EUR 850.00 For Business Accounts Only

Morningstar | Lantus Declines Weigh on Sanofi's 2Q, but Specialty Drugs Show Solid Growth; Shares Look Undervalued

Sanofi reported second-quarter results slightly below our expectations, but we don't expect any changes to our fair value estimate based on the minor underperformance. We continue to view the company as undervalued with underappreciated, accelerating growth likely to begin later this year, driven by new product launches, strong positioning in specialty care drugs, and less pressure from Lantus declines. Overall, the diverse and steady product portfolio and developing drug pipeline reinforce our wide moat rating for the firm.

In the quarter, competitive pressures to diabetes drug Lantus and weakness in vaccine sales were offset by strong specialty drug sales, leading to flat operational sales (including a 3% contribution from the Bioverativ acquisition). However, we expect sales will accelerate as Lantus now represents less than 8% of total sales, down from 13% in 2017. While we expect competitive pressures will lead to further market erosion for the drug, we expect the declines will have less impact on total sales. Further, we expect the vaccine business to grow later in the year, following the correction of supply interruptions that weighed on the quarter's growth.

Specialty drugs and new drug launches continue to gain solid traction. Rare-disease drugs continue to support specialty drug growth, up 14% (excluding the Bioverativ acquisition), despite some pressure on multiple sclerosis drugs, down 3%. We expect continued pressures to multiple sclerosis drugs due to competition from Roche and the front-end-loaded dosing schedule for Sanofi's Lemtrada. However, we expect other rare-disease drugs and new drug launches to drive strong long-term growth for the segment. Atopic dermatitis drug Dupixent posted sales of EUR 175 million in the quarter, and we expect the drug will hit full-year sales of over EUR 2 billion by 2020 based on leading efficacy and manageable side effects as well as approvals in new indications, including severe asthma by Oct. 20.

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.