EUROAPI, Formerly Part of Sanofi, Set for IPO as the World’s Second-Largest API Manufacturer

Sanofi, a French pharmaceutical company, said last Friday that it has received regulatory approval and expects to list its drug manufacturing branch, Euroapi, on the Paris Stock Exchange on May 6, before the shareholders' meeting.

Sanofi will retain 30% equity in EUROAPI and plans to distribute 58% of the new business's shares to existing shareholders through dividends. The French government investment fund Epic Bpifrance will hold the remaining 12%.

In February 2020, Sanofi announced that it would spin off part of its pharmaceutical production business as part of a company restructuring, overseen by CEO Paul Hudson. The new business will take over six factories owned by Sanofi and approximately 3,300 employees, focusing on active pharmaceutical ingredients, intermediates, and CDMO services.

Amid ongoing shortages of key generic drugs, Sanofi sees an opportunity, forecasting that Euroapi's sales this year will reach approximately €1 billion, or about $1.1 billion, by 2022. This would make it the world's second-largest active pharmaceutical ingredient (API) producer.

Sanofi is currently in a restructuring phase, with sluggish sales of its diabetes drugs. Some analysts believe Sanofi's product pipeline is mid-tier in the industry. Sanofi is following the lead of several peers that have slimmed down through restructuring, focusing on high-margin drugs and popular research areas like oncology.

Sanofi did the same thing. Recently, it sold its generic drug business to Advent and sold a factory in the UK to Recipharm. On the other hand, the company has spent approximately $320 million over the past five years building a biopharmaceutical plant in Framingham, Massachusetts, USA.

Sanofi believes that the contract drug manufacturing market is sufficient to sustain a new independent business. New investments steadily made by other companies suggest that Sanofi’s move might be correct. Sanofi’s decision to spin off its drug manufacturing operations is one of many recent examples of large pharmaceutical companies undergoing restructuring, downsizing, or otherwise prioritizing resources for branded prescription drugs. However, the recent consolidation among several major companies implies that the newly independent company may face more intense competition.

Pfizer and Merck have spun off their generic and traditional drugs into new companies. Novartis has indicated that it is considering doing the same with its Sandoz division. Johnson & Johnson has split into two, spinning off its consumer health business from its pharmaceuticals and medical devices divisions, and GlaxoSmithKline will also exit a consumer health joint venture operated with Pfizer.

Sanofi's spin-off plan is smaller in scale, but they said on Friday that by 2025, EUROAPI is expected to become one of the top five CDMOs in the world, following larger CDMOs such as Lonza and Thermo Fisher.

New Company to Open Plants in the UK, France, Germany, Hungary, and Italy, Focused on R&D and Production of Active Pharmaceutical Ingredients in Small Molecule Drugs. A spokesperson for Sanofi confirmed that the majority of the production capacity of these six plants is already able to supply third-party customers.

According to Sanofi's latest annual report, except for one plant located in Frankfurt, Germany, none of the other plants are among Sanofi's highest-producing facilities.

Sanofi to Hold Shareholder Vote on Euroapi Spin-off Plan on May 3

A spokesperson for Sanofi said the company is looking for a "cornerstone" investor, who will hold 15% of the new company, with the rest being offered to the public.

Due to the spin-off plan, Sanofi no longer holds the business of EUROAPI, and the company expects this year's operating profit margin to "slightly increase".

Sanofi pointed out when announcing its plans that the rate of drug shortages is accelerating, with supplies of critical drugs such as EpiPen, immunoglobulin, and the cancer drug vincristine already insufficient. Last fall, a federal task force led by the FDA blamed it on a "broken market," criticizing its failure to incentivize the production of lower-profit drugs or reward manufacturers with higher quality.

The global COVID-19 pandemic has also heightened the necessity for pharmaceutical supply chains in Western countries. Sanofi stated that the industry is increasingly reliant on suppliers from Asia, particularly India and China. However, this supply chain is relatively fragile, and the Chinese government's decision to lockdown cities to curb the spread of the virus has raised concerns about potential drug shortages.

The FDA report released in the fall of last year showed that 14% of active pharmaceutical ingredients (APIs) and 8% of finished drugs came from China. Meanwhile, EUROAPI positions itself as an EU alternative in the API market, which is predominantly led by raw materials produced in India and China.

Editor: Qijin

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