As the year comes to a close, Sanofi (SNY 0.52%) has a holiday gift for investors in the form of a new strategy. The French drugmaker announced a $2.5 billion biotech takeover in the growing immuno-oncology field earlier this week, then a day later said it is dropping research in the diabetes and cardiovascular fields. This is big news because Sanofi's top-selling drug is diabetes drug Lantus. The problem is that with pricing pressure from competitors, Lantus' sales have been sliding -- and fast.

Pills spilled from a bottle.


Lantus brought in more than $1.2 billion in the third quarter of 2017, and by the same period last year, the figure dropped to less than $1 billion. Sanofi reported a 17.5% decline in Lantus sales to $837 million in the third quarter of this year. To make matters worse, the rest of the diabetes and cardiovascular business has followed, weighing down earnings, while areas including oncology and immunology grew.

That's why the stock market applauded new Chief Executive Officer Paul Hudson's plan to refocus the business. Sanofi shares gained 6.2% on Tuesday after Hudson's comments.

Innovative investigational products

Hudson, in his quest to focus on products and areas that are growing, targets $11 billion in sales for eczema treatment Dupixent. Sales of the drug soared 142% in the third quarter to reach $635 million. The company also will prioritize the development of six innovative investigational products in the areas of hemophilia, lysosomal storage disorders, respiratory syncytial virus, breast cancer, and multiple sclerosis.

Halting research in diabetes and cardiovascular, along with other efforts, is meant to help Sanofi reach $2.2 billion in savings by 2022. In other financial news, the company plans on expanding its business operating income margin to 30% by that year and to 32% by 2025. Business operating income is a non-GAAP measure of financial performance in which Sanofi eliminates elements such as acquisition-related effects and adds items like share of profits or losses from certain investments. The company also aims to increase annual free cash flow 50% by 2022.

Three business units

Sanofi is reorganizing its operations into three business units: specialty care, vaccines, and general medicine. Consumer healthcare, which includes products like over-the-counter painkillers, will be a stand-alone business with its own R&D and manufacturing processes. Reuters reported that Sanofi might sell the unit or look for a joint venture. Consumer healthcare generated $5.2 billion in sales for Sanofi in 2018, a 3% increase from the previous year. That was about half of the figure generated by the specialty care unit, which grew 29% year over year.

Sanofi said cash from its businesses will be spent on further investment internally, acquisitions, and -- good news here, investors -- increasing the annual dividend. The last payment, in May, was $3.42, increasing for the 25th straight year.

A good buy for 2020

Considering all of the good news, Sanofi isn't looking expensive. According to Zacks research, it trades at 14.16 times earnings, slightly cheaper than the large-cap pharmaceutical industry average of 14.85. The stock has gained 17% so far this year to about $49, but Wall Street predicts at least a bit more upside, with the average analyst price target at $52. Investors should also bear in mind that analysts might adjust their estimates and outlooks in the wake of Hudson's presentation.

With total net sales down 1.1% in the third quarter and the former big businesses of diabetes and cardiovascular slowing, Sanofi didn't present the best investment case a few weeks ago. This week's news, however, changed the landscape. The company is acquiring immuno-oncology company Synthorx (THOR) to boost a part of its own business that is growing. It is halting the spending on struggling units and reallocating resources to stronger ones. And it continues to think of investors with the goal of boosting dividends.

For those looking to add to pharmaceutical holdings, Sanofi looks like a promising candidate going into 2020 and beyond.