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Sanofi Plans to Spin Off Drug Ingredient Business

By Mark Prvulovic – Feb 24, 2020 at 6:50PM

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The resulting spinoff would become the world's second largest drug ingredient producer.

Sanofi (SNY -2.45%) announced on Monday that the company intends to spin off its drug ingredient manufacturing assets into a separate business. This new entity, which doesn't have a name yet, will employ over 3,100 employees and own six active pharmaceutical ingredients (API) factories in the UK, France, Germany, Italy, and Hungary.

The pharmaceutical giant went on to say that this new spinoff would become the second-largest API manufacturer in the world, with expected sales of around $1.1 billion in 2022. Sanofi would become a customer to this new API business while owning a 30% minority stake while the remaining 70% will be floated on the Paris stock exchange via an initial public offering (IPO).

Mutliple scientists working in a laboratory.

Image source: Getty Images.

Around 60% of the world's active pharmaceutical ingredients are produced either in China or India. Europe, on the other hand, has had a relative lack of pharmaceutical ingredients, which are crucial in developing new drugs.

"With this endeavor, this new entity would be agile as a standalone company, and able to unlock its growth potential, especially in capturing new third-party sales and all the opportunities of a market growing at a pace of 6% per year," said Philippe Luscan, executive vice president of global industrial affairs at Sanofi.

A potential drug ingredient shortage

The U.S. Food and Drug Administration warned that as many as 150 prescription drugs could face shortages if the coronavirus (COVID-19) outbreak in China gets worse. With the country being a major supplier of pharmaceutical ingredients to the U.S., it's possible that the medical product supply chain could face significant disruptions in the near future.

Mark Prvulovic has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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