(SNY) Sanofi Earnings Plummet – Outlook Maintained

Sanofi (SNY) reported first quarter 2013 business earnings of 81 cents per American Depository Share (ADS), below the Zacks Consensus Estimate of 89 cents. Earnings were down 29.0% at constant exchange rates (CER) from the year-ago period.

First quarter net sales decreased 5.3% on a reported basis and 2.8% at CER. The strong performance of growth platforms was more than offset by generic competition.

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 4.4% to €6.8 billion. Weaker revenues were primarily due to generic competition (€553 million) and European pricing pressure. The diabetes franchise (up 19.6% to €1.5 billion) continued to perform well with growth driven by Lantus (up 21.3% to €1.3 billion). Apidra sales went up 30.8% to €66 million in the first quarter of 2013.

We note that several of Sanofi’s key products are facing generic competition. In the first quarter of 2013, Eloxatin sales nosedived 84.6% to €59 million due to generic competition. The product went off patent in the US on Aug 9, 2012.

Generic competition also affected Plavix revenues, down 5.0% to €450 million and Aprovel/Avapro/Karvea/Avalide revenues, down 20.8% to €241 million. We remind investors that Plavix and Avapro went off patent in the US in May 2012 and Mar 2012, respectively.

Lovenox (down 17.7% to €428 million) also performed disappointingly due to generic competition in the US.

Newly launched multiple sclerosis drug, Aubagio, generated sales of €20 million in the first quarter of 2013 as compared to €7 million in fourth quarter 2012.

Genzyme sales increased 25.5% to €493 million. Cerezyme sales increased 16.8% to €171 million. Myozyme/Lumizyme sales increased 4.5% to €116 million.

Fabrazyme sales were €92 million, up 100% benefiting from patients switching to Fabrazyme from Shire’s (SHPG) Replagal.

Sales in the consumer health care business climbed 3.1% to €811 million. In Jan 2013, Sanofi acquired worldwide rights of an over-the-counter antacid Rolaids from McNeil Consumer Healthcare, a subsidiary of Johnson and Johnson (JNJ).

Rolaids, initially launched in 1954, is used to relieve heartburn and acid indigestion. Sanofi plans to re-launch the drug and make it available in late 2013.

The Generics sub-group at Sanofi continued with its disappointing performance in the first quarter of 2013 with sales declining 1.8% to €423 million. Reduced sales of the authorized generic versions of Lovenox and Taxotere in the US coupled with lower sales in Brazil hurt results during the quarter.

First quarter 2013 Human Vaccines revenues were €697 million, up 15.9%. Sales of the Animal Health segment decreased 3.1% to €554 million in the first quarter of 2013.

Outlook Maintained

The company continues to expect 2013 business earnings per share to remain flat to down 5% from 2012 levels (at CER).

Business net income will be impacted by around €800 million in the first half of 2013 due to Plavix and Avapro genericization. Sanofi expects to return to growth from the second half 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.

Since the start of 2013, several of Sanofi’s pipeline candidates gained approval including approval of diabetes candidate, Lyxumia (lixisenatide) and oncology drug, Zaltrap (aflibercept) in Europe and Kynamro for homozygous familial hypercholesterolemia (HoFH) in the US. Hexyon/Hexacima, a 6-in-1 pediatric vaccine also received approval in Europe.

Sanofi carries a Zacks Rank #3 (Hold). Stocks that look better placed at present include AbbVie (ABBV), which carries a Zacks Rank #2 (Buy).

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