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Sanofi (SNY) Q3 Earnings In Line, Sales Lag, Diabetes Weak

Sanofi SNY reported third-quarter 2017 earnings of $1.00 per American depositary share, which were in line with the Zacks Consensus Estimate. Earnings declined 4.5% on a reported basis. However at constant currency rates (CER), earnings rose 1.1%.

Third-quarter net sales rose 0.3% on a reported basis and 4.7% at CER to almost $10.59 billion (€8.05 billion). Sales, however, missed the Zacks Consensus Estimate of $10.93 billion. Unfavorable exchange rate movements hurt sales by 4.4%.

In January 2017, the French drug maker swapped its Merial Animal Health businesses with Boehringer Ingelheim’s Consumer Healthcare (CHC) business. Reflecting this exchange and full consolidation of Sanofi’s European vaccines operations, sales declined 0.2% at constant structure (CS) and CER.

Sales declined 2.4% at CER in the United States. However, sales rose 11.4% in Emerging Markets, 8.2% in Europe and 9.1% in the Rest of the World (Japan, South Korea, Canada, Australia, New Zealand, Puerto Rico).

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

Segmental Performance

Pharmaceuticals sales (including emerging markets) increased 3.2% to €7.14 billion. However, at CS and CER, Pharmaceuticals sales declined 1.2% as double-digit growth of multiple sclerosis drugs and vaccines franchises and robust growth in emerging markets was offset by a decline in diabetes, established products and generics sales.

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 emerging markets) increased 12.5% to €1.63 billion, driven by strong U.S. launch of Dupixent and higher sales of multiple sclerosis (MS) drugs.

Sales of MS drugs Aubagio rose 19.2% to €382 million while sales of Lemtrada went up 5.4% to €113 million. However, sales of both these drugs declined sequentially in the quarter.

Meanwhile, sales of rare disease drugs like Myozyme/Lumizyme improved 5.9% to €191 million while Fabrazyme sales were €175 million, up 4.5%. Cerdelga sales came in at €31 million, up 14.3% while Cerezyme sales rose 1.6% to €178 million.

Oncology sales rose 5% to €363 million driven mainly by higher sales of Jevtana and Thymoglobulin. Jevtana sales were up 6.8% to €90 million while Thymoglobulin recorded sales of €71, up 5.7%. Taxotere sales rose 2.2% to €42 million. Eloxatine sales were up 11.6% to €45 million.

Sanofi and Regeneron Pharmaceuticals, Inc.’s REGN rheumatoid arthritis (RA) drug Kevzara (sarilumab) was launched in the United States in June and in Netherlands and Germany in Europe in the third quarter.  Kevzara recorded sales of €2 million in the third quarter compared with €1 million in the previous quarter.

Meanwhile, Dupixent/dupilumab for treating atopic dermatitis was launched in the United States in March. Dupixent generated sales of €75 million in the third quarter compared with €26 million in the previous quarter. Management is pleased with the drug’s uptake and said that in the United States, the drug has been prescribed by over 7,100 physicians. Meanwhile, Dupixent was approved in the EU in September and is expected to be launched in Germany by the end of this year. Kevzara and Dupixent generated total immunology sales of €77 million in the third quarter.

Diabetes and Cardiovascular GBU (including emerging markets) declined 9.1% to €1.68 billion. The Diabetes franchise (including emerging markets) declined 10% to €1.55 billion due to lower sales of key drug Lantus.

Sales of diabetes drugs in the United States declined 22.4% to €725 million due to a tough U.S. payer environment. Sales of diabetes drugs in Emerging Markets were up 17.3% while in Europe it declined 3.1%.

Lantus sales declined 15.5% to €1.12 billion in the quarter. Lantus sales declined 25.4% in the United States due to lower average net price and exclusion from the CVS and United Health formulary plans while Europe sales declined 14% due to biosimilar competition and patient switching to Toujeo.

Toujeo generated sales of €198 million in the reported quarter, which, though up 23.4% on a year-over-year basis, declined 5.7% sequentially.

Soliqua, a once-daily titratable fixed-ratio combination of Lantus and Lyxumia, was launched in the United States in January and in Netherlands (trade name – Suliqua) recently. Soliqua/Suliqua generated sales of €8 million in the quarter compared with €5 million in the previous quarter.

Management warned that U.S. diabetes franchise sales will decline at an accelerated rate in the fourth quarter due to CVS/United Health formulary exclusion plans and difficult comparisons with the last year. Considering recent market trends, Sanofi now expects its global Diabetes sales to decline in the range of 6–8% CAGR over the 2015–2018 timeframe. Previously, Sanofi had guided sales decline in the range of 4% to 8%.

In the cardiovascular franchise, Sanofi’s anti PCSK9 therapy, Praluent garnered worldwide sales of €42 million in the reported quarter, flat sequentially. Incidentally, Amgen AMGN, which reported last week, also did not report a very significant sequential improvement in sales of its PCSK9 inhibitor, Repatha. Uptake of these drugs has not been very encouraging so far due to pricing and re-imbursement issues/payer restrictions.

General Medicines & Emerging Markets GBU sales came in at €3.31 billion, down 2.7%. Sales of Established products were €2.26 billion, down 6.5% as strong performance in emerging markets was offset by lower sales in Europe and generic competition for Plavix in Japan and Renvela/Renagel in the United States.

Sales of Generics declined 0.9% to €433 million due to lower sales in Europe. Consumer Healthcare GBU sales were €1.13 billion, up 48.5%. However, sales were up only 1% excluding acquisition of Boehringer Ingelheim’s Consumer Healthcare business due to increased competition in developed markets.

Third-quarter consolidated Sanofi Pasteur (Vaccines) sales increased 11% to €1.92 billion due to the strong performance of pediatric combinations and booster vaccine, Menactra. Vaccines sales reflect the termination of the Sanofi Pasteur MSD joint-venture with Merck MRK in Europe from December 2016.

Costs Rise

Selling general and administrative expenses (SG&A) increased 5.9% at CER in the quarter, reflecting launch costs of Dupixent and Kevzara. R&D expenses were up 12.9% at CER, reflecting higher pipeline development costs in oncology (isatixumab, PD-1) and sotagliflozin.

2017 Outlook

Sanofi maintained its previously issued financial outlook.

Sanofi expects 2017 business earnings to be broadly flat at CER. It anticipates a negative currency impact in the range of 1%-2% on business earnings in 2017. This compares unfavorably with the prior expectations of a positive currency impact of 1%.

Our Take

Sanofi’s third-quarter 2017 results mixed as it reported in-line earnings and missed sales expectations. Strong performances of multiple sclerosis and vaccines franchises, successful launch of Dupixent and robust emerging market sales could not make up for the weak performance in the diabetes and cardiovascular unit. Shares of Sanofi  were down slightly more than 1% in pre-market trading.

So far this year, Sanofi’s share price has risen 14.9%, slightly worse than a 15.1% increase for the industry.

However, despite greater-than-previously expected headwinds from currency, the company maintained its earnings forecast, which was encouraging.

We are encouraged by the strong performance of MS drugs like Aubagio and Lemtrada. We are also optimistic on sales prospects of Dupixent, which could prove to be an important growth driver for the company.

However, headwinds include a bleak outlook for the Diabetes franchise, generic competition for many drugs and slower-than-expected uptake of new products like Praluent.

Sanofi Price, Consensus and EPS Surprise


Sanofi Price, Consensus and EPS Surprise | Sanofi Quote

Sanofi currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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