Sanofi Posts Sales Decline in 2010, Provides Disappointing Outlook amid Generic Competition

The financial performance reported for the full-year 2010 reflects the many challenges faced by Sanofi-Aventis (France) during the course of 2010; a year marked by intense competition on the generic front and by the implementation of austerity measures in the European Union (EU) and United States. The group achieved a 3.7% y/y growth in 2010 sales to 30.4 billion euro (US$41.5 billion), largely helped by favourable currency movements. At constant exchange rates, net sales decreased by 0.8% y/y. Sales only increased 0.5% y/y on a reported basis to 7.4 billion euro during the fourth-quarter of 2010. Sanofi-Aventis' growth was positive in its consumer health, generics and vaccines divisions but disappointing in the pharmaceutical market, where the firm faced tough generic competition, in addition to being affected by austerity plans implemented by governments willing to tackle their running deficit in Europe and by the healthcare reform in the United States. Overall, Sanofi performed very well in emerging markets where it achieved sales growth of 16.3% y/y at constant exchange rates. Latin America was the fastest growing market in the region for Sanofi as it brought in 2.7 billion euro, up 32.4% compared with 2009. Full year sales in Western Europe were down 8.8% y/y, impacted by generic competition for Plavix and Taxotere and by austerity measures implemented during the course of 2010. Sanofi did not perform better in the United States, where sales declined 8.4% y/y during 2010, reflecting the impact of generic competition for Lovenox and Ambien as well as the healthcare reform.

In terms of expenses, spending on R&D was down 4% y/y on a reported basis in 2010 to 4.4 million euro. This is due to a reduction in R&D internal costs, which more than offset the rise witnessed in external expenses and R&D spending on vaccines. Meanwhile, selling and general expenses were up 3.3% on a reported basis to 7.6 billion euro. In 2009, net income grew 6.8% y/y to 9.2 billion euro while operating margin—as calculated by IHS Global Insight—increased by 1.9% y/y to 9.7 billion euro.

Sanofi-Aventis' net sales were up 3.7% y/y in the reported currency to reach 30.4 billion euro during 2010. Overall, pharmaceutical sales reached 26.6 billion euro, up 2.9% y/y in the reported currency but down 1.6% y/y at constant exchange rates (CER). Net sales of its diabetes division attained 4.3 billion euro (+14.2% on a reported basis) in 2010. Growth achieved within its diabetes franchise was mainly fuelled by its best-selling product, Lantus (insulin glargine), which garnered sales of 3.5 billion euro during 2010, up 14% y/y. The rapid-acting insulin analogue Apidra recorded the strongest sales growth among its diabetes products over 2010 with sales reaching 177 million euro, up 29.2% y/y in the reported currency. Outside its diabetes division, only a few drugs contributed to growth including Multaq (dronedarone), whose first year into the market brought in sales of 172 million euro. A growing number of Sanofi's flagship products are being hurt by generic competition in Europe and in the United States, including Lovenox (enoxaparin), Plavix (clopidogrel) and Taxotere (docetaxel). The launch of a copycat of Lovenox eroded Sanofi's market share in the United States and led to a sales decline of 7.8% in 2010. Meanwhile, fourth-quarter net sales of Taxotere decreased 20.1% y/y at CER due to a sales decline of 26.2% y/y in western Europe where generic versions were launched in most major countries at the end of the quarter. In the United States, fourth-quarter sales of Taxotere were down 28.1% y/y at CER due to lower demand from wholesalers who anticipated generic entry soon after Taxotere fell off patent in November.

Meanwhile Sanofi's Consumer Healthcare business posted strong sales performance with a 55% y/y rise in the reported currency to 2.2 billion euro. Its generics business achieved a similar sales growth of 51.6% y/y to reach 1.5 billion euro in 2010.

Outlook and Implications

For the year ahead, Sanofi-Aventis expects growth in business earnings per share to be between 5% and 10% lower at constant exchange rate but provides no expectation relating to sales growth. What is clear is that Sanofi's performance will be further impacted by generic competition during 2011, which is why the company is so keen to acquire Genzyme. While talks are still ongoing between the two companies, Sanofi prepares to face tough years as its main revenue streams will be affected by competition by 2013. In the meantime, the French firm will bank on its diabetes, vaccine, consumer health and generics business as well as on its large cost-saving plan to maintain its bottom-line and remain buoyant.

The disappointing forecast given by Sanofi for 2011 does not assume a return of generic competition to cancer drug Eloxatin in the United States, or any benefit from a possible acquisition of Genzyme. The year 2010 was undoubtedly marked by a visible generic pressure for Sanofi. A potential takeover of Genzyme would boost Sanofi's prospects by rendering it less dependent on its former flagship products.