Evan Vitale Consulting: Sanofi Puts Merial Animal Business, Generics Unit on Review

Sanofi shares fell by the most in two months as investors focused on the French drugmaker’s forecast of sluggish earnings growth over the next two years, rather than Chief Executive Officer Olivier Brandicourt’s plans to slim down the company and rejuvenate sales over the long term.

Investments in new drugs and headwinds for the sales of diabetes treatments mean that there won’t be “any meaningful” growth in profit in 2016 and 2017, Brandicourt told investors in Paris while presenting his detailed plans for the first time since taking the helm in April. Merial, a business that makes the flea repellent Frontline for pets, is under review along with the company’s European generics businesses.

The 59-year-old CEO, under pressure as Sanofi braces for slower sales of its best-selling diabetes therapy, signaled a return to a strategy of partnerships and acquisitions. Brandicourt also aims to cut Sanofi’s costs by 1.5 billion euros ($1.63 billion) to help sustain earnings growth in the next five years, and reinvest the proceeds in growth. Last week, the drugmaker slashed its sales forecast for diabetes products.

“The economy is slowing, so all companies that disappoint are being heavily sanctioned on the market,” Emmanuel Soupre, a fund manager at Neuflize OBC Asset Management in Paris, said in a phone interview. His firm oversees the equivalent of $40 billion including Sanofi shares.

Stock Slumps

The stock dropped 5.3 percent to 88.34 euros at 3:32 p.m. in Paris, after falling as much as 6.7 percent earlier, the steepest intraday drop since Aug. 24.

“I am defining new priorities for Sanofi,” Brandicourt said. “The company will remain diversified, but with a portfolio refocused on areas where we can win, and innovation driven to improve the lives of millions of people.”

The drugmaker expects to deliver sales growth at an annual compound rate of 3 percent to 4 percent through 2020 at constant exchange rates, with a target of mid-single digit growth in the second half of the period.

Brandicourt is counting on new therapies such as Praluent, a powerful new cholesterol treatment that first went on sale in July, and its new insulin Toujeo as well as Aubagio and Lemtrada for multiple sclerosis, to help make up for the sales slide in aging best-sellers like Lantus, the world’s best-selling insulin.

New Priorities

“Brandicourt is being realistic,” said Alistair Campbell, an analyst at Berenberg Bank in London. “He’s inherited this business that had a problem with the diabetes franchise before he arrived. He needs to move people on from the diabetes franchise and try to focus on the other growth areas.”

Starting in 2018, Sanofi said it expects to grow its business earnings per share faster than sales. Six major new drug introductions are likely to generate aggregate peak sales of as much as 14 billion euros at constant exchange rates.

Merial, run by Chief Executive Officer Carsten Hellmann, offers limited synergies with Sanofi’s other businesses, the company said. Sanofi acquired full control of Merial in 2009 and failed to merge it with Merck & Co.’s own animal-health division in 2011.

Synergies also are limited for generics in Europe, where market complexity is increasing, Sanofi said.

The company today announced a collaboration and licensing agreement with Lexicon Pharmaceuticals Inc. to gain worldwide licensing rights to an experimental oral diabetes therapy called sotagliflozin. And yesterday, the French drugmaker signed another licensing accord, also in diabetes, with South Korea’s Hanmi Pharmaceutical Co.

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