3 Key Takeaways From Sanofi's Fourth-Quarter Earnings

Let’s discuss 3 key takeaways from Sanofi’s fourth-quarter earnings, and how competitors like Shire and Eli Lilly, and partners like Regeneron, could affect its growth in 2014.

Feb 9, 2014 at 10:00AM

French pharmaceutical giant Sanofi (NYSE:SNY) reported mixed fourth-quarter earnings on February 6, showing earnings growth as revenue declined.

Sanofi's adjusted earnings rose 17.1% year over year to €1.37 ($1.86) per share, but revenue fell 0.8% to €8.46 billion ($11.49 billion). For the full year, adjusted earnings fell 17.8% to €5.05 ($6.86) per share as revenue slid 5.7% to €32.95 billion ($44.77 billion).

Sanofi attributed its solid fourth-quarter bottom-line growth to strong sales of its long-lasting insulin Lantus, rising sales of its rare-disease treatments at its Genzyme unit, and a steady recovery in Brazil and China. However, weak performance from its vaccines and animal health units, exacerbated by unfavorable currency fluctuations, offset those gains.

SNY Chart

Source: YCharts.

Sanofi has passed its dreaded "patent cliff" period (2011-2013), during which the company lost patent exclusivity of its top-selling drugs Plavix, Avapro/Aprovel, Lovenox, and Eloxatin, but some major challenges clearly remain.

Let's review three key things to know about Sanofi, and how rivals like Shire (NASDAQ:SHPG) and Eli Lilly (NYSE: LLY), and partners like Regeneron (NASDAQ:REGN) could affect its growth in the coming year.

1. The future of Genzyme
Sanofi acquired Genzyme for a whopping $20.1 billion in 2011. For the full year, sales at Genzyme rose 25.9% year over year to €2.14 billion ($2.91 billion), making it the company's fastest-growing business segment.

The majority of Genzyme's revenue comes from four main rare-disease treatments and two multiple sclerosis treatments:

Drug

Indication

Percentage of Genzyme Revenue

2013 Year-Over-Year Growth

Cerezyme

Gaucher's disease

32.1%

13.9%

Myozyme/Lumizyme

Pompe disease

23.3%

11.9%

Fabrazyme

Fabry's disease

17.8%

39%

Aldurazyme

MPS I

7.4%

11.3%

Aubagio

multiple sclerosis (oral)

7.7%

N/A

Lemtrada

multiple sclerosis (infused)

0.1%

N/A

Source: Sanofi 4Q earnings report.

Of these treatments, Cerezyme, a treatment for Gaucher's disease, is clearly the most important to Genzyme's growth.

Gaucher disease is rare genetic disease that affects 1 in 50,000 to 100,000 people. The disease is caused by a lack of a certain enzyme that causes the accumulation of fatty acids in cells and organs.

Sales of Cerezyme rose 13.9% year over year to €688 million ($935 million) in 2013, but the problem is that sales appear to have peaked in 2008 at $1.2 billion. One notable challenger is Shire's Vpriv, which generated sales of $87.8 million in the third quarter -- a 17% jump from the prior-year quarter. While it's unlikely that Vpriv will ever overtake Cerezyme, it could steadily chip away at Sanofi's share of the Gaucher disease market.

Genzyme oral MS treatment Aubagio and the infused MS treatment Lemtrada are also having considerable trouble getting off the ground. Expectations for Aubagio are already low, with peak sales estimates around $620 million, since it has a less attractive side effect profile than Novartis' (NYSE: NVS) Gilenya and Biogen's (NASDAQ: BIIB) Tecfidera. As a result, peak sales estimates for Gilenya and Tecfidera are much higher, at $2.1 billion and $3.3 billion, respectively.

Meanwhile, Lemtrada was rejected by the FDA in December due to concerns about the structure of its clinical trials, although it has already been approved in 30 other countries.

2. The future of Lantus
Sales of Sanofi's blockbuster long-acting insulin Lantus rose 20% year over year to €5.72 billion ($7.77 billion), and accounted for 17.3% of the company's top line.

The main problem, however, is that Lantus' U.S. patent will expire in February 2015. In December, Eli Lilly and Boehringer Ingelheim submitted a new drug approval (NDA) for LY2963016, their biosimilar version of Lantus, to the FDA.

Sanofi's response was desperate but tactical -- it sued Lilly for alleged patent infringements on January 31, triggering an automatic 30-month stay of approval by the FDA. In my opinion, Sanofi knows that it can't really win the lawsuit, but the delay could keep Lilly's biosimilar Lantus off the market until mid-2016. However, if Lilly wins the case before then, the 30-month delay will be cancelled.

This isn't the first time Lantus has been threatened by a potential competitor. Novo Nordisk's (NYSE: NVO) competing long-acting insulin, Tresiba, nearly broke into the U.S. market but was rejected by the FDA in February 2013.

3. Don't forget about Sanofi's investment in Regeneron
Many investors focus on Sanofi's growth in treatments for rare diseases and diabetes, but they often overlook Sanofi's 16% stake in Regeneron, which has rallied more than 60% over the past 12 months on robust sales of its eye treatment Eylea.

Sanofi and Regeneron are working together to develop a pipeline of fully human monoclonal antibodies for a wide variety of treatments. Two of the most promising treatments from their collaborative efforts are sarilumab and alirocumab.

Sarilumab is currently in phase 3 trials for rheumatoid arthritis. If approved, it could compete against blockbuster biologic treatments such as Johnson & Johnson (NYSE: JNJ) and Merck's (NYSE: MRK) Remicade, AbbVie's (NYSE: ABBV) Humira, and Amgen's (NASDAQ: AMGN) Enbrel. If approved, sarilumab is expected to hit peak sales of $3.1 billion.

Alirocumab is a new cholesterol treatment, which inhibits the production of an enzyme known as PCSK9, which is known to degrade the LDL ("bad" cholesterol) receptors on the liver that are responsible for maintaining LDL levels. Statins, which are widely used to treat high cholesterol, target a liver enzyme known as HMG-CoA to inhibit LDL production, but inadvertently raise PCSK9 levels instead. If alirocumab, which is in phase 3 trials, is approved, analysts expect it to hit peak sales of more than $3 billion.

Considering the blockbuster potential of these collaborations, Sanofi could raise its stake in Regeneron to 30%, which has prompted speculation that it might eventually buy the whole company outright (which Sanofi has repeatedly denied), as Roche (NASDAQOTH: RHHBY) did with Genentech back in 2009. Considering the blockbuster status of Eylea and its extremely promising collaborative pipeline, it might not be a bad idea.

The Foolish takeaway
In conclusion, Sanofi faces challenges ahead, but also has several longer-term catalysts that could eventually balance out its top-line growth.

Genzyme might be growing fast, but it still only accounts for 6.5% of Sanofi's top line. It will likely need to add a few more rare-disease or MS treatments to its portfolio to become truly significant to the company's revenue growth.

Investors should pay attention to the status of Lilly and Boehringer's biosimilar version of Lantus, which could sink Sanofi if it hits the market earlier than expected. Last but not least, I expect Sanofi to eventually increase its stake in Regeneron to 30% or more to tap into the blockbuster potential of sarilumab and alirocumab.

These two biotech stocks could be potential blockbusters, too...
The best way to play the biotech space is to find companies that shun the status quo and instead discover revolutionary, groundbreaking technologies. In The Motley Fool's brand-new FREE report "2 Game-Changing Biotechs Revolutionizing the Way We Treat Cancer," find out about a new technology that big pharma is endorsing through partnerships, and the two companies that are set to profit from this emerging drug class. Click here to get your copy today.

 

Leo Sun has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers