Sanofi
(
SNY
) reported second quarter 2012 business earnings of 95 cents per
American Depository Share (ADS), much lower than the year-ago
earnings of $1.18 per ADS. The Zacks Consensus Estimate stood at 84
cents per ADS.
Second quarter net sales increased 6.2% on a reported basis and
0.4% at constant exchange rates (CER). The difference between
reported revenues and revenues at CER was primarily due to the
weakening of Euro against the US dollar. Strong Japanese yen and
Chinese yuan also boosted reported revenues.
Strong performance of growth platforms was broadly offset by the
impact of generic competition, European austerity measures,
divestment of the Dermik assets and sale of Copaxone.
Segmental Performance
Sanofi operates out of the following segments: Pharmaceuticals,
Human Vaccines and Animal Health.
Pharmaceutical segment sales decreased 0.4% to €7.5 billion.
Weaker revenues were due to generic competition (€163 million),
European pricing pressure, sale of Copaxone (loss of €119 million)
and Dermik divestment (loss of €29 million). The diabetes franchise
(up 13.7% to €1.4 billion) continued performing well with growth
driven by Lantus (up 16.5% to €1.2 billion). Apidra sales were flat
at €56 million in second quarter 2012.
Global sales of Plavix, an anti-platelet blood thinner indicated
to reduce the risk of heart attack in patients with atherosclerosis
(the build-up of plaque and hardening of the arteries), plummeted
43.3% to €1.1 billion in the quarter. US sales of the drug were
down 59.9% to €536 million. The genericization of the drug in the
US was responsible for the massive decline. Generic competition
also affected Plavix revenues in Europe, where it declined 18.5%.
However, it grew at a robust rate in both Japan (19.0%) and China
(25.2%). Sanofi has a co-promotion agreement with
Bristol-Myers Squibb
(
BMY
) for Plavix. Plavix went off-patent in the US on May 17, 2012.
Aprovel/Avapro/Karvea/Avalide revenues declined 22.3% to €382
million due to increased generic competition. The product lost its
exclusivity in the US on March 30, 2012.
Lovenox, Xatral and Taxotere performed disappointingly due to
generic competition in the US. In the second quarter 2012, Eloxatin
recorded net sales of €375 million, up 35.9% year over year.
New Genzyme sales increased 9.1% to €434 million. All growth
rates mentioned from the New Genzyme division are on a constant
structure basis and at constant exchange rates. Cerezyme sales
decreased 13.9% to €150 million. Sales were hurt primarily by
variability of order patterns.
Myozyme/Lumizyme sales increased 9.1% to €113 million. Fabrazyme
sales were €74 million, up 123.3%. Higher revenues reflected
patients switching to Fabrazyme from
Shire's
(
SHPG
) Replagal and better product supply. In March 2012, the company
started rolling out Fabrazyme manufactured at the new manufacturing
unit in Framingham.
Sales in the consumer health care business climbed 11.3% to €738
million, driven by strong performance in the emerging markets in
the second quarter of 2012.
Generics sales were up 7.8% to €468 million, boosted by the
generic Lovenox and Aprovel sales.
Second-quarter Human Vaccines revenues were €783 million, up
3.0%, driven by the strong seasonal influenza vaccines sales in
Southern Hemisphere. Sales of Animal Health segment increased 9.1%
to €576 million in the second quarter of 2012, supported by the
U.S. (up 17.8%) and Emerging Markets (up 10.9%) sales.
Pipeline Update
Sanofi filed for US and EU approval for multiple sclerosis drug
Lemtrada in the second quarter of 2012.
Going forward into third quarter, we look forward to FDA's final
decision on the marketing application of Zaltrap (aflibercept -
second line metastatic colorectal cancer) expected on August 4,
2012 and Aubagio (teriflunomide - relapsing multiple sclerosis)
expected September 12, 2012.
At the end of July 2012, Sanofi's pipeline consisted of 64 new
molecular entities and vaccines in clinical development of which 18
were either undergoing phase III studies or under regulatory
review.
Outlook Maintained
The company reaffirmed its earlier guidance and expects 2012
business EPS to be 12% to 15% lower than 2011 levels (at CER). The
Zacks Consensus Estimate for 2012 is currently pegged at $3.87 per
share.
Business net income will be impacted by approximately €1.4
billion in 2012 due to the end of patent protection of Plavix and
Avapro in the US (company lost €331 million revenues in the second
quarter of 2012).
Sanofi expects European austerity measures to have an impact of
€300 million on 2012 revenues.
Our Recommendation
We expect Sanofi to contain operating costs in order to increase
earnings in the face of weakening sales of some of its key drugs.
We also expect the company to pursue bolt on acquisitions. We are
pleased with the company's efforts to develop its pipeline.
We currently have a Neutral recommendation on Sanofi. The stock
carries a Zacks #3 Rank (Hold rating) in the short run.
BRISTOL-MYERS (BMY): Free Stock Analysis Report
SHIRE PLC-ADR (SHPG): Free Stock Analysis
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