Sanofi's Q4 Earnings Beat Overcast by Weak Guidance - Analyst Blog


Sanofi ( SNY ) reported fourth quarter 2013 business earnings of 93 cents per American Depository Share (ADS), above the Zacks Consensus Estimate of 88 cents. Earnings were up 30.8% at constant exchange rates (CER) from the year-ago period.

Fourth quarter net sales decreased 0.8% on a reported basis but increased 6.5% 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.

Full year earnings came in at $3.35 per ADS, below the Zacks Consensus Estimate of $3.43. Earnings were down 9.8% (CER) from the prior year. Full year net sales decreased 5.7% on a reported basis (down 0.5% at CER).

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 8.4% to €7.1 billion, reflecting robust performance in Diabetes, Genzyme and Generics sub-groups. Sanofi is slowly recovering from the adverse effect of the genericization of a number of its major drugs.

The Diabetes franchise (up 19% to €1.7 billion) continued to perform well with growth driven by Lantus (up 19.9% to €1.5 billion). Apidra sales went up 33.8% to €81 million in the fourth quarter of 2013. Newly launched in UK, Germany, Spain, Japan and Mexico, Lyxumia generated sales of €5 million in the fourth quarter of 2013.

Genzyme sales increased 31.4% to €595 million. Cerezyme sales increased 12.9% to €181 million while Myozyme sales increased 13.2% to €131 million. Both the products benefited from the addition of new patients and growth in Emerging Markets.

Fabrazyme sales were €104 million, up 34.5%, benefiting from gain in market share and new patient accruals.

Newly launched Aubagio generated sales of €69 million in the fourth quarter of 2013 as compared to €55 million in the preceding quarter. Lemtrada, launched in the EU in the fourth quarter, generated revenues of €2 million.

Zaltrap, another newly launched product, generated sales of €15 million in the fourth quarter of 2013 as compared to €13 million in third quarter of 2013. Sanofi has developed Zaltrap in collaboration with Regeneron Pharmaceuticals, Inc. ( REGN ).

Generic competition for Eloxatin (down 19.1%), Aprovel/Avapro (down 4.2%) and Taxotere (down 6.4%) continued to affect revenues.

Sales in the Consumer Health Care business increased 6.1% to €722 million driven by Essentiale, No Spa and Enterogermina. The Generics sub-group at Sanofi exhibited improved performance in the fourth quarter of 2013 with sales rising 12% to €478 million. Higher sales in Brazil aided revenues.

Fourth quarter 2013 Human Vaccines revenues were €959 billion, up 0.1%, reflecting an improvement in the supply of Pentacel, Adacel and Daptacel and strong influenza vaccine sales. Sales of the Animal Health segment decreased 6.3% to €444 million in the fourth quarter of 2013.

At the beginning of Feb 2014, Sanofi's pipeline consisted of 49 new molecular entities and vaccines in clinical development, of which 12 were either undergoing phase III studies or were under regulatory review.  

Lackluster Outlook

The company expects 2014 business earnings per share to increase in the range of 4%-7% at CER. This disappointed the Street expectation, which hoped for a higher earnings growth rate for 2014. The shares reacted negatively following the lower-than-expected guidance, falling 1.08%.

The company expects its cost to sales ratio to improve in 2014. Additionally, it has accelerated its cost-saving plan and expects to attain annual savings of €2 billion by the end of 2014 instead of 2015.

Our Take

Sanofi's fourth quarter results were above expectations with the company beating the Zacks Consensus Estimate. However, we are disappointed with the lackluster earnings guidance for 2014.

Sanofi is set to acquire a 12% stake in Alnylam ( ALNY ) and increase its stake in Regeneron. We expect to see more activity on the acquisition front in 2014. Although Sanofi has some promising pipeline candidates (U300, alirocumab and sarilumab), we are disappointed with the string of pipeline setbacks at the company in the recent past.

The Complete Response Letter (CRL) for its multiple sclerosis drug, Lemtrada, was a huge disappointment for Sanofi. With the U.S. Food and Drug Administration (FDA) requiring additional studies to be conducted, there could be a significant delay before Lemtrada reaches the U.S. markets.

Sanofi carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks include Allergan Inc. ( AGN ). Allergan holds a Zacks Rank #2 (Buy).

ALLERGAN INC (AGN): Free Stock Analysis Report

ALNYLAM PHARMA (ALNY): Free Stock Analysis Report

REGENERON PHARM (REGN): Free Stock Analysis Report

SANOFI-AVENTIS (SNY): Free Stock Analysis Report

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Zacks Investment Research

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

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ADS , CRL , AGN , ALNY , REGN

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