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Sanofi Misses on Q3 Earnings

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Sanofi (SNY - Free Report) reported third quarter 2013 business earnings of 89 cents per American Depository Share (ADS), below the Zacks Consensus Estimate of $1.01. Earnings were down 9% at constant exchange rates (CER) from the year-ago period.

Third quarter net sales decreased 6.7% on a reported basis and marginally increased 0.6% at CER. Foreign exchange movements negatively impacted sales during the quarter as currencies including the Japanese Yen and U.S. Dollar depreciated as compared to the Euro. A strong performance from growth platforms was offset by a slowdown in China and lower sales of Brazil generics.

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 2.7% to €6.7 billion. Revenues were negatively impacted by generic competition (€191 million). However, we note that the loss of revenues due to generic competition was much higher in the second quarter at €481 million.

Sanofi is slowly recovering as the effect of the genericization of a number of major drugs is gradually fading. Though the major patent expiries are over, Sanofi still continues to witness generic erosion.

In the third quarter of 2013, Eloxatin sales nosedived 58.1% to €50 million due to generic competition. The product went off patent in the U.S. on Aug 9, 2012.

Generic competition also affected Lovenox revenues, which declined 3.7% to €401 million and Aprovel/Avapro revenues, which dropped 25.5% to €210 million. Ambien (down 10.3%) and Taxotere (down 24%) sales were also impacted by generic erosion.

The diabetes franchise (up 20.1% to €1.7 billion) continued to perform well with growth driven by Lantus (up 21.2% to €1.5 billion). Apidra sales went up 36.8% to €73 million in the third quarter of 2013. Newly launched (in UK, Germany, Spain) Lyxumia generated sales of €3 million in the third quarter of 2013.

Genzyme sales increased 21.1% to €529 million. Cerezyme sales increased 8.6% to €165 million. Myozyme sales increased 14.7% to €127 million. Both the products benefited from the addition of new patients and growth in Emerging Markets.

Fabrazyme sales were €96 million, up 19.5%, benefiting from patients switching to Fabrazyme from Shire’s (SHPG - Free Report) Replagal in the Western European market and new patient accruals.

Newly launched Aubagio generated sales of €44 million in the third quarter of 2013 as compared to €33 million in the second quarter of 2013. Revenues from Genzyme are expected to increase with Lemtrada gaining EU approval for the treatment of adults with relapsing remitting multiple sclerosis.

Zaltrap, another newly launched product, generated sales of €13 million in the third quarter of 2013 as compared to €14 million in second quarter 2013. Sanofi has developed Zaltrap in collaboration with Regeneron Pharmaceuticals, Inc. (REGN - Free Report) .

Sales in the consumer health care business climbed 9.8% to €742 million driven by Doliprane, Allegra, Essentiale, No Spa and Enterogermina and the re-launch of Rolaids in September. In Jan 2013, Sanofi acquired worldwide rights to Rolaids from McNeil Consumer Healthcare, a subsidiary of Johnson and Johnson (JNJ - Free Report) . Sanofi’s consumer health care portfolio was boosted when the U.S. Food and Drug Administration (FDA) approved Nasacort 24HR nasal spray. The drug was approved as an over-the-counter (OTC) treatment for seasonal and other nasal allergies for use in children above 2 years and adults. Nasacort 24HR nasal spray will be available from the spring of 2014.

The Generics sub-group at Sanofi continued with its disappointing performance in the third quarter of 2013 with sales declining 5.4% to €424 million. Lower sales in Brazil due to inventory mismanagement hurt results during the quarter. Sales are however expected to improve going forward.

Third quarter 2013 Human Vaccines revenues were €1.3 billion, down 7.2%. Lower revenues were due to a manufacturing issue at the Toronto site which led to shortage of Pentacel, Adacel and Daptacel. The supply is expected to improve in the fourth quarter of 2013.  Sales of the Animal Health segment decreased 6.4% to €458 million in the third quarter of 2013.

At the end of Oct 2013, Sanofi’s pipeline consisted of 51 new molecular entities and vaccines in clinical development, of which 12 were either undergoing phase III studies or were under regulatory review.  

Outlook Modified

The company adjusted its 2013 business earnings guidance to take into account the vaccine shortage in the third quarter. 2013 business earnings per share are now expected to decrease around 10% (at CER) from 2012 levels (previous guidance: decrease 7% to 10%).

Sanofi is looking to combat the generic threat confronting most of its key drugs by signing deals and making acquisitions. We are pleased with Sanofi’s efforts to develop its pipeline and believe that newly approved products in Sanofi’s portfolio hold huge commercial potential.

Sanofi carries a Zacks Rank #3 (Hold). Companies that currently look attractive include Johnson and Johnson, carrying a Zacks Rank #2 (Buy).

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