Sanofi SA (NYSE:SNY) is in the midst of a transition that it hopes will return it to business income growth in 2019. The French biopharma is one of the biggest drugmakers in the world, but its shares have suffered lately because of patent expiration. Is now a good time to pick this stock up on sale?

In this clip from The Motley Fool's Industry Focus: Healthcare, Kristine Harjes and Todd Campbell dig into Sanofi's past, present, and future for clues.

A full transcript follows the video.

This video was recorded on May 16, 2018.

Kristine Harjes: We're going to be digging into the French drug maker, Sanofi, which is listed on the New York Stock Exchange under the ticker SNY. They're a $94 billion market cap company. They pay a heck of a dividend, yielding about 4.6%. And the share price has been beaten pretty badly by the market over the last year or so. They're down 25%. 2017 was widely recognized as a transition year for the company. We'll cover their future plans and weigh in on our opinion of the company's prospects, but first, let's do a little bit of history and get a sense of why they need a transition to begin with.

Todd Campbell: What's interesting, Kristine, about talking about Sanofi and doing the background to prepare for this show, is thinking about how few investors probably own this company in their portfolio. You just reeled off some pretty crazy numbers, $95 billion market cap company with nearly a 5% dividend yield, €35 billion in annual sales, yet not very widely owned relative to some of these other biopharma stocks that we tend to talk about on the show. And perhaps the reason for that is, there's been a lot of concern over the last couple years of how Sanofi would navigate patent expiration, specifically the expiration of patents that protect Lantus, their top-selling diabetes drug, that, prior to losing patent exclusivity, was raking in about $7 billion a year in sales.

Harjes: Yeah. That was a ginormous drug, so there was a lot of concern when it went off patent in 2015. But that wasn't all. They also had Plavix, which was the second-best-selling drug in the world for years, and that lost protection back in 2012. There was also Lovenox, which is a slightly smaller drug, but still, when they lost the patent for that in the late 2000s, it ended up costing them a couple billion dollars in sales annually.

So, management looks at all of these roadblocks up ahead, and they decided that they were going to bring in a new CEO in 2014. Come 2017, they're like, "OK, this is the year we're going to turn things around." They ended up solidifying their focus into five different business units effective January 1st of 2017. Now it's 2018, and we get to look back and see, well, how did that transition year go?

Campbell: I think that most investors would look at it and yawn over the results. If you back out the effects of currency -- and currency, it's a global show today, right? We're talking international stocks today. Probably, Sanofi is one of the most diversified in terms of where it gets its revenue from. It gets more sales in the U.S. than anywhere else, about 34% of its revenue comes from the U.S. But it still gets 27% of its sales in Europe and 29% of its sales in emerging markets. And converting all of that currency back into euros can get kind of expensive. Right now, that's creating some headwinds to the company's progress in improving its revenue. Year over year last year, when all the puts and takes were considered, we're talking about relatively flat growth when you back out the effects of that currency conversion.

If you look at each of the five business units, some are performing better than others. The way that they broke it out is, they have one group which they refer to as Sanofi Genzyme, that's their oncology and immunology business. Last year, that did about €6.7 billion for sales. That has drugs like multiple sclerosis drugs and rare disease drugs like Pompe disease, hemophilia drugs, which we'll get to in a little bit, that they added with their acquisition of Bioverativ.

Their second group is Sanofi Pasteur. That did about €5.1 billion in sales last year. The third group is the diabetes and cardiovascular drug business, that did €6.9 billion last year. The consumer business that they have, they're actually in the top three globally in consumer medicine, that did about €4.8 billion in 2017. Then, if you look at the emerging markets business, and what they call general medicines, that's a $14 billion business, with about €10 billion coming from emerging markets.

Harjes: When you look at where this company stands right now, it's pretty clear that they're trying to ignite some growth. And you can tell what their priorities are particularly by looking at how they've spent money on acquisitions recently. They acquired Bioverativ for $11.6 billion in cash. We covered this back in January, on the 24th, if anybody wants to go back and find that episode. This was a very splashy acquisition for a number of reasons. First of all, it was a 64% premium to the prior close. Meanwhile, Bioverativ had just been spun off from Biogen. Something that we questioned on our show was, why didn't Sanofi just go buy it directly from Biogen before the spin-off? Anyway, more of our thoughts on that on the January episode. The point here is that it really solidifies that they are focusing on hemophilia.

Campbell: Yeah. In this big growth market, billions of dollars in sales spent every year on trying to help these people with these bleeding disorders. What Bioverativ has done is created new treatments that reduce patient burden by reducing the number of injections that they have to take per month. Obviously, that's a win for patients, and sales of Alprolix and Eloctate, which are the two drugs that are approved for hemophilia A and B, sales of those drugs have really taken off. If you look at 2017 alone, Bioverativ generated about $1.17 billion in sales, and that was up 32% year over year.

But that's not the only way that they're trying to refocus and spark some growth back into the company. They also have some intriguing relationships with other companies. Regeneron jumps to mind. The two companies have been collaborating together to create new drugs. They've brought a few to market now. They've brought Praluent, which is a cholesterol-lowering drug, to market. They've also won approval for a drug for eczema and another drug for rheumatoid arthritis. I think that those kinds of collaborations they view as being, for the most part, a win, because it injects some of that growth that can offset some of the headwinds associated with Lantus.

