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We are maintaining our Neutral recommendation on Sanofi (SNY - Analyst Report). The stock carries a Zacks #3 Rank (Hold) in the short run.
Sanofi reported third quarter 2012 business earnings of $1.05 per ADS, above the Zacks Consensus Estimate of 99 cents. However, reported quarter earnings were much lower than the year-ago earnings of $1.27 per ADS. Sanofi expects 2012 business earnings to be 12% lower on a year-over-year basis at constant exchange rates (CER).

Several of Sanofi’s products are facing generic competition. In the third quarter of 2012, Eloxatin sales nose-dived 62.9% to €129 million, due to generic competition in the US. The product went off patent in the US on August 9, 2012. Plavix, Aprovel, Taxotere, Lovenox and Xatral revenues are also being affected by generic competition.

In order to address its patent concerns, Sanofi reviewed its cost base and implemented a new operating model. The company conducted an extensive review of its research and development operations in order to reallocate resources to the highest growth and most promising development programs. The new operating model should help reduce significant R&D and SG&A costs. The company remains on track to generate additional cost savings of €2 billion by 2015.

We are pleased with Sanofi’s progress with its pipeline. Over the last few months, several of Sanofi’s pipeline candidates gained approval including US approval of Aubagio for relapsing forms of multiple sclerosis (RMS) and US approval of Zaltrap as a combination therapy for treatment-experienced patients suffering from metastatic colorectal cancer. New product launches should make significant revenue contributions in the upcoming quarters.

Pharma stocks that currently look more attractive include companies like Allergan (AGN - Analyst Report), AstraZeneca (AZN - Analyst Report) and Novo Nordisk (NVO - Analyst Report). All these companies carry a Zacks #2 Rank (Buy).

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