Earnings Down, Outlook Lowered at Sanofi - Analyst Blog

By Zacks Equity Research,

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Sanofi ( SNY ) reported second quarter 2013 business earnings of 72 cents per American Depository Share (ADS), below the Zacks Consensus Estimate of 89 cents. Earnings were down 18.5% at constant exchange rates (CER) from the year-ago period.

Second quarter net sales decreased 9.8% on a reported basis and 6.3% at CER. The strong performance of growth platforms was more than offset by generic competition and an adjustment in Brazil.

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 decreased 7.1% to €6.7 billion. Weaker revenues were primarily due to generic competition (€481 million), European pricing pressure and an adjustment related to inventory mismanagement in Brazil. In Brazil, inventory levels were much more than required. As a result, Sanofi recorded an adjustment, which lowered the net revenue by €122 million. Additionally, the company has created a provision of €79 million for write-off of inventory and other related costs.  

The diabetes franchise (up 12.9% to €1.6 billion) continued to perform well with growth driven by Lantus (up 17.7% to €1.4 billion). Apidra sales went up 25.0% to €68 million in the second quarter of 2013.

We note that several of Sanofi's key products are facing generic competition. In the second quarter of 2013, Eloxatin sales nosedived 83.7% to €60 million due to generic competition. The product went off patent in the U.S. on Aug 9, 2012.

Generic competition also affected Plavix revenues, down 1.3% to €493 million and Aprovel/Avapro/Karvea/Avalide revenues, down 27.5% to €238 million. We remind investors that Plavix and Avapro went off patent in the US in May 2012 and Mar 2012, respectively. Adverse impact of Plavix and Avapro genericization was €795 million, which was in line with the company's expectation.

Lovenox (down 9.2% to €436 million) also performed disappointingly due to generic competition in the U.S.

Newly launched Aubagio generated sales of €33 million in the second quarter of 2013 as compared to €20 million in first quarter of 2013. Zaltrap generated sales of €14 million in the second quarter of 2013 as compared to €11 million in first quarter 2013. Sanofi has developed Zaltrap in collaboration with Regeneron Pharmaceuticals, Inc. ( REGN ).

Genzyme sales increased 25.6% to €525 million. Cerezyme sales increased 18.0% to €171 million. Myozyme sales increased 15.0% to €126 million.

Fabrazyme sales were €91 million, up 28.4%, benefiting from patients switching to Fabrazyme from Shire 's ( SHPG ) Replagal in the Western European market.

Sales in the consumer health care business climbed 1.8% to €729 million driven by Doliprane, Allegra, Essentiale and Enterogermina.

The Generics sub-group at Sanofi continued with its disappointing performance in the second quarter of 2013 with sales declining 36.8% to €300 million. Reduced sales of the authorized generic versions of Aprovel in the U.S. coupled with lower sales and an adjustment in Brazil hurt results during the quarter.

Second quarter 2013 Human Vaccines revenues were €760 million, up 0.4%. Sales of the Animal Health segment decreased 5.7% to €529 million in the second quarter of 2013.

At the beginning of Aug 2013, Sanofi's pipeline consisted of 60 new molecular entities and vaccines in clinical development, of which 14 were either undergoing phase III studies or were under regulatory review.  

Outlook Lowered

The company lowered its 2013 business earnings guidance due to adjustment in Brazil. 2013 business earnings per share are now expected to decrease in a band of 7% to 10% (at CER) from 2012 levels (previous guidance: flat-to-down 5%).

Sanofi expects to return to growth in the remaining quarters of 2013. 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 Biogen Idec Inc. ( BIIB ), carrying a Zacks Rank #1 (Strong Buy).

BIOGEN IDEC INC (BIIB): Free Stock Analysis Report

REGENERON PHARM (REGN): Free Stock Analysis Report

SHIRE PLC-ADR (SHPG): Free Stock Analysis Report

SANOFI-AVENTIS (SNY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: ADS , BIIB , REGN , SHPG , SNY

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