Zacks Small Cap Institutional Research



| Sanofi |(SNY – NASDAQ) |$39.32 |

2 ADS = 1 share

Note: More details to come; changes are highlighted. Except where noted, and highlighted, no other section of this report has been updated.

Reason for Report: Flash Update: 1Q18 Earnings Results

Previous Edition: Apr 12, 2018: 4Q17 and FY17 Earnings Results

Note: The tables below (Revenue, Margins, and Earnings per Share) contain material from fewer brokers than in the Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying spreadsheet models.

Flash Update

Sanofi's Earnings Beat Estimates in Q1, Sales Miss Mark

Sanofi reported 1Q18 earnings of 79 cents per American depositary share, which beat the Zacks Consensus Estimate of 74 cents. Earnings grew 6.8% on a reported basis. At constant currency rates (CER), earnings grew 1.4%.

First-quarter net sales grew 5.9% on a reported basis to almost $9.71 billion (€7.89 billion). Sales however missed the Zacks Consensus Estimate of $9.96 billion. Unfavorable exchange rate movements hurt sales by 8.3%. At CER, sales dipped 0.4% y/y.          

Sales declined 8.2% at CER in the United States. However, sales rose 8.3% in Emerging Markets, 0.5% in Europe but declined 3.4% in the Rest of the World (Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico).

Sanofi announced the successful completion of its acquisition of Bioverativ, which was consolidated in the company’s financial statements from Mar 9, 2018. 

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

Segmental Performance

Pharmaceuticals sales (including emerging markets) dipped 0.9% to €5.9 billion. However, at CER, Pharmaceuticals sales fell 0.9%.

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

Sanofi Genzyme/Specialty Care GBU sales (including emerging markets) increased 16.2% to €1.46 billion, driven by contribution from new immunology drugs — Dupixent and Kevzara — along with higher sales of multiple sclerosis and rare disease drugs.

Sales of MS drugs Aubagio rose 11.6% to €371 million while sales of Lemtrada fell  8.8% to €105 million.

Meanwhile, sales of rare disease drugs like Myozyme/Lumizyme improved 11.1% to €196  million while Fabrazyme sales were €170 million, up 6.8%. Cerdelga sales came in at €36 million, up 25.8% while Cerezyme sales rose 10.2% to €175 million.

Oncology sales declined 5.6% to €358 million. Jevtana sales were up 10.3% to €99 million while Thymoglobulin recorded sales of €70, was up 8.3%. Taxotere sales fell 2.1% to €43 million. Eloxatin sales were up 6.7% to €44 million.

Sanofi and Regeneron’s rheumatoid arthritis drug Kevzara (sarilumab) was launched in the United States in June 2017 and in United Kingdom, the Netherlands and Germany in Europe in the second half.  Kevzara recorded sales of €10 million in the quarter compared with €8 million in the previous quarter.

Meanwhile, Dupixent/dupilumab for treating atopic dermatitis was launched in the United States in March and approved in the EU in September 2017. In December 2017, Sanofi launched Dupixent in Germany. Dupixent generated sales of €107 million in the first quarter compared with €118 million in the previous quarter. Kevzara and Dupixent generated total immunology sales of €117 million in the first quarter, lower than €126 million recorded in the previous quarter.

Diabetes and Cardiovascular GBU (including emerging markets) declined 8.7% to €1.48 billion. The Diabetes franchise (including emerging markets) declined 10% to €1.36 billion due to lower sales of key drug Lantus and Toujeo in the United States.

Sales of diabetes drugs in the United States declined 26.6% to €534 million due to the previously announced changes in coverage in the Part D business and a persistent decline in average U.S. glargine net prices. Sales of diabetes drugs in Emerging Markets were up 17.7% while in Europe it fell 0.9%.

Lantus sales declined 17.7% to €911 million in the quarter. Lantus sales declined 31% in the United States due to lower average net price the change in coverage in Sanofi’s Part D business while in Europe sales declined 9% due to biosimilar competition and patient switching to Toujeo.

Toujeo generated sales of €197 million in the reported quarter, up 13.8%. However, sales were down 14.8% sequentially in the United States.

Soliqua, a once-daily titratable fixed-ratio combination of Lantus and Lyxumia, was launched in the United States in January 2017 and in some European countries (trade name — Suliqua) in 2017. Soliqua/Suliqua generated sales of €9 million in the quarter compared flat sequentially.

