Sanofi ( SNY )
reported third quarter 2012 business earnings of $1.05 per American
Depositary Share (ADS), much lower than the year-ago earnings of
$1.27 per ADS. The Zacks Consensus Estimate stood at 99 cents per
ADS.
The company's third quarter 2012 net sales increased 3.3% on a
reported basis and fell 3.1% at constant exchange rates (CER). The
difference between reported revenues and revenues at CER was
primarily due to the weakening of the Euro against the US dollar.
Strong Japanese yen and Chinese yuan also boosted reported
revenues.
The strong performance of growth platforms was broadly offset by
the impact of generic competition, European austerity measures,
divestment of the Dermik assets and the return of Copaxone
assets.
Segmental Performance
Sanofi operates out of the following segments: Pharmaceuticals,
Human Vaccines and Animal Health.
Pharmaceutical segment sales decreased 4.3% to €7.0 billion.
Weaker revenues were due to generic competition (€448 million),
European pricing pressure, return of Copaxone assets (€117 million)
and Dermik divestment (€33 million). The diabetes franchise (up
17.5% to €1.5 billion) continued performing well with growth driven
by Lantus (up 20.7% to €1.3 billion). Apidra sales went up 1.9% to
€57 million in the third quarter of 2012.
We note several of Sanofi's revenue generating products are
already facing generic competition. In the third quarter of 2012,
Eloxatin sales nosedived 62.9% to €129 million, due to generic
competition in the US. The product went off patent in the US on
August 9, 2012
Generic competition also affected Plavix revenues, which fell
10.4% to €505 million and Aprovel/Avapro/Karvea/Avalide revenues,
which declined 8.3% to €298 million. We remind investors that
Plavix and Avapro went off patent in the US in May 2012 and March
2012, respectively.
Following the genericization of Plavix and Avapro in major markets
across the globe, Sanofi and its partner Bristol-Myers
Squibb Company ( BMY )
revamped their long-standing alliance regarding the drugs. The new
agreement will be effective from January 1, 2013.
The restructured agreement will see Sanofi selling Avapro/Avalide
globally and Plavix in all markets, except the US and Puerto
Rico.
Lovenox (down 14% to €437 million) also performed disappointingly
due to generic competition in the US.
New Genzyme sales increased 22.5% to €470 million. All growth
rates mentioned from the New Genzyme division are on a constant
structure basis and at constant exchange rates.
Cerezyme sales increased 9.9% to €163 million. Myozyme/Lumizyme
sales increased 8.9% to €116 million. Fabrazyme sales were €87
million, up 146.9%. 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 5.9% to €733
million, driven by strong performance in the emerging markets in
the third quarter of 2012.
Generics sales were up 14.9% to €479 million, boosted by the sale
of authorized generic versions of Lovenox and Aprovel.
Third quarter Human Vaccines revenues were €1.5 billion, up 0.7%.
Sales of the Animal Health segment increased 3.8% to €519 million
in the third quarter of 2012, supported by Emerging Markets (up
21.1%).
Over the last few months, several of Sanofi's pipeline candidates
gained approval including Aubagio (teriflunomide) for relapsing
forms of multiple sclerosis (RMS) and Zaltrap, as a combination
therapy for treatment-experienced patients suffering from
metastatic colorectal cancer. We believe that Aubagio and Zaltrap
possess significant commercialization opportunity.
We are also encouraged by the FDA's Endocrinologic and Metabolic
Drugs Advisory Committee vote in favor of approving Sanofi and
Isis Pharmaceuticals Inc.'s ( ISIS )
candidate Kynamro. The panel voted 9 to 6 that sufficient data is
available on Kynamro's efficacy and safety profile for gaining
final approval. The companies are seeking FDA approval for the use
of Kynamro for the treatment of patients with homozygous familial
hypercholesterolemia (HoFH).
At the end of October 2012, Sanofi's pipeline consisted of 65 new
molecular entities and vaccines in clinical development, of which
17were either undergoing phase III studies or are under regulatory
review.
Outlook
The company expects 2012 business earnings per share to be around
12% lower than 2011 levels (at CER) compared with 12% to 15% guided
earlier. The Zacks Consensus Estimate for 2012 is currently pegged
at $4.01 per share.
We are pleased with the company's efforts to develop its pipeline.
We expect Sanofi to continue to contain operating costs in order to
increase earnings in the face of weakening sales of some of its
biggest products. We also expect the company to pursue bolt-on
acquisitions.
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