Sanofi to launch new European drug manufacturer amid coronavirus woes

France’s Sanofi will launch a new Europe-based company in order to cut down reliance on Asian drug manufacturing as coronavirus wreaks havoc in China, the pharmaceutical giant said on Monday.

China is one of the world’s largest suppliers of medicines. Alongside India, the two Asian nations manufacture approximately 60% of the active pharmaceutical ingredients (API) in the world by volume. These are the cornerstone compounds that make up chemical drugs of all types, including a bulk of the generic medicines used to fill 90% of prescriptions in the U.S.

Medical crises like the China coronavirus outbreak and sociopolitical bedlam such as Brexit can have profound effects on the medical supply chain. For instance, British drug maker AstraZeneca cited coronavirus uncertainty as a key reason for moderating its 2020 financial outlook, and European nations have been bracing for drug shortages.

In the lead up to Brexit, U.K. drug makers began to stockpile certain medications out of fear of supply chain disruptions, and the European Medicines Agency (EMA)—Europe’s equivalent of the Food and Drug Administration (FDA)—moved its home base from London to Amsterdam.

Sanofi’s plans to create a new company to manufacture these active pharmaceutical ingredients weren’t specifically driven by the coronavirus outbreak or Brexit. But both of these events reinforce why the company has had this plan in the works for a while now, Sanofi CEO Paul Hudson said.

“This recent challenge of coronavirus has brought it acutely into focus that Europe can’t wait longer to create this European powerhouse for manufacturing drugs,” he said.

The new drug manufacturing entity will be a standalone firm that’s focused on selling APIs to third party companies. It will encompass six production sites across Europe and be headquartered in France. Sanofi says it expects the new standalone firm to ring in one billion euros in sales by 2022 and include 3,100 employees. The firm also plans to take the unnamed new entity public by then.

Hudson said that Sanofi has some 600 partners in API manufacturing and helps manufacture treatments for a range of conditions for its third party partners. The company doesn’t disclose the details of all those relationships but may reveal more information as the new medicines manufacturing arm approaches an IPO.

The reliance on China and India to create the world’s drug supply can be a double edged sword, according to Hudson.

“Some essential medicines are hard to get in the pharmacy in Europe,” he said. “Why? Because over time, we pressured the price to be so low, it could only be made in China or India. And then if you come to a situation where China or India can’t make that supply, it’s patients in Europe who can’t get access.”