Sanofi – SAN
Sanofi, a diversified European large-cap pharmaceutical company, develops and markets branded pharmaceuticals. Its business is structured across 7 key growth platforms – diabetes, vaccines, Genzyme, innovative drugs, emerging markets, consumer healthcare and finally animal health – with particular concentration in the areas of oncology, cardiovascular disease and central nervous system disorders. In recent years, Sanofi has transformed its business on a structural basis through acquisitions. Its major business exposure is now in emerging markets with a range of innovative and diversified products.
The company offers a diverse array of branded drugs, with its highest revenue generator, Lantus, representing over 10% of total sales. About 83% of its revenues are generated by the pharmaceutical division (ex vaccines), Pasteur 11% (vaccines) and 6% animal health. About 50% of total revenue comes from the United States and Europe combined (25% each), while the remaining 50% is almost entirely generated in the fast-growing emerging markets.
In recent quarters, Sanofi has underperformed the market by more than 15%. The stock is now trading at a compelling price when taking into consideration the very strong pipeline of late stage products. New potential blockbusters include: Aubagio, Lemtrada as well as Lyxumia for the diabetes franchise. Based on the present prices, the stock is priced at 12x the 2014 earnings, which is at a discount of 9% compared with the larger sector. It is also worthwhile knowing that the stock offers a growing dividend yield which is presently at 3.7%.
Sanofi’s large geographic exposure allows the company to take a dominant position in regions with strong secular growth trends. Furthermore, its business is well protected from potential patent expiries as the development of new insulin products requires high startup costs and a well-organized distribution network, which most of its competitors do not have.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- Sanofi charges prices that enable returns on invested capital significantly above its cost of capital,
- In the insulin product area Sanofi has almost full market exclusivity, which provides it with strong pricing power,
- SAN is well positioned to take advantage of improving life conditions in EMA which bodes well for its long-term outlook.
Weaknesses:
- The French wealth tax may negatively impact the stock price, and in the long-term may make it an unattractive holding for international investors,
- Generic competition could wipe out some of the company’s key market share,
- A large part of the company’s sales are based on the Lantus product line. Companies such as Eli Lilly & Co. and Novo Nordisk may enter the same market,
- Higher efficacy / safety approval requirements could delay the launch of new products.
Company profile, investment opportunity and asset management integration:
| Metric | Rating |
| Operational risks: | Above average |
| Expected growth: | Above average |
| Long term value creation: | Excellent |
| Positive competitive advantage: | Above average |
| Management excellence: | Average |
| Financial strength: | Well above average |
| Investment orientation: | Group “Best-in-Class”: Healthcare, Emerging Market Exposure |
Price ranges:
| Buy: | Only forcustomers |
| Sell | Only forcustomers |
| Stop-loss: | Only forcustomers |
| Fair-value: | Only forcustomers |