Sanofi (SNY) Q3 Earnings Beat, Vaccines/CHC Units Hurt Sales

Sanofi SNY reported third-quarter 2019 earnings of $1.07 per American depositary share, which beat the Zacks Consensus Estimate of 96 cents. Earnings increased 4.3% on a reported basis. At constant currency rates (CER), earnings were flat as lower costs were offset by lower revenues.

Third-quarter net sales of the French pharma giant rose 1.1% on a reported basis to $10.54 billion (€9.5 billion). Exchange rate movements benefited sales by 2.2%. At CER, sales decreased 1.1% year over year. Sales however missed the Zacks Consensus Estimate of $10.624 billion.      

In September 2018, Sanofi closed the agreement to sell its European generics business, Zentiva to Advent International. Adjusting for the Zentiva divestiture and sales of Bioverativ products to Swedish Orphan Biovitrum AB (SOBI), sales rose 0.5% at constant structure and CER basis.

Sales decreased 4.5% at CER in the United States. At CER, sales rose 9.7% in the Emerging Markets. However, sales declined 7.5% in Europe at CER and 1.7% in the Rest of the World (Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico).

All growth rates mentioned below are on a year-on-year basis and at CER.

Segmental Performance

Earlier, Sanofi reported through five Global Business Units (GBUs) — Sanofi Genzyme (Specialty Care), Diabetes & Cardiovascular, General Medicines & Emerging Markets, Consumer Healthcare and Sanofi Pasteur (Vaccines).

However, beginning 2019, Sanofi implemented a new structure wherein General Medicines & Emerging Markets and Diabetes and Cardiovascular GBU were reorganized into two new GBUs, namely the Primary Care unit and the China and Emerging Markets unit. Importantly, Emerging Markets sales for Specialty Care and Primary Care are now included in China & Emerging Markets GBU.

Pharmaceuticals sales (including the emerging markets) rose 1.5% to €6.43 billion driven by key eczema drug, Dupixent, which was partially offset by lower Diabetes and Established Rx products sales and the Zentiva (European generics business) divestiture.

Sanofi Genzyme/Specialty Care GBU sales (excluding the emerging markets) increased 19.5% to €2.36 billion, driven by Dupixent.

In the immunology franchise, Dupixent generated sales of €561 million in the quarter, up 140.8% year over year and 14.5% on a sequential basis. Sales were driven by continued growth in atopic dermatitis and rapid uptake in new asthma indication. Dupixent was launched for adolescent atopic dermatitis and for chronic rhinosinusitis with nasal polyposis in the United States in mid-March and June, respectively and for the asthma indication in Japan in April. It was approved to treat asthma indication and adolescent atopic dermatitis in Europe in May and August, respectively. All the label expansion approvals contributed to sales growth of the drug in the third quarter

Sales of the drug in the United States were €455 million while the same in Europe were €54 million.

Kevzara recorded sales of €49 million in the quarter compared with €51 million in the previous quarter.

Sanofi markets Dupixent and Kevzara in partnership with Regeneron Pharmaceuticals REGN.

Sales of rare disease drugs increased 2.8% to €637 million driven by Gaucher, Pompe and Fabry therapies. Myozyme/Lumizyme rose 5.6% to €192 million, Fabrazyme sales were €180 million, up 0.6%. Cerezyme sales declined 4.2% to €114 million.

Oncology sales increased 7.4% to €297 million. Key cancer drug Jevtana’s sales were up 9.1% to €112 million supported by higher sales in United States and Japan.

Sales of multiple sclerosis drugs rose 2.2% to €534 million. Aubagio sales increased 12.8% to €482 million while sales of Lemtrada fell 45.2% to €52 million.

Rare blood disorders franchise, added to Sanofi’s portfolio with the acquisition of Bioverativ in 2018, fetched sales of €281 million versus €287 million in the previous quarter. New drug Cablivi (caplacizumab) generated sales of €20 million in the quarter compared with €15 million in the previous quarter. Cablivi was launched in the United States in April and generated sales of €13 million in the region. The remaining €6 million in sales came from the five European countries where the product is now commercially available. However, sales of Eloctate declined 22.8% in the quarter due to the ongoing competitive pressure

Primary Care GBU comprises the Diabetes and Cardiovascular and the Established Rx Products segments. Sales in the Primary Care GBU declined 17.5% to €2.19 billion hurt by lower diabetes sales and Zentiva divestiture.

