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Sanofi Profit Forecast Eases Concern After Setbacks

Sanofi (SAN) said full-year profit will be at the lower end of a previous forecast, easing investor concern that the outlook would be even worse amid setbacks in emerging markets and the vaccines business.

Earnings will probably decline about 10 percent, excluding some costs and currency effects, the Paris-based company said in a statement today. Sanofi had cut its forecast in August, saying profit would fall 7 percent to 10 percent, compared with an earlier forecast of 5 percent.

France’s largest drugmaker has lost patent protection on nine products in the past three years, and missteps in Brazil and its vaccine business have also hurt profit. The stock rose on optimism that the company is recovering from those setbacks, and that new products such as the multiple sclerosis pill Aubagio and an experimental cholesterol-lowering medicine will help the company return to profit growth.

“It looks like they’re on track to hit that growth year in 2014 that we’ve all been looking for,” said Mark Clark, an analyst with Deutsche Bank AG in London. “They haven’t cut the guidance per se, which there had been some nervousness about.”

Sanofi gained 2.4 percent to 77.55 euros in Paris, the biggest increase since July 4 and the highest price in more than two months.

Missing Estimates

Third-quarter earnings fell 19 percent to 1.79 billion euros ($2.46 billion), or 1.35 euros a share, in the quarter from 2.20 billion euros, or 1.67 euros, a year earlier. Analysts predicted profit of 1.88 billion euros, the average of 10 estimates compiled by Bloomberg.

Sanofi wasn’t able to sell batches of some routine childhood shots made at a Toronto plant after they failed internal safety tests, Chief Executive Officer Chris Viehbacher said on a conference call today. Shipments have resumed and the company doesn’t expect any further repercussions, he said.

Viehbacher said he expects profit to rise in the fourth quarter as Sanofi’s performance is no longer compared with a time when some of its best-sellers, whose sales are now eroded by generic rivals, were boosting results. Cheaper competition has shaved 1.22 billion euros from sales this year.

“Nothing in the third quarter gives us any cause for concern for the fourth,” Viehbacher said.

Sales rose 0.6 percent on a constant currency basis to 8.43 billion euros last quarter, missing the average analyst estimate of 8.57 billion euros.

China Probe

The company has had setbacks in emerging markets, where it generates a third of revenue. Third-quarter sales growth slowed to 5 percent in China, compared with 15 percent in the second quarter, as Sanofi faced an industry probe that centered on rival GlaxoSmithKline Plc. (GSK)

China’s investigation into alleged corruption in the pharmaceutical industry has created “some uncertainty” at hospitals, according to Viehbacher.

“We’re back to about 90 percent of our promotional level,” he said. “We see sales coming back, not quite as quickly, but September was stronger than August, and October was stronger than September.”

Third-quarter revenue in Brazil plunged 17 percent because of inventory mismanagement in the second quarter that prompted Sanofi to take charges of 201 million euros. Sales in Latin America’s largest market are returning to normal, Viehbacher said.

“China hasn’t blown up in the way it has done for Glaxo, and Brazil sounds like it’s fixed,” Deutsche Bank’s Clark said.

Stronger Euro

The strength of the euro against currencies in Japan, the U.S. and emerging markets wiped 7.3 percent from revenue and more than 10 percent from earnings per share, the company said.

The common currency is the best performer this year among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Among emerging-market currencies, the Indian rupee has fallen about 14 percent against the euro this year and the Brazilian real has declined about 10 percent, according to data compiled by Bloomberg.

The French drugmaker has also experienced setbacks in its efforts to start selling new drugs, including the failures of iniparib for lung cancer and an anti-coagulant known as otamixaban. The company also withdrew its application for U.S. approval of lixisenatide, though it plans to resubmit the application in 2015.

Drug Pipeline

The company has had some good news. The experimental treatment alirocumab lowered cholesterol three times more than Merck & Co.’s Zetia in the first late-stage study of a drug that may garner $3 billion sales annually. Sanofi is developing the medicine with Regeneron Pharmaceuticals Inc. (REGN)

Sanofi is expecting results next year from a late-stage study of the world’s most advanced vaccine against dengue, which could earn 2 billion euros a year in sales, according to Vincent Meunier, an analyst at Exane BNP Paribas.

Sanofi would consider buying back an 8.9 percent stake held by L’Oreal SA (OR) if it were to become available, Viehbacher said on a conference call with analysts today. That would depend on whether the French cosmetics maker needs to raise funds to buy back a 29 percent stake held by Nestle SA.

That, in turn, hinges on whether Nestle, the Swiss maker of Kit Kat bars, wants to sell it, which it will be free to do in April without having to offer it first to the billionaire heirs of L’Oreal’s founder.

L’Oreal has “considerable financial resources” including cash and its stake in Sanofi that enable it to consider all opportunities, Chief Executive Officer Jean-Paul Agon said at an Aug. 30 meeting with analysts and reporters.

To contact the reporter on this story: Simeon Bennett in Geneva at sbennett9@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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