Morningstar | Sanofi Posts Solid 1Q as Specialty-Care Drugs Drive Overall Growth; Shares Look Undervalued
Sanofi reported first-quarter results that were largely in line with our expectations, and we don't expect any major changes to our fair value estimate. We continue to view the stock as undervalued, with the investment community likely underappreciating the increasing strength of the company's positioning in specialty drugs versus older primary-care drugs. This shift also strengthens the company's overall pricing power, which gives us increased conviction in the company's wide moat.In the quarter, total sales increased 4% operationally, with strong growth from specialty-care drugs (up 18%, adjusted for portfolio shifts) more than offsetting the decline in primary-care drugs (down 5%, adjusted for portfolio shifts), an overall trend we expect to continue over the next several years. We are particularly bullish on specialty-care drug Dupixent for atopic dermatitis and asthma, which continues to ramp well. Also, despite increasing competition, multiple sclerosis drug Aubagio continues to post solid gains. However, one potential challenge in the specialty-drug group is hemophilia drug Eloctate, which fell slightly in the quarter, likely due to increased competition, but next-generation blood disorder drugs in Sanofi's pipeline should help mitigate pressure in this group. Additionally, the overall strength of specialty drugs should help overall margins, as these drugs carry high profit levels due to their strong pricing power and typically need less marketing support than primary-care drugs.
On the primary-care side, pressures continue, largely hitting the company's insulin franchise. Long-acting insulin drug Lantus fell 17% operationally as both competitive pressures and pricing pressures are weighing on the drug. However, the drug now represents less than 10% of overall sales, down from close to 20% in 2016. While we expect further declines for Lantus, the impact on overall sales is continuing to diminish.
For a complete review of Sanofi's pipeline and currently marketed portfolio, please see our annual pipeline report, "Annual Drug Pipeline Report: Moats Remain Secure as Innovation Counters Pricing and Generic Headwinds, but M&A Accelerating."
Sanofi is an integrated, global healthcare company focused on patient needs and engaged in the research, development, manufacture and marketing of healthcare products. Two segments make up Co.'s business: Pharmaceuticals and Vaccines. The Pharmaceuticals segment covers research, development, production and marketing of medicines, consisting of flagship products, plus a broad range of prescription medicines, generic medicines, and consumer health products. The Vaccines segment includes research, development, production and marketing of vaccines in five areas: pediatric vaccines, influenza vaccines, adult and adolescent booster vaccines, meningitis vaccines, and travel and endemic vaccines.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
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