Earnings season can be a great time to review one's investments. This is when corporations often take the opportunity to announce business developments which could change their prospects -- and that's exactly what Sanofi (SNY -0.47%) recently did. The France-based pharmaceutical giant shared some important news to investors along with its most recent quarterly update, but the market wasn't very receptive.
Sanofi's stock dropped by more than 15% on the heels of its earnings release although it has since recovered some of these losses. Should investors consider investing in Sanofi while its shares are still down?
Sanofi plans to shake up its business
Sanofi did not perform particularly well in the third quarter. The company's net sales of almost 12 billion euros ($12.7 billion) declined by 4.1% year over year although they grew 3.2% in constant currency terms. The biotech's earnings per share dropped by 11.5% year over year to 2.55 euros ($2.70).
However, investors were more focused on Sanofi's announced business separation. The company said it would spin off its consumer health business into a publicly traded stand-alone entity headquartered in France. Sanofi plans to complete the separation, at the earliest, in the fourth quarter of 2024. Several pharmaceutical giants have done something similar in recent years, including Johnson & Johnson, Pfizer, and Novartis.
This news alone wouldn't send Sanofi's shares tumbling. What did was the company's announcement that as a result of increased investment in its pipeline, it will no longer target a 32% business operating income margin in 2025 but rather will focus on long-term profitability. That, combined with Sanofi's unimpressive financial results, is what did the trick.
Why Sanofi's prospects still look good
But did the market overreact? Sanofi's third quarter wasn't all bad. Several of the company's products showed meaningful progress, starting with eczema treatment Dupixent, the rights of which it shares with Regeneron. In the third quarter, Dupixent's sales soared by 32.8% year over year (in constant currency) to 2.8 billion euros ($3 billion). Dupixent is up for some key label expansions -- including in treating COPD -- that could meaningfully move the needle.
Elsewhere, Sanofi's newer products, Beyfortus and Altuviiio, are starting to contribute. Beyfortus, a newly approved vaccine for the respiratory syncytial virus, delivered sales of 137 million euros ($144.8 million). Hemophilia treatment Altuviiio reported revenue of 46 million euros ($48.7 million). For a company the size of Sanofi, that may not seem like a lot -- and it isn't. Here is the crucial part, though: Sanofi's top line isn't growing fast because older products are losing steam.
For instance, multiple sclerosis drug Aubagio is facing generic competition, leading to lower sales. However, as Sanofi's Dupixent continues to excel, its newer products ramp up, and the effects of the older ones fade, the company's sales will start growing at a good clip again. Further, the biotech's pipeline should produce more gems. For instance, Sanofi expects five brand-new vaccine programs to enter phase 3 studies by 2025.
The biotech's planned business separation could help, too. Sanofi's proven innovative capabilities could get even stronger with a narrower focus on investing more in its pipeline. Lastly, Sanofi plans to institute a 2.7 billion euro ($2.9 billion) cost-cutting program; it will reinvest this money into its key growth areas.
While sales growth might not pick up that much in the next year, the company's deep pipeline, cost-cutting efforts, and laser focus on areas with stronger growth potential should pay off down the line for investors, at least those willing to be patient. That's why investors should take this opportunity to pick up the company's shares while they are down.
