Investeringsanalyse, 5. januar 2015, Damien Conover
Sanofi's wide lineup of branded drugs and vaccines and robust pipeline create strong cash flows and a wide economic moat. Growth of existing products and new product launches should help offset weakening pricing in the insulin market.
Sanofi's existing product line boasts several top-tier drugs, including long-acting insulin Lantus. The drug's ability to work well for an entire day sets Lantus apart from other insulins. Further, given the complexity in marketing and manufacturing insulin, we don't expect major generic competition following the drug's 2015 patent loss. However, increasing branded competition and a deteriorating pricing environment will likely lead to sales declines for Lantus over the long term. Offsetting the Lantus weakness, Sanofi's vaccines, consumer products, and animal health treatments should continue to post growth as these products are less susceptible to patent losses.
Sanofi has compiled a robust group of late-stage pipeline products that complement its existing lineup and should help mitigate patent losses. We expect continued strength in the multiple sclerosis area with potential blockbusters Aubagio and Lemtrada emerging from the late-stage pipeline. In addition, diabetes drug Lyxumia looks to be a strong complement to the company's well-entrenched diabetes franchise.
The company also harnesses its research and development group to bring new drugs to emerging markets. While pricing in emerging markets is not usually as strong as in developed markets, the company can still leverage its investment in developing new drugs for developed markets by bringing the drugs to emerging markets. The rapid economic growth in emerging markets has created new geographic markets for Sanofi's drugs.
A history of acquisitions and robust cash flow from operations means Sanofi could take advantage of further growth opportunities through external collaborations. As several years have passed since the 2011 Genzyme acquisition, we expect Sanofi will continue to make acquisitions in the branded pharmaceutical and biotechnology market.
Bulls and bears say
Bulls say
- Several products in the company's pipeline address diseases where there are no current treatments or use a novel mechanism of action, which should allow for strong pricing power.
- The FDA rejection of the new competing insulin degludec should mean Sanofi will have the best-in-class insulin in the most important market through 2015.
- With an industry-leading position in the insulin market, Sanofi's Lantus and next-generation insulin Toujeo are poised for robust growth in emerging markets as the diabetic patient population grows due to increasing obesity trends.
Bears say
- Sanofi's strong entrenchment in China could come under duress as Chinese officials are aggressively reviewing pharmaceutical marketing practices.
- The patents on Lantus expire between 2014 and 2015 and while significant generic competition is not expected due to complexities of insulin manufacturing, a major push by generic firms could be detrimental to a key product for Sanofi.
- Branded biosimilars of Lantus are expected from Merck and Eli Lilly, which could create a major drag on earnings growth post 2017.
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