the enterprise. Sanofi is also globalizing its information technology function to drive synergies, simply business applications, and leverage a cloud strategy
Seeking to drive product growth
Part of Sanofi’s strategic imperative involve recouping declining revenues from its established products while driving growth in new product areas. Sales of established products reached EUR 11 billion ($11.8 billion) in 2014, representing one-third of total group sales in 2015. As of September 2015, 41% of its established products returned to growth in the first nine months of 2015, driven by growth in emerging markets, reaching sales of EUR 8.94 billion ($9.58 billion, a 0.6% increase. Although only a slight gain, the performance to date represented an improvement from 2014 when most of the company’s established products top 10 brands, which generated 60% of established product sales in 2014, were exposed to generic competition in 2014.
Bolstering sales in its global diabetes franchise is a key priority for Sanofi. Global diabetes sales expected to decline at an average annualized rate of between 4% and 8% at CER over the period of 2015-2018. Sanofi’s global diabetes sales in 2014 were EUR 7.27 billion ($7.79 billion), a 12.1% increase at CER, but they are expected to decline -6% to -7% at CER in 2015. Global diabetes sales accounted for 20% of the company’s total sales in the first nine months of 2015, 4.6% decline year over year, to EUR 5.68 billion ($6.09 billion).
The uptake to Toujeo is crucial to Sanofi as it seeks to retain its leading position in the basal insulin segment, the leading insulin segment in the diabetes market overall and for Sanofi. Sanofi's Touejo (insulin glargine [rDNA origin]. a basal insulin for treating Type 1 and Type 2 diabetes mellitus, was approved in 2015, and is is a next-generation, once-daily basal insulin based on a broadly used molecule (insulin glargine), which is the active ingredient in Sanofi's best-selling product, Lantus. Lantus had 2014 sales of EUR 6.3 billion ($7.2 billion) which faced patent expiry, effective in February 2015 in the US and in May 2015 in the European Union. Touejo's sales are estimated at nearly $1.3 billion. Touejo was approved in the US in February 2015 and the European Union in April 2015 and was recently approved in Japan. LixiLan is a fixed-ratio combination of insulin glargine and lixisenatide, for treating Type II diabetes.
On an industry level, the basal insulin segment represents 54% of the insulin market in the US, 49.3% in Western Europe, 43.5% in emerging markets, and 48% in Japan, Canada, Australia, and New Zealand, according to IMS estimates (moving annual totals as of June 2015) and as provided by Sanofi in its investor presentation. Through Lantus, Sanofi has leading positions in the basal insulin market in all geographies, including a 70.5% share in the US and a 61.4% share in Western Europe, according to information provided by IMS and as reported by Sanofi.
In the cardiovascular space, Sanofi points to Praluent (alirocumab), an example of a new class of anti-cholesterol drugs, a human monoclonal antibodie that inhibit proprotein convertase subtilisin/kexin type 9 (PCSK9), a protein that reduces the liver's ability to remove low-density lipoprotein cholesterol (LDL-C), or "bad" cholesterol, from the blood. Based on estimates for 2019 sales, a recent Thomson Reuters analysis puts potential revenues at Regeneron Pharmaceuticals and Sanofi’s Praluent (alirocumab) at $4.4 billion.
Praluent was approved by the US Food and Drug Administration in July 2015 as as adjunct to diet and maximally tolerated statin therapy for the treatment of adults with heterozygous familial hypercholesterolemia or clinical atherosclerotic cardiovascular disease, who require additional lowering of LDL cholesterol (LDL-C). It was approved in the European Union in September 2015 for adults with primary hypercholesterolemia and non-familial) or mixed dyslipidaemia, as an adjunct to diet in patients unable to reach their LDL-C goals with a maximally tolerated statin and patients who are statin intolerant, or for whom a statin is contraindicated. Sanofi says its strategy is to gain market penetration in the US and is planning five launches in the EU in the fourth quarter of 2015 and 2016.
Led by its Genzyme business, rare diseases are a growth area for the company, accounting for approximately 10% of overall company sales. In 2015, the company estimates sales of drugs to treat rare diseases of approximately EUR 3.5 billion ($3.75 billion) in 2015, with multiple sclerosis drugs (MS) expected to account for EUR 1 billion ($1.07 billion) of this total. Sanofi expects to continue a high growth trajectory for rare disease drugs, which have seen growth of greater than 25% per year between 2012 and 2015. The company projections its rare-disease franchise will have sales of EUR 6 billion ($6.4 billion) by 2020, one third which will be in MS drugs, despite increasing competition and pricing pressure in this area. Led by Aubagio (teriflunomide) and Lemtrada (alemtuzumab), the company has a goal to double the size of the MS franchise from 2015 to 2020.
Sanofi also said it will build competitive positions in oncology, immunology, and consumer healthcare. In oncology, Sanofi plans to rebuild a competitive position by regaining critical mass. In order to achieve this goal, the company intends to maximize clinical assets, such as isatuximab in multiple myeloma, and restore a competitive pipeline through its strategic collaboration with Regeneron in immuno-oncology. In immunology, sarilumab in rheumatoid arthritis and dupilumab in atopic dermatitis and asthma will be the two pillars of a new franchise. In consumer healthcare, Sanofi plans to build scale through new categories of products and bolt-on acquisitions.
