Current shareholders should hold Sanofi (SNY) long-term, and interested investors may consider initiating a position around the upcoming earnings release. Sanofi is an appealing investment for a defensive position due to its adequate dividend, comparable metrics to its peers, and positive operational outlook. Engaging in partnerships, effective bolt-on acquisitions and recently announcing successful clinical trials regarding multiple sclerosis, diabetes and other ailments are reasons enough to be bullish on Sanofi for the near term and long term.
Pfizer (PFE), Novartis (NVS), Merck (MRK) and GlaxoSmithKline (GSK) are the major pharmas that are most comparable to Sanofi based on competitive markets and market cap. Sanofi's price is around 13.7 times earnings, 2.5 times sales, and 1.6 times its book value. These price ratios are the lowest of the aforementioned firms. GlaxoSmithKline's 13.8 price-to-earnings and 2.6 price-to-sales ratio are the closest to Sanofi. Sanofi's EPS is around $3.15; this is higher than both Pfizer and Merck by around $2 and $1, respectively. Sanofi's EPS growth is around 2.7% in 2012 and projected at a 0.25% deficit in 2013, these are only higher than Novartis' 11.2% decline in 2012 and Merck's projected 2.8% EPS decline in 2013.
Sanofi's sales have increased 3.5% over the past 5 years. Its ROE is around 11.9%, its operating margin is around 19.5%, and its profit margin is around 15.9%. Sanofi's 1.08 short ratio, 0.11% float short and 0.29 debt-to-equity ratio are the lowest among these pharmas. Its beta score is the highest among these firms while its average volume is around 2.3 million. The stock is down 1.4% over the past month but has increased 23.7% YTD; only Merck's 24.8% YTD growth is higher. Sanofi's annualized dividend is around $1.63. The stock has increased around 10% since its last earnings release.
Sanofi and Bristol-Myers Squibb (BMY) recently restructured their agreement under consideration of exclusivity expiring for Plavix and Avapro. Sanofi will sell Avapro worldwide and will sell Plavix to all of the markets outside of the US. Bristol will pay $80 million in the near term and will receive royalties for the duration of the agreement. Sanofi will pay Bristol $200 million at the end of the agreement in December 2018.
Sanofi recently entered into a two year agreement with Massachusetts General Hospital to develop treatments for malignancies and tumors. Sanofi and MGH will adjoin scientific capabilities in conjunction with their respective R&D resources and proficiencies in order to succeed in this joint venture. This new partnership with MGH exemplifies Sanofi's approach to translational and experimental medicine in discovering new candidates for development within its oncology franchise. Sanofi's oncology division currently has 11 treatments in the market and over 15 investigational compounds undergoing clinical trials.
Sanofi recently published data from phase iii clinical trials for Zaltrap, one of the constituents for a product treating metastatic colorectal cancer. Sanofi is working with Regeneron Pharmaceuticals (REGN) on a joint venture for the worldwide commercialization and development for this treatment. Zaltrap proved to provide a statistically significant improvement compared to the placebo in the Folfiri combination therapy. The FDA approval and recent results further bolster Sanofi's oncology portfolio.
Sanofi recently agreed to acquire Genfar in order to improve its product portfolio and market share in Latin America. This acquisition will make Sanofi a market leader in Colombia. Genfar is currently the second largest generic company in sales and the leader in sales volumes for Colombia. Around 30% of Genfar's sales take place outside of Colombia, the growing pharma generates sales revenue from Venezuela, Peru, Ecuador, and ten other regions throughout Latin America. This latest acquisition improves Sanofi's animal health business and its prospects for growth in emerging markets, as well. Genfar has specialized in developing and manufacturing generic, OTC, and prescription drugs for animals and humans for around 40 years.
Sanofi's Genzyme division has recently been successful in a few key clinical trials. Genzyme recently publicized data from clinical trials for Aubagio and Lemtrada. Both of these drugs proved to be effective in treating multiple sclerosis through their phase iii and phase ii trials, respectively. Aubagio is already approved by the FDA; Sanofi is currently seeking regulatory approval from the EMA and other regulatory entities around the world.
Genzyme also recently announced positive data from the first phase iii clinical trials on eliglustat tartrate, an investigational oral therapy developed to treat Gaucher disease type 1. During clinical trials this product reduced the size of the spleen by 21% compared to the placebo. Genzyme's focus on multiple sclerosis alongside rare and debilitating diseases provides Sanofi with a differentiating niche in the pharma sector. The second round of clinical trials for eliglustat tartrate is expected to start in early 2013.
Sanofi also realized recent success in two clinical trials concerning diabetes treatments. A six-year clinical trial showed that treatment with Lantus was three times more likely to sustain target glycemic levels than the standard care for patients with early diabetes at high cardiovascular risk or pre-diabetes. The study showed that treatment with insulin glargine in the early stages of diabetes could deter the disease from progressing. Sanofi also learned in clinical trials that once-daily GLP-1 Lyxumia decelerates gastric emptying and reduces post-prandial glucose levels. This could make the treatment a more effective candidate for helping patients maintain optimum glycemic targets. Sanofi filed Lyxumia for EMA approval in November 2011; an application for FDA approval will be filed in December 2012.
Sanofi expects 2012 revenue to be 12% to 15% lower, YOY. This is primarily due to increased generic competition alongside declining sales from losing exclusivity mid-2012 for Plavix and Avapro. Sanofi expects generic competition to reduce revenues by $1.81 billion by the end of the year. Sanofi has adopted a new operating model that helped reduced costs by $2.58 billion in 2011 and is projected to reduce costs by another $2.58 billion before 2015. Sanofi's current diversified approach to revenue growth by combining niche markets, potential blockbuster products, bolt-on acquisitions, and promising partnerships differentiates it from most major pharmas and makes it an ideal candidate for a long-term defensive position.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.