2 ADS = 1 share
Note: More details to come; changes are highlighted. Except where noted, and highlighted, no other section of this report has been updated.
Reason for Report: Flash Update: 3Q17 Earnings Results
Previous Edition: Oct 24, 2017: 2Q17 Earnings Results (share price is as of Oct 13, 2017)
Note: The tables below (Revenue, Margins, and Earnings per Share) contain material from fewer brokers than in the Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying spreadsheet models.
Flash Update
Sanofi Q3 Earnings In Line, Sales Lag, Diabetes Weak
Sanofi reported 3Q17 earnings of $1.00 per American depositary share, which were in line with the Zacks Consensus Estimate. Earnings declined 4.5% on a reported basis. However at constant currency rates (CER), earnings rose 1.1%.
Third-quarter net sales rose 0.3% on a reported basis and 4.7% at CER to almost $10.59 billion (€8.05 billion). Sales, however, missed the Zacks Consensus Estimate of $10.93 billion. Unfavorable exchange rate movements hurt sales by 4.4%.
In January 2017, the French drug maker swapped its Merial Animal Health businesses with Boehringer Ingelheim’s Consumer Healthcare (CHC) business. Reflecting this exchange and full consolidation of Sanofi’s European vaccines operations, sales declined 0.2% at constant structure (CS) and CER.
Sales declined 2.4% at CER in the United States. However, sales rose 11.4% in Emerging Markets, 8.2% in Europe and 9.1% in the Rest of the World (Japan, South Korea, Canada, Australia, New Zealand, Puerto Rico).
All growth rates mentioned below are on a year-on-year basis and at CER.
Segmental Performance
Pharmaceuticals sales (including emerging markets) increased 3.2% to €7.14 billion. However, at CS and CER, Pharmaceuticals sales declined 1.2% as double-digit growth of multiple sclerosis drugs and vaccines franchises and robust growth in emerging markets was offset by a decline in diabetes, established products and generics sales.
Sanofi reports through five Global Business Units (GBUs) – Sanofi Genzyme (Specialty Care), Diabetes & Cardiovascular, General Medicines & Emerging Markets, Consumer Healthcare and Sanofi Pasteur (Vaccines).
Sanofi Genzyme/Specialty Care GBU sales (including emerging markets) increased 12.5% to €1.63 billion, driven by strong U.S. launch of Dupixent and higher sales of multiple sclerosis (MS) drugs.
Sales of MS drugs Aubagio rose 19.2% to €382 million while sales of Lemtrada went up 5.4% to €113 million. However, sales of both these drugs declined sequentially in the quarter.
Meanwhile, sales of rare disease drugs like Myozyme/Lumizyme improved 5.9% to €191 million while Fabrazyme sales were €175 million, up 4.5%. Cerdelga sales came in at €31 million, up 14.3% while Cerezyme sales rose 1.6% to €178 million.
Oncology sales rose 5% to €363 million driven mainly by higher sales of Jevtana and Thymoglobulin. Jevtana sales were up 6.8% to €90 million while Thymoglobulin recorded sales of €71, up 5.7%. Taxotere sales rose 2.2% to €42 million. Eloxatine sales were up 11.6% to €45 million.
Sanofi and Regeneron Pharmaceuticals, Inc.’s rheumatoid arthritis (RA) drug Kevzara (sarilumab) was launched in the United States in June and in Netherlands and Germany in Europe in the third quarter. Kevzara recorded sales of €2 million in the third quarter compared with €1 million in the previous quarter.
Meanwhile, Dupixent/dupilumab for treating atopic dermatitis was launched in the United States in March. Dupixent generated sales of €75 million in the third quarter compared with €26 million in the previous quarter. Management is pleased with the drug’s uptake and said that in the United States, the drug has been prescribed by over 7,100 physicians. Meanwhile, Dupixent was approved in the EU in September and is expected to be launched in Germany by the end of this year. Kevzara and Dupixent generated total immunology sales of €77 million in the third quarter.
Diabetes and Cardiovascular GBU (including emerging markets) declined 9.1% to €1.68 billion. The Diabetes franchise (including emerging markets) declined 10% to €1.55 billion due to lower sales of key drug Lantus.
Sales of diabetes drugs in the United States declined 22.4% to €725 million due to a tough U.S. payer environment. Sales of diabetes drugs in Emerging Markets were up 17.3% while in Europe it declined 3.1%.
Lantus sales declined 15.5% to €1.12 billion in the quarter. Lantus sales declined 25.4% in the United States due to lower average net price and exclusion from the CVS and United Health formulary plans while Europe sales declined 14% due to biosimilar competition and patient switching to Toujeo.
Toujeo generated sales of €198 million in the reported quarter, which, though up 23.4% on y/y basis, declined 5.7% sequentially.
