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New Sanofi CEO Looks to Shake Things Up

Sanofi SA's (NASDAQ:SNY) newly minted CEO is looking under the hood to figure out what's needed to get the company in gear. Shareholders are hoping he's successful. The French pharmaceutical giant has been stuck in neutral for a while, with its shares off a few dollars from where they were two years ago. In defense of Sanofi's performance, the stock has outperformed the SPDR S&P Pharmaceuticals Exchange-Traded Fund (XPH)


Paul Hudson, 51, who came to Sanofi from Novartis early last month, has been on what he calls a "listening tour," site to site, country to country, according to an Oct. 1 article in FiercePharma. His goal is to develop a strategy that he can share with investors at a special event. He's under the gun because the meeting is only two months away.

Sanofi's research and development programs will be put under the microscope and some may be jettisoned. Those that continue to be supported will be based on science that can "change the practice of medicine," said Hudson, with new treatments that are "first-in-class and preferably best in class."

One drug that may meet those criteria is isatuximab, which is aimed at treating relapsed and refractory multiple myeloma. Hudson thinks the cancer drug may prove to be unique and revolutionize the treatment of the disease.

There's a possibility that one of the casualties of Hudson's review will be its diabetes program. Sanofi is going to pay Lexicon Pharmaceuticals (NASDAQ:LXRX) $260 to get out of an agreement after the diabetes drug Zynquista failed to meet expectations. The stumble was an expensive mistake. Sanofi paid $300 million upfront and committed to up to $1.4 billion in milestones to obtain a worldwide license for Zynquista in 2015.

Sanofi may concede that its other diabetes drugs just can't compete with those of Eli Lilly (NYSE:LLY), Novo Nordisk (NYSE:NVO) and AstraZeneca (NYSE:AZN). According to an article in EvaluatePharma, sales of Eli Lilly's diabetes drug Trulicity are expected to more than double by 2024 to more than $7 billion. Novo Nordisk's Ozempic is expected to generate revenue of more than $5.25 billion by 2024, up from less than a quarter of a billion in 2018. Meanwhile, sales of the Sanofi drug Trulicity are forecast to drop 50% to about $2.25 billion five years from now.

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Sanofi does have a promising diabetes drug called efpeglenatide in clinical trials, but it's unlikely to challenge Trulicity. It may prove more useful as an obesity treatment, but there's a question whether Hudson wants to spend millions on a medication that is likely to fall well short of being a blockbuster.

So should investors show their faith in Hudson by getting into the stock or adding to their positions? Support among money managers is diminishing somewhat. At the end of the second quarter, 25 of the hedge funds tracked by Insider Monkey were long this stock, down 4% from the first quarter of the year, according to a Yahoo Finance article. On the other hand, there were a total of 23 hedge funds with a bullish position in Sanofi a year ago.

Analysts are bullish. CNN Money reported that 22 investment professionals set a 52-week median price of $50.15 for Sanofi, with a high estimate of $55.42 and a low estimate of $43.80. The stock currently trades at just under $45. The consensus among 24 investment analysts is buy.

Bernstein recently started coverage of Sanofi with an outperform rating, according to a Barron's article, confident the company should do well over the next few years.

"We see no single driver for success, but the ocean is made of many tiny drops of water," analyst Wimal Kapadia wrote in a 135-page report. "For Sanofi, it will be all the small things that matter."

Disclosure: The author holds a position in Eli Lillly.

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This article first appeared on GuruFocus.