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Sanofi (SNY) Q4 Earnings Top, Genzyme Unit Drives Sales Growth

Zacks Equity Research

Sanofi SNY reported fourth-quarter 2018 earnings of 63 cents per American depositary share, which beat the Zacks Consensus Estimate of 61 cents. Earnings increased 3.8% on a reported basis. At constant currency rates (CER), earnings grew 4.7%, driven by strong top-line growth and a reduced share count.

Fourth-quarter net sales of the French pharma giant rose 3.5% on a reported basis to almost $10.26 billion (€8.99 billion). Unfavorable exchange rate movements hampered sales by 0.4%. At CER, sales increased 3.9% year over year. Sales missed the Zacks Consensus Estimate of $10.32 billion.       

In March 2018, Sanofi completed its acquisition of Bioverativ, and in September it closed the agreement to sell its European generics business, Zentiva, to Advent International. Adjusting for the Bioverativ acquisition and the Zentiva divestiture, sales rose 2.6% at constant structure (CS) and CER basis.

Improved Vaccine sales, double-digit growth in Specialty Care unit and higher sales in Emerging Markets and the Consumer Healthcare segment offset persistent sluggishness in diabetes franchise and the loss of U.S. exclusivity of Lantus and Renagel to drive top-line growth.

Sales increased 8.7% at CER in the United States. At CER, sales rose 6% in the Emerging Markets and 6.7% in the Rest of the World (Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico). However, sales declined 4.8% in Europe at CER.

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

Segmental Performance

Pharmaceuticals sales (including the emerging markets) rose 3% to €6.3 billion driven by growth in Rare Blood Disorder and Immunology franchises, partially offset by lower Diabetes and Established Rx products sales and the Zentiva divesture.

Sanofi reports through five Global Business Units (GBUs) — Sanofi Genzyme (Specialty Care), Diabetes & Cardiovascular, General Medicines & Emerging Markets, Consumer Healthcare and Sanofi Pasteur (Vaccines).

Sanofi Genzyme/Specialty Care GBU sales (including the emerging markets) surged 35.2% to €2.33 billion, led by Immunology and Rare Blood Disorder franchises. Sales rose 16.1% on a CS basis.

Sales of rare disease drugs increased 10.9% to €794 million driven by Gaucher, Pompe and Fabry therapies. Important drugs like Myozyme/Lumizyme rose 10.7% to €226 million, Fabrazyme sales were €206 million, up 14.4%. Cerezyme sales rose 9.3% to €190 million.

Oncology sales increased 8.1% to €387 million. Excluding Leukine, which was sold in January 2018, oncology sales grew 10.2%. Key cancer drug Jevtana’s sales were up 14.1% to €114 million.

In the oncology franchise, Sanofi and partner Regeneron Pharmaceuticals, Inc. REGN, gained FDA approval for Libtayo for metastatic cutaneous squamous cell carcinoma (CSCC), a type of skin cancer in September. Libtayo sales were $15 million in the United States and were consolidated by Regeneron.

In the immunology franchise, new atopic dermatitis drug Dupixent generated sales of €280 million in the quarter, up 24% on a sequential basis. Total prescriptions written for Dupixent in the United States grew 25% sequentially driven by a new marketing campaign and the recent U.S. launch in asthma. In October, Dupixent was approved by the FDA as an add-on maintenance treatment of moderate-to-severe asthma in patients with an eosinophilic phenotype or with oral corticosteroid dependent asthma. Sales of the drug in the United States were €225 million while the same in Europe were €29 million.

New rheumatoid arthritis drug, Kevzara recorded sales of €31 million in the quarter compared with €22 million in the previous quarter, mirroring improved commercial coverage in the United States.

Sales of MS drugs rose 6.6% to €542 million. Aubagio sales increased 12.6% to €446 million while sales of Lemtrada fell 14.3% to €96 million.

