Sanofi's (SNY) Q3 Earnings & Sales Miss, 2020 View Raised

Zacks Equity Research
·7-min read

Sanofi SNY reported third-quarter 2020 earnings of $1.07 per American depositary share, which slightly missed Zacks Consensus Estimate of $1.08 per share. Earnings rose 8.8% on constant currency rates (“CER”) basis.

Third-quarter net sales declined 0.2% on a reported basis to $11.09 billion (€9.48 billion) due to currency headwinds of 5.9%. At CER, sales rose 5.7% year over year driven by higher sales of Sanofi’s blockbuster eczema medicine, Dupixent and record influenza vaccine sales. Sales missed the Zacks Consensus Estimate of $11.82 billion.

Sales rose 14.2% at CER in the United States and 3.7% in Europe while declining 1.7% in the Rest of the World (includes China, Japan, Brazil and Russia).

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

Segmental Performance

Pharmaceuticals sales rose 4.5% in the quarter to €6.36 billion as strong performance of Dupixent, was more than offset by lower sales in General Medicines due to weak Diabetes sales and pricing pressure from the VBP (volume-based procurement) program in China.

Sanofi Specialty Care GBU sales increased 23.8% to €2.75 billion, mainly driven by Dupixent and growth in all franchises.

In immunology, multiple sclerosis and neurology franchise, Dupixent generated sales of €918 million in the quarter, up 68.6%. Sales of the drug in the United States were €725 million, up 67.7% driven by continued growth in atopic dermatitis and rapid uptake in new asthma indication. Sales in Europe were €97 million, up 73.2%.

Kevzara recorded sales of €59 million in the quarter, up 28.6%. Please note that Sanofi markets Dupixent and Kevzara in partnership with Regeneron REGN. Aubagio sales increased 6.7% to €505 million while sales of Lemtrada decreased 56.1% to €24 million.

Sales of rare disease drugs rose 9.7% to €745 million, gaining from COVID-19 recovery in the United States. Myozyme sales rose 11.5% to €241 million. Fabrazyme sales were €204 million, up 6.4%. Cerezyme sales rose 6.0% to €162 million.

Oncology sales increased 37.6% to €210 million driven by launches of Sarclisa and Libtayo and continued growth of legacy franchises. Key cancer drug Jevtana’s sales were up 16.0% to €134 million.

Rare blood disorders franchise recorded sales of €292 million, up 7.3% year over year driven by higher sales of Cablivi and Alprolix. Sales of Eloctate declined 1.9% to €152 million in the quarter.

Sales in General Medicines GBU declined 12.0% to €3.61 billion hurt by lower sales in Diabetes and Established Products.

The Diabetes franchise declined 4% to €1.15 billion mainly due to pricing pressure and COVID-19 impact on Rest of The World sales. Sales of diabetes drugs in the United States declined 7.3% to €396 million due to pricing pressure. In Europe, sales fell 5.9% while in rest of the world, sales were flat.

Lantus sales decreased 7.1% to €657 million in the quarter. Toujeo generated sales of €216 million in the reported quarter, up 3.7%.

Sales of Cardiovascular and Established Rx Products came in at €2.46 billion, down 7.5% mainly due to lower sales of Plavix and Aprovel in China following the implementation of the VBP program and the impact of the COVID-19 pandemic in Rest of The World.

Vaccines GBU sales recovered from the second quarter, rising 13.6% to €2.08 billion in the third quarter driven by strong performance of influenza vaccines in all markets. The sales growth was partially offset by lower sales of travel vaccines due to COVID-19-related travel restrictions and lower sales of meningitis and booster vaccinations due to postponement of pediatric vaccinations and adult boosters.

Consumer Healthcare (CHC) stand-alone unit generated sales of €1.04 billion, down 1.1% due to reduced consumer traffic in pharmacies in Rest of the World and lower demand of cough and cold products outside the United States. Moreover, Sanofi’s voluntary recall of its over-the-counter acid reflux medicine Zantac in October 2019 also hurt CHC sales.

Meanwhile, non-core divestments and increased regulatory requirements, which resulted in product suspensions, also hurt the performance of the CHC segment.

Cost Discussion

Selling, general and administrative expenses declined 0.8% at CER in the quarter, reflecting cost-control measures despite increased investments in Specialty Care and Vaccines. Research and development expenses rose 0.4% at CER due to reallocation of resources toward priority assets.

2020 Guidance

Despite expectations of more onerous currency headwinds, Sanofi increased its previously issued earnings growth guidance for 2020. It expects earnings to grow between 7% and 8% at CER in 2020, compared with its previous growth guidance of 6-7%. It anticipates a negative currency impact in the range of 6%-7% on earnings in 2020 versus prior expectation of negative currency impact of 3%-4%

Update on Coronavirus Related Research Efforts

Sanofi along with GlaxoSmithKline GSK is developing an adjuvanted COVID-19 vaccine in a phase I/II clinical study, which is now fully enrolled. The vaccine candidate combines Sanofi’s recombinant protein-based technology with Glaxo’s pandemic adjuvant technology.

Data from the phase I/II study are expected in December. If this data is positive, then the companies plan to start a phase III study by the end of year and file for regulatory approval in the first half of 2021. The companies plan to produce 1 billion doses of the adjuvant vaccine in 2021.

Glaxo and Sanofi already have signed advanced purchase agreement with the U.S. government, U.K. government, European Union, Canadian government to supply doses of the COVID-19 vaccine.

Sanofi has a separate a collaboration with Translate Bio TBIO to jointly develop a novel messenger RNA (mRNA) vaccine for COVID-19. A phase I/II study is expected to start in November.

Our Take

Sanofi’s results were tepid as it missed estimates for both earnings and sales. However, the company raised its earnings growth expectations for the year supported by solid sales from both Dupixent and Vaccines.

Shares were down 1.5% in pre-market trading on Friday. Sanofi stock has declined 8.1% this year so far compared with a decrease of 5.1% for the industry

Sanofi’s Specialty Care segment is on a strong footing, particularly with regular label expansion of Dupixent. The drug has, in a very short time, become the key top-line driver for Sanofi. The company possesses a strong pipeline and the recent Principia acquisition added BTK inhibitors to its pipeline, which can address a variety of serious illnesses. Its COVID-19 vaccines development efforts continue on a fast track. However, the weak performance of its Diabetes segment is a concern.

Sanofi currently has 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

 

Sanofi Price, Consensus and EPS Surprise
Sanofi Price, Consensus and EPS Surprise

Sanofi price-consensus-eps-surprise-chart | Sanofi Quote

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