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Sanofi (SNY) Q2 Earnings Top Estimates, Sales Lag, EPS View Up

Zacks Equity Research

Sanofi SNY reported second-quarter 2020 earnings of 70 cents per American depositary share, which beat the Zacks Consensus Estimate of 69 cents. Earnings increased 3.2% on a reported basis and 4.8% on constant currency rates (“CER”) basis driven by lower costs.

Second-quarter net sales of this France-based pharma giant declined 4.9% on a reported basis to $9 billion (€8.21 billion). At CER, sales decreased 3.4% year over year. Sales missed the Zacks Consensus Estimate of $9.94 billion.

Sales remained flat at CER in the United States, while it declined 10.8% in Europe and 1.4% in the Rest of the World (includes China, Japan, Brazil and Russia).

All growth rates mentioned below are on a year-on-year basis and at CER.

Segmental Performance

Beginning 2020, Sanofi restructured the company‘s operations under three GBUs —Specialty Care (immunology, rare diseases, rare blood disorders, neurology and oncology), Vaccines, and General Medicines (diabetes, cardiovascular, and established products). The company’s Consumer Healthcare ("CHC") is a standalone business unit.

Pharmaceuticals sales declined 2% in the quarter to €6.26 billion driven by Dupixent, which was more than offset by lower sales in General Medicines affected by COVID-19 related destocking.

Sanofi Specialty Care GBU sales increased 17.4% to €2.71 billion, mainly driven by blockbuster immunology drug, Dupixent, and oncology and rare blood disorder drugs.

Dupixent generated sales of €858 million in the quarter, up 70%. Sales of the drug in the United States were €697 million, up 69.5%, driven by continued growth in atopic dermatitis in adults and adolescent patients and the recent launch for children in May 2020. Sales in Europe were €84 million, up 84.8%.

In the immunology, multiple sclerosis and neurology franchise, Kevzara recorded sales of €62 million in the quarter, up 17.3%. Please note that Sanofi markets Dupixent and Kevzara in partnership with Regeneron REGN.

In multiple sclerosis, Aubagio sales increased 12% to €527 million driven by increased demand and stocking at patient level while sales of Lemtrada fell 74.3% to €19 million due to competitive pressure.

Sales of rare disease drugs decreased 0.5% to €738 million due to COVID-19 pandemic. Myozyme sales declined 2.6% to €226 million. Fabrazyme sales were €199 million, down 5.7%. Cerezyme sales rose 2.1% to €179 million.

Oncology sales increased 18.2% to €189 million. Key cancer drug Jevtana’s sales were up 4.8% to €133 million, benefiting from increased demand in metastatic castration-resistant prostate cancer.

Rare blood disorders franchise recorded sales of €314 million, up 6.2% year over year. Sales of key drug in the franchise, Eloctate declined 2.9% to €169 million in the quarter due to the ongoing competitive pressure in the United States, partially offset by strong demand in Rest of the World market. Alprolix sales were €117 million, up 9.5%.

Sales in General Medicines GBU declined 12.7% to €3.55 billion hurt by lower sales in Diabetes and Established Products.

The Diabetes franchise declined 5.7% to €1.2 billion due to lower sales of key drug Lantus in the United States, partially offset by higher sales of Toujeo.

Sales of diabetes drugs in the United States declined 17.4% to €391 million due to pricing pressure. In Europe, sales fell 5.7% while in rest of the world, it rose 4.7%.

Lantus sales decreased 7% to €693 million in the quarter. Lantus sales declined 15.8% in the United States due to lower average net prices. In Europe, sales decreased 12.6% due to biosimilar competition and patient switching to Toujeo. In rest of the world, Lantus sales rose 3.4% driven by strong performance in China. Toujeo generated sales of €239 million in the reported quarter, up 10%.

Sales of Cardiovascular and Established Rx Products came in at €2.36 billion, down 15.9% mainly due to lower sales of Plavix and Aprovel in China and impact from the COVID-19 pandemic.

Meanwhile, lower sales of Lovenox in Europe and Plavix in China, and generic competition for Renvela/Renagel in the United Sales also hurt segment sales.

Praluent garnered worldwide sales of €73 million in the reported quarter, up 9.1% driven by higher sales in the United States and rest of the world.

Vaccines GBU sales declined 6.8% to €927 million as growth in influenza vaccines in Rest of the World market was more than offset by lower sales of travel vaccines due to COVID-19-related travel restrictions. Sales of vaccines declined 40.9% and 22.4% in the U.S. market and Europe, respectively, in the quarter while sales rose 20.4% in rest of the world.

Consumer Healthcare stand-alone unit generated sales were €1.02 billion, down 8% due to COVID-19 related lower pharmacy visits and pantry unloading. Moreover, Sanofi’s voluntary recall of its over-the-counter acid reflux medicine Zantac, which is sold by the generic name of ranitidine by many other companies, in November also hurt CHC sales.

Meanwhile, non-core divestments and increased regulatory requirements, which resulted in product suspensions, also hurt the performance of the CHC segment.

Costs Decline

Selling, general and administrative expenses declined 7.1% at CER in the quarter, reflecting cost-control measures as well as lower expenses due to COVID-19 pandemic. Research and development expenses declined 15.1% at CER due to decline in diabetes research expenses.

2020 Guidance Up

Despite expectations for more onerous currency headwinds, Sanofi increased its previously issued earnings growth guidance for 2020. It expects earnings to grow between 6% and 7% at CER in 2020, compared with its previous guidance of growth of approximately 5%. It anticipates a negative currency impact in the range of 3%-4% on earnings in 2020 versus prior expectation of negative currency impact of 1%-2%.

Coronavirus Vaccine Research Efforts

Sanofi and Glaxo GSK have collaborated to combine their innovative technologies to develop an adjuvanted COVID-19 vaccine. Sanofi has a collaboration with the Biomedical Advanced Research and Development Authority to fund the development of its recombinant-based COVID-19 vaccine candidate. Meanwhile, the company has also collaborated with Translate Bio TBIO to develop an mRNA-based coronavirus vaccine.

Our Take

Sanofi’s results were mixed as it beat estimates for earnings while missing the same for sales. The company raised its earnings guidance for 2020, which pushed its shares up almost 1.5% in pre-market trading. Although earnings seem to improve due to cost-saving initiative, revenue growth remains uncertain for the year.

Sanofi stock has gained 4.9% this year so far compared with an increase of 1% for the industry.

Zacks Rank

Sanofi currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sanofi Price, Consensus and EPS Surprise

Sanofi Price, Consensus and EPS Surprise
Sanofi Price, Consensus and EPS Surprise

Sanofi price-consensus-eps-surprise-chart | Sanofi Quote

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