Sanofi, the French drug giant, said Monday that it would spin off a new company that will create the active chemical ingredients for drugs, expanding into a market currently dominated by firms in China and India.
Sanofi plans an initial public offering for the new firm, which will be based in France and which is forecast to have sales of 1 billion euros in 2022.
The need for such a company is being brought “sharply into focus” by outbreaks of a novel coronavirus that threaten pharmaceutical supply chains, Paul Hudson, Sanofi’s CEO, told STAT. Right now, he said, 60% of active pharmaceutical ingredients come from China, and 13% come from India.
“The industry needs to be able to make active pharmaceutical ingredients in Europe,” Hudson said. “And if you’re going to do it, let’s do it properly.”
Hudson said Sanofi would hold onto manufacturing sites that mostly serve its own products. But six production sites that already serve 600 customers outside Sanofi would be spun off to create the new firm. Those sites are in Brindisi, Italy; Frankfurt, Germany; Haverhill, Britain; St Aubin les Elbeuf and Vertolaye, in France; and Újpest, Hungary.
“There’s no point in watching the sites that worked for multiple partners not be able to grow as fast as they could if they were standalone,” Hudson said. “So we’re just taking care of it. We don’t lose anything, we only gain.”
The new firm, which does not yet have a name, will employ 3,100 people. Although Sanofi offered projections for 2022 sales, it did not disclose what current sales of the relevant manufacturing sites would be. Hudson did say that Sanofi would be keeping a 30% stake in the new business, and that it would also remain a significant customer.
While inventing and developing new drugs is a lucrative, high-margin business, manufacturing the chemical components of those medicines can be a commodities market, where prices can swing and shortages can occur.
Spin-offs of other businesses are en vogue in the pharmaceutical industry. In February, Merck announced it would spin off its women’s health business. Pfizer announced last summer that it plans to combine a business consisting of older medicines that are now generic in the U.S. with the generic company Mylan. GlaxoSmithKline will be spinning off a consumer business that combines its own consumer products with those once sold by Pfizer.
Hudson said that he feels the rapid decision to spin out the pharmaceutical API business shows that the French drug giant is becoming more nimble. Just six months ago he took the reins of the company and promptly announced it would stop research on some drugs focused on diabetes and other diseases.
“Sometimes I think, people may assume we’re a little bit conservative,” Hudson said. “If we think we’re doing the right thing, we can move faster than almost anybody.”