CEO says Sanofi will 'reshape' manufacturing but is short on specifics

Sanofi CEO Olivier Brandicourt

For several months, Sanofi's new CEO Olivier Brandicourt has indicated that one part of his turnaround plan for the French drugmaker would involve significant changes in manufacturing to make it more efficient. And while the CEO told investors Friday that he would be looking for $1.6 billion in cost cuts in the next three years, and that some would come from a "reshape" of the manufacturing network, he was short on details about how that might play out.

The CEO told investors that two thirds of the savings will come from the "simplification of the organization," with the rest being generated by "investment prioritization," over the next three years. He said the company was looking at selling its animal health unit Merial and European generics businesses as part of the effort.

But Brandicourt did not have a lot to say to investors Friday about what specific changes Sanofi ($SNY) would make to manufacturing to cut costs. In his presentation, he said the company would be expanding production capacity in vaccines and rare drugs to drive growth. He said the company would keep a tight control on capital expenditures but that it would be investing between €1.8 billion and €1.9 billion on such expenditures, with significant amounts of that going toward biologics.

Brandicourt warned French union workers in June that for Sanofi to grow, its domestic manufacturing operations needed to improve efficiency by up to 25%. According to a document union members showed Reuters last month, Brandicourt said he wanted the French operations to have costs that were in line with manufacturing in Eastern Europe. Union members said they believe that will mean job cuts in France.

In a bit of bad timing for the CEO, the company had a major manufacturing stumble just days ahead of his presentation. The drugmaker had to stop manufacturing its epinephrine injection devices and is scrambling to retrieve nearly half a million from the U.S. and Canada because they may be giving the wrong dose. The recall was made the day before Brandicourt issued the company's Q3 earnings release. It required Sanofi to tell investors that on top of the little to no growth expected for the next three years, it will have to take a Q4 charge estimated at €100 million ($109.4 million) to pay for the recall. It did not say, however, how much revenue might be lost as a result of not having its product in the market.

- read the release
- here's the presentation (PDF)

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