In the cardiovascular franchise, Sanofi’s anti PCSK9 therapy, Praluent garnered worldwide sales of €49 million in the reported quarter, up 55.9%.

General Medicines & Emerging Markets GBU sales came in at €3.4 billion, down 1.5%. Sales of Established products were €2.32 billion, down 6.4% as strong performance in emerging markets was offset by lower sales in Europe and generic competition for Renvela/Renagel in the United States.

Sales of Generics rose 0.9% to €435 million sustained by Emerging Markets sales.

Consumer Healthcare GBU sales were €1.24 billion, up 2% driven Emerging Markets especially Latin America.

1Q18 consolidated Sanofi Pasteur (Vaccines) sales fell 0.9% to €711 million. Vaccines sales reflect the termination of the Sanofi Pasteur MSD joint venture with Merck in Europe from December 2016. Vaccines sales were was impacted by the constrained supply of Pentaxim in China and low sales of Dengvaxia following the announced label update in November 2017.

Costs Rise

Selling general and administrative expenses (SG&A) increased 1% at CER in the quarter, reflecting investments in immunology, additional expenses in China and consolidation of Bioverativ’s operating expenses. R&D expenses were up 4.5% at CER, reflecting increased spend on immuno-oncology programs and medical investment behind the immunology franchise.

2018 Outlook

Sanofi reiterated its guidance for 2018 and expects  business earnings to grow between 2% and 5% at CER.

Share Buyback

The company announced a €1.5-billion share buyback program during the quarter which is expected to be completed in mid-2019.

MORE DETAILS WILL COME IN THE IMMINENT EDITIONS OF ZACKS RD REPORTS ON SNY.

Portfolio Manager Executive Summary

Sanofi develops and manufactures pharmaceutical products, primarily for sale in the prescription drug market. The company, which operates globally, focuses on major therapeutic areas, such as cardiovascular, central nervous system (CNS), oncology, diabetes and internal medicine formulations.

Of the six firms providing ratings on Sanofi, four firms (50.0%) assigned neutral while two firms (50.0%) rendered negative ratings. None of the firms was positive on the stock.

Neutral outlook (4/6 firms): Although the neutral firms are impressed with the company’s new launch of Dupixent and Kevzara, they are more concerned about the rate of decline in the diabetes franchisees. Sanofi’s Diabetes franchise is under significant pressure with key product, Lantus facing increasing competitive pressure at the payor level and the presence of biosimilar competition in several European markets and Japan. Other headwinds include generic competition for many drugs and slower-than-expected uptake of new products like Praluent. .

Negative outlook (2/6 firm): We did not get any broker report. .

Apr 12, 2018

Overview

Sanofi, based in Paris, France, develops and manufactures pharmaceutical products, primarily for sale in the prescription drug market. The company, which has global operations, focuses on major therapeutic areas such as CV, CNS, diabetes and oncology The company manufactures and markets prescription drugs in Europe, the U.S. and other countries.

In Apr 2011, Sanofi acquired Genzyme and expanded its presence in the biotech sector. It also has collaboration agreements with companies like Bristol-Myers, AstraZeneca, Merck and Regeneron among others.

Sanofi has five global business units (GBU): Vaccines (Sanofi Pasteur), General Medicines & Emerging Markets, Genzyme/Specialty Care, Diabetes & Cardiovascular and Consumer Healthcare. Sanofi swapped its Merial Animal Health businesses with Boehringer Ingelheim’s Consumer Healthcare (CHC) business in Jan 2017.

The firms have identified the following factors for evaluating the investment merits of Sanofi:

|Key Positive Arguments |Key Negative Arguments |

|The swapping of Merial business with Boehringer’s CHC business may meet |The company is facing generic competition for several products including |

|Sanofi’s goal to be a diversified leader in consumer healthcare. |Taxotere, Avapro, Plavix and Lovenox. Sales of drugs like Lantus and Renagel |

| |are expected to decline significantly in 2018 due to generic competition. |

|Sanofi’s cost-cutting initiatives and focus on the reallocation of resources |For the next few years, sales of the company’s diabetes business are expected|

|to the highest growth and most promising development programs should bear |to remain under pressure. Lantus is facing increasing competitive pressure at|

|positive returns. |the payer level and biosimilar competition in several European markets and |

| |Japan. Sales are expected to continue to decline in 2018. |

|Sanofi’s approval of Kevzara for rheumatoid arthritis/RA and Dupixent for |Sanofi’s Vaccine franchise also faces additional competition from Glaxo and |

|atopic dermatitis/AD in 2017 have blockbuster potential. |Novartis. |

The company’s website is .

