Nothing Lost in Translation

04/15/2009 11:14 am EST

Focus: GLOBAL

Nick Lanyi

Editor, High-Yield International

Updated Thursday, April 16-Correction Appended

French pharmaceutical giant Sanofi-Aventis (NYSE: SNY, EURONEXT: SAN) boasts a diverse lineup of cardiovascular, oncology, central nervous system and metabolic drugs-including anti-clotting agent Plavix, thrombosis treatment Lovenox, insomnia drug Ambien and diabetes treatment Lantus. The stock now trades below $28, giving it a 5.8% yield.

Sanofi-Aventis took a hit [last month when a US Food & Drug Administration advisory panel recommended approval of] an anticlotting drug made by Johnson & Johnson (NYSE: JNJ) that could take sales away from Plavix if its indications are expanded beyond the initial one--for patients who've received hip or knee transplants. However, one of Sanofi-Aventis' strengths is its diverse product pipeline; as if to prove the point, [an FDA advisory panel recently recommended approval of] a Sanofi-Aventis drug called Multaq, which treats atrial fibrillation of the kind that sometimes leads to a stroke. If both J&J's drug and Multaq reach their full market potential, the net effect will be a wash for Sanofi-Aventis.

Down the road, the FDA may approve other drugs that will boost the company's sales by billions in the coming years, more than making up for the loss of revenue from patent expiration on Ambien and several lower-selling drugs. Potential blockbusters for Sanofi-Aventis include Menactra, a meningitis vaccine, and Aflibercept, a cancer treatment.

Sanofi-Aventis has strong free-cash flow, is paying down debt, and is relatively immune to the global recession. Its annual dividend, paid in June or July, gives a yield of 5.8% at the current price. Over time, I expect the dividend to rise and the share price to rebound to at least $32 over the next 12 months.

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Correction: The original version of this article, excerpted from High-Yield International, misstated the regulatory status of Sanofi-Aventis's heart drug Multaq as well as of rivaroxaban, an anticlotting agent developed by Johnson & Johnson. Both medications have been recommended for approval by panels of outside experts advising the U.S. Food and Drug Administration, but have not yet been approved by the FDA. The current version includes the corrected material-Editor. 

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