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.
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.
