Today: 19-04-2024

Market Skepticism: Investors Disapprove of Sanofi's Remedy for a Ailing Valuation

"Market Aversion: Sanofi's Remedy for Weak Valuation Faces Investor Rejection"

In a surprising turn of events, investors have shown a clear distaste for Sanofi CEO Paul Hudson's proposed remedy to bolster the pharmaceutical giant's struggling valuation. Following the announcement of plans to intensify research and development spending to fortify its drug pipeline, Sanofi's shares plummeted by 15%, signaling widespread skepticism among investors.

The company anticipates a dip in 2024 earnings, attributing it to increased spending on research and development, with a subsequent "strong rebound" projected for 2025. As part of this strategic overhaul, Sanofi also plans to spin off its consumer health unit by the fourth quarter of 2024.

While a focus on discovering new blockbuster medicines aligns with industry trends facing patent expiries, investors express understandable concern. Sanofi's historical return on research and development investments has lagged behind the sector average, raising questions about the efficacy of the proposed strategy. From 2016 to 2022, Sanofi's returns averaged around 6% annually, falling short of the 10% seen by the sector at large.

The decision to spin off the consumer healthcare business offers a potential avenue for improvement. Analysts estimate the unit's EBIT for the year to be 1.6 billion euros, suggesting a substantial valuation. By comparison, similar businesses like Haleon trade at a multiple of 15.6 times, indicating a potential worth of 25 billion euros.

Considering the rest of Sanofi's business with an estimated EBIT of 11.4 billion euros, a valuation multiple comparable to industry peers could place its worth at 172 billion euros. Combining both segments could yield a total valuation of 197 billion euros, a considerable 76% increase over Sanofi's current market capitalization.

Despite the promising numbers, investors seem hesitant to embrace the proposed remedy, signaling a reluctance to undergo the prescribed measures for a potential cure to Sanofi's valuation woes."

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