Sanofi: Income and Value

12/10/2014 8:00 am EST


Stephen Leeb

Founder and Research Chairman, Leeb Group

We’re adding a healthcare play to our roster for income and value investors, notes Stephen Leeb, editor of The Complete Investor.

France-based Sanofi (SNY)—formerly Sanofi-Aventis—is undervalued at current levels, selling at about 15 times estimated 2014 earnings. And while there are reasons for the shares’ recent underperformance, we think the market has overreacted, creating a good buying opportunity.

Sanofi is the worldwide leader in vaccines; it’s also No. 1 globally in insulin and in animal health and is the leading healthcare company in emerging economies. Overall, it’s the No. 3 consumer healthcare player.

And since its 2011 acquisition of Genzyme, Sanofi has been transforming itself into a more dynamic, biotech-oriented company specializing in rare diseases and in multiple sclerosis.

The latest quarterly results for 2014’s third quarter were no doubt disappointing. The company lowered its guidance and signaled flat sales within its diabetes franchise.

Lantus, a long-lasting form of insulin, is going off patent in February. However, this isn’t a new issue and the company is on track to replace Lantus with Toujeo, an insulin drug working its way through the testing process.

In trials, Toujeo has controlled diabetes better than Lantus with fewer incidents of night hypoglycemia (low blood sugar). The FDA is expected to approve the marketing of Toujeo in the US in the first half of 2015.

It seems the chief reason that investors backed off of the shares was the termination of Sanofi’s CEO, Chris Viehbacher.

While management changes always spawn uncertainty, we think that, in this case, the company will get along just fine.

Sanofi’s biggest potential blockbuster is a cholesterol drug Praluent (alirocumab); the drug works by reducing inflammation in cells on the outside of the liver, letting the liver absorb bad cholesterol. It has fewer side effects than competitors’ products.

Another notable product is the world’s first ever dengue fever vaccine. In all, Sanofi’s development pipeline seems one of the industry’s strongest and the shares, yielding 3.9%, are attractive at current levels.

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