Business context and reporting period
Sanofi’s annual report on Form 20-F covers the fiscal year ended December 31, 2020; it is not a quarterly filing. The supplied filing text does not provide standalone fourth-quarter results. Sanofi is a global healthcare company with Pharmaceuticals, Vaccines and Consumer Healthcare activities. Financial statements are prepared under IFRS as issued by the IASB and endorsed by the EU.
Financial performance
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | €36.041bn; down 0.2% reported, up 3.3% at constant exchange rates (CER) | €36.126bn |
| Gross profit / margin | €25.212bn / 70.0% | €25.655bn / 71.0% |
| Operating income | €14.141bn | €3.125bn |
| Net income attributable to Sanofi shareholders | €12.314bn | €2.806bn |
| Business net income / business EPS | €7.347bn / €5.86 | €7.050bn / €5.64 |
| Business operating income / margin | €9.762bn / 27.1% | €9.349bn / 25.9% |
| Net cash from operating activities / free cash flow | €7.449bn / €6.982bn | €7.744bn / €6.014bn |
| Net debt / gearing ratio | €8.790bn / 13.9% | €15.107bn / 25.6% |
Operating income and IFRS net income rose sharply, principally because of a €7.382bn gain on the Regeneron divestment and much lower intangible impairment charges than in 2019. Business net income and business EPS are non-GAAP measures; business net income rose 4.2% and business EPS 3.9%. R&D expense declined 8.1% to €5.529bn, or 15.3% of sales, from 16.7% in 2019. Selling and general expenses fell 5.0% to €9.390bn.
Operating cash flow decreased €295m year over year. Investing activities provided €3.588bn, including €10.370bn net proceeds from the Regeneron share sale, partly offset by €5.217bn of cash outflows for the Synthorx and Principia acquisitions. Financing activities used €6.485bn, including €3.937bn of dividends. Cash and cash equivalents were €13.915bn; total debt was €22.631bn. Sanofi also had €8bn of undrawn confirmed credit facilities, with no financial-ratio covenants. Lease liabilities are excluded from the company’s net-debt measure.
Material changes versus 2019
- Sales growth at CER was led by Specialty Care (+22.4%), especially Dupixent, and Vaccines (+8.8%); General Medicines fell 7.6% and Consumer Healthcare fell 1.9% at CER.
- Dupixent sales rose 73.9% at CER to €3.534bn. Influenza vaccine sales rose 37.9% at CER to €2.472bn. Diabetes sales fell 4.8% at CER, while Cardiovascular and Established Prescription Products fell 8.8%.
- Foreign exchange reduced reported sales growth by 3.5 percentage points. Reported net sales were nearly flat despite CER growth.
- Gross margin declined one percentage point, reflecting price pressure, notably for Plavix and Aprovel in China and diabetes products in the US.
- Generic and biosimilar competition was associated with a €525m reported sales decline across listed products. Sanofi expects further erosion in 2021, including Jevtana competition in Europe from March 2021.
- Sanofi sold most of its Regeneron investment, retained 279,766 shares at year-end, and ended equity-method accounting for Regeneron. It acquired Synthorx and Principia and took control of US and Puerto Rico Plavix commercialization.
Outlook, risks and unusual items
- Strategy priorities are growth, innovation, efficiency and organizational transformation. Sanofi targets €2.5bn of savings by 2022; it reported approximately €1.7bn achieved in 2020. Management’s ambition is for Dupixent to exceed €10bn in sales. Vaccines are expected to deliver mid-to-high single-digit sales growth over 2018–2025.
- The proposed 2020 dividend is €3.20 per share, subject to shareholder approval; the stated payout is 54.6% of business net income.
- COVID-19 disrupted travel and routine vaccination activity, some Consumer Healthcare demand, clinical programs and product launches. The Sanofi/GSK COVID-19 vaccine program was delayed after an insufficient immune response in older adults; the filing expected availability in Q4 2021, subject to successful development. Fitusiran dosing was paused after thrombotic events and later resumed under amended protocols; regulatory submissions were expected to be delayed by up to approximately 18 months.
- In November 2020, the FDA issued a Complete Response Letter for sutimlimab due to manufacturing-facility inspection deficiencies, not clinical or safety deficiencies. Approval depended on resolving those observations.
- Material exposures include pricing and reimbursement pressure, patent expiry and litigation, manufacturing and supply risks, customer concentration, foreign exchange, cyber threats, and product-liability, tax and environmental matters. Provisions for product liability, litigation and other risks were €1.262bn; environmental provisions were €713m. Management cautions that litigation outcomes are uncertain.
- As a post-year-end development disclosed in the filing, a Hawaii court imposed $834m in penalties jointly against Sanofi and BMS in a Plavix case, allocating €417.006m to Sanofi; both companies appealed. Sanofi also disclosed ongoing insulin-pricing investigations and litigation, and Zantac-related litigation; the potential financial impact was not clear in the filing.
Most important facts for investors to verify
- Standalone Q4 2020 sales, earnings and cash flow: the supplied text does not provide clear quarterly values.
- Underlying earnings and margin trends excluding the €7.382bn Regeneron gain, acquisition effects and other adjustments; reconcile non-GAAP measures to IFRS results.
- 2021 sales erosion from generics, biosimilars, China price controls and US pricing, including the impact on Lantus, Plavix, Aprovel and Jevtana.
- Resolution and financial consequences of major litigation and investigations, including the Hawaii judgment, insulin pricing and Zantac cases.
- Delivery of savings and pipeline milestones, and the timing, regulatory progress and commercial prospects of COVID-19 and other vaccine candidates.
- Whether proposed dividend approval and cash generation support shareholder returns while funding acquisitions, R&D and debt obligations.