Is Sanofi’s share a purchase?

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Investors looking for a large capitalization pharmaceutical investment have a number of options to choose from. One of them is Sanofi (NASDAQ: SNY), a company with a fairly diverse drug portfolio that has garnered a lot of attention for its diabetes treatments, a particularly lucrative market at the moment.

Despite bad news from the U.S. Food and Drug Administration (FDA) rejecting one of Sanofi’s anti-diabetic drugs, the company’s outlook is now improving with new clinical results. Let’s take a look at some details about Sanofi’s drug candidates, what the company looks like as a whole, and whether investors should consider adding Sanofi to their portfolios.

Image source: Getty Images.

A potential breakthrough for diabetes?

Considering the size of the diabetes market, with more than 425 million people living with the disease worldwide, it’s understandable that investors are paying close attention to companies developing treatments in this area. Sanofi is one of the main players in the sector; its primary diabetes drug, Lantus, has been a major revenue driver for the company for years.

In 2018, Lantus brought Sanofi $ 3.95 billion. However, that figure fell by more than $ 1.17 billion from the previous year due to competition from other diabetes drug makers, such as Novo Nordisk (NYSE: NVO), continues to gain momentum. Sanofi has therefore worked on a few new generation diabetes treatments to consolidate its struggling Lantus sales.

On this side, the news is mixed. Earlier this year, Sanofi received what comes closest to a rejection letter from the FDA regarding its diabetes candidate Zynquista, which was developed to treat type 1 diabetes. Although this is a setback, Sanofi recently announced strong results from phase 3 trials for a another diabetes medicine, Toujeo, for the treatment of children and adolescents aged six years and over with type 1 diabetes.

With Lantus’ sales slowing, Sanofi’s diabetes business is banking on its promising drug to make up the difference. Toujeo’s revenue was $ 930 million for 2018, not fully offsetting Lantus’s $ 1.17 billion decline in sales over the same period, but approaching it.

The complete portrait of the Sanofi pipeline

While the market for diabetes treatments remains very attractive to investors, it is easy to forget that diabetes remains a relatively small part of Sanofi’s drug portfolio, despite the attention paid to this area. Sanofi’s current pipeline of upcoming drugs totals 85 different drugs, including 51 in early clinical trials and another 34 in phase 3 or pending approval. To put it in perspective, only two drug candidates are found in the diabetes space, while other areas such as oncology and immunoinflammation have 28 and 18 drugs, respectively.

Sanofi’s best-performing drug in terms of growth is Dupixent, a treatment prescribed for moderate to severe cases of eczema (skin irritation). Sales grew by an impressive 142% over the past year, with revenue reaching $ 628 million for the third quarter of 2019. In comparison, sales of all of Sanofi’s diabetes drugs are up. decrease of 18% since the third quarter of 2018.

Dive Deeper into Finances

While a number of Sanofi’s drugs have experienced more modest growth rates, the overall financial picture has not been so impressive. Total sales for the quarter were $ 10.46 billion, a stable level from the $ 10.46 billion reported in the third quarter of 2018. Overall vaccine sales, a historically strong revenue driver for the company , fell 6.7% over the year shrinking rather than growing.

The reason Sanofi’s sales haven’t been worse, however, is that its emerging market segment has taken over. Global emerging markets revenue was $ 3.07 billion, up 9.7% from a year ago. Latin and Central America experienced growth rates of 21.4%, while China’s growth stood at 13.7%.

While international growth such as double-digit growth rates in countries like China is a good sign, investors should remember that many other large-cap pharmaceutical companies are showing similar numbers.

A look at the competition

One company with which Sanofi is closely compared is Novo Nordisk. In addition to being of similar size and having a large portfolio of drug candidates, Novo Nordisk competes directly with Sanofi in the diabetes market with its own drug, Tresiba. In fact, Novo Nordisk’s diabetes business segment has been one of the company’s fastest growing businesses, accounting for 84.2% of its overall sales. This already differentiates the two significantly: Sanofi is much more diversified in its revenues, while Novo Nordisk is much more focused on its diabetes treatments.

Sanofi appears to be trading at a higher valuation, with a P / E ratio of 33.9 versus 22.9 for Novo Nordisk. However, looking at the revenues of the two companies side by side, investors would realize that a more expensive valuation does not always mean that a company is better, especially in terms of fundamentals. Over the past eight years, Sanofi’s revenue is down 12.2% from its Q4 2011 highs. Novo Nordisk’s revenue, although lower than Sanofi, n ‘has stopped growing and increased by 42.1% over the same period.

Is Sanofi a buy?

Sanofi certainly has a lot of potential with a solid and comprehensive portfolio of drug candidates. However, given that it faces stiff competition in the high growth diabetes market and that its revenue growth is not that large as some of its competitors, I am not sure to say that Sanofi is a buy.

That’s not to say that Sanofi is necessarily a bad company. But investors may find better options in the large-cap pharmaceutical industry to buy now. Maybe if the prices drop to a cheaper valuation, investors should consider checking it out, but until then go ahead and shop around.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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About Nereida Nystrom

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