Sanofi May Be Too Optimistic in Emerging-Markets Forecast

Sanofi and other drugmakers may be too optimistic in their emerging-markets forecasts as slower economic growth in eastern Europe and price cuts in countries from Turkey to China make sales more difficult.

Sanofi, France’s largest drugmaker, today reported a 6.8 percent increase in emerging-markets sales in the third quarter, excluding the purchase of Genzyme Corp. Revenue in those areas rose 7.1 percent in the second quarter, excluding Genzyme and pandemic flu vaccines, the Paris-based company said July 28. In 2010, Sanofi’s emerging market sales climbed 16 percent.

The figures the company announced today were a “disappointment,” Amit Roy, an analyst with Nomura in London, said in a phone interview. “We have been saying for a while that emerging-markets growth won’t be as high as people think, in the long term.” Sanofi and other drugmakers are more likely to record sales growth in these areas closer to “high-single digit, rather than double-digit, going forward,” he said.

Other pharmaceutical companies are finding that emerging markets, where economies and middle classes are growing faster than those of the U.S. and western Europe, aren’t immune from the price reductions and patent expirations that weigh down revenue in developed countries.

Novo Nordisk A/S, the world’s biggest insulin maker, recorded a 3 percent drop in third-quarter sales in China because of government price cuts. AstraZeneca said last week that sales in Brazil retreated 17 percent in the period after it lost exclusivity for its best-selling drug, Crestor, and for another product.

Setback in Turkey

Sanofi Chief Executive Officer Chris Viehbacher told reporters today that in the third quarter, the company had “a setback” in Turkey due to “significant price decreases,” and “some slowdown” in eastern European markets because of the economic crisis.

“There are 80 countries in emerging markets, and there are going to be a few hiccups in some of these markets along the way,” Viehbacher told analysts on a separate conference call today. “Fundamentally, we continue to believe in the enormous opportunity of emerging markets.”

Sanofi still expects “double-digit growth” in these regions this year, he said. The company had “very strong growth in Asia and Latin America” in the quarter, the CEO added.

Outside eastern Europe and Turkey, emerging-markets sales climbed 12 percent, excluding Genzyme, Sanofi said today. On that basis, revenue in China surged 47 percent and Brazil sales gained 19 percent. Revenue in Russia slipped 0.5 percent because of lower vaccine sales and generics, the company said.

‘Far Short’ Performance

The figures are “subdued” and “far short of the double-digit aspiration,” Alistair Campbell, a London-based analyst at Berenberg Bank, wrote in a note to clients today. He has a “buy” recommendation on Sanofi shares.

GlaxoSmithKline Plc, the U.K.’s biggest drugmaker, also has been recording slower growth in countries such as Russia.

“Significant mandatory price cuts in Turkey and Russia” and “a tougher environment in the Middle East” weighed on emerging market sales during the third quarter, Simon Dingemans, the London-based company’s chief financial officer, told analysts during an Oct. 26 conference call. Glaxo recorded a 17 percent increase in sales outside the U.S. and Europe in the period.

Companies such as Glaxo and Sanofi may define emerging markets in different ways. Sanofi’s definition includes all countries except the U.S., Canada, Japan, Australia, New Zealand and those in western Europe.

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