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Despite stable earnings, Sanofi reported positive growth in earnings per share courtesy of improved margins.

Its robust pipeline will increase earnings and shareholder value.

The Genzyme deal with Alnylam will further strengthen the company's drug portfolio.

With a strong pipeline and products waiting approval, I expect that the stock has yet to reach its peak.

Sanofi (NYSE:SNY) had a decent second quarter. The company's sales remained stable at $10.65 billion, compared with $10.56 billion quarter-over-quarter. However, the company improved its operational efficiency and lowered its SG&A expenditure, reporting an increase in earnings per share (EPS). Operations improved, and gross margins increased from 67.7% to 68.6% year-over-year. Similarly, the SG&A expense was reduced as a percentage of sales from 29% to 27.9%. Thus, both of these factors contributed to growth in EPS, which rose from $1.47 to $1.54, reflecting a 4.8% increase. With this increase, the company's stock is trading at $55.21, almost reaching its 52-week high of $55.35. However, this is not the end of the story. This stock still has significant upside potential, and is poised to reach a target price of $60.

The Robust Pipeline Will Increase Earnings and Shareholder Value

According to the CEO, the company currently has nine products in the final stage of development. Some of these products are in a position to receive approval from regulatory authorities. Among these medicines, the one for diabetes is particularly important, because there is large number of people diagnosed with diabetes. According to estimates, there are approximately 382 million people currently suffering from diabetes. And since this disease can be genetically transferred from parent to child, this number is expected to increase to approximately 592 million up until 2035. Due to such a massive demand forecast, the company has always put strong emphasis on developing diabetes medicines.

Presently, the company's star product Lantus is recognized around the world, as it is utilized in more than 120 countries. Therefore, an improved product will gain mass acceptance in no time. The only requirement by the public will be that the product yields better results. This is where the new drug for diabetes, Toujeo, comes into play. Toujeo is an improved version of Sanofi's Lantus, which is the world's most prescribed insulin. However, Lantus is set to lose its patent protection in the U.S. in February 2015.

The good news is that the U.S. FDA has accepted the filed application for review of this new drug. It is expected that the drug will be introduced to the market in 2015. This was confirmed by Senior Vice President Pierre Chancel of the Global Diabetes Department, who stated that: "With the FDA's acceptance of our submission, we are anticipating the regulatory decision for marketing authorization for Toujeo in the U.S. in the first half of 2015." Similarly, the filing for the drug was also accepted by the EMA for European Union countries.

Toujeo is only one of many drugs that are in the final stages of either testing or pending approval. For instance, Fluzone is another drug that is pending FDA's approval. Fluzone is a vaccine that could be used for many purposes simultaneously. In particular, it could be used against diphtheria, tetanus, whooping cough, and polio in children. Therefore, thanks to its global popularity, I expect significant sales growth in the future for this healthcare giant.

The Genzyme Deal With Alnylam Will Further Strengthen SNY's Drug Portfolio

Sanofi has also recently announced that Genzyme, one of its wholly-owned subsidiaries, is signing a deal with Alnylam Pharmaceuticals. The company hopes to commercialize treatments for rare genetic diseases. Genzyme will invest approximately $700 million to become a major shareholder in Alnylam, as per the agreement.

This agreement is critical for Sanofi, as pointed out by Genzyme President David Meeker. He said: "This collaboration is an important building block for our future. It strengthens our pipeline and provides us with the opportunity to meet the needs of patients with rare diseases around the world through our well-established global organization." This deal will help to open new avenues for Genzyme and in turn Sanofi, since commercialization is the key element to monetize the company's methodical research and development process.

Final Remarks

As mentioned above, Sanofi enjoys global recognition for its branded medicines. Moreover, CEO Chris Viehbacher did admit that the company had been slow in introducing new products in the last decade. However, he also stressed that this would soon come to an end. With a strong pipeline and products awaiting approval, I expect that the stock has yet to reach its peak. Therefore, based on a strong sales forecast and improved operations, I recommend buying this stock.