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Sanofi's (SNY) Earnings Beat Estimates in Q1, Sales Miss Mark

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Sanofi (SNY - Free Report) reported first-quarter 2018 earnings of 79 cents per American depositary share, which beat the Zacks Consensus Estimate of 74 cents. Earnings grew 6.8% on a reported basis. At constant currency rates (CER), earnings grew 1.4%.

First-quarter net sales grew 5.9% on a reported basis to almost $9.71 billion (€7.89 billion). Sales however missed the Zacks Consensus Estimate of $9.96 billion. Unfavorable exchange rate movements hurt sales by 8.3%. At CER, sales dipped 0.4% year over year.          

Sales declined 8.2% at CER in the United States. However, sales rose 8.3% in Emerging Markets, 0.5% in Europe but declined 3.4% in the Rest of the World (Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico).

Sanofi announced the successful completion of its acquisition of Bioverativ, which was consolidated in the company’s financial statements from Mar 9, 2018. 

All growth rates mentioned below are on a year-on-year basis and at CER.

Segmental Performance

Pharmaceuticals sales (including emerging markets) dipped 0.9% to €5.9 billion. However, at CER, Pharmaceuticals sales fell 0.9%.

Sanofi reports through five Global Business Units (GBUs) — Sanofi Genzyme (Specialty Care), Diabetes & Cardiovascular, General Medicines & Emerging Markets, Consumer Healthcare and Sanofi Pasteur (Vaccines).

Sanofi Genzyme/Specialty Care GBU sales (including emerging markets) increased 16.2% to €1.46 billion, driven by contribution from new immunology drugs — Dupixent and Kevzara — along with higher sales of multiple sclerosis and rare disease drugs.

Sales of MS drugs Aubagio rose 11.6% to €371 million while sales of Lemtrada fell  8.8% to €105 million.

Meanwhile, sales of rare disease drugs like Myozyme/Lumizyme improved 11.1% to €196  million while Fabrazyme sales were €170 million, up 6.8%. Cerdelga sales came in at €36 million, up 25.8% while Cerezyme sales rose 10.2% to €175 million.

Oncology sales declined 5.6% to €358 million. Jevtana sales were up 10.3% to €99 million while Thymoglobulin recorded sales of €70, was up 8.3%. Taxotere sales fell 2.1% to €43 million. Eloxatin sales were up 6.7% to €44 million.

Sanofi and Regeneron’s (REGN - Free Report) rheumatoid arthritis drug Kevzara (sarilumab) was launched in the United States in June 2017 and in United Kingdom, the Netherlands and Germany in Europe in the second half.  Kevzara recorded sales of €10 million in the quarter compared with €8 million in the previous quarter.

Meanwhile, Dupixent/dupilumab for treating atopic dermatitis was launched in the United States in March and approved in the EU in September 2017. In December 2017, Sanofi launched Dupixent in Germany. Dupixent generated sales of €107 million in the first quarter compared with €118 million in the previous quarter. Kevzara and Dupixent generated total immunology sales of €117 million in the first quarter, lower than €126 million recorded in the previous quarter.

Diabetes and Cardiovascular GBU (including emerging markets) declined 8.7% to €1.48 billion. The Diabetes franchise (including emerging markets) declined 10% to €1.36 billion due to lower sales of key drug Lantus and Toujeo in the United States.

Sales of diabetes drugs in the United States declined 26.6% to €534 million due to the previously announced changes in coverage in the Part D business and a persistent decline in average U.S. glargine net prices. Sales of diabetes drugs in Emerging Markets were up 17.7% while in Europe it fell 0.9%.

Lantus sales declined 17.7% to €911 million in the quarter. Lantus sales declined 31% in the United States due to lower average net price the change in coverage in Sanofi’s Part D business while in Europe sales declined 9% due to biosimilar competition and patient switching to Toujeo.

Toujeo generated sales of €197 million in the reported quarter, up 13.8%. However, sales were down 14.8% sequentially in the United States.

Soliqua, a once-daily titratable fixed-ratio combination of Lantus and Lyxumia, was launched in the United States in January 2017 and in some European countries (trade name — Suliqua) in 2017. Soliqua/Suliqua generated sales of €9 million in the quarter compared flat sequentially.

In the cardiovascular franchise, Sanofi’s anti PCSK9 therapy, Praluent garnered worldwide sales of €49 million in the reported quarter, up 55.9%.

General Medicines & Emerging Markets GBU sales came in at €3.4 billion, down 1.5%. Sales of Established products were €2.32 billion, down 6.4% as strong performance in emerging markets was offset by lower sales in Europe and generic competition for Renvela/Renagel in the United States.

Sales of Generics rose 0.9% to €435 million sustained by Emerging Markets sales.

Consumer Healthcare GBU sales were €1.24 billion, up 2% driven Emerging Markets especially Latin America.

First-quarter consolidated Sanofi Pasteur (Vaccines) sales fell 0.9% to €711 million. Vaccines sales reflect the termination of the Sanofi Pasteur MSD joint venture with Merck (MRK - Free Report) in Europe from December 2016. Vaccines sales were was impacted by the constrained supply of Pentaxim in China and low sales of Dengvaxia following the announced label update in November 2017.

Costs Rise

Selling general and administrative expenses (SG&A) increased 1% at CER in the quarter, reflecting investments in immunology, additional expenses in China and consolidation of Bioverativ’s operating expenses. R&D expenses were up 4.5% at CER, reflecting increased spend on immuno-oncology programs and medical investment behind the immunology franchise.

2018 Outlook

Sanofi reiterated its guidance for 2018 and expects  business earnings to grow between 2% and 5% at CER.

Share Buyback

The company announced a €1.5-billion share buyback program during the quarter which is expected to be completed in mid-2019.

Our Take

Sanofi’s first-quarter 2018 results beat earnings but missed sales expectations. However, Sanofi’s 2018 outlook looks upbeat as it expects to return to growth this year on the back of the Bioverativ and Ablynx deals, a strong pipeline and lower tax rates under the new tax laws. The company continues to execute on its business priorities and position the company for a new period of growth which is expected to begin in the second half of 2018.

Year to date, Sanofi’s shares have lost 6.1%, compared with the 2.3% decline for the industry.


Zacks Rank & Stocks to Consider

Sanofi carries a Zacks Rank #3 (Hold).

Another top-ranked stock from the same space is Ligand Pharmaceuticals (LGND - Free Report) , sporting a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Ligand’s earnings per share estimates have moved up $4.15 to $4.43 for 2018 over the last 60 days. The company delivered a positive earnings surprise in three of the trailing four quarters, with an average beat of 24.88%. The company’s shares have rallied 15.8% year to date.


Sanofi Price, Consensus and EPS Surprise


Sanofi Price, Consensus and EPS Surprise | Sanofi Quote


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