The Diabetes franchise (excluding the emerging markets) declined 17.7% to €837 million due to lower sales of key drugs — Lantus and Toujeo.

Sales of diabetes drugs in the United States declined 24.7% to €451 million due to pricing pressure and loss of Part D business. In Europe, it dropped 3% and in rest of the world it declined 21.37%.

Lantus sales decreased 27.5% to €487 million in the quarter. Lantus sales plunged 32.7% in the United States due to lower average net price and change in coverage with respect to Sanofi’s Part D business. In Europe, sales decreased 13% due to biosimilar competition and patient switching to Toujeo.

Toujeo generated sales of €175 million in the reported quarter, down 5%. Sales rose 18.3% in Europe while it declined 25% in the United States.

Admelog, a rapid-acting insulin, similar to Lilly’s LLY Humalog, which was launched in the United States in April last year, achieved sales worth €51 versus €77 million in the previous quarter.

In the cardiovascular franchise, Sanofi’s anti PCSK9 therapy, Praluent, garnered worldwide sales of €56 million in the reported quarter, down 15.4% as growth in Europe was offset by decline in the United States. Sales in the United States declined due to significantly higher rebates offered by Sanofi and partner Regeneron to payers to improve access to the drug. Sales of the other drug, Multaq, in this franchise declined 9.9% to €85 million.

Sales of Established Rx Products came in at €1.21 billion, down 17.9% due to generic competition for Renvela/Renagel in the United States, lower sales of Lovenox in Europe and the divestment of the European generics business, Zentiva.

Sales of China and Emerging Markets GBU rose 10% to €1.89 billion.

Consumer Healthcare (CHC) GBU (including the emerging markets) sales were €1.14 billion, up 0.4% as higher sales in Emerging Markets were offset by lower sales in the United States and Europe. Sales declined 4.4% in the United States due to Sanofi’s voluntary recall of its over-the-counter acid reflux medicine Zantac, which is sold by the generic name of ranitidine by many other companies. FDA tests, whose results were released in September, found low levels of  a chemical,  NDMA, which has been  classified as a probable human carcinogen,  in multiple ranitidine products,. This prompted Sanofi as well as a couple of companies including Novartis NVS owned Sandoz, which markets generic ranitidine, to recall their products.

Meanwhile, non-core divestments and increased regulatory requirements also hurt the performance of the CHC segment.

Sanofi Pasteur (Vaccines) sales (including the emerging markets) declined 9.8% to €1.93 billion due to a decline in U.S. sales. U.S. sales of vaccines declined 19.5% in the quarter due to delay in flu vaccines supply. Sales, however, rose in Emerging Markets and Europe.

Costs Decline

Selling, general and administrative expenses declined 1.5% at CER in the quarter, reflecting cost control measures. Research and development expenses declined 8.1% at CER due to favorable phasing of expenses and lower research costs resulting from restructuring of the immuno-oncology collaboration with Regeneron.

2019 Guidance

Sanofi maintained its previously issued earnings growth expectations. It expects earnings to grow approximately 5% at CER in 2019. It now anticipates a positive currency impact of around 3% on earnings versus prior expectation of 1% to 2%.

Our Take

Sanofi’s third-quarter 2019 results were mixed as it beat estimates for earnings but missed the same for sales. Double-digit growth in the Specialty Care was offset by persistent sluggishness in Diabetes and Cardiovascular franchises and a weak performance in the CHC and Vaccines units in the quarter. Shares were slightly down in pre-market trading on Thursday. However, Sanofi’s shares have outperformed the industry this year so far. It has risen 6.1% in the said time frame while the industry has gone up 3.1%.

Nonetheless, Sanofi’s Specialty Care segment is on a strong footing particularly with regular label expansion of Dupixent. The drug could prove to be an important growth driver. Sanofi’s R&D pipeline is strong and it has delivered important results with several positive data read-outs and the achievement of regulatory milestones this year. However, weak performance of the Diabetes unit, generic competition for many drugs and slower-than-expected uptake of core products like Praluent are headwinds.

Zacks Rank

Sanofi currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sanofi Price, Consensus and EPS Surprise

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