Sanofi is the world’s second-largest drugs maker, and the top player in emerging markets, which account for nearly a third of its sales. This is all largely down to chief executive Chris Viehbacher, who took the helm four years ago. As well as cutting costs and expanding into the developing world, Viehbacher has diversified into areas like vaccines, animal health, consumer products and rare diseases. The company has also bought US biotech expert Genzyme for $20.1bn.
Most importantly, the group is now almost beyond its ‘patent cliff’. Roughly €7.5bn of revenues have been lost to generic rivals since 2009. The last major patent expiry was blood-thinner Plavix, which was opened up to competition last month. This looks set to pull earnings down by 12%-15% this year.
Yet Sanofi’s bottom line has so far absorbed this wallop with barely a wobble. In 2008, turnover and earnings per share (EPS) were €27.6m and €5.59 respectively. The City sees €34.6bn and €5.81 for 2012, rising to €35.6bn and €6.12 next. That leaves the stock on a price/earnings (p/e) ratio of ten, and yielding 4.9%.
From 2013, Viehbacher expects annual sales growth of at least 5%, with the dividend payout ratio rising from 40% to 50%. Better still, new medicines will soon come out of the research and development pipeline. Most significant is the multiple sclerosis treatment Lemtrada, which recently underwent successful phase III trials in the US.
Other potential blockbusters include: rheumatoid arthritis treatment sarilumab, being developed in partnership with Regeneron; and Lyxumia for diabetes. In total, Sanofi aims to launch 18 new compounds by 2015, to coincide with its next big patent expiry – diabetes medicine Lantus.
Sanofi (Euronext: SAN), rated a BUY by Société Générale
I rate the group on a ten times EBITA (earnings before interest, tax and amortisation) multiple. After deducting net debt of €8.6bn and a €4.9bn pension deficit, that gives a value of over €70 per share.
The biggest challenge facing the company is to integrate Genzyme’s biotech culture with its big pharma roots. Sanofi is also exposed to the usual worries about tighter government spending, tougher competition, patent challenges and pipeline setbacks.
But with its huge science base, and heavy weighting towards developing nations, Sanofi looks well-placed to benefit from the ageing global population and improving lifestyles. Throw in that cast-iron balance sheet, and the stock seems an ideal fit for the risk-averse. Second-quarter results are out on July 28. Société Générale has a price target of €69 per share.
Rating: BUY at €55.60
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