Sanofi SNY reported second-quarter 2015 business earnings of 78 cents per American Depositary Share, easily beating the Zacks Consensus Estimate of 72 cents. Earnings were up 20.5% on a reported basis and 5.1% at constant exchange rates (CER).
Second-quarter 2015 net sales increased 16.1% on a reported basis and 4.9% at CER. Sanofi’s shares were up 1.8% after announcing the second-quarter results.
All growth rates mentioned below are on a year-on-year basis and at CER.
Segmental Performance
Sanofi operates through the following segments: Pharmaceuticals, Human Vaccines and Animal Health. The Pharmaceuticals business includes Diabetes, Consumer Healthcare, Genzyme, Generics, Oncology and other established pharmaceutical products.
Pharmaceutical segment sales increased 3.7% to €7.8 billion, primarily driven by Genzyme and Generics segments but were partially offset by lower sales in the Diabetes segment.
The Diabetes franchise was down 3.8% to €1.98 billion, reflecting lower sales of its best-selling drug, Lantus, in the U.S. (down 15.4% to €1.1 billion). Lower sales were due to increased rebates offered by the company to maintain favorable formulary positions with key payers. Rest of the World sales, however, increased 6.7% to €88 million. Moreover, Apidra (up 11.7%) and Lyxumia (up 50%) performed well. Recently launched Toujeo and Afrezza generated sales of €13 million and €2 million, respectively, in the reported quarter.
Genzyme sales increased 26.6% to €907 million, mainly driven by strong uptake of multiple sclerosis (MS) drugs, Aubagio (up 80.4% to €204 million) and Lemtrada (up 47.4% sequentially to €56 million). Sanofi informed that the MS franchise is on track to cross more than $1 billion in annualized sales in 2015.
Cerezyme sales rose 6.3% to €199 million while Myozyme/Lumizyme sales increased 14.3% to €165 million. Both products benefited from strong growth in emerging markets. Fabrazyme sales were €146 million, up 4.9%, benefiting from strong sales in global markets.
Oncology and the established Rx product segments delivered a sales increase of 3.6% and 3.1%, respectively.
Sales in the Consumer Health Care business increased 1.3% to €890 million primarily driven by Allegra (up 6.4%), Lactacyd (up 12.5%), Maalox (up 13%) and Magne B6 (up 22.2%) sales.
Revenues from the Generics sub-group at Sanofi were up 9.2% to €520 million in the second quarter of 2015, reflecting strong performance in Japan.
Second-quarter 2015 Human Vaccines revenues were €887 million, up 8.6% primarily driven by influenza (up 88.1%), adult booster (up 21.7%) and other vaccines (up 52.7%) sales. Sales of the Animal Health segment increased 14.2% to €691 million in the reported quarter, driven mainly by the performance of NexGard.
Guidance Reiterated
The company continues to expect 2015 business earnings at the same level as 2014 or grow slightly. However, the company now estimates a positive impact of about 10% (previous estimate: 12%) from foreign exchange rate translations.
Our Take
Sanofi’s second-quarter 2015 results were better than expected with earnings comfortably beating expectations and revenues growing year over year. Meanwhile, Sanofi is restructuring its seven existing business units into five global business units, as announced in Jul 2015. The new structure, focused on streamlining the company and driving long-term growth, will come into effect from Jan 2016. In addition, the possibility of pursuing mid-size to bolt-on mergers and acquisitions is encouraging.
However, we are concerned about the performance of the company’s Diabetes business. Sanofi informed that a biosimilar version of Lantus has been launched by Eli Lilly & Co. LLY in some Eastern EU countries with a launch in the U.K. expected in Sep 2015.
Meanwhile, Sanofi received a huge boost late last week with Praluent (hypercholesterolemia) becoming the first PCSK9 inhibitor to gain approval in the U.S. Launch is expected shortly. Moreover, the drug is under review in the EU with a response expected by late September. We remind investors that Sanofi has a collaboration agreement with Regeneron Pharmaceuticals, Inc. REGN for Praluent.
Sanofi also signed an agreement with Regeneron for the discovery, development and commercialization of antibody immuno-oncology treatments earlier this week. Sanofi expects a lot of activity on both the pipeline and regulatory front over the next several quarters.
We expect investor focus to remain on Praluent sales ramp up along with newly launched MS and diabetes drugs.
Sanofi currently carries a Zacks Rank #2 (Buy). Another favorably ranked stock in the health care sector is Actelion Ltd. ALIOF carrying a Zacks Rank #1 (Strong Buy).
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