EUR 850.00 For Business Accounts Only

Morningstar | SNY Updated Forecasts and Estimates from 17 Jan 2019

Sanofi reported strong third-quarter results ahead of our and consensus expectations, but we don't expect any major changes to our fair value estimate based on the minor outperformance. We continue to view the company as undervalued with the market underappreciating its strong competitive positioning in specialty drugs. The growing portion of these specialty drugs that target unmet medical needs supports strong pricing power and the company's wide moat.

In the quarter, total sales increased operationally 3% (excluding acquisitions), largely driven by growth in the rare-disease and immunology segments. We expect these areas to represent the firm's key drivers of growth over the next three years. Strong sales from immunology drug Dupixent (EUR 225 million) shows the robust start in atopic dermatitis, and we expect the recently approved indication in asthma to help drive further sales, especially in the moderate and steroid-dependent patients where competitive IL-5 drugs don't have a label to target. Additionally, the rare-disease drugs continue to support high-single-digit growth, and the September European approval of Cablivi in the rare disease of acquired thrombotic thrombocytopenic purpura should further help drive growth. The September approval of Libtayo in a rare skin cancer opens the door to a small indication, but the immuno-oncology drug holds more potential in other cancers, even though the late entry will probably limit its potential relative to competitors.

Offsetting the strength in the specialty area, the company's diabetes franchise continues to drag on growth, but the magnitude of the drag is diminishing. Largely due to pricing pressures and biosimilar competition, long-acting insulin drug Lantus fell over 30% in the United States, but now U.S. Lantus sales only represent 4% of total sales. The lower representation from Lantus should create less of a headwind for the company going forward.

For a complete review of Sanofi’s current portfolio and pipeline, please see our healthcare Observer "Steady Pipelines Offset Generic Threats, Securing Big Biotech and Big Pharma Moats."

Sanofi management is participating in the Management Behind the Moat conference at Morningstar's Chicago office Nov. 7-8. If you are interested in attending the conference, please contact your sales representative for registration information.