Sanofi Reports 6.3% Y/Y Growth in Revenue as Vaccine Sales Offset Generic Threat in 2009

After two challenging years, French pharmaceutical giant Sanofi-Aventis has closed the books on a positive performance, beating expectations for the fourth quarter (Q4) as vaccine sales offset losses induced by generic competition. In 2009, the group achieved a 6.3% y/y jump in sales to 29.3 billion euro (US$40.4 billion) with total pharmaceutical sales up 4.5% y/y in the reported currency to 25.8 billion euro. Sanofi's growth was mainly fuelled by the group's vaccine business which increased 21.7% y/y over the period and by the strong performance of two of its flagship products: Lantus (insulin glargine) and Lovenox (enoxaparin), which achieved growth sales of 25.7% and 11.1% y/y respectively. Operating costs were contained in 2009 with a slight 0.2% y/y increase in research and development spending to 4.6 billion euro. In 2009, net income grew 17.9% y/y to 8.5 billion euro while operating margin—as calculated by IHS Global Insight—increased by 12.4% y/y to 9.5 billion euro. Exchange-rate fluctuations had a favourable effect of 1.0 percentage points in 2009 mainly due to the appreciation of the U.S. dollar—and of the yen—versus the euro. Excluding changes in structure, organic net sales growth increased 4% y/y at constant exchange rate.

In 2009, Sanofi's net sales grew by 3.2% y/y at constant exchange rate in Europe, where Sanofi achieved sales growth of 34.9% y/y in Eastern Europe and Turkey, driven by the acquisition of Czech generics producer Zentiva and record growth sales of 59.8% y/y in Russia. In the United States, the French company achieved a fair 2.8% y/y increase, with the strong performance of Lantus—23.6% y/y growth—and vaccines—19.1% y/y growth—helping to offset competition from generics of Eloxatin (oxaliplatin) and the withdrawal of Copaxone (glatiramer acetate) from the U.S. market. Globally, Sanofi's revenue was fuelled by a good performance in emerging markets and Japan, where sales respectively increased 19% y/y to 7.4 billion and 10.7% y/y to 1.8 billion at constant exchange rates.

For the fourth quarter of 2009, Sanofi-Aventis's net sales jumped 3.8% y/y in the reported currency, beating expectations as the company succeeded in offsetting losses due to generic competition. Sanofi's fourth-quarter net income increased 10.4% y/y to 1.8 billion euro, a good performance knowing the challenges the French company has to face. Over the fourth quarter, sales of Eloxatin in the United States and Plavix in Europe weakened due to generic competition. In 2009, Eloxatin suffered from deep losses and posted a 34.7% y/y loss in full-year sales at constant exchange rate to 957 million euro. This is due to the introduction of generics in August 2009 in the United States where the cancer drug reported a 97.4% y/y loss in fourth-quarter sales. In Europe, Plavix (clopidogrel) suffered from a 30.8% fall in fourth-quarter sales following the acceleration of generic competition in European markets. Losses in Europe were globally offset by an 11.3% y/y increase in the United States where the drug is marketed by Bristol-Myers Squibb (U.S.) and by a 17.3% y/y rise in "other countries" regions. Sanofi's strategy related to Plavix in France has proven to be effective with 56% of total units of clopidogrel in France retained as a result of the launch of an authorised generic by Sanofi in December 2009. On the positive side, sales of Lantus increased by 25.7% y/y in the reported currency over 2009 with worldwide sales of 3.1 billion euro. Meanwhile, sales of Lovenox raised 11.1% y/y in the reported currency to 3 billion. In 2009, Taxotere recorded full year sales up 7.1% y/y in the reported currency to 2.2 billion euro. It is worth mentioning that Sanofi-Aventis' launch of Multaq in the United States has already generated 25 million euro in sales for Sanofi for the full year 2009.

Sanofi's Consumer Healthcare business posted strong sales performance with an 18.9% y/y rise in the reported currency to 1.4 billion euro. The group recently increased its Consumer Healthcare business with the consolidation of Zentiva's consumer health activity, the acquisition of the French leader in nutritional supplements Oenobiol and the successful conclusion in February 2010 of the tender offer for major U.S. company Chattem. For the full-year 2009, net sales of Sanofi's generics business nearly tripled to 1 billion euro. However, on a constant structure basis and at constant exchange rate, net sales increased by a fair 8.7% y/y as the change rate on a reported basis reflects the consolidation of generic firms Zentiva, Kendrick and Medley.

Outlook and Implications

For the year ahead, Sanofi-Aventis expects growth in business earnings per share to be between 2% and 5% at constant exchange rate but provides no expectation relating to sales growth. The year 2010 will probably see Sanofi lower its expectations in terms of revenues generated by its swine flu vaccine as many governments, experiencing surplus in swine flu stocks, are negotiating with vaccine makers—including Sanofi—to cancel excessive orders. In 2009, Sanofi Pasteur—the vaccine division of Sanofi Aventis—provided over 280 million doses of influenza vaccines to meet the strong demand induced by the global pandemic. Sanofi is banking on its vaccine business to bring in significant revenues with an ambition to double sales by 2013.

In coming years, vaccines such as consumer healthcare and generics will become an increasing focus for Sanofi which seeks to diversify through inorganic growth to boost its pipeline and become less dependent on patent expiry as most of its flagship products will be exposed to generic competition by 2013. In 2010, Eloxatin and Plavix will continue to experience deep losses in the United States and in Europe. At the same time, Lovenox appears at risk with Novartis seeking to secure U.S. regulatory approval for a copycat version of Sanofi's blockbuster ahead of patent expiry. In that context, 2009 has seen Sanofi ink a series of deal to explore new sources of revenue and expand its presence in emerging markets. The acquisition of Oenobiol (France) and of major U.S. company Chattem will further diversify Sanofi's business and expand its presence in the fast-growing over-the-counter (OTC) market, notably in China where Sanofi has established a promising joint venture with local Misheng Pharmaceutical Group in January 2010.

The increasing focus on areas outside prescription pharmaceuticals—on over-the-counter medications (OTCs) and vaccines—and the shift to a new strategy involving the big pharma in generic business reflects its ambition to cope with the challenges brought in by generic entry and by the slowdown in innovation. In order to boost innovation and bring in promising investigative drugs, Sanofi has entered into biotech partnerships, the most promising of which is the acquisition of BiPar (U.S.) in April 2009. The deal added BiPar's lead product candidate, BSI-201, currently under Phase III clinical trial for the treatment of metastatic triple negative breast cancer (TNBC) to Sanofi's oncology portfolio. The drug has received fast-track status in the United States, ensuring a faster regulatory approval process for the cancer drug. Another main focus for Sanofi has been to ink a collaboration agreement in the field of infectious diseases with biotech companies—an area which attracts increasing interest among big pharma players. In the second-quarter of 2009, three development partnerships have been announced in the United States—with KaloBios for the prevention and treatment of Pseudomonas aeruginosa infections, Syntiron in the prevention of Staphylococcus infections and Alopexx.

In coming years, Sanofi-Aventis's key growth drivers are likely to include its OTC business, its expansion in emerging markets and its vaccines division. The easiest way for Sanofi to expand in emerging countries will be to boost its OTC and vaccine business while building its presence through partnership with local players.