In consumer healthcare, Sanofi estimates it has a number five position in the fragmented EUR 100 billion market with a 3.2% share. It provided estimates that only approximately 28% of the consumer healthcare market is led by the top ten players, with 71.9% led by other companies. Among the top ten companies, using FY 2014 estimates, Bayer leads with a 4.6% market share, followed byGlaxoSmithKline (4.3%), Johnson & Johnson (4.2%), Pfizer (3.4%) and Sanofi (3.2%). Rounding out the top 10 are Reckitt Benckiser (2.5%), Procter & Gamble (2.1%), Boehringer Ingelheim (1.5%), Takeda (1.1%), and Taisho (1.0%).
Sanofi's growth will be driven by the launches that are scheduled for the next five years. Up to 18 new products are on track to arrive on the market by 2020. Among these, Sanofi projects that six key launches (Toujeo, Praluent, Dengvaxia, sarilumab, LixiLan, and dupilumab) could generate aggregate peak sales of EUR 12 billion to EUR 14 billion ($12.9 billion to $15 billion) by 2025. It points to an emphasis to trim its pipeline to focus on key areas. For example, in 2012, the company had 79 projects and 44 projects in 2015, with biologics (peptides, proteins, nucleic acid-based molecular entities and vaccines) accounting for 85% of its pipeline in 2015 compared to 58% in 2012. In the vaccines field, Sanofi’s goal is to grow faster than the market through the company's Dengvaxia (a vaccine for dengue fever), flu, pediatric, and boosters vaccines.
Sanofi announced plans to continue to strengthen its R&D pipeline and evolve its R&D model based on project teams and alignment with its GBUs. The organization will also foster its existing R&D collaborations and increase its capacity for external innovation. By 2020, Sanofi plans to increase its total annual R&D investments up to EUR 6 billion ($6.4 billion) at current exchange rates while maintaining financial discipline.
Lastly, in emerging markets, the company intends to retain its position through greater focus on priority countries. In those regions, resource allocation will be prioritized, the industrial footprint will be adapted and dedicated innovations will be specifically developed. Emerging markets are an important area for the company, accounting for approximately one-third of total company revenues. A key component of Sanofi’s strategy in emerging markets is to build on its leading positions in BRIC-M countries (Brazil, Russia, India, China and Mexico) while further penetrating other strategically important priority countries. Sanofi’s sales in emerging markets in 2014 were EUR 11.3 billion ($12.1 billion), a 9.3% gain. China was the largest contributor to emerging market sales for Sanofi in 2014, accounting for EUR 1.6 billion ($1.71 billion) in 2014. Although growth in emerging markets is expected to increase greater than growth in mature markets, the company noted certain overall challenges in emerging markets, such as economic slowdown, intensified pricing pressure, increased competition from local and regional players, consolidation and professionalization in the trade channel, and new middle class demands. The company estimates that sales in emerging markets will reach approximately EUR 12 billion ($12.9 billion) in 2015 (Emerging markets are defined as the world excluding the US, Canada, Western Europe [France, Germany, UK, Italy, Spain, Greece, Cyprus, Malta, Belgium, Luxembourg, Portugal, the Netherlands, Austria, Switzerland, Sweden, Ireland, Finland, Norway, Iceland, Denmark], Japan, Australia, and New Zealand, and excluding. South Korea from January 1, 2015).
Portfolio and manufacturing adjustments
The company also says it will explore strategic options for its animal health and European generics businesses. In animal health, Sanofi says that Merial has successfully returned to strong growth over the past six quarters and is currently one of the most profitable companies in its sector. "Nevertheless synergies are limited with other Sanofi businesses. Strategic options will also be explored for generics in Europe where geographic synergies are limited and market complexity is increasing. All options will be considered for these businesses including retention in the Group," said the company at it investor conference. Sanofi estimates that Merial will have sales of EUR 2.4 billion ($2.6 billion) in 2015, placing it in the number one position in the companion animal segment and number four overall in animal health. Its generics business in Europe is expected to generate 2015 sales of approximately EUR 1 billion ($1.07 billion). Although estimating that it holds the number five position in generics in Europe, Sanofi points to a consolidating market and increased complexity (biosimilars, differentiated generic products) as key underlying fundamentals in its decision to consider alternatives.
The company also said it will continue the refinement of its manufacturing network with an estimated 102 sites in operation. In 2008, the company had 70 sites and later gained 52 sites by acquisition, including the acquisition Genzyme, transferred/invested six sites, and divested 26 sites. The company plans to invest between EUR 1.8 billion ($1.9 billion) and EUR 1.9 billion ($2.0 billion) annually in capital expenditures over 2016-2018 up from an estimated EUR 1.5 billion ($1.6 billion) in 2015 with a large percentage coming from investments in manufacturing for biologics, injectables, vaccines, and Genzyme products.