Saturday 17 February 2018

Sanofi sales soar as firm puts focus on 'platforms'

Dr John Lynch

Sitting down to manage an investment portfolio can make the least philosophical of us pause for thought. What, for instance, is it that we all want most dearly? The answer of course is long life and good health. So if you can find a share that tries to pursue both of these aims, you're made.

That is probably why so many of the shares mentioned in this column over the last year or so have been serious healthcare companies. Today's one is another of those big international drug companies, Sanofi.

It is one of the biggest companies in France (market cap €100bn) and a world leader in vaccines, animal health, with significant share of consumer health and diabetes markets.

It has taken 40 years to reach its present condition but Sanofi has featured in the acquisition of US firm Sterling Winthrop, a merger with the pharma division of L'Oreal and a takeover of Aventis on route to where it now is. It reported sales of €35bn in 2012, up from €27bn five years earlier, and employs 110,000 worldwide; over half in Europe and 18,000 in the US.

The company trades in over 100 countries with 112 manufacturing plants, including one in Waterford. Five years ago, the company decided to change its strategy and concentrate on seven growth 'platforms'. This was in anticipation of the famous 'patents cliff' as some of its best-selling drugs like Plavix and Avapro lost patent protection.

The growth platforms identified were emerging markets, diabetes, vaccines, consumer health, animal health and its recent acquisition Genzyme, a US biotechnology company.

This approach showed some success, in that the 'platforms' accounted for 68pc of last year's sales as against 43pc five years earlier.

The company's focus on emerging markets is showing results with an 8pc growth last year and a contribution of €11bn to group sales. Unfortunately, this year's sales in Brazil, its largest market in Latin America, plunged 17pc due to inventory mismanagement.

In relation to China and India, the company estimates that by 2020 India and China will have 400 million people joining the middle class. Regrettably for Sanofi, this year's sales in China have slowed due to an industry probe centred on Glaxo Smith Kline but alleging corruption in the Chinese pharma industry.

Sanofi seeks solutions for diabetic sufferers, with its insulin pens, blood sugar meters, and insulin marketed under its Lantus brand. Sales last year were €6bn, up by 17pc on the previous year. The company estimates that there are 366 million people with diabetes worldwide, China having 92 million and India 62 million.

Sanofi also estimates that changes in lifestyle and consumption habits worldwide could increase the disease to 600 million people by 2030.

The company is the world leader in vaccines, with a vaccine portfolio for 20 diseases including polio, influenza, meningitis and cholera. Sales of vaccines were €4bn last year, showing growth of 6pc per annum, producing one billion vaccines in 2012.

Sanofi's consumer health platform produces medicines for digestive disorders and cough medicine, allergy medication with multiregional brands, like its flagship brand Maalox.

The company enjoys sales of €3bn and growth of 5pc per annum, in spite of the efforts of governments in mature markets reducing public health costs by making certain categories of drugs now liable for payment.

For Sanofi, this is compensated in emerging markets by the increasing numbers now paying for their own health costs.

The remaining platforms are animal health and Genzyme, both with sales of €2bn. Genzyme, a recent acquisition, is focused on rare diseases, principally Multiple Sclerosis. The company is optimistic for its animal health platform, anticipating growth in sales for vaccines and other products for all animals.

Sanofi shares have eased back from its record high of €87. However, recent results would suggest that the company has reached the end of the patent cliff and will return to growth.

Share sentiment is enhanced by Sanofi's desire to expand its consumer health platform by acquisition and the belief that other key growth platforms will deliver.

There are also some strategic positioning issues to bear in mind. Sanofi would like to buy its shares held by L'Oreal. This depends in turn if the luxury goods company needs cash to buy Nestle's stake in L'Oreal.

Interestingly, the company's preference is to return excess cash to shareholders rather than a buy-back programme.

Nothing in this section should be taken as a recommendation, either implicit or explicit, to buy or sell any of the shares mentioned.

Irish Independent

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