Sanofi (SNY) shares, which have gained about 25 percent in the last twelve months, announced earnings for fiscal year 2012 today. Shares are currently trading down over 3.8% pre-market. The company sees 2013 business EPS flat to 5% lower than in 2012. Further, Q4 business net income was down 24.3% to 1.57 billion euros. Sanofi had been expected to post quarterly business net income of 1.54 billion euros on sales of 8.56 billion, according to Thomson Reuters estimates.
"The market was not expecting a decline this year," said Natixis analyst Philippe Lanone. "Sales trends are encouraging, but the 2013 earnings per share forecast is disappointing."
Drugmakers across the world have been struggling with patent expires, like Pfizer (PFE) mentioned in its past conference call, as well as cutbacks in healthcare spending by cash-strapped European governments. Britain's GlaxoSmithKline (GSK) said on Wednesday it would cut costs in its struggling European drugs division.
The expiry of Sanofi's patent on anti-clotting drug Plavix, once the world's second-best selling prescription drug, is expected to slice around 800 million euros ($1.1 billion) off earnings in the first half Of 2013.
Deutsche Bank analysts said Sanofi was probably setting a conservative outlook for 2013. The performance of the company's growth platforms last year added "credibility to expectations of a return to growth in the second half of 2013 once patent losses have washed through," they said in a research note.
Sanofi has turned to emerging markets, vaccines, over-the-counter treatments, animal health and generics to lessen its reliance on branded medicines. These activities now account for more than 70 percent of sales and rose nearly 10 percent in 2012, Sanofi said, adding it remained on track to meet its medium-term targets. Chief Executive Chris Viehbacher stated in the conference call, "As of Jan. 1, Sanofi is really a new company with a completely different set of sales and a different structure."
In an update on its drugs pipeline, Sanofi said it would start testing two so-called "biosimilar" insulin products by this quarter as it seeks to broaden its diabetes portfolio.
Additionally, the company, aims to have 18 new drugs on the market by 2015, has also been making inroads with new prescription drugs. This year, diabetes treatment Lyxumia and Zaltrap, a therapy for advanced bowel cancer, were approved in Europe, while Kynamro, which treats a rare form of high cholesterol, received the green light from U.S. regulators. Multiple sclerosis pill Aubagio, one of two such treatments Sanofi is betting on to drive future growth, reached sales of 7 million euros in the fourth quarter, the company added.
Although the company missed earnings, and 2013 sales growth looks to be flat, the company has taken steps in the right direction to future positive growth as Chief Executive Chris Viehbacher stated (quote above). The move to emerging markets, vaccines, over-the-counter treatments, animal health and generics to lessen its reliance on branded medicines will set the company in the right direction for future positive growth. In these categories there was close to 10% growth year over year and sales accounted for roughly 70 percent of Sanofi's total 2012 sales. Investors should take note of this big shift in the company and should take advantage of the earnings slip and buy shares at a market discount.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.