Is Sanofis dividend safe? $45 billion in annual sales. A leader
in vaccines, diabetes, biologics, animal health, & consumer
OTC. $15 billion in sales in emerging markets. $14 billion in sales
in the United States. $6.5 billion in research and development
spending last year. However, Sanofi faces a significant patent risk
and margin risk. Its top selling diabetes drug Lantus loses patent
protection in 2015. $7.5 billion in annual sales. 17% of Sanofis
total revenue. Competitive threats both from biosimilars in
development at Lilly and from new long lasting insulin in
development from both Eli Lilly and Novo Nordisk. Its operating
margin has fallen from nearly 19% in 2012 to less than 16%. Sanofi
is one of the largest global drug manufacturers.
Patent Risk First, lets consider the patent threat. Sanofis
Lantus is the top selling diabetes medicine on the planet. Two
consecutive years with year-over-year growth near 20% 13
consecutive quarters of double digit year-over-year growth. 8
million patients. 5th best selling drug overall. Patent expires
2015. Sanofi filed suit against Lillys biosimilar. Delays
competition until 2016. Lantus successor in late stage trials.
Toujeo (U300) in phase 3. Improves night time blood glucose.
Improves day time blood glucose. FDA filing expected soon. Long
lasting insulin competition. Novo Nordisks Tresiba approved in the
EU. Tresiba phase 3 trials in the U.S. ongoing.
Margin risk Now, lets consider the margin risk. Sanofis
operating margin has fallen by 3% since 2012. Spending on R&D
to develop new drugs has grown by roughly $200 million. SG&A
has similarly grown. Sanofi is in the middle of a cost
restructuring. $2.7 billion in cost savings targeted by the end of
2014. Significant reinvestment of these savings back into
growth/R&D programs.
Reasons for dividend optimism Fast growing therapies in the
first quarter: Lantus: up 13.5% year-over-year to $1.96 billion.
Apidra for diabetes: sales up ~20% to $102 million. Consumer
healthcare: up 18.6% to $1.2 billion. Allegra up 14% to $141
million. Rare diseases up 8.5% to $657 million. Cerezyme for
Gaucher disease up 6% to $228 million. Myozyme up 7.8% to $164
million. Fabrazyme up 13% to $133 million. Aubagio, an oral MS
drug: up 305% to $106 million. Other products include Multaq,
Jevtana, Zaltrap, Plavix, and Lovenox. Generic unit sales up 8% to
$572 million. A rich platform of products and a solid pipeline of
potential new therapies. Pipeline opportunity: Toujeo (U300):
potential Lantus heir. Cerdelga: Gaucher disease. Awaiting
approval. Alirocumab: Cholesterol lowering PCSK9 drug. Potential
filing in 2015. Sarilumab: Rheumatoid arthritis. Potential filing
in 2015. Dupilumab: Atopic dermatitis & asthma. Plus Purchased
a 12% equity stake in RNAi drug developer Alnylam. Owns 20% of
Regeneron. Partner on alirocumab.
Current yield Sanofi board paid out 55% of its business
earnings per share as dividends in 2013, or $3.81 per share.
Sanofis dividend has increased annually since 2004 and despite
risks facing Lantus in 2016, its current yield of 3.52% is nicely
higher than Eli Lilly and a bit higher than Novo Nordisk -- two
diabetes competitors. For now, Sanofis dividend appears safe, but
investors should keep an eye on the pipeline and progress of Lantus
biosimilars.
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