Sanofi (SNY) recently announced results for the third quarter of 2012. Net sales of $11.7 billion were up 3.3% on a reported basis and down 3.1% at constant exchange rates. Net income of $2.8 billion was down 7.4% and 15.9% on the same basis. Earnings per share (EPS) of $2.17 were also down 6.1% and 14.5% on the same basis. Consolidated net income for the first nine months of 2012 was $7.6 billion, compared to $7.1 billion for the first nine months of 2011. Consolidated EPS for the first nine months of 2012 was $4.46, compared to $4.17 for the same period in 2011. The loss in net sales due to generic competition was $579 million in the third quarter, mainly due to generic competition for Eloxatin in the U.S. Sales from growth platforms increased by 6.4% to $8.3 billion and accounted for over 70% of total sales. The diabetes segment registered its seventh consecutive quarter of double-digit sales growth, jumping 17.5% to $1.9 billion. Revenue from Lantus, an injection used to treat type 1 diabetes, grew 20.7% to $1.6 billion, driven by 22% sales growth in the U.S. and 31% in emerging markets.
"New Genzyme," which consists of rare diseases products and Multiple Sclerosis products, achieved strong sales growth of 22% on the back of the Fabrazyme recovery, while emerging markets sales at $3.6 billion increased by 6.8% with double-digit growth for diabetes, CHC, new Genzyme, and Animal Health. Vaccine sales of $1.9 billion grew by just under 1% due to temporary U.S. supply limitations for Pentacel and the delivery of flu vaccines extending into the fourth quarter of 2012 unlike last year. The impact of the Plavix and Avapro loss of exclusivity in the U.S. on net income of $606 million at constant exchange rates. EPS of $2.17 was down 14.5% at constant exchange rates based on the company's performance in the first nine months of this year. The company's 2012 EPS is now expected to be around 12% lower than in 2011.
Sanofi took an amortization charge related to fair value remeasurement of intangible assets of acquired companies of $3.2 billion (primarily Aventis at $1.4 billion, Genzyme at $951 million, and Merial at $384 million ) and to acquired intangible assets (licenses/products at $131 million). The third quarter amortization charge related to fair value remeasurement on intangible assets was $1 billion (primarily Aventis at $467 million, Genzyme at $320 million, and Merial at $130 million, $37 million of which was related to acquired intangible assets (licenses/products). This charge has no impact on the company's cash position. Year-to-date net cash generated by operating activities was $7.5 billion, a decline of 10.7% compared to the same period in 2011. As a result, total debt decreased from $14 billion on December 31st, 2011 to $12.04 billion at the end of the third quarter.
The FDA approved Zaltrap for previously treated metastatic colorectal cancer, Aubagio for relapsing multiple sclerosis, and Auvi-QTM for patients with life-threatening allergies. Plavix was approved for two new indications in Japan. Fluzone QIV IM and a new hexavalent vaccine were filed in the U.S. and Europe respectively. A second set of phase 3 studies for the new glargine formulation was recently started. Eliglustat, an oral compound for Gaucher disease, met its primary endpoint in the phase 3 ENGAGE study.
Sanofi and Bristol-Myers Squibb (BMY) recently restructured their agreement because of the expiry of exclusivity for Plavix and Avapro. Sanofi will sell Avapro worldwide, and will sell Plavix in all markets except the U.S. Bristol-Myers Squibb will pay $80 million in the short-term and will receive royalties for the duration of the agreement. The agreement will expire in December 2018. Sanofi will pay Bristol-Myers Squibb $200 million. 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. Around one-third of Genfar's sales take place outside of Colombia in Venezuela, Peru, Ecuador, and ten other regions throughout Latin America. This latest acquisition also improves Sanofi's animal health business growth prospects in Latin America. To deal with its patent cliff problem, Sanofi has concentrated on cost reduction, and the model it has adopted reduced costs by $2.58 billion in 2011 and is expected to achieve further reductions of $2.58 billion by 2015.
The recent FDA approval for Sanofi's Aubagio means that Sanofi is now poised
to enter the crowded, but lucrative, market for Multiple Sclerosis treatments. The drug was transferred from the Sanofi pipeline to Genzyme following its acquisition. Aubagio, which has to be taken once daily, is the second oral treatment after Gilenya from Novartis (NVS). The drug will also compete with injectibles such as Biogen's (BIIB) Avonex. Sanofi has priced the drug at $45,000 yearly, which is cheaper than Novartis' Gilenya as well as Teva's (TEVA) Copaxone. The global multiple sclerosis treatment market of around 2.5 million patients is estimated at approximately $10 billion per year.
When comparing Sanofi to Pfizer (PFE), Novartis, Merck (MRK), and GlaxoSmithKline (GSK), I found that Sanofi's price/earnings ratio of 13.7, price/sales ratio of approximately 2.5, and price/book ratio of 1.6 are the lowest in this particular group. Sanofi's EPS is considerably higher than both Pfizer and Merck. In addition, the company boasts a dividend yield of 3.8%, comparable to Novartis at 4.1% and Merck at 3.6%. Sanofi is extremely well-managed and has dealt with its patent cliff problems proactively with a healthy drug pipeline and aggressive cost cutting. The company has also been aggressive in making acquisitions. Sanofi is currently headed higher from its current price level of $44.79. The stock has a 52-week range of $31.61 and $45.72. Sanofi is one of the best healthcare stocks in the market today. If you are interested in investing in the healthcare industry for the long-term, you should definitely consider Sanofi.
Disclosure: I am long SNY.