Sanofi (SNY) reported fourth quarter 2011 business earnings of $1.15 per American Depository Share (“ADS”), above the Zacks Consensus Estimate of $1.00 and the year-ago earnings of 96 cents. Full year earnings came in at $4.78 per ADS, above the Zacks Consensus Estimate of $4.25 and the year-ago earnings of $4.69.
Fourth quarter net sales increased 8.8% on a reported basis, up 9.2% at constant exchange rates (“CER”). Although the Genzyme acquisition boosted sales by €831 million, generic competition wiped off sales by €387 million. Full year net sales increased 3.2% on a reported basis (up 5.3% at CER).
The Quarter in Detail
Pharmaceutical segment sales increased 10.5% to €7.2 billion mainly due to the positive impact of the Genzyme acquisition partially offset by generic competition and austerity measures in the EU. The diabetes franchise (up 12.5% to €1.2 billion) continued performing well with growth being driven by Lantus (up 17.8% to €1.1 billion). Apidra sales fell 28.6% to €35 million in fourth quarter 2011, due to a temporary shortage in supply.
Plavix revenues declined 24.3% in Europe due to increased generic competition. While product revenues declined in the US (2.1%), it grew at a robust rate in both Japan (22.7%) and China (23.8%). Plavix is expected to lose US exclusivity on May 17, 2012. Sanofi has a co-promotion agreement with Bristol-Myers Squibb (BMY) for Plavix.
Anti-clotting drug, Lovenox, insomnia and sleep disorder drug, Ambien CR, and cancer drug, Taxotere, performed disappointingly due to generic competition in the US. In the fourth quarter 2011, Eloxatin recorded net sales of €325 million, up 119.0% year over year. Eloxatin has patent exclusivity in the US through August 9, 2012.
Cerezyme sales fell to 17.4% to €133 million. Limited product supply continued to impact performance – the company expects the supply situation to improve February 2012 onwards. Myozyme/Lumizyme sales increased 15.9% to €108 million, driven by continued growth worldwide. Fabrazyme sales were €47 million, up 3.7%, reflecting better product supply. We expect Fabrazyme will expand further in the first quarter of 2012 when the company starts rolling out the products made in the new manufacturing unit in Framingham.
The consumer health care business recorded year-over-year growth of 15.4% to €645 million in the fourth quarter supported by the BMP Sunstone acquisition, strong performance by Doliprane (13.8%), Lactacyd (42.1%), Enterogermina (30.0%) and Allegra OTC. Allegra OTC, which was launched during the first quarter of 2011, delivered sales of €25 million in the US in the fourth quarter of 2011.
Pipeline Update
The company filed for EU and US approval of Visamerin/Mulsevo (semuloparin – prevention of venous thromboembolism events in cancer patients initiating a chemotherapy regimen), Aubagio (teriflunomide – relapsing multiple sclerosis), and Zaltrap (aflibercept – second line metastatic colorectal cancer). The company also filed for EU approval of Lyxumia (lixisenatide – type II diabetes) and Kynamro (mipomersen – homozygous familial hypercholesterolemia – hoFH and severe heterozygous familial hypercholesterolemia – heFH).
The company anticipates 18 potential product launches in the 2012 – 2015 period.
Outlook
Sanofi, which delivered cost savings of €2 billion by the end of 2011, remains on track to generate additional cost savings of €2 billion by 2015, thanks to new initiatives and the $700 million savings expected from the Genzyme acquisition. Business net income will be impacted by around €1.4 billion in 2012 due to the end of patent protection of Plavix and Avapro in the US. Operating margin is expected to be between 31% to 32% in 2012. Sanofi expects 2012 business EPS to be 12% to 15% lower on a year-over-year basis at CER.
Our Recommendation
We expect Sanofi to continue to contain operating costs in order to grow earnings in the face of weakening sales of some of its biggest products. We also expect the company to grow through partnering deals and acquisitions.
The stock carries a Zacks #5 Rank (strong sell rating) in the short run. 2012 earnings will be hit by the loss of US exclusivity on Plavix and Avapro.
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