A Fine Act of balancing by Sanofi

Shalini is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

 

In the history spanning more than two centuries, Sanofi (NYSE: SNY) has undergone number of major and minor changes to reach the level of integrated healthcare leader as it is today. To achieve this, Sanofi has been quick to spot the value-enhancing growth opportunities resulting in a number of mergers and acquisitions that the company has undertaken successfully.

The company’s product lie into 3 major segments termed as Pharmaceuticals, Vaccines & Animal Health. While observing the sales growth pattern of the last couple of quarters, it is reflected that Sanofi has been performing consistently:

<img src="http://g.fool.com/editorial/images/61117/sanofi3_large.png" />

Figure 1 : QoQ Sales Trend

However, like its peers Sanofi is also faced with challenges related to its blockbuster drugs going off patent and therefore, missing exclusive access to markets. Which in plain terms means that a dedicated source of revenue would simply diminish. The residual impact of this was visible to some extent in last quarterly results (Q1-12 to Q1-13 reduction by -5.3%) and will be much more evident in next quarter results. To overcome this situation, Sanofi is pursuing its 7-node growth platform with alacrity. During last financial year, this growth platform provided 67.4% of total sales of €34.5billion with the summation as follows:

<img src="http://g.fool.com/editorial/images/61117/sanofi2_1_large.png" />

Figure 2 : Distribution of Growth Platform worth €23.5billion

To evaluate further, whether Sanofi would be able to sustain its growth levels; let us first analyse industry trends.

Industry Trend

According to IMS research report, the global pharmaceutical industry is expected to reach to €828b by 2014. And, as per Evaluate Pharma medicines worth €100b ($133 billion) sales in US will be exposed to generics by 2016. In fact, KPMG study also highlights that the major challenges facing the pharma industry today are low growth of business environment and low R&D productivity. To overcome this situation, the industry is shifting focus from mature markets to emerging markets. And, for increasing throughput of research; industry is pushing for greater collaboration  with academic institutions, among peers and biotech companies. Just to add here that the biotech companies become a major focus area as Biologicals are the next best explorable area of today’s chronic diseases. As per the report published by Freedonia Group, it predicts 6.5 % growth in demand of Biologicals caused due to developments in production technology and the increasing number of disease targets.

Steps taken by Sanofi

In line with the industry trends, the company has rejigged its product portfolio from chemistry-based molecules heavy to Biologicals as the latter being the future of medicine. Also, it has strengthened its research efforts by setting-up regional R&D hubs at 4 locations across the globe in partnership with leading academic institutions and biotech businesses. During the last financial year, Sanofi had 31.9 %  sales from Emerging markets while keeping focus on Diabetic solutions and oncology solutions which are now more Biologicals driven.

Sanofi and the competition

Based on the analysis it can be concluded that Diabetes is the flagship solution of Sanofi. The said solution consistently maintains its double digit growth for the last 10 quarters while producing the sales of €1.6billion during the latest quarter. As per GBI Research, 60% of the global diabetes therapeutics market is contributed by Novo Nordisk (NYSE :NVO) , Sanofi (NYSE: SNY) and Takeda.

Sanofi got an immediate plus, when its major competitor and market leader Novo Nordisk suffered a setback in US market for one of its products. Further estimates by GBI research suggest that the market share of Eli Lilly (NYSE : LLY) and Merck (NYSE : MRK) will increase due to the potential success of their respective products. Even with this additional competition, there is enough room for all the players as the Diabetes market size is increasing.

Conclusion

During the last 5 years, Sanofi’s YoY sales growth has been on an average 6% even though market losses were to the tune of €5 billion due to the expiration of several of the patents. Therefore, it is evident that Sanofi knows thoroughly how to manage the risks in today’s competitive environment. As per IDF report, there are 366 million people (resulting in health expenditure of €350billion) that had diabetes in 2011 and this count is rising at an average by 2% every year which means the target market for Sanofi is growing extensively. Also, with 16 out of 62 entities (and vaccines) being in the late stages of R&D pipeline, Sanofi becomes an interesting case of long-term investment.

 


Shalini Agrawal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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