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Sanofi Beats on Q2 Earnings, View Up on Strong Performance

Zacks Equity Research

Sanofi (SNY) reported second quarter 2014 business earnings of 80 cents per American Depositary Share (ADS), a penny above the Zacks Consensus Estimate. Earnings were up 13.4% at constant exchange rates (:CER) from the year-ago period.
Second quarter net sales increased 0.9% on a reported basis and 6.4% 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 7.2% to €6.8 billion, reflecting robust performance in Diabetes, Genzyme and Consumer Health Care sub-groups.

The Diabetes franchise (up 16.2% to €1.8 billion) continued to perform well with growth driven by Lantus (up 16.3% to €1.6 billion). Apidra sales went up 19.1% to €77 million in the second quarter of 2014. Newly launched in Italy, Spain, Japan and Mexico, Lyxumia generated sales of €6 million in the second quarter of 2014. Sanofi has suspended distribution of Lyxumia in Germany after unsuccessful pricing negotiation with the National Association of Statutory Health Insurance Funds.

Genzyme sales increased 29.1% to €643 million. Cerezyme sales rose 9.9% to €175 million while Myozyme sales increased 10.3% to €133 million. Both the products benefited from strong growth in Emerging Markets.

Fabrazyme sales were €123 million, up 44.0%, benefiting from gain in market share and new patient accruals.

Newly launched Aubagio generated sales of €97 million in the second quarter of 2014 as compared to €78 million in the preceding quarter. Lemtrada generated revenues of €6 million. Sanofi expects to further roll out the product in the EU in 2014.

Zaltrap, another newly launched product, generated sales of €15 million in the second quarter of 2014 as compared to €16 million in the first quarter of 2014. Sanofi has developed Zaltrap in collaboration with Regeneron Pharmaceuticals, Inc. (REGN).

Generic competition for Eloxatin (down 15%), Aprovel/Avapro (down 15.5%) and Taxotere (down 36.8%) continued to affect revenues.

Sales in the Consumer Health Care business increased 20.2% to €816 million. Several products (amounting €73 million in sales) previously recorded under Pharmaceuticals in the year-ago period were shifted to Consumer Health Care products. The Generics sub-group at Sanofi exhibited improved performance in the second quarter of 2014 with sales rising 65.7% to €466 million reflecting recovery in Brazil.

Second quarter 2014 Human Vaccines revenues were €718 million, down 0.4% reflecting lower Booster vaccines sales. Sales of the Animal Health segment increased 6.2% to €537 million in the second quarter of 2014.

At the end of Jul 2014, Sanofi’s pipeline consisted of 46 new molecular entities and vaccines in clinical development, of which 12 were either undergoing phase III studies or were under regulatory review.  

Outlook Raised

The company raised its 2014 business earnings per share guidance following the strong performance in this quarter despite increasing competition in the U.S. The company expects business earnings to increase in the range of 6%–8% at CER as compared to the previous guidance of 4%–7% at CER.

Our Take

Sanofi’s second quarter business earnings were above expectations with the company beating the Zacks Consensus Estimate.

We are pleased with Sanofi’s acquisition/deals with Regeneron and Alnylam (ALNY). We expect to see more activity on the deal/acquisition front this year.

We are nevertheless disappointed with the string of pipeline setbacks at the company in the recent past despite some promising candidates (Toujeo, the Dengue vaccine, Cerdelga and alirocumab).

Sanofi carries a Zacks Rank #4 (Sell). A better-ranked stock in the health care space includes AstraZeneca (AZN), carrying a Zacks Rank #1 (Strong Buy).

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