Sanofi annual report, Q4 FY2023

Business context and reporting period

Sanofi’s Form 20-F is an audited annual report for the fiscal year ended December 31, 2023, prepared under IFRS. It is not a standalone 2023 fourth-quarter report; the filing presents full-year results and selected subsequent events. From January 1, 2023, Sanofi reported two operating segments, Biopharma and Consumer Healthcare (CHC), and did not restate 2021 segment figures under the new structure.

Financial performance and liquidity

Research and development expense was €6.728bn, or 15.6% of net sales, versus €6.706bn in 2022. Capital expenditures on property, plant and equipment were €1.719bn; acquisitions of property, plant and equipment and intangible assets totaled €3.024bn. Total assets were €126.464bn and total equity €74.353bn at year-end.

Material changes versus the prior comparable period

• Growth drivers: DUPIXENT sales rose 29.2% reported to €10.715bn (+34.0% CER), equal to 24.9% of net sales. Vaccines grew 8.3% CER, led by BEYFORTUS, which generated €547m in its launch year.
• Portfolio erosion: General Medicines sales fell 7.1% CER; Non-Core Assets fell 16.5% CER. Sanofi estimated €651m of reported net sales losses from selected generic and biosimilar competition. AUBAGIO sales fell 52.6% CER to €955m as generics entered the US and Europe.
• Segment results: Biopharma sales increased 5.1% CER to €37.890bn, while segment business operating income fell 2.1% to €11.247bn. CHC sales increased 6.3% CER to €5.180bn, but CHC business operating income fell 5.5% to €1.438bn.
• Cash, debt and investment: Operating cash flow was slightly lower and free cash flow broadly flat. Investing outflow increased to €6.200bn, mainly reflecting Provention Bio and QUNOL acquisitions; financing outflow was €8.052bn, including €4.454bn of shareholder dividends. Cash declined by €4.026bn during the year.

Outlook, management commentary, risks and unusual items

• Sanofi said it would increase R&D investment and announced efficiency initiatives expected to generate up to €2bn in savings from 2024 through 2025, mostly to be redeployed to innovation and growth. It withdrew its prior 2025 target of a 32% business operating income margin.
• Sanofi intends to separate CHC, most likely through a capital-markets transaction creating a France-headquartered listed entity. Subject to market conditions and consultation with social partners, separation could occur no earlier than the fourth quarter of 2024. The filing does not provide a clear quantified earnings or valuation impact for the separation.
• Management expects generic erosion to continue in 2024, with further effects on AUBAGIO and MOZOBIL among other products. The company also identifies price and reimbursement pressure, including US Medicare negotiations under the Inflation Reduction Act, concentrated pharmacy benefit managers, and China’s reimbursement negotiations and volume-based procurement.
• Unusual items included a €541m financial expense from remeasuring the estimated Sobi royalty liability on US BEYFORTUS sales after the strong launch; €896m of net intangible-asset impairment, mainly an €833m charge following reprioritization of R&D programs; and €1.490bn of restructuring and similar costs. The 2022 comparison included a €454m net impairment reversal, principally related to ELOCTATE/ALTUVIIIO, and €952m of LIBTAYO out-licensing income.
• Key risks include dependence on DUPIXENT and other flagship products, patent expiry and competition, clinical and regulatory setbacks, pricing pressure, manufacturing and supply interruptions, foreign-exchange exposure, cyber and data risks, and legal proceedings. Product-liability and other provisions were €1.283bn; environmental provisions were €493m. Sanofi states litigation outcomes are inherently uncertain and may materially affect future results.
• Sanofi reported a final, non-appealable arbitration decision that it would not owe Boehringer Ingelheim indemnification for potential US ZANTAC litigation losses; ZANTAC lawsuits nevertheless remain ongoing. TAXOTERE Mississippi Attorney General litigation was settled in February 2024. The filing also discloses ongoing insulin pricing investigations and litigation, DEPAKINE claims, and other legal matters.
• The proposed 2023 dividend was €3.76 per share, subject to shareholder approval, compared with €3.56 for 2022. Management expects cash from operations to be sufficient to repay debt; the filing does not provide a clear full-year 2024 earnings or revenue guidance figure in the supplied text.

Important facts for investors to verify

• Confirm the reported-to-CER sales bridge and the extent to which currency movements, rebates and pricing affected underlying growth.
• Assess DUPIXENT concentration and the durability of its growth, alongside the launch contribution, collaboration economics and Sobi royalty burden for BEYFORTUS.
• Track actual delivery, timing and costs of the CHC separation and the announced €2bn savings, including the effect of increased R&D spending on margins.
• Review the 2024 impact of generic competition, especially AUBAGIO, MOZOBIL and insulin products, and the assumptions behind price and reimbursement exposure.
• Examine the reconciliation of IFRS results to business net income and business operating income, including recurring versus excluded impairments, restructuring, alliance and other items.
• Monitor debt, cash generation, working capital, acquisition and milestone commitments, and the sizable US rebate provisions. Auditors identified US rebate estimates, intangible-asset recoverability, litigation provisions and uncertain tax positions as critical audit matters.
• Consider the qualification in the internal-control audit scope: QRIB was included in the consolidated financial statements but excluded from management’s and the auditors’ internal-control assessment; it represented less than 1% of year-end assets and 2023 net sales.

The independent auditors issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.