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Rating action

Scope Ratings GmbH (Scope) has affirmed its AA/Stable issuer rating on France-based pharmaceutical Sanofi S.A. (Sanofi). Scope has also affirmed the ratings for senior unsecured debt at AA and short-term debt at S-1+.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: AA- (unchanged). Sanofi’s competitive position continues to benefit from its strong focus on becoming a leading immunology company. Immunology drug Dupixent is a cornerstone in the treatment of chronic type-2 inflammatory diseases, with a growing pool of patients as more indications are approved and diseases remain underpenetrated. The drug’s sales reached EUR 10.7bn in 2023, with a guidance of around EUR 13bn in 2024. As multiple sclerosis treatment Aubagio and former flagship anti-diabetics product Lantus lose significance due to patent expiry, the ramp-up of Dupixent is being accelerated, with sales estimated to peak at more than EUR 15bn annually over the medium term. Sanofi also maintains a leading position in vaccines and is even gaining momentum quickly via its leading positions in Respiratory Syncytial Virus (RSV), flu, paediatric combination vaccines and other franchises, with sales projected to exceed EUR 10bn by 2030. Sanofi’s ten blockbuster products continue to make a significant contribution to sales. The blockbuster portfolio count includes some vaccines and assumes that the recently launched RSV vaccine, Beyfortus, will reach blockbuster status by 2024, replacing Aubagio.

The simplification and streamlining of the GenMed portfolio continues at pace. In 2023, Sanofi combined vaccines and pharmaceuticals manufacturing (including GenMed) under a single Biopharma segment. The objective is to achieve operational efficiencies, eliminate redundancies, and enhance flexibility. The consumer healthcare division, named Opella, has made significant progress in implementing its stand-alone model in preparation for the upcoming deconsolidation¹, which is scheduled to take place in 2025. Scope believes that the separation of Opella will have a neutral effect on Sanofi’s business risk profile due to the segment’s low EBITDA contribution to the group.

Following a period of portfolio restructuring, and in line with the management’s ‘play to win’ strategy, diversification has decreased slightly with a stronger focus on four therapeutic areas: immunology, neurology, rare diseases and vaccines. Dupixent continues to be Sanofi's primary revenue driver, accounting for 25% of overall sales and 28% of pharmaceutical sales in 2023. This highlights the increased concentration risk. Scope notes that the impact of patent expiration is limited, as Aubagio, which will lose its blockbuster status this year, marks Sanofi's last meaningful loss of exclusivity in the current decade. The pipeline will need to be replenished, as additional growth sources are required in preparation for Dupixent’s 2031/2032 patent expiration. Sanofi is currently directing more funding into late-stage drug development, with plans to expand its phase 3 pipeline by 50% and target 12 potential blockbuster assets by 2030.

Sanofi has an extensive track record of providing innovative products that contribute to human health and well-being (credit-positive ESG factor). However, Scope notes that Sanofi is also exposed to high regulatory and reputational risks inherent to the pharmaceutical industry (credit-negative ESG factor).

Sanofi is ramping up R&D spending at the expense of profitability. This reflects the decision to support the full realisation of the pipeline's long-term potential and ongoing investment around new launches. As a result, Scope anticipates that the profitability margin will deteriorate slightly in 2024, similar to 2023. Scope notes that Sanofi is no longer targeting a 32% business operating income margin (as per Sanofi’s definition) for 2025, while maintaining the focus on long-term profitability. Concurrently, a cost savings programme of up to EUR 2bn from 2024 to the end of 2025 has been launched to fund innovation and growth.

Financial risk profile: AA+ (unchanged). Credit metrics remain in line with expectations. Robust cash generation is allowing Sanofi to finance bolt-on acquisitions without weakening leverage. The most recent acquisition was biologic drug developer Inhibrx, for USD 2.2bn in May 2024, with the objective of enhancing the rare disease portfolio. Leverage, as measured by debt/EBITDA*, deteriorated slightly but remains below 1.0x. (YE 2023: 0.9x versus YE 2022: 0.7x). For 2024-2026, Scope expects leverage to be maintained below 1.0x in the absence of a significant acquisition and corresponding debt issuance. Accordingly, funds from operations/debt is expected to remain at above 70%. Debt protection, as measured by EBITDA interest coverage, continues to be solid at levels exceeding 10x. Given the limited intention to increase capex, free operating cash flow/debt is anticipated at above 60%.

