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ELI LILLY AND COMPANY

(LLY)
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Drugmaker Sanofi hungry for deals after earnings beat

10/28/2016 | 04:53am EDT
A logo is seen in front of the entrance at the headquarters of French drugmaker Sanofi in Paris

(Reuters) - French drugmaker Sanofi (>> Sanofi) stepped up its overhaul on Friday, putting its European generic drugs business up for sale and saying that a planned 3.5 billion euro (3 billion pounds) share buyback would not suppress its appetite for deals.

(Reuters) - French drugmaker Sanofi (>> Sanofi) stepped up its overhaul on Friday, putting its European generic drugs business up for sale and saying that a planned 3.5 billion euro (3 billion pounds) share buyback would not suppress its appetite for deals.

Sanofi's announcement came as it posted better than expected earnings and lifted its profit guidance for the year on strong growth at its biotech arm Genzyme and an early start to the U.S. flu vaccine season.

Third-quarter net income adjusted for special items rose 9.7 percent to 2.3 billion euros, against analyst expectations of about 2 billion euros. Revenue rose 2.1 percent to 9.65 billion euros, also beating the market view.

Sanofi now expects 2016 adjusted earnings per share to grow by 3 percent to 5 percent at constant exchange rates, having previously said they would be broadly flat. It continues to predict a negative 4 percent currency impact.

Sanofi stuck to its guidance for currency-adjusted sales at its embattled diabetes division to shrink by 4-8 percent a year on average from 2015 to 2018, saying that business outside the United States was holding up.

Pressure on U.S. operations has been rising after U.S. pharmacy benefit manager CVS (>> CVS Health Corp) and medical insurer UnitedHealth Group (>> UnitedHealth Group Inc) recently took steps to replace Sanofi's main insulin drug Lantus for a cheaper Ely Lilly (>> Eli Lilly and Co) product.

The shares jumped 5.9 percent to 72.90 euros at 0759 GMT, their highest in more than two months.

Analysts at Bryan Garnier and Deutsche Bank pointed to strong vaccine sales and good management of operating costs, while Berenberg analysts said it was reassuring to see Sanofi contain the decline in diabetes drug revenue.

Sanofi, which was trumped in August by Pfizer's (>> Pfizer Inc.) $14 billion bid for U.S. cancer drug company Medivation (>> Medivation Inc), said the share buyback was mainly prompted by excess cash from an asset swap with Boehringer and did not constitute a retreat from the merger and acquisitions market.

READY TO SPEND

The company stands to receive 4.7 billion euros from the Boehringer deal signed in June.

CEO Olivier Brandicourt pointed to low debt levels and borrowing costs as well as strong cash flow.

"All of that will allow us to still act swiftly if attractive opportunities arise," he said in a conference call.

Quarterly sales at Genzyme grew 16.9 percent to 1.27 billion euros while the Sanofi Pasteur vaccines business lifted revenue by 14.4 percent to 1.8 billion euros, both adjusted for currency swings. Sales at the diabetes division were down 2.5 percent.

Along with the veterinary drugs business that Sanofi will transfer to Germany's Boehringer, the French group will also divest its European generic drugs business, which had sales of about 800 million euros in 2015.

Finance chief Jerome said profitability of the asset for sale, which excludes generic drugs in Russia, CIS and Turkey, is "not very far" from the group average, without elaborating.

The business requires investment in areas, such as complex generics, that Sanofi is not ready to make, he added.

In a setback for its experimental rheumatoid arthritis drug sarilumab, which analysts expect to generate more than 500 million euros in annual sales, U.S. regulators identified "manufacturing deficiencies".

Sanofi said it is unclear whether this will hobble the approval process for sarilumab, which Sanofi develops with U.S. biotech company Regeneron (>> Regeneron Pharmaceuticals Inc).

(Editing by Maria Sheahan and David Goodman)

By Ludwig Burger


ę Reuters 2016
Stocks mentioned in the article
ChangeLast1st jan.
CVS HEALTH CORPORATION 0.93% 83.64 Delayed Quote.22.46%
ELI LILLY AND COMPANY 0.15% 243.58 Delayed Quote.44.27%
PFIZER, INC. 0.69% 42.1 Delayed Quote.14.37%
REGENERON PHARMACEUTICALS 0.56% 581.01 Delayed Quote.20.26%
SANOFI -0.53% 87.12 Real-time Quote.10.70%
UNITEDHEALTH GROUP 0.38% 415.1 Delayed Quote.17.93%
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Financials (USD)
Sales 2021 27 273 M - -
Net income 2021 6 550 M - -
Net Debt 2021 11 241 M - -
P/E ratio 2021 33,7x
Yield 2021 1,36%
Capitalization 221 B 221 B -
EV / Sales 2021 8,53x
EV / Sales 2022 8,26x
Nbr of Employees 35 000
Free-Float 99,8%
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Number of Analysts 23
Last Close Price 243,58 $
Average target price 241,90 $
Spread / Average Target -0,69%
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Managers and Directors
David A. Ricks Chairman, President & Chief Executive Officer
Anat Ashkenazi Chief Financial Officer & Senior Vice President
Timothy J. Garnett Chief Medical Officer & VP-Global Medical
Daniel M. Skovronsky Chief Scientific Officer & Senior Vice President
Diogo Rau Senior VP, Chief Information & Digital Officer
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