(SNY) Generics Hit Sanofi Again

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.


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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