Sanofi-Aventis Posts Solid Q3 Results, Inches Closer to New Merck Animal Health Deal

Sanofi-Aventis Posts Strong Q3 and Nine-Month Results

A look at the company's operating results in the third quarter (Q3) and first nine months of 2009 demonstrate a resurgence in Sanofi-Aventis's performance following the challenges of 2008. Net sales increased by 8% y/y in the third quarter and by 7.2% y/y for the January-September period, while net income grew by 15.9% y/y and by 20.1% y/y, respectively. Operating margin—as calculated by IHS Global Insight—increased by 0.6 percentage points y/y for the quarter and by 2.6 percentage points for the nine-month period.

Lantus and Lovenox Post Strong Sales

The company's two highest-selling products provided a strong performance in the third quarter with 13.7% growth y/y for Lovenox and 21.7% y/y growth for Lantus. Meanwhile, Plavix—which already faces generic pressures in Europe—provided strong sales growth in the United States and Japan, with sales in these markets increasing by 11.3% and by 50.3%, respectively. On a comparable basis, however—on a constant structure and constant exchange-rate basis—Plavix sales increased by only 4.1% indicating that a lot of the boost is due to currency effects. Cancer drug Eloxatin meanwhile posted a 44.3% decline on a comparable basis and 40.6% decline on a reported basis as the impact of generic competition hit sales of the product. Still the strong positive contribution for Lovenox, Lantus, Apidra (insulin glulisine) and Copaxone (glatiramer acetate injection) offset the negative impact of generic competition to certain products.

Outlook and Implications

Following the acquisition of Merck's share of their animal health joint venture for US$4 billion, Sanofi-Aventis is unlikely to undertake major acquisitions in the near future. However, the company is definitely interested in re-establishing an animal health joint venture—with a suitable partner—in a bid to minimise costs and spread the risk. Interestingly, the new partner is expected to be its old partner Merck—assuming regulatory consent is granted. Sanofi-Aventis purchased the Merck stake in animal health JV Merial to facilitate the latter's merger with Schering-Plough which has a big animal health business of its own, branded as Intervet. A joint venture combining Merial and Intervet is definitely of interest to Sanofi-Aventis as CEO Viehbacher told the Wall Street Journal last Friday (30 October) that there is "better than 50-50" chance that a new JV combining Merial and Intervet will be established. Gaining regulatory approval for such a JV, however, is likely to prove difficult in IHS Global Insight's view considering that such an entity would control more than a quarter of the global animal health products market.

As Sanofi-Aventis continues to explore options for its animal health products business, human health products are expected to continue delivering a strong performance. Sales of the company's influenza A/H1N1 (swine flu) vaccine are expected to provide a US$500-million boost to fourth-quarter sales. A positive impact of swine flu vaccine sales will be somewhat delayed for Sanofi-Aventis after the company fell behind rivals GlaxoSmithKline (GSK, U.K.) and Novartis (Switzerland) in securing approval for its pandemic flu vaccine. Sanofi has now indicated it expects European approval for its regular swine flu vaccine in the next few weeks and approval for the adjuvanted swine flu vaccine in December 2009. Despite the later European approval, Sanofi-Aventis is in a good position to cash in from sales of the vaccine as the company is likely to get additional vaccine orders—on top of already agreed orders—from European countries which are waking up to the threat of swine flu later than their European neighbours and are beginning to