Scope’s rating case assumes no large acquisitions but rather bolt-on acquisitions. The 52% divestiture of Opella is anticipated to close by Q2 2025 at the earliest. Until the transaction closes, Opella’s full revenue and operating results will contribute to Sanofi's consolidated figures as discontinued operations in its income statement (and excluded from EPS computation). After the closure, Opella will be accounted for using the equity method. Scope anticipates that the partial divestment of Opella will have only a minimal impact on credit metrics. Sanofi is expected to allocate capital in accordance with its existing capital allocation priorities. The proceeds received will not be used to fund a significant acquisition, as organic growth remains a key focus. However, Scope assumes that Sanofi will increase shareholder remuneration in the coming years given its ample cash, while maintaining a disciplined financial policy.

Liquidity: adequate (unchanged). Liquidity remains adequate. The absence of significant short-term debt, coupled with positive free operating cash flow and a substantial cash buffer (unrestricted cash reserves of around EUR 8bn as at FY 2023 and EUR 8bn of undrawn committed credit facilities), mitigates refinancing risks. This leads to a robust overall liquidity ratio of well above 200%.

Supplementary rating drivers: credit-neutral (unchanged). The rating incorporates no adjustments related to financial policy, peer group considerations, parent support, or governance and structure.

One or more key drivers of the credit rating action are considered ESG factors

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s expectation that Sanofi can maintain debt/EBITDA below 1.0x over the next few years. This assumption is contingent upon the company's continued utilisation of its substantial cash reserves for smaller acquisitions, rather than larger ones.

The upside scenarios for the ratings and Outlook are (individually):

1. Greater clarity on Sanofi’s use of its significant financial headroom and more visibility on the company’s ability to move closer to a net cash position.
    
2. An improving business risk profile via higher profitability and enhanced diversification (deemed remote).

The downside scenarios for the ratings and Outlook are (individually):

1. A deteriorating business risk profile via weakening profitability or diversification.
    
2. Deteriorating credit metrics such as funds from operations/debt falling back below 60% or free operating cash flow/debt reaching below 40% on a sustained basis. Given the company’s ample headroom to a lower rating, a negative rating action is remote.

Debt ratings

The rating on senior unsecured debt has been affirmed at AA, in line with the issuer rating.

The short-term debt rating is affirmed at S-1+. This reflects Sanofi’s sustained credit quality, supported by robust internal liquidity and strong access to external funding through capital markets and bank debt, as signalled by bond issuances and available credit facilities.

Environmental, social and governance (ESG) factors

The pharmaceutical industry is subject to significant ESG-related risks, particularly in the areas of regulatory compliance and reputational management. For Sanofi, one of the main regulatory risks stems from potential large-scale litigation, especially in the United States, a market that contributes heavily to its revenues. These risks can arise from issues such as patent disputes, product liability claims, and violations of regulatory requirements set by authorities like the FDA. Legal challenges in such cases can result in substantial financial costs, which might impact the company’s balance sheet and credit profile.
Reputational risks for Sanofi are tied to broader industry challenges, including public concerns over high drug pricing and transparency. Moreover, the company's ability to manage the expiration of existing drug patents while launching revenue-generating alternatives is critical. Failure to achieve a smooth transition can lead to revenue declines, affecting financial performance and market confidence.
On the positive side, Sanofi’s robust commitment to advancing global health and wellbeing through innovative treatments reinforces its strong market position and creditworthiness. The company's dedication to addressing unmet medical needs has established it as a trusted leader in the pharmaceutical sector, bolstering its financial stability.

All rating actions and rated entities

Sanofi S.A.

Issuer rating: AA/Stable, affirmation

Short-term debt rating: S-1+, affirmation

Senior unsecured debt rating: AA, affirmation

*All credit metrics refer to Scope-adjusted figures

Rating driver references
1. 21 October 2024 Sanofi press release on Opella partial divestment

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 16 October 2023; Pharmaceutical Companies’ Rating Methodology, 5 April 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Azza Chammem, Associate Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 7 September 2017. The Credit Ratings/Outlook were last updated on 11 April 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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