Sanofi Profit Dips on Generic Competition, Pandemic Flu End
April 28, 2011, 11:47 AM EDTBy Albertina Torsoli
(Closes shares price in fifth paragraph; adds analyst comment in 18th; CFO comments in last.)
April 28 (Bloomberg) -- Sanofi-Aventis SA, the French drugmaker that bought Genzyme Corp. this month, said first- quarter profit fell as generic competition dented sales of five key medicines and the end of the pandemic wiped out demand for swine flu vaccines.
Earnings slid to 2.17 billion euros ($3.22 billion), or 1.66 euros a share, excluding costs such as writedowns and merger expenses, from 2.43 billion euros, or 1.86 euros a share, a year earlier, Paris-based Sanofi said in a statement today. Analysts had expected 2.13 billion euros, based on the average of 11 estimates compiled by Bloomberg.
Sanofi, like rivals GlaxoSmithKline Plc and Novartis AG, saw vaccine sales slip following the end of the swine flu pandemic. The French drugmaker is also suffering from generic competition to best-selling products such as the blood thinner Plavix. Sanofi bought Cambridge, Massachusetts-based Genzyme, the largest maker of medicines for rare genetic disorders, to gain innovative drugs that aren’t likely to face generic copies.
“Sanofi was hurt by the end of the pandemic and the impact of the different generics,” Arsene Guekam, an analyst at CM-CIC Securities in Paris, said in a telephone interview. “It will be interesting to see how they project themselves in the future with Genzyme.” Today’s earnings matched expectations, he said.
Middle of Cliff
Sanofi stock rose 0.1 percent to 53.30 euros at the close of Paris trading. The shares have returned 7.9 percent including reinvested dividends in the past year, compared with 9.5 percent for the Bloomberg Europe Pharmaceutical Index.
“We are right in the middle of the patent cliff,” Chief Executive Officer Chris Viehbacher said on a conference call with reporters today. To make up for that, “we really tried to build up businesses that have sustainable growth,” such as consumer health, emerging markets and animal health, he said. The Genzyme integration “started favorably,” he said.
Since joining in December 2008, the 51-year-old CEO has been hunting outside Sanofi’s labs for products to help the company replenish its pipeline of new drugs. With Genzyme, Sanofi gained treatments for Fabry, Gaucher and Pompe diseases. The French drugmaker has said the deal will add to earnings in the first year after closing, and will contribute 75 cents to 1 euro to earnings per share by 2013.
The integration of Genzyme “is something that we are doing very sensitively; this is a company with a very different culture,” Viehbacher told reporters today.
‘Fragile’ Recovery
“There is an awful lot in the research and development and the way Genzyme does this that we want to re-infuse back into Sanofi,” Viehbacher said. Manufacturing problems that led to shortages of Genzyme’s main products last year are being solved, he said.
“When we came in, we knew the situation for the recovery of manufacturing was fragile,” Viehbacher told reporters. “It improves every day and I have a lot of confidence that, particularly with Sanofi resources added to this, we are going to be able to get manufacturing issues back on track.”
Viehbacher said he is “personally” overseeing the integration, spending about one or two days every week in Genzyme’s headquarters in Cambridge.
Genzyme’s own first-quarter revenue climbed 7 percent to $1.01 billion, led by sales of the Myozyme and Lumizyme treatments for Pompe disease, Sanofi said in a separate statement today. The French drugmaker said it booked 42 million euros of advisory fees linked to the Genzyme transaction.
No More Pandemic
“The inclusion of Genzyme should lead to an improving sales dynamic as the year progresses, despite increasing generic erosion,” Michael Leacock, an analyst at Royal Bank of Scotland in London, wrote in an April 21 note to clients. He has a “buy” recommendation on Sanofi shares.
Sales at the French company fell 1.5 percent to 7.78 billion euros in the three months ended March 31, beating the 7.61 billion-euro average analyst estimate. Sanofi recorded no revenue from the pandemic flu vaccine, compared with 413 million euros of swine flu vaccine sales in the first quarter of 2010. Total vaccine sales dropped 38 percent to 602 million euros at constant exchange rates.
Sales dropped for Plavix, the cancer drug Taxotere, the Ambien sleeping pill and the anti-clotting treatment Lovenox. In all, generic competition erased 569 million euros in sales during the quarter, Sanofi said. Revenue increased for the diabetes therapy Lantus, the cancer drug Eloxatin and the heart medicine Multaq.
Fleas and Ticks
Sales of animal-health products also advanced, led by the Frontline flea and tick control medicine for pets. The French drugmaker said it recorded 517 million euros of depreciation and amortization in the quarter linked to the change of plan for its Merial animal-health unit.
Sanofi and Merck & Co. last month abandoned plans to combine their animal-health businesses after wrestling with competition regulators for a year over potential divestitures. The decision ended a plan to create the world’s biggest maker of medicines for livestock and pets, as the two companies sought stable sources of revenue growth.
“Sales in pharma, consumer, generics, and animal health beat our forecasts, while vaccines were light,” Seamus Fernandez, an analyst at Leerink Swann & Co. in Boston, wrote in a note to clients. He has an “outperform” recommendation on Sanofi shares.
The drugmaker said it is “on track” to achieve planned cost cuts of 2 billion euros this year and will review the guidance for 2011, to include Genzyme, when it publishes first- half earnings.
“Mechanically, we expect Genzyme will have a positive contribution of between 3 to 4 percent on the business EPS for the full year,” Sanofi Chief Financial Officer Jerome Contamine told reporters.
--Editors: Kristen Hallam, Phil Serafino
To contact the reporter on this story: Albertina Torsoli in Paris at atorsoli@bloomberg.net
To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net
