Sanofi’s (SNY) shares plunged almost 14.4% ever since it announced its third-quarter earnings on Oct 28. Although the earnings were above expectations, investors reacted negatively to the company’s announcement that one of its largest selling products, Lantus, will face competitive pricing. Moreover, the stock price was further affected when the company announced its decision to sack its Chief Executive Officer (CEO), Christopher A. Viehbacher.
Sanofi reported third-quarter 2014 business earnings of 97 cents per American Depositary Share (ADS), 3 cents above the Zacks Consensus Estimate. Earnings were up 10.3% at constant exchange rates (CER) from the year-ago period.
Third quarter net sales increased 4.1% on a reported basis and 5.1% at CER.
Segmental Performance
Sanofi operates through the following segments: Pharmaceuticals, Human Vaccines and Animal Health. All growth rates mentioned below are on a year-on-year basis and at CER.
Pharmaceutical segment sales increased 3.4% to €6.8 billion, reflecting robust performance in emerging markets.
The Diabetes franchise (up 8.3% to €1.8 billion) continued to perform well with growth driven by Lantus (up 8.1% to €1.6 billion). Apidra sales went up 21.9% to €88 million in the third quarter of 2014. Newly launched in Italy, Spain, Japan and Mexico, Lyxumia generated sales of €8 million in the third quarter of 2014.
Genzyme sales increased 24.6% to €649 million. Cerezyme sales rose 9.1% to €175 million while Myozyme sales increased 9.4% to €138 million. Both the products benefited from strong growth in emerging markets.
Fabrazyme sales were €116 million, up 21.9%, benefiting from strong sales in Western Europe and emerging markets.
Newly launched Aubagio generated sales of €112 million in the third quarter of 2014 as compared to €44 million in the year-ago quarter. Lemtrada generated revenues of €7 million. The drug’s supplemental Biologics License Application (sBLA) for the treatment of relapsing forms of multiple sclerosis is under review in the U.S. A final decision on the approval is expected soon.
Zaltrap, another newly launched product, generated sales of €18 million in the third quarter of 2014 as compared to €15 million in the second quarter of 2014. Sanofi has developed Zaltrap in collaboration with Regeneron Pharmaceuticals, Inc. (REGN).
Generic competition for Eloxatin (down 12%), Aprovel/Avapro (down 14.8%) and Taxotere (down 28.6%) continued to affect revenues.
Sales in the Consumer Health Care business increased 12.9% to €819 million. Several products (amounting €64 million in sales) previously recorded under Pharmaceuticals in the year-ago period were shifted to Consumer Health Care products. The Generics sub-group at Sanofi exhibited improved performance in the third quarter of 2014 with sales rising 8.3% to €451 million reflecting recovery in Brazil.
Third-quarter 2014 Human Vaccines revenues were €1.5 billion, up 11.2% reflecting strong sales of influenza vaccines in the U.S. and in emerging markets. Sales of the Animal Health segment increased 12.7% to €515 million in the reported quarter.
At the end of Oct 2014, Sanofi’s pipeline consisted of 46 new molecular entities and vaccines in clinical development, of which 14 were either undergoing phase III studies or were under regulatory review.
Outlook Reaffirmed
The company maintained its 2014 business earnings per share guidance. The company still expects business earnings to increase in the range of 6%–8% at CER.
The company expects 2015 sales in the Diabetes business to remain flat. Sanofi is also expecting a negative pricing effect on its main diabetes product, Lantus. Sales of the drug are expected to be affected by competitive pricing.
Our Take
Sanofi’s third-quarter business earnings were above expectations with the company beating the Zacks Consensus Estimate. We are encouraged by the recent pipeline progress at the company. Sanofi is expecting several pipeline related events in the coming quarters.
However, we are highly disappointed with the company’s guidance on its Diabetes business, primarily on Lantus. Lantus is expected to face pricing pressure from products like Novo Nordisk’s (NVO) Tresiba. We expect investor focus to remain on Sanofi’s Diabetes segment.
Sanofi’s decision to sack its CEO was also disappointing.
Sanofi carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the health care space include AbbVie Inc. (ABBV) and Allergan Inc. (AGN). Both stocks carry a Zacks Rank #2 (Buy).
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