Soliqua, a once-daily titratable fixed-ratio combination of Lantus and Lyxumia, was launched in the United States in January and in Netherlands (trade name – Suliqua) recently. Soliqua/Suliqua generated sales of €8 million in the quarter compared with €5 million in the previous quarter.
Management warned that U.S. diabetes franchise sales will decline at an accelerated rate in the fourth quarter due to CVS/United Health formulary exclusion plans and difficult comparisons with the last year. Considering recent market trends, Sanofi now expects its global Diabetes sales to decline in the range of 6–8% CAGR over the 2015–2018 timeframe. Previously, Sanofi had guided sales decline in the range of 4% to 8%.
In the cardiovascular franchise, Sanofi’s anti PCSK9 therapy, Praluent garnered worldwide sales of €42 million in the reported quarter, flat sequentially. Incidentally, Amgen, which reported last week, also did not report a very significant sequential improvement in sales of its PCSK9 inhibitor, Repatha. Uptake of these drugs has not been very encouraging so far due to pricing and re-imbursement issues/payer restrictions.
General Medicines & Emerging Markets GBU sales came in at €3.31 billion, down 2.7%. Sales of Established products were €2.26 billion, down 6.5% as strong performance in emerging markets was offset by lower sales in Europe and generic competition for Plavix in Japan and Renvela/Renagel in the United States.
Sales of Generics declined 0.9% to €433 million due to lower sales in Europe. Consumer Healthcare GBU sales were €1.13 billion, up 48.5%. However, sales were up only 1% excluding acquisition of Boehringer Ingelheim’s Consumer Healthcare business due to increased competition in developed markets.
Third-quarter consolidated Sanofi Pasteur (Vaccines) sales increased 11% to €1.92 billion due to the strong performance of pediatric combinations and booster vaccine, Menactra. Vaccines sales reflect the termination of the Sanofi Pasteur MSD joint-venture with Merck in Europe from December 2016.
Costs Rise
Selling general and administrative expenses (SG&A) increased 5.9% at CER in the quarter, reflecting launch costs of Dupixent and Kevzara. R&D expenses were up 12.9% at CER, reflecting higher pipeline development costs in oncology (isatixumab, PD-1) and sotagliflozin.
2017 Outlook
Sanofi maintained its previously issued financial outlook.
Sanofi expects 2017 business earnings to be broadly flat at CER. It anticipates a negative currency impact in the range of 1%-2% on business earnings in 2017. This compares unfavorably with the prior expectations of a positive currency impact of 1%.
MORE DETAILS WILL COME IN THE IMMINENT EDITIONS OF ZACKS RD REPORTS ON SNY.
Portfolio Manager Executive Summary
Sanofi develops and manufactures pharmaceutical products, primarily for sale in the prescription drug market. The company, which operates globally, focuses on major therapeutic areas, such as cardiovascular, central nervous system (CNS), oncology, diabetes and internal medicine formulations.
Of the six firms providing ratings on Sanofi, three firms (50.0%) provided positive ratings and three firms (50.0%) rendered neutral ratings. None of the firms were negative on the stock.
Positive outlook (3/6 firms): The firms believe Sanofi’s Genzyme/Specialty Care , Vaccines and the Consumer Healthcare franchises to be its key growth drivers. Additionally, they are encouraged by the Dupixent launch in atopic dermatitis as well as its sales potential across multiple indications. In fact, the company’s Kevzara received approval in the United States and the EU for the treatment of rheumatoid arthritis is a big boost for the company and will result in future revenue growth. Going forward, these firms remain optimistic about Sanofi’s pipeline progress. Though, they remain more concerned about the future sales of the company’s Diabetes segment, they are encouraged by Toujeo market share gain and Soliqua’s improving market access in the United States.
Neutral outlook (3/6 firms): Although the neutral firms are impressed with the company’s new launch of Dupixent and approval of Kevzara but they are more concerned about the rate of decline of diabetes franchisees. Additionally, they remain concerned about the commercial expansion of Praluent due to ongoing litigation.
Oct 24, 2017
Overview
Sanofi, based in Paris, France, develops and manufactures pharmaceutical products, primarily for sale in the prescription drug market. The company, which has global operations, focuses on major therapeutic areas such as CV, CNS, oncology and internal medicine formulations. The company manufactures and markets prescription drugs in Europe, the U.S. and other countries.
In Apr 2011, Sanofi acquired Genzyme and expanded its presence in the biotech sector. It also has collaboration agreements with companies like Bristol-Myers, AstraZeneca, Merck and Regeneron among others.
Sanofi has five global business units (GBU): Vaccines (Sanofi Pasteur), General Medicines & Emerging Markets, Genzyme/Specialty Care, Diabetes & Cardiovascular and Consumer Healthcare. Sanofi swapped its Merial Animal Health businesses with Boehringer Ingelheim’s Consumer Healthcare (CHC) business in Jan 2017.
Under this organizational structure, all Pharmaceutical sales in Emerging Markets are now included under the General Medicines & Emerging Markets GBU.
