French drugmaker Sanofi has initiated a process to turn its consumer healthcare business in India into a listed entity through a demerger, said people with knowledge of the matter.

The unit’s products include leading anti-allergy brands such as Allegra and Avil, pain management drug Combiflam and Vitamin D brand Depura. The business posted revenue of Rs 1,000-1,250 crore in CY22. About 70% of Sanofi’s India revenue is contributed by its top seven brands.

The leading vaccine maker is working with Bank of America on the demerger process, said the people cited above. About 60% of Sanofi India is owned by Sanofi and wholly owned subsidiary Hoechst Gmbh. The rest is held by foreign and domestic institutional investors along with retail investors.

The plan is to list the consumer business separately with the shareholding mirroring that pattern.

“As a matter of principle and policy, we do not comment on any media speculation or on market rumours,” said a Sanofi India spokesperson. “In the ordinary course of business and subject to compliance with applicable laws, we regularly assess how best to serve our patients and customers and evaluate different opportunities in India. Sanofi India Limited complies with all regulatory disclosure requirements.”

Sanofi global chief executive Paul Hudson, who joined from Novartis AG, initiated a five-year turnaround plan in 2019. He’s been under pressure from investors about the strength of the drug pipeline and has been pressing ahead with changes at the group, including exiting categories such as cardiac disease and diabetes, while investing heavily in cancer treatments and immunology. This included turning the consumer group into a separate business although it remained wedded to the parent.

The move coincided with a trend at pharmaceutical giants such as Johnson & Johnson and GlaxoSmithKline Plc simplifying their diversified structures.Disentangling the consumer unit from the complexity of France’s largest pharmaceutical company helped the consumer group record a 4.6% year-on-year rise in 2021 sales, CEO Hudson said. It followed a historic slump in over-the-counter sales for cough and cold medicines across the industry in 2020 as a result of social distancing and other pandemic-related regulations. Sanofi reported a global fall in sales in 2022 in key areas such as immunology and oncology.

The failure to develop a Covid-19 vaccine, despite being one of the world’s biggest vaccine manufacturers, still casts a shadow over the company’s stock as does the failure of several drugs the company had in development. Analysts have urged Hudson to go on a deal-making and re-organisation spree similar to that of several peers. The India demerger plan is seen by analysts as a precursor to a strategic divestment either partially or fully to unlock value.

India Refocus
Power brands such as Combiflam or Avil remain central to base portfolio growth.

Under Rodolfo Hrosz, who assumed charge as India managing director last year, the company is pushing four core growth pillars — diabetes; consumer healthcare; end-to-end innovations; and go-to market strategy.

Sanofi has plans to double down on consumer healthcare brands such as Allegra. It’s also planning to leverage global as well as local innovation besides exploring supply localisation and partnerships for patient, doctor and healthcare personnel registry expansion. About 43% of its total India revenue comes from therapy segments such as diabetes where flagship brand Lantus has seen subdued growth. Cardiac therapy is the second most important with Cardace and Clexane, while respiratory comes third with a 15% revenue share with Allegra and Avil.

Allegra is the largest product within the consumer health franchise with variants for allergy relief, hives relief, congestion relief and paediatric anti-allergic medicine.

“It is among the fastest-acting and longest-lasting antihistamines in the market with a total market share of about 7%,” said Nitin Agarwal of DAM Capital. “Over the last few years, the company has consistently expanded the number of SKUs (stock keeping units) under the Allegra brand and plans to continue adding new products to the franchise by leveraging Sanofi Inc’s global portfolio, with management expectations that the segment will outperform the company’s average growth rates.”

Despite a contribution of more than half from chronic therapies such as diabetology and cardiology, the company has underperformed — domestic sales CAGR of 7% in FY17-22 — the innovative pharma model (IPM) due to below-par performances of some tail brands.

“The growth momentum in both power brands such as Lantus, Clexane etc. and ex-power brands is yet to reach the pre-Covid level,” said Siddhant Khandekar of ICICI Securities. “The focus is on high margin portfolio through divestiture of tail brands.”

Industry executives say the India demerger may be aimed at enabling the marketing of these brands directly to the consumer. Selling pharmaceutical brands through consumer healthcare divisions is seen as a grey area in India and invites questions about pseudo-marketing from regulatory authorities whenever they are advertised as products. Also, this will leave Sanofi India with core pharmaceutical brands like its Lantus insulin and products such as Cardace that it sells via the cardiovascular or other divisions such as the hospitals, central nervous system and diabetes units. Sanofi also has a wholly owned subsidiary that sells its highly specialised rare disease drugs.