Rare blood disorders franchise, added to Sanofi’s portfolio with the acquisition of Bioverativ in March 2018, fetched sales of €294 million, up 5.7% on a pro-forma basis. Along with the earnings release, Sanofi announced that the FDA has approved Cablivi (caplacizumab) for the treatment of a rare blood disorder called acquired thrombotic thrombocytopenic purpura. Cablivi, approved by the European Commission in September, was launched in its first market, Germany in October. Sales of Cablivi in the fourth quarter were €3 million.

Diabetes and Cardiovascular GBU (including the emerging markets) declined 7.1% to €1.55 billion. The Diabetes franchise (including the emerging markets) declined 10.5% to €1.38 billion due to lower sales of key drugs — Lantus and Toujeo — in the United States.

Sales of diabetes drugs in the United States dropped 26.3% to €555 million due to pricing pressure and loss of Part D business. In Europe, it dipped 0.6%. However, sales of diabetes drugs in the Emerging Markets were up 7.7%.

Lantus sales declined 19.7% to €866 million in the fourth quarter. Lantus sales plunged 37% in the United States due to lower average net price and change in coverage with respect to Sanofi’s Part D business. In Europe, sales decreased 8.2% due to biosimilar competition and patient switching to Toujeo. In Emerging Markets, Lantus sales grew 7.7%.

Toujeo generated sales of €211 million in the reported quarter, down 2.3%. Sales were down 29.1% in the United States while it rose in Europe and Emerging Markets.

Admelog, a rapid-acting insulin, similar to Lilly’s LLY Humalog, which was launched in the United Sales in April, achieved sales worth €57, which more than doubled from €26 million in the third quarter.

In the cardiovascular franchise, Sanofi’s anti PCSK9 therapy, Praluent, garnered worldwide sales of €82 million in the reported quarter, up 50.9%. Sales of the other drug, Multaq, in this franchise were up 20.8% to €95 million.

General Medicines & Emerging Markets GBU sales came in at €3.05 billion, down 6.6%. Sales of Established products were €2.13 billion, down 6.8% due to generic competition for Renvela/Renagel in the United States and lower sales of Lovenox in Europe and Plavix in Japan.

Sales of Generics declined 33.8% to €278 million with sales declining sharply in Europe due to the Zentiva divestment while sales rose in United States and Emerging Markets.

Consumer Healthcare GBU sales were €1.19 billion, up 1.9% driven by higher sales in Emerging Markets and the United States, which offset lower sales in Europe.

Fourth-quarter consolidated Sanofi Pasteur (Vaccines) sales were up 9.7% to €1.53 billion driven by successful influenza differentiation strategy and Menactra. The improvement seen in the third quarter continued into the fourth, improving from a weaker first-half performance.

Costs Rise

Selling, general and administrative expenses (SG&A) inched up 1.1% at CER in the quarter, reflecting investments in product launches. R&D expenses were up 13.5% at CER due to increased spending on late-stage pipeline. Costs incurred for the consolidation of Bioverativ and Ablynx acquisitions also induced higher operating costs in the reported quarter.

2019 Outlook

Sanofi expects business earnings to grow between 3% and 5% at CER in 2019. It anticipates a positive currency impact in the range of 1%-2% on business earnings in 2019.

Our Take

Sanofi’s fourth-quarter 2018 results were mixed as it beat estimates for earnings and missed the same for sales. In 2018, Sanofi’s business earnings grew 5%, at the higher end of its guided range of 4%-5%. Growth was driven by contribution from the Bioverativ and Ablynx deals, higher vaccine sales and lower impact of patent expirations. The company’s Specialty Care segment particularly is on a strong footing with the recent FDA approvals of new drugs Libtayo and Cablivi, and Dupixent for its second indication in asthma.

Sanofi’s shares have slightly outperformed the industry in the past year. It has risen 9.9% in the said time frame compared with a 9.3% increase for the industry.



Zacks Rank & Stock to Consider

Sanofi currently carries 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 Quote


A better-ranked drug stock is Novo Nordisk A/S NVO, which carries a Zacks Rank #2 (Buy).

Novo Nordisk’s shares have risen 8.9% in the past three months. Its earnings estimates have risen 0.8% for 2019 and by 1.4% for 2020 over the past seven days.

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