The firms have identified the following factors for evaluating the investment merits of Sanofi:
Key Positive Arguments / Key Negative ArgumentsThe swapping of Merial business with Boehringer’s CHC business may meet Sanofi’s goal to be a diversified leader in consumer healthcare. / The company is facing generic competition for several products including Taxotere, Avapro and Lovenox.
Sanofi’s cost-cutting initiatives and focus on the reallocation of resources to the highest growth and most promising development programs should bear positive returns. / For the next few years, sales of the company’s diabetes business are expected to remain under pressure. Lantus is facing increasing competitive pressure at the payer level and biosimilar competition in several European markets and Japan. Moreover, a biosimilar version of Lantus launched in the end of 2016 hit sales in U.S. markets.
Sanofi’s approval of Kevzara (rheumatoid arthritis/RA) and launch of Dpixent (atopic dermatitis/AD, asthma and chronic sinusitis with nasal polyps) in 2017 have blockbuster potential. / Sanofi’s Vaccine franchise also faces additional competition from Glaxo and Novartis.
The company’s website is http://en.sanofi.com/.
Note: The company’s fiscal year coincides with the calendar year.
Oct 24, 2017
Long-Term Growth
Sanofi’s biggest challenge is the genericization of several of its products. It is looking to combat the generic threat by launching new drugs and making acquisitions or signing deals. Sanofi expanded its presence in the biotech sector through its 2011 acquisition of Genzyme and added products like Cerezyme, Myozyme/Lumizyme and Fabrazyme to its portfolio.
In Nov 2015, Sanofi provided a strategic roadmap for the period 2015–2020. The company expects to deliver sales at a CAGR of 3–4% with a target of mid-single-digit growth in the second half of this period. As a result of the company’s investments in launches, headwinds in the Diabetes franchise, and the phasing of cost savings, Sanofi does not expect to deliver significant bottom-line growth in 2016–2017. Beginning 2018, however, it expects earnings to grow faster than sales on the back of an improved sales mix and by fully capturing cost efficiencies.
The company expects growth to be driven by launches scheduled for the next five years.
Sanofi projects six key launches – Toujeo, Praluent, Dengvaxia Soliqua, sarilumab and dupilumab –to generate aggregate peak sales of €12 billion - €14 billion by 2025, while up to 18 new products are on track to be launched by 2020. While Toujeo, Praluent, Dengvaxia, and Soliqua have been launched, Dupixent is approved and launched and Kevzara is approved in the U.S. and EU for the treatment of rheumatoid arthritis. The company remains optimistic on sales prospects of Dupixent, which could prove to be an important growth driver. The recent approval of Kevzara is also encouraging.
Oct 24, 2017
Target Price/Valuation
Rating DistributionPositive / 50.0%
Neutral / 50.0%
Negative / 0.00%
Avg. Target Price / $54.50 ↑
High / $57.00↑
Low / $52.00
No. of Analysts with Target Price/Total / 2/6
Recent Events
Sanofi (SNY) Q2 Earnings In Line, Sales Lag, ’17 View Raised
Sanofi reported 2Q17 earnings of $0.74 per American depositary share, which were in line with the Zacks Consensus Estimate. Earnings rose 3.1% on a reported basis and 1.5% at constant currency rates (CER).
Second-quarter net sales rose 6.4% on a reported basis and 5.5% at CER to almost $9.52 billion (€8.66 billion). However, it missed the Zacks Consensus Estimate of $9.98 billion. Sales benefitted from favorable exchange rate movements of 0.9%.
All growth rates mentioned below are on a year-on-year basis and at CER.
2017 Outlook
Sanofi raised its previously issued financial outlook.
Sanofi expects 2017 business earnings to be broadly flat at CER. This outlook compares favorably with the previous expectations of flat to down 3% at CER. It anticipates positive currency impact in a range of 1% on business earnings in 2017.
Revenue
Net sales in 2Q17 rose 6.4% on a reported basis and 5.5% at constant currency rates (CER) to almost $9.52 billion (€8.66 billion). Sales benefitted from favorable exchange rate movements of 0.9%. The Zacks Digest revenues in 2Q17 were in line with the company’s report.
In January 2017, the French drug maker swapped its Merial Animal Health businesses with Boehringer Ingelheim’s Consumer Healthcare (CHC) business. Reflecting this exchange and full consolidation of Sanofi’s European vaccines operations, sales rose 0.6% at constant structure and CER.
Sales declined 1% at CER in the United States as a strong performance of multiple sclerosis drugs and vaccines could not make up for weak diabetes performance. However, the same rose 10.2% in Emerging Markets, 6.8% in Europe and 10.3% in the Rest of the World (Japan, South Korea, Canada, Australia, New Zealand, Puerto Rico) market.
All growth rates mentioned below are on a year-on-year basis and at CER.