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Sanofi Misses on Q1 Earnings, Lackluster Revs

Zacks Equity Research

Sanofi (SNY) reported first quarter 2014 business earnings of 80 cents per American Depositary Share (ADS), below the Zacks Consensus Estimate of 84 cents. Earnings were up 5.8% at constant exchange rates (:CER) from the year-ago period.

First quarter net sales decreased 2.7% on a reported basis but increased 3.5% 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.

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 4.7% to €6.7 billion, reflecting robust performance in Diabetes, Genzyme and Consumer Health Care sub-groups.

The Diabetes franchise (up 13.2% to €1.7 billion) continued to perform well with growth driven by Lantus (up 13.5% to €1.4 billion). Apidra sales went up 19.7% to €75 million in the first quarter of 2014. Newly launched in Italy, Spain, Japan and Mexico, Lyxumia generated sales of €5 million in the first 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 21.5% to €566 million. Cerezyme sales increased 5.8% to €168 million while Myozyme sales increased 7.8% to €121 million. Both the products benefited from strong growth in Emerging Markets.

Fabrazyme sales were €98 million, up 13.0%, benefiting from gain in market share and new patient accruals.

Newly launched Aubagio generated sales of €78 million in the first quarter of 2014 as compared to €69 million in the preceding quarter. Lemtrada generated revenues of €5 million. Sanofi expects to further roll out the product in the EU in 2014.

Zaltrap, another newly launched product, generated sales of €16 million in the first quarter of 2014 as compared to €15 million in the fourth quarter of 2013. Sanofi has developed Zaltrap in collaboration with Regeneron Pharmaceuticals, Inc. (REGN).

Generic competition for Eloxatin (down 15.3%), Aprovel/Avapro (down 22.8%) and Taxotere (down 28.7%) continued to affect revenues.

Sales in the Consumer Health Care business increased 18.6% to €885 million driven by Lactacyd and Maalox and inclusion of Nasacort Allergy 24HR revenues. The Generics sub-group at Sanofi exhibited improved performance in the first quarter of 2014 with sales rising 8% to €421 million reflecting recovery in Brazil.

First quarter 2014 Human Vaccines revenues were €628 million, down 4.2%, reflecting unfavorable timing of Pentaxim in emerging markets. Sales of the Animal Health segment decreased 1.6% to €517 million in the first quarter of 2014.

At the end of Apr 2014, Sanofi’s pipeline consisted of 50 new molecular entities and vaccines in clinical development, of which 12 were either undergoing phase III studies or were under regulatory review.  

Outlook Maintained

The company expects 2014 business earnings per share to increase in the range of 4%–7% at CER. The company expects the negative impact of foreign exchange translation on earnings to be around 6% (€0.30 per share). The company expects its cost to sales ratio to improve in 2014.

Our Take

Sanofi’s first quarter results were below expectations with the company missing the Zacks Consensus Estimate.

We are pleased with Sanofi’s acquisition/deals with Regeneron, Alnylam (ALNY), UCB (UCBJF) and SK Chemical. We expect to see more activity on the deal/acquisition front in 2014. Increase in Regeneron stake is expected to boost Sanofi’s net income by €45 million in 2014.

Although Sanofi has some promising pipeline candidates (Toujeo, the Dengue vaccine, Cerdelga and alirocumab), we are disappointed with the string of pipeline setbacks at the company in the recent past.

Sanofi carries a Zacks Rank #3 (Hold). Regeneron is a better-ranked stock carrying a Zacks Rank #1 (Strong Buy).

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