Sanofi drops sharply on poor quarter
This article was originally published in Scrip
Sanofi's earnings fell 24% in a "frustrating" second quarter, according CEO Christopher Viehbacher, resulting in the French pharma cutting its 2013 forecast guidance. Sanofi was hit by the residual impact of the patent cliff, an inventory problem in Brazil, and currency fluctuations.
Sanofi now expects earnings in 2013 to be 7-10% lower than in 2012, compared with the previous forecast of flat to 5% lower EPS than in 2012. Total sales for the quarter were €8.0bn, down 10%, principally impacted by €481m of sales lost due to generic competition.
"This is principally the typical EU tail erosion [but] a newer element is increased genericization of brands in Japan," explained Dr Viehbacher in a conference call accompanying the results. "Japan has not traditionally been a market where we see significant erosion quickly on generics, but new government policies calling for 30% substitution at a pharmacy level means that [we] have been hit harder than we originally expected." Sales in Japan were down 7% to €594m.
Sales for Sanofi's Pharmaceuticals business were €6.71bn, a decrease of 7%, while sales in Emerging Markets totaled €2.67bn, a decrease of 2.3% (+5.3% excluding Brazil generics). Peter Guenter, executive vp of global commercial operations said Sanofi continued to believe that the emerging markets "constitute the single biggest growth opportunity for the industry as a whole, and for Sanofi in particular given our very strong footprint in the emerging markets, and also our diversified portfolio." However, he acknowledged that Sanofi had had "specific execution issues recently and we are addressing these."
Double-digit sales growth was achieved for Diabetes, Vaccines, Genzyme and Animal Health, noted the firm. "We continue to expect to return to growth in the second half of 2013," stated Dr Viehbacher.
Regarding Brazil, Sanofi found that generic inventory levels in trade channels in Brazil were "significantly and inappropriately in excess of volumes needed to satisfy sell out demand." An adjustment has been made in the current quarter to reflect product returns, customer discounts and rebates, the effect of which was to lower net sales by €122m. An additional provision of €79 million has also been recorded for the write-off of inventory and other related costs.
Sanofi's shares slipped sharply in morning trading on 1 August, and at one point were down almost 7% at €74.80 on the previous day's close.
Sanofi's second quarter sales and business EPS "were big misses versus consensus expectations," noted Deutsche Bank analysts. Nervousness in the run-up to these results was "fully justified given the weak numbers and guidance cut." However, the analysts believe a return to growth in 2H is possible along with sustained growth thereafter, "assuming the Brazilian issue is a one-time adjustment." Nonetheless, 2013 consensus EPS estimates "will likely be cut by c.5% or so but less than half of this in outer years."