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Feb 7, 2013

Profit Slump at Sanofi: Patent Cliff, Restructuring Blamed

  • Sanofi saw its profits plunge nearly 72% in the fourth quarter of 2012, battered by generic competition following patent expirations, as well as costs associated with a restructuring of operations, primarily in its home country of France.

    The pharma giant’s net income fell in Q4 to €410 million ($550.2 million), down 71.5% from the final three months of 2011. Sanofi trumpeted its “business net income”—a non-GAAP financial performance yardstick that excludes acquisitions and divestments—which showed a 24% year-to-year quarterly decline (27% at constant exchange rates), to about €1.6 billion ($2.1 billion).

    Q4 net sales were flat from a year earlier, up only 0.2% (down 1.7% at CER) to €8.5 billion ($11.4 billion). For all of 2012, Sanofi racked up €34.9 billion (about $46.9 billion), up 4.7% (or only 0.5% at CER) from a year earlier. However, EPS slumped nearly 7%, to €6.20 ($8.32) from €6.65 ($8.92) in 2011.

    “2012 was a turning point for Sanofi with the loss of exclusivity in the U.S. for several significant legacy drugs. Despite the effect of the patent cliff, Sanofi was able to grow sales and mitigate the impact on Business EPS,” Sanofi CEO Christopher A. Viehbacher said in a statement. “Although the financial results in the first half will experience a residual effect from patent expirations, we expect to resume growth in the second half of 2013.”

    Leading the parade of expired patents in 2012 were the anticlotting drugs Lovenox® and Plavix®, as well as high blood pressure drug Aprovel®, which also treats kidney disease in patients with type 2 diabetes. Lovenox sales last year tumbled 34% over 2011, to about €1.9 billion ($2.5 billion), while Aprovel sales dropped 13% in 2012 over the previous year, to nearly €1.2 billion ($1.5 billion).

    Plavix saw its 2012 sales fall 4.6% from 2011, to nearly €2.1 billion (nearly $2.8 billion) following the expiration of its U.S. patent. Plavix was once the world’s second-best selling drug after all-time champ Lipitor.

    Plavix and Aprovel were co-developed and until last year, co-marketed by Snaofi and Bristol-Myers Squibb. As of January 1, BMS returned its rights to Plavix and Avapro® to Sanofi in all markets worldwide, except for Plavix in the U.S. and Puerto Rico.

    In return, BMS will receive royalty payments on Sanofi’s sales of branded and unbranded Plavix worldwide, excluding the U.S. and Puerto Rico, and on sales of branded and unbranded Avapro worldwide through 2018. In December of that year, BMS will receive a $200 million terminal payment under an agreement between the companies, which maintains Plavix rights in the U.S. and Puerto Rico unchanged through December 2019.

    Sanofi said it took €1.1 billion ($1.5 billion) in restructuring charges, and another nearly €1.6 billion ($2.1 billion) tax effect arising from the restructuring, which included ongoing changes to manufacturing facilities in Europe, sales force cuts, and consolidation of Genzyme, which Sanofi acquired last year for $20.1 billion.

    In guidance to investors, Sanofi cautioned, however, that the loss of patent exclusivity of Plavix and Avapro would reduce business net income by about €800 million ($1.1 billion) at CER in the first half of 2013.

    “Including this impact, the continued strong performance of growth platforms, investments in late-stage pipeline, launch expenses for new products, and ongoing cost savings should lead to a 2013 business EPS flat to 5% lower than 2012 at CER, barring major unforeseen adverse events,” Sanofi advised in the statement.


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