Sanofi warns of flat earnings for next two years; weighing options for animal health, European generics units

Sanofi said Friday that it does not expect earnings to grow in 2016 or 2017 due to "investments in launches, headwinds in diabetes and the phasing of cost savings." The company indicated that starting in 2018, earnings are forecast to grow faster than sales. Shares in the company fell as much as 6.1 percent on the news.

According to Sanofi, it 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. The company said that it expects six product launches, including Toujeo (insulin glargine), Praluent (alirocumab) and LixiLan (lixisenatide/insulin glargine), to generate sales of 12 billion euros ($13.1 billion) to 14 billion euros ($15.2 billion) over the next five years as it looks to compensate for lower revenue from its diabetes business.

Last month, the company indicated that as a result of "recent market trends," it expects global diabetes sales through 2018 to decline at an average annualised rate of between 4 percent and 8 percent on a constant currency basis. A previous forecast had guided for slight growth at best (for related analysis, see Spotlight On: Sanofi spooks with US insulin outlook – are Novo Nordisk investors right to be scared?).

Sanofi also said Friday that it will cut costs by 1.5 billion euros ($1.6 billion), with the savings to be "largely" reinvested in growth. In addition, the company indicated that it plans to explore strategic options for its Merial animal health unit and European generics business. Sanofi explained that both divisions offer limited synergies with its other units.

CEO Olivier Brandicourt remarked "the pharmaceutical industry is undergoing a transformation unlike anything we’ve previously seen," adding "continued consolidation...has created a more competitive environment over the last few years." Brandicourt, who took over as Sanofi chief executive in April, said "I am defining new priorities for Sanofi. The company will remain diversified, but with a portfolio refocused on areas where we can win."

Commenting on the news, Berenberg Bank analyst Alistair Campbell said "Brandicourt is being realistic," adding "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."

Brandicourt also signalled that acquisitions and partnerships would be an important part of Sanofi's strategy, noting that the company is "seeking external opportunities to enhance its growth profile." Separately, the drugmaker announced Friday an agreement with Lexicon Pharmaceuticals to develop the latter's experimental diabetes therapy sotagliflozin. Sanofi also recently entered a deal to develop diabetes drugs with Hanmi Pharmaceutical, including the experimental GLP-1-RA agonist efpeglenatide.

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