Sanofi Sees Profit Gain, Cautious Forecast Disappoints

Sanofi forecast its first increase in annual profit in four years, helped by two multiple sclerosis drugs and a chewable flea repellent for pets. Analysts expected a bigger gain and the stock slumped.

Earnings per share excluding some costs will advance 4 percent to 7 percent at constant currencies, Paris-based Sanofi said in a statement today. Analysts were predicting an 8.8 percent gain, based on the average of 20 estimates compiled by Bloomberg.

Chief Executive Officer Chris Viehbacher probably erred on the side of caution after a year dogged by generic competition, manufacturing problems, clinical trial failures and regulatory setbacks, said Odile Rundquist, an analyst at Helvea SA in Geneva. France’s largest drugmaker cut its profit forecast last August, and two months later told investors to brace for the lower end of the revised figure.

“We expected management to set an easy guidance target for 2014, but this is too low,” Jeffrey Holford and colleagues at Jefferies in London wrote in a note to clients. “We are disappointed.”

The stock fell 2.7 percent to 69.40 euros in Paris, the lowest level in a year. Sanofi shares have returned 3.4 percent in the past 12 months, including reinvested dividends, compared with a 22 percent gain for the Bloomberg Europe Pharmaceutical Index.

“It’s respectable growth,” Viehbacher said of the profit forecast in an interview today. “There aren’t many people who are going to do better than that in this industry this year.”

‘Good Enough’

Sanofi isn’t the only drugmaker to disappoint today. AstraZeneca Plc said profit and sales would decline more than analysts estimated as generic competition erodes sales of best-sellers such as the heartburn pill Nexium. The stock fell 1.6 percent in London.

“Guidance for many pharma names has been coming in on the weaker side,” Tim Anderson and colleagues at Sanford C. Bernstein & Co. said in a note to clients. For Sanofi, “given the substantial fears about 2014 guidance going into today, these new estimates might still be good enough.”

With the expiry of patents on pharmaceuticals such as the blood-thinner Plavix behind him, Viehbacher is counting on biotechnology drugs from partnerships with companies such as Regeneron Pharmaceuticals Inc. and Alnylam Pharmaceuticals Inc. to propel growth. Those products, based on microorganisms such as proteins, are less likely to fail in expensive late-stage studies than traditional chemical compounds, he said.

Currency Impact

About 80 percent of the company’s products in development are biotech drugs and such products account for about 45 percent of sales, though that proportion will probably grow, Viehbacher said.

Profit rose to 1.81 billion euros ($2.45 billion), or 1.37 euros a share, in the fourth quarter, matching analyst estimates. Sales dropped 0.8 percent to 8.46 billion euros. The depreciation of the Japanese yen, U.S. dollar, Brazilian real, South African rand and other currencies against the euro wiped 5.2 percentage points off revenue last year, Sanofi said.

Sales in Sanofi’s diabetes division, which includes the top-selling insulin Lantus, climbed 19 percent to 1.74 billion euros last quarter at constant currency rates. The Genzyme unit, which sells treatments for multiple sclerosis and rare genetic diseases, had a 31 percent increase in revenue to 595 million euros as Sanofi introduced its new MS drug Aubagio and took market share in Europe from Shire Plc with its Fabrazyme medicine for the rare Fabry disease.

Beef-Flavored Chew

Sales at Sanofi’s animal health unit fell 6.3 percent as its biggest seller, the flea and tick repellent Frontline, faced generic competition. The company is beginning to sell a successor, the chewable beef-flavored tablet NexGard.

Generic competition eroded 1.25 billion euros from sales of key products in the U.S. and Europe, Sanofi said.

“Now that we’ve overcome the difficulties of the past, we’re not going to have much of a (patent) cliff to face,” Viehbacher said at a press conference in Paris.

Even so, the company has experienced setbacks in its efforts to bring new drugs to market. Last year, it terminated development of experimental treatments for Alzheimer’s disease, malaria and cancer, as well as an anti-coagulant medicine, after they failed in studies.

The company also withdrew its application for approval of lixisenatide, a diabetes treatment, and said it plans to resubmit it next year. In December the U.S. Food and Drug Administration rejected the multiple sclerosis drug Lemtrada, a decision Sanofi has said it will appeal.

Sanofi last month agreed to pay $700 million for a 12 percent stake in Cambridge, Massachusetts-based Alnylam and access to rare-disease treatments being developed there.

The company proposed a dividend of 2.80 euros.

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