Sanofi spin-off EuroAPI slumps as revenues falter
Shares in EuroAPI, the active pharmaceutical ingredients (API) business spun out of Sanofi last year, have fallen sharply on the back of a sharp slowdown in sales.
Almost 18 months ago, EuroAPI made its independent debut with expectations of buoyant growth as the pharma industry looked to reduce its reliance on API producers in Asia and “re-shore” supply following disruptions caused mainly by the pandemic and increasing medicine shortages.
Fast forward to now, and the company has cut its sales guidance for the year dramatically and issued a third profit warning, saying it is seeing lower-than-anticipated API sales volumes and demand for its contract development and manufacturing organisation (CDMO) services.
EuroAPI became the world’s single largest producer of small-molecule APIs and the second-largest API producer overall – after Israel’s Teva – with a market value of around $1.2 billion, when it was listed on the Euronext exchange in May 2022.
After scaling down predicted net sales growth for the current year to 3%-5% from its earlier expectation of 7%-8% – and trimming its margin targets to 9%-11% from 12.5%-13.5% – shares fell more than 60% and slashed its valuation to below $500 million.
Explaining the downturn, EuroAPI said its API business was being hit hard by pricing pressure and inventory reduction programmes from some of its customers. Meanwhile, the outsourcing business was affected by biotech companies delaying, suspending, and downsizing projects due to difficulties in raising funding, leading to sales growing slower than expected – something that has also affected other players in the CDMO category.
The biotech funding crisis “has accelerated in the last couple of months,” said chief executive Karl Rotthier on a conference call, noting that around 20 of its pipeline of projects had been affected.
Tellingly, the company is launching a strategic review aimed at adapting its operating model, which could signal its concern that the downturn may not be a temporary blip and require a systemic fix. Rotthier said the intention is to make “crystal clear” whether the changing market trend will continue and what the right “adaptation” will be for the company if so.
The outcome of that review is expected to be ready to disclose on 29th February next year “at the latest,” he added, also reassuring investors that an ongoing investment programme to build capacity for peptide and oligonucleotide ingredients in Frankfurt will not be affected.
Sanofi has retained a roughly 30% stake in EuroAPI, while the French state owns 12% of the firm.