Sanofi's (SNY 1.21%) stock is down by more than 15% in 2020 despite the commencement of large clinical trials in both the U.S. and Europe for Kevzara, its drug to treat patients hospitalized with COVID-19. But is the sell-off warranted?
With its partners, the company is currently developing two vaccines for COVID-19, the disease caused by the novel coronavirus. Sanofi is also reporting further progress on its new strategy of becoming a faster-growing, more innovative, and higher-margin pharmaceutical business. For this reason, its stock is worth a closer look.
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Chasing a coronavirus vaccine
On March 30, Sanofi and its partner Regeneron (REGN 0.60%) announced that the first patient in a large international phase 2/3 trial had been treated with Kevzara. The trial will determine whether Kevzara can effectively counteract and mitigate overactive inflammatory responses in lungs that have been damaged by the COVID-19 virus. Earlier in the month, both companies initiated a large phase 2/3 trial in the U.S. to treat patients hospitalized with severe COVID-19. Sanofi is leading trials outside the U.S., while Regeneron is leading the U.S. counterparts.
Kevzara is a human monoclonal antibody that inhibits a protein called interleukin-6 (IL-6), which may cause an overactive inflammatory response in the lungs of patients who are severely or critically ill with COVID-19. Physicians currently prescribe Kevzara, which was jointly developed by Sanofi and Regeneron, to treat adult patients with moderately to severely active rheumatoid arthritis.
Late last week, Sanofi also announced an expansion of its collaboration with clinical-stage messenger RNA (mRNA) therapeutics company Translate Bio to include the development of an mRNA vaccine to target the novel coronavirus. Sanofi will not have to pay Translate an upfront license fee for the COVID-19 vaccine, and any royalties Sanofi might pay to Translate Bio are still being negotiated. Currently, as part of the original 2018 agreement, both companies are working together to develop mRNA vaccines for at least five infectious diseases. In February, Sanofi that announced it was collaborating with the Department of Health and Human Services' Biomedical Advanced Research and Development Authority (BARDA) to advance a recombinant, protein-based vaccine candidate against COVID-19.
Executing on its growth strategy
Sanofi's management is on a quest to make the company more focused and innovative and to improve margins, and so far it's going well.
Earlier this month, Sanofi obtained U.S. Food and Drug Administration (FDA) approval for its medicine Sarclisa to be used in combination with two existing drugs for adults with multiple myeloma who have relapsed or no longer respond to prior treatments. Multiple myeloma is the second most common blood cancer, affecting more than 130,000 people in the U.S. with about 32,000 Americans diagnosed each year. Some treatments are available, but multiple myeloma cannot be cured. Further, if the disease returns, patients may no longer respond to previous therapies.
On Feb. 24, Sanofi announced plans to create a new company headquartered in France to manufacture and supply active pharmaceutical ingredients (API) to third parties. APIs are the essential molecules responsible for the beneficial effects of any drug.
Sanofi would combine its API commercial and development activities with six of its European API production sites. A planned IPO on Euronext Paris would be evaluated with a decision expected by 2022, subject to market conditions. Sanofi intends to establish a long-term customer relationship with the new company and to hold a minority stake of approximately 30%. Management intends for the new company to be debt-free in order to maximize its future investment capacities.
In January, Sanofi completed the acquisition of biotech Synthorx for $2.5 billion, or $68 a share. Synthorix's lead immuno-oncology product candidate, THOR-707, a variant of IL-2, is in clinical development as a treatment for multiple types of solid tumors, both as a single agent and in combination with other immune checkpoint inhibitors. It has the potential to become the best-in-class IL-2 therapeutic for the treatment of solid tumors, demonstrating improved pharmacology, less frequent dosing, and therapeutic superiority when compared to other IL-2 compounds.
Beyond the pandemic
At this point, Sanofi has multiple opportunities to help treat and halt the spread of the COVID-19 virus, and the company has continued to transform into a more focused, innovative pharmaceutical business. Healthcare investors interested in a company to hold for the long term would be wise to give Sanofi a look because it has much to offer beyond the current pandemic.
