Why Sanofi SA (NYSE:SNY) is Set for a Great 2013

Last year was a pretty good one for stockholders in Sanofi SA (NYSE:SNY), and the indications are that this year could be the same. It has been a difficult few years for the pharmaceutical industry and I’m sure that in years to come undergraduate management course books will be written on how the companies in the industry dealt with the challenges in different ways. Big pharma has faced patent cliffs, growing reimbursement issues, austerity measures, a tougher FDA approval and labeling approach, rising marketing costs and finally, increased R&D costs. With that said I think Sanofi has been one of the most successful at restructuring and the company’s prospects look good.

Sanofi SA (ADR) (NYSE:SNY)Sanofi’s Restructuring

History is littered with companies that didn’t adjust to new realities or allowed their existing leadership positions to seduce them into complacency. Fortunately, Sanofi is not one of them! A few years ago the company faced a bunch of key products going off patent by the end of 2012 and had experienced some significant clinical failures. At this point it would have been easy for an incumbent management to throw more of its substantial cash flow behind R&D adventures in an attempt to play catch-up.  Sanofi SA (NYSE:SNY) chose a different path.

The acquisition of Genzyme immediately bought R&D facilities and helped diversify revenues away from small molecules and into biologics and the types of rare diseases that Genzyme is famous for. Moreover, Sanofi took a disciplined approach to its own R&D and started co-developing programs with companies like Regeneron Pharmaceuticals (NASDAQ:REGN). To put the scale of the restructuring in context we need only observe that in Q2 2009 its genericized products generated E2.21 billion in sales while in Q3 2012 this number fell to E339 million. By way of contrast its ‘growth platform sales’ went from E3.3 billion to E6.4 billion in the same period. They now represent nearly 71% of total revenues.

As for the patent issue, it has had to deal with Plavix (blood clot prevention), Lovenox (deep vein thrombosis), Taxotere (chemotherapy) and most recently Eloxatin (colon/colorectal cancer) going generic. It’s been a tough few years but Sanofi is coming out of it with a much more balanced portfolio. It also has strong emerging market growth prospects (with much of the growth coming from non-BRIC emerging markets). Throw in a decently performing consumer health division and an (increasingly fashionable) animal health operation and its growth drivers are nicely diversified. It is also relatively less reliant on developed world reimbursement. A nice balance.

Sanofi’s Success in 2012 and Pipeline for 2013

At the start of the year Sanofi faced questions over a future threat to its world leading, long acting insulin Lantus (diabetes) from Novo Nordisk (NYSE:NVO)’s degludec (branded as Tresiba), however Novo has had some difficulty with the FDA; despite eventually getting an advisory committee to recommend approval, an FDA decision could take a while yet and it may come with labeling that reduces its commercial appeal. No health care investor should take pleasure at a rival’s difficulties (in the end we all want better healthcare) but this news is a positive for Sanofi and its key diabetes product.

Additionally, Sanofi has Lyxumia (Type 2 diabetes for use in combination with Lantus) up for EU and FDA decisions in Q1 2013. Lyxumia will compete with Novo Nordisk’s Victoza and Bristol-Myers Squibb (NYSE:BMY)’s Byetta and its long acting form Bydureon, which is injected once a week as opposed to Byetta (twice a day) and Victoza (once a day) according to the Mayo clinic.

Sanofi also had significant program success last year with Zaltrap (colorectal cancer) and Aubagio (multiple sclerosis) getting FDA approval in 2012 with EU approval for both expected in Q1 2013. Lemtrada (multiple sclerosis) is also up for FDA decision in Q1 2013 and a European decision in Q2, and there are plans to introduce a second generation Lemtrada in future. When Sanofi bought Genzyme it got Lemtrada as part of the deal and is combining it with Aubagio in order to truly create an MS franchise alongside its diabetes strength.

Other pipeline points of note are an–almost inevitable–JAK2 inhibitor for patients with myelofibrosis (MF).  Incyte Corporation (NASDAQ:INCY)’s is there first with Jakafi, and YM Bioscience has an exciting JAK inhibitor CYT37 (which is even more interesting now that Gilead has bought YM) but Sanofi has its inhibitor in Phase III with headline results due in Q2 2013. Incyte has the lead but it can’t feel entirely comfortable that it will stay there for more than a few years. Sanofi also has a dengue fever vaccine in development with Phase III results due in 2014.

Finally, Sanofi has a potentially huge antibody in development with Regeneron. PCSK9 is believed to lower cholesterol and the risk of coronary heart disease. Phase II data was quite impressive.

The Bottom Line

Sanofi has transformed itself into a very impressive company with a lot of near term approval decisions to come and an exciting mid-stage pipeline. It also has some short term upside from the tough flu season we are seeing.  Its end markets are diversified and it has successfully moved away from being primarily a small molecule company. Did I mention the large yield too? I think the stock has further to run.

The article Why This Pharma is Set for a Great 2013 originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!