Sanofi May Pursue Takeovers as New Drugs Buoy Profit Growth

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Sanofi, France’s biggest company by market value, reported second-quarter profit that beat estimates and signaled that it may hunt for acquisitions in the months ahead.

Earnings excluding some costs, which Sanofi calls business net income, climbed to 1.84 billion euros ($2.02 billion), or 1.41 euros a share, from 1.54 billion euros, or 1.17 euros a share, Sanofi said in a statement. That exceeded the 1.32 euro-a-share average of 12 analyst estimates compiled by Bloomberg.

Chief Executive Officer Olivier Brandicourt is banking on Praluent, a powerful new cholesterol medicine that won regulatory clearance last week, and other recent drugs such as Aubagio for multiple sclerosis to support Sanofi’s stable of ageing best-sellers. He also indicated that the French drugmaker may “be more active” on takeovers to boost its pipeline of experimental drugs, four years after buying Genzyme Corp.

“This company has demonstrated they could be very successful at doing mid-size M&A and bolt-ons,” Brandicourt said on a conference call. “That’s more what we would consider doing, but of course remaining extremely financially disciplined.”

Sales rose 5 percent excluding currency swings to 9.38 billion euros at Paris-based Sanofi, beating estimates of 9 billion euros. Revenue from Lantus, the world’s most prescribed insulin, fell 5.8 percent to 1.71 billion euros, which Brandicourt said was in line with the company’s expectations.

Lantus Generic

“This is one of their best quarters in a long time,” Peter Verdult, an analyst at Citigroup Inc. in London, said in a phone interview. “They will reassure investors with the diabetes trends.”

Lantus revenue dipped 15 percent in the U.S. after Sanofi was forced to give bigger rebates to insurers amid a price war with Novo Nordisk A/S. A copycat version introduced by Eli Lilly & Co. in some Eastern European countries this month costs as much as 20 percent less than the original, Sanofi said. It will probably come to the rest of Europe by the end of the year, according to Brandicourt.

Sanofi was little changed, trading at 97.96 euros at 11 a.m. in Paris. The stock has gained 32 percent this year, including reinvested dividends, compared with a 33 percent advance in the Bloomberg Europe Pharmaceuticals Index.

‘Ready to Ship’

Praluent, designed to help patients who can’t get very high levels of bad cholesterol under control, is expected to generate 1 billion euros in sales for Sanofi in 2018 judging from analysts’ estimates, alleviating some of the Lantus impact.

“Our teams have been working around the clock to make Praluent available to patients in the U.S.,” Brandicourt said. “If it’s not tomorrow it’s early next week. We are ready to ship Praluent and prescribers can prescribe now, anytime.”

Sanofi repeated that earnings per share will be stable to slightly growing this year, excluding currency fluctuations. Foreign-exchange movements, led by the euro’s weakness against the U.S. dollar, may add 10 percent to reported earnings per share, below a prior estimate of 12 percent.

Revenue at the Genzyme unit surged 27 percent, boosted by Aubagio and the rare-disease treatment Myozyme. Together, Aubagio and another multiple sclerosis medicine called Lemtrada are on track to garner more than 1 billion euros in sales, the company said.

Roadmap Pieces

Some companies have also applied for European approval of so-called biosimilar versions of Sanofi’s blood thinner Lovenox, the company said. Several generic versions of Plavix were introduced in Japan at the end of June and will affect sales of the drug in the second half.

Concerns about increasing generic competition for Lantus, Plavix and Lovenox tempered some of the enthusiasm about the growth prospects for newer drugs, according to Alistair Campbell, an analyst at Berenberg Bank in London.

“They do say in the second half Plavix is going to face some significant erosion,” Campbell said. “They haven’t raised full-year earnings. That’s a nod to the fact that the second half will be a bit tougher.”

Brandicourt, who took over in April after previous CEO Chris Viehbacher was fired in October, has said he’s working on a five-year plan for Sanofi. So far he’s restructured the company into five business units, and this week agreed to a new $2.2 billion collaboration with Regeneron Pharmaceuticals Inc. to develop cancer drugs. He plans to announce the results of a strategic review at a meeting with investors on Nov. 6 in Paris.

“You can see pieces of the roadmap, and that roadmap will be much more complete in November,” he said.

‘Do Something’

On seeking transactions, Brandicourt said the company may take advantage of low borrowing costs and debt level.

“Sanofi’s balance sheet is now pretty clean, so it’s got the firepower to go out and do M&A,” Berenberg’s Campbell said. “I wouldn’t be surprised if sometime in the second half of the year if we see them do something.”

The profit measure Sanofi calls business net income excludes certain costs including amortization and impairment of intangible assets, legal provisions and other one-time charges.

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