Sanofi (SNY Quick QuoteSNY - Free Report) reported first-quarter 2017 earnings of 75 cents per American depositary share, which beat the Zacks Consensus Estimate of 73 cents by 2.7%. Earnings rose 6% on a reported basis and 3% at constant currency rates (CER).

First-quarter 2017 net sales rose 11.1% on a reported basis and 8.6% at CER to almost €8.65 billion. Sales benefitted from favorable exchange rate movements of 2.5%. 

In Jan 2017, the French drugmaker 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 rose 3.5% at constant structure and CER.

Sales rose 3% at CER in the U.S., 11.3% in Emerging Markets, 10.4% in Europe and 14.9% in the Rest of the World (Japan, South Korea, Canada, Australia, New Zealand, Puerto Rico) market.

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

Segmental Performance

Pharmaceuticals sales (including emerging markets) increased 7.4% to €7.86 billion driven by growth in multiple sclerosis, rare disease, oncology and consumer healthcare franchises, which offset a decline in diabetes sales.

Sanofi reports through five Global Business Units (GBUs) – Sanofi Genzyme (Specialty Care), Diabetes & Cardiovascular, General Medicines & Emerging Markets, Consumer Healthcare and Sanofi Pasteur (Vaccines). Please note that in Emerging Markets, Specialty Care and Diabetes and Cardiovascular sales are included in the General Medicines and Emerging Markets GBU.

Sanofi Genzyme/Specialty Care GBU sales (including emerging markets) increased 15.6% to €1.62 billion, driven mainly by strong uptake of multiple sclerosis drugs, Aubagio (up 29.7% to €371 million) and Lemtrada (up 40.9% to €125 million).

Meanwhile, sales of rare disease drugs like Myozyme/Lumizyme improved 12.7% to €190 million while Fabrazyme sales were €177 million, up 15.4%. Cerdelga sales came in at €31 million, up 30.4%. However, Cerezyme sales declined this quarter by 4.9% to €176 million due to lower sales in emerging markets.

Oncology sales rose 12.8% to €412 million driven mainly by higher sales of Jevtana and boosted by a U.S. government order for Leukine. Jevtana sales were up 5.6% to €97 million. Taxotere sales rose 2.2% as higher sales in emerging markets offset generic competition in Japan. Eloxatin sales rose 7.1% as higher sales in China offset generic competition in Canada.

Diabetes and Cardiovascular GBU (including emerging markets) declined 4% to €1.80 billion. The Diabetes franchise (including emerging markets) declined 6% to €1.66 billion due to slowing trends of newly launched Toujeo and continued weakness in Lantus.

Sales of diabetes drugs in the U.S. declined 14.7% to €839 million. Sales of diabetes drugs in Emerging Markets were up 12.1% while in Europe it declined 3%.

Sales of key diabetes drugs, Lantus and Toujeo in the quarter were hurt by exclusion from various CVS commercial formularies.

Lantus sales declined 14.1% to €1.23 billion in the quarter. Lantus sales declined 20.9% in the U.S. due to lower average net price, patient switching to Toujeo and CVS formulary exclusion while in Europe sales declined 14.8% due to biosimilar competition and patient switching to Toujeo.

Toujeo generated sales of €192 million, down 19.3% sequentially in the reported quarter.

Management warned that the U.S. diabetes franchise sales decline will accelerate through the rest of the year due to exclusion from the United Health formulary plans, which started on Apr 1, 2017.

Soliqua, a once-daily titratable fixed-ratio combination of Lantus and Lyxumia, was launched in the U.S. in Jan 2017. Soliqua sales were €4 million in the first quarter.

In the cardiovascular franchise, Sanofi’s anti PCSK9 therapy Praluent garnered worldwide sales of €34 million in the reported quarter, down 8.1% sequentially due to significant payer utilization management restrictions in the U.S. Amgen, Inc. (AMGN Quick QuoteAMGN - Free Report) , which reported earlier this week, also reported a sequential decline in sales of its PCSK9 inhibitor, Repatha.

General Medicines & Emerging Markets GBU sales came in at €3.73 billion, up 2.2%. Sales of Established products were €2.64 billion, up 0.69% as strong performance in emerging markets offset generic competition of Plavix in Japan (Plavix lost exclusivity in Japan in 2015).

Sales of Generics declined 2% to €468 million as lower sales in Europe offset higher sales in Emerging Markets. Sanofi plans to initiate a carve-out process in order to divest the European generics business, which is expected to be completed by the end of 2018.

Consumer Healthcare GBU sales were €1.34 billion, up 42.7% (up 4.7% excluding acquisition of Boehringer Ingelheim’s Consumer Healthcare business), as higher sales in Europe due to an early cough and cold season and in the U.S. due to the launch of Xyzal Allergy 24HR offset lower sales in Russia due to a challenging economic environment.

First-quarter consolidated Sanofi Pasteur (Vaccines) sales increased 22.2% to €784 million due to the strong performance of pediatric combinations and influenza vaccines. Vaccines sales reflect the termination of the Sanofi Pasteur MSD joint-venture in Europe from Dec 2016.

New Products and Pipeline Update

Sanofi and Regeneron Pharmaceuticals, Inc.’s (REGN Quick QuoteREGN - Free Report) , rheumatoid arthritis (RA) drug Kevzara (sarilumab) was approved in Canada in Feb 2017 while in the U.S. (PDUFA date: May 22, 2017) and EU, the drug is under review. Meanwhile, Dupixent/dupilumab was approved by the FDA for treating atopic dermatitis in Mar 2017 and is now available to adult patients in the U.S. The drug is under review in the EU for the same indication.

Costs Rise

Selling general and administrative expenses (SG&A) increased 9.5% at CER in the quarter, reflecting launch costs of Dupixent, Kevzara and Xyzal. R&D expenses were up 4% at CER, reflecting higher pipeline development costs

2017 Outlook

Sanofi maintained its previously issued financial outlook.

Sanofi expects 2017 business earnings to be flat to down 3% at CER. It anticipates positive currency impact in a range of 3%-4% on business earnings in 2017.

Our Take

Sanofi’s first-quarter 2017 sales and profits were better than expected. Both earnings and sales increased year over year backed by strong specialty care (Genzyme) and vaccines sales. Shares of Sanofi rose 1.5% in pre-market trading. In fact, so far this year, Sanofi’s share price has risen 15.8%, better than a 5.9% increase for the Zacks classified Large-Cap Pharma industry. We are encouraged by the strong performance of MS drugs like Aubagio and Lemtrada. We are also optimistic on sales prospects of Dupixent, which could prove to be an important growth driver for the company.

However, headwinds include a bleak outlook for the Diabetes franchise, generic competition for many drugs and slower-than-expected uptake of new products like Praluent.

Sanofi Price, Consensus and EPS Surprise

 

Sanofi Price, Consensus and EPS Surprise | Sanofi Quote

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

A better-ranked pharma/biotech stock worth considering is Heska Corporation which sports a Zacks Rank #1 (Strong Buy). Heska’s earnings estimates increased almost 8% for 2017 over the last 60 days. The company posted positive surprises all the four trailing quarters with an average beat of 291.54%. Its share price has increased 47.2% this year so far.

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