Note: The company’s fiscal year coincides with the calendar year.

Apr 12, 2018

Long-Term Growth

Sanofi’s biggest challenge is the genericization of several of its products. It is looking to combat the generic threat by launching new drugs and making acquisitions or signing deals.

In Nov 2015, Sanofi provided a strategic roadmap for the period 2015–2020. The company expects to deliver sales at a CAGR of 3–4% with a target of mid-single-digit growth in the second half of this period. eginning 2018, however, it expects earnings to grow faster than sales on the back of an improved sales mix and by fully capturing cost efficiencies.

The company expects growth to be driven by launches scheduled for the next five years.

Sanofi projects six key launches – Toujeo, Praluent, Dengvaxia Soliqua, sarilumab/Kevzara and Dupixent/dupilumab –to generate aggregate peak sales of €12 billion - €14 billion by 2025, while up to 18 new products are on track to be launched by 2020. The company remains optimistic on sales prospects of Dupixent, which could prove to be an important growth driver.

Apr 12, 2018

Target Price/Valuation

|Rating Distribution  |

|Positive |0.0% |

|Neutral |66.7% |

|Negative |33.3% |

|Avg. Target Price |$51.00 |

|High |$48.00 |

|Low |$49.50 |

|No. of Analysts with Target Price/Total |2/6 |

Recent Events

Sanofi Q4 Earnings Lag on Weak Diabetes/Vaccines Sales

Sanofi reported 4Q17 earnings of 63 cents per American depositary share, which missed the Zacks Consensus Estimate of 69 cents. Earnings declined 15.2% on a reported basis. At constant currency rates (“CER”), earnings declined 8.8%.

4Q17 net sales declined 2% on a reported basis to almost $10.26 billion (€8.69 billion). Sales also missed the Zacks Consensus Estimate of $10.38 billion. Unfavorable exchange rate movements hurt sales by 6.1%. At CER, sales rose 4.1% y/y.         

 

In January 2017, the French drug maker swapped its Merial Animal Health businesses with Boehringer Ingelheim’s Consumer Healthcare (“CHC”) business. Reflecting this exchange and full consolidation of Sanofi’s European vaccines operations, sales declined 1.6% at constant structure (“CS”) and CER basis.

Sales declined 6.2% at CER in the United States. However, sales rose 6.3% in Emerging Markets, 15.8% in Europe and 8.3% 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.

2018 Outlook

Sanofi expects 2018 business earnings to grow between 2% and 5% at CER. It anticipates a negative currency impact in the range of 3-4% on business earnings in 2018. However, the guidance includes the impact of the recently announced pending acquisitions of Belgian   nanobodies maker, Ablynx and a small biotech focused on making therapies for hemophilia, Bioverativ Inc. The acquisitions should strengthen Sanofi’s position in the rare blood disorders market.

Revenue

Sanofi’s net sales declined 2% in 4Q17 on a reported basis to almost $10.26 billion (€8.69 billion). Unfavorable exchange rate movements hurt sales by 6.1%. At CER, sales rose 4.1% y/y.  According to Zacks Digest average, revenues were $8.98 billion in 4Q17, down 3.1% y/y.

 

Higher sales of multiple sclerosis and rare disease drugs, significant contribution from Dupixent and a strong performance in Europe was offset by continued weakness in the Diabetes franchise and lower vaccine sales in Emerging Markets and United States.

Sales declined 6.2% at CER in the United States. However, sales rose 6.3% in Emerging Markets, 15.8% in Europe and 8.3% in the Rest of the World (Japan, South Korea, Canada, Australia, New Zealand and Puerto Rico).

In 2017, net sales rose 3.6% on a reported basis and 5.6% at CER to almost $39.6 billion (€35.06 billion). According to Zacks Digest average, revenues were in line with the company’s report.

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

|Revenue |4Q16A |

|(€ in million) | |

|Last Updated by |Madhu Goyal |

|Copy Editor |Subhojoy Ghosh |

|Lead Analyst |Ekta Bagri |

|QCA |Kinjel Shah |

|Reason for Update |1Q18 Flash Update |

DISCLOSURE

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

DISCLOSURE

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

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