They're also increasing the spending on R&D. I think they increased spending on R&D, I want to say, by 9%, in the high single digits, something like that, to about $5.5 billion last year. Again, that's a good sign, as well, because if you don't have a whole pipeline of drugs, we know that a lot of drugs in pipelines are going to fail, you're going to have to spend more to have that pipeline nice and full so that a few wins come out on the bottom.

Harjes: And they do have a fairly full pipeline. They have 28 different projects that are in Phase III or submitted for approval, and that's across a huge range of different indications. You mentioned partnerships. I want to call out one more, probably just because I have a bias of liking this company, Alnylam. They are an RNAi platform company. They have had a partnership with Sanofi since 2014. Sanofi has full rights now to a drug called Fitusiran, which is a drug for hemophilia, again, and rare bleeding disorders. It had a bit of a hiccup previously with the FDA putting it on hold temporarily, but now it's back and starting up in Phase III. This drug could be a fairly sizable one, at least a billion-dollar blockbuster, many people are anticipating, when and if it gets approved. Alnylam will get royalties on it, but they're in the 15-30% range, so not a huge chunk. Really, a potential win here for Sanofi primarily.

They're also doing some interesting things in digital health. They have a partnership with Verily on something called Onduo, which is a virtual diabetes clinic that's focused on education and disease management. As we know about diabetes, it's a disease that, when not managed well, can really escalate and have a lot of complications. So, the better you can educate patients with the disease and make comprehensive treatment plans for them, the better the outcomes are.

They're also an investor in Science 37, which is attempting to bring clinical trials into people's homes through telemedicine so you don't have to travel far and wide to get to a clinical trial location. Of course, this is particularly an opportunity in rare diseases, where, as a company running a clinical trial, you might need to be recruiting from far and wide because there just aren't a lot of patients with the disease to study. So, if you can bring that directly to people in their homes, I can see how that would be a really interesting innovation.

Campbell: Yeah. The vast majority of people don't live in those medical clusters, places like Boston, Massachusetts, or wherever, where a lot of these trials are conducted. So, you're right, bringing the trial to the patient, where the patient lives, and letting them continue to receive care by their primary care doctor, is interesting approach that could speed along development for their rare disease business.

Harjes: Yeah. Todd, I know you pulled guidance numbers for 2018. Can you share those?

Campbell: In the first quarter of 2018, they put out their guidance. This is the year they say that they will return to X currency business income growth. That's a mouthful. 2-5%. Whoopee, right? So, this is the year, if you back out all the currency, they think they're going to start earning more money. Then, hopefully from here on out, they'll be able to grow year after year after year using some of these platforms and relationships and acquisitions, leveraging them for sales growth.

I mean, I think the devil will be in the details. You talked about the Alnylam trial. That was halted for four months because of a patient death. They restarted it after making some concessions in the way that they were monitoring patients. We'll see data from that trial in the second half of 2019. And you're right, that could reshape hemophilia treatment, because again, it reduces patient burden further because that drug is only dosed once per month.

The company also recently bought a Belgian company called Ablynx for about $4 billion that has a nanobody drug platform. An approval is expected for one of its drugs for rare blood disorder at some point in the near future, too, so we'll have to see how that goes. Then, of course, looking at label expansions, they think that Dupixent, which is their eczema drug, maybe that wins approval in asthma, it could be effective in some other disease indications as well, in autoimmunity. They're also hoping to get the FDA to add some long-term cardiovascular outcome data for their Praluent, which is the cholesterol-busting drug. As a refresher, that drug did demonstrate the ability to reduce heart attacks and stroke within its long-term study. So, that could also provide a catalyst. Those are probably more 2019 issues, though.

Harjes: Yeah. I think, if I were an investor in this company, I would be a lot more optimistic about the label expansions than necessarily the strategy of acquiring other companies. I was fairly surprised to hear about the Ablynx acquisition earlier this year. It seemed like a pretty large amount of pay. I think it was almost $5 billion U.S. dollars for this drug that has an experimental treatment for rare blood disorders. And that was after their very expensive acquisition of Bioverativ. Now, this is a company that has about €15 billion in debt and about €10 billion in cash. So, I don't know, I think I would rather see them focus on their currently owned assets and see what they can do there to generate a little bit more cash before spending even further. But, I also like what they're doing with the partnerships. I do think that's a smart strategy.

Campbell: Yeah. And Kristine, debt is never a good thing, but they were able to get that debt pretty cheap, and they generate enough cash flow, where I'm not really concerned about that, necessarily. But you're right, a lot of times people question whether or not these acquisitions really pay off. Only time will tell on these.

Harjes: Yeah, absolutely. Any final thoughts before we sign off?

Campbell: I think Sanofi is -- I use this word a lot -- an intriguing stock to consider owning. The reason I say that is, because it's a global company, it has big exposure -- it's actually the market share leader in China -- because it has exposure all across the world and it generates a lot of cash flow, I'm not really concerned about its debt. And that dividend, Kristine, that's a pretty nice dividend yield. If they do indeed -- 2017 was the transition year -- in the back half of the year, they deliver on their goal to return to business income growth, I could see putting this into an income portfolio.

Harjes: Yeah. It's kind of a value play. It's been beaten up, which is why that dividend looks so juicy right now. So, yeah, for all the reasons that you just listed, the international exposure and that really solid dividend -- which, by the way, has been increasing for 24 years, so it's a dependable dividend -- I can see those being reasons to be interested in this stock.

Kristine Harjes has no position in any of the stocks mentioned. Todd Campbell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alnylam Pharmaceuticals and Biogen. The Motley Fool has a disclosure policy.