Le Generic Excuse for Sanofi

On Tuesday, my favorite French pharmaceutical company, Sanofi-Aventis (NYSE: SNY  ) , reported its third-quarter results. As with many of the other large-cap drug makers, its results were nothing to get excited about.

For the quarter, revenues were down 1.1% year over year to $8.6 billion (using a 1.25 dollar-to-euro exchange rate). As did Bristol-Myers, Sanofi blamed its revenue shortfall on generics. Sanofi faced Apotex's temporary introduction of generic Plavix onto the market in the U.S. and faced generic competition for three other key drugs, as well as pricing issues in Germany (I guess Germans aren't in favor of medical innovation).

The unexpected competition for Plavix, which treats blood clots, is a valid reason for some of the lack of revenue growth with Sanofi. But none of the company's familiar top drugs -- besides the heavily marketed sleep drug Ambien CR -- were exactly boosting sales growth, either.

Sales (in millions)

Year-over-year growth

Lovenox

$725

9.2%

Plavix

$675

2.5%

Ambien franchise

$675

33.8%

Taxotere

$540

5.1%

Eloxatin

$525

1.7%



A decrease in Sanofi's vaccines division put a further crimp in sales growth. Sales declined 7% year over year to 650 million euros due to manufacturing delays for the company's influenza vaccine. The combined delays, generic competition, and pricing pressures caused operating income to fall nearly 8% to $3.1 billion and adjusted earnings per share to drop 12% to $1.58 for the quarter.

Even with stagnant sales expected for the next couple of months, until the stockpiles of generic Plavix are reduced, investors in Sanofi do have some things to look forward to. There's an impressive drug pipeline consisting of 56 compounds in phase 2 or 3 clinical trials. All these trials caused research and development expenses to rise 8%, compressing operating margins to a still-healthy 36% of sales. A year ago, they were higher than 37%.

Even with its massive pipeline, there may be problems ahead for Sanofi. Its two top drugs are exposed to generic threats as Sanofi fights in court to keep generic competitiors out of those markets. With another round of attacks on not only Plavix but also Lovenox, it's possible that this quarter may be the beginning of stagnating sales, reduced margins, and increasing generic competition. This is not a winning combination.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has adisclosure policy.


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