Sanofi Beats on Higher Revenue

Sanofi-Aventis (SNY) recently reported third quarter earnings of $1.25 per American Depository Share (ADS), 4 cents above the Zacks Consensus Estimate of $1.21. The company reported earnings of $1.06 in the year-ago period. 

Revenue increased 6% with performance being driven by Lovenox (up 13.7%), Lantus (up 21.7%) and Plavix which continued to grow at a robust rate both in the US (up 11.3%) and Japan (up 50.3%). Emerging markets grew 20.9%. Over-the-counter (OTC) revenue increased 26.3%. 

Meanwhile, Eloxatin (down 43%) and Plavix continued to face generic erosion in the US and some parts of Europe, respectively. Sanofi has a co-promotion agreement with Bristol-Myers Squibb (BMY) for Plavix. Sanofi reported that generic versions of Lovenox are yet to launch. Companies like Teva (TEVA) and Amphastar are seeking to launch generic versions of the product. 

Sanofi’s Human Vaccines business reported a 4.8% increase in revenue, thanks to the strong performance of Pentacel, Pentaxim, and Menactra. The initial shipment of the H1N1 vaccine also contributed to revenue. The major part of the shipment of the H1N1 vaccine should occur during the fourth quarter of 2009 and early 2010. Sales of H1N1 vaccines should be around $500 million in the fourth quarter of 2009. 

Although research and development (R&D) expenses declined 0.6%, selling and general expenses increased 1.2%. The decline in R&D expenses is mainly due to the company’s focus on the most promising development programs and the impact of cost savings in pharmaceuticals R&D, which were partially offset by increased spend on vaccines and development costs of acquired companies. 

Meanwhile, the increase in selling and general expenses reflects the impact of the costs associated with the recent launch of Multaq in the US. Sanofi reported that more than 19,000 prescriptions have been written for Multaq in eight weeks by around 4,500 physicians. The product has also received reimbursement coverage among some regional insurance plans. Additional launches in Europe, Canada and Switzerland should help drive growth. 

Sanofi raised its guidance for 2009 slightly and stated that it expects earnings to grow 11% at constant exchange rates. The company was previously expecting earnings to grow 10% at constant exchange rates. The updated guidance takes into account approximately $500 million in revenue from the sale of A/H1N1 vaccines in the fourth quarter. 

We expect Sanofi to continue look 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 look to grow revenue through additional partnering deals and acquisitions. The third quarter saw Sanofi entering into licensing and collaboration agreements with Merrimack and Wellstat Therapeutics. Sanofi also signed an agreement to acquire French pharmaceutical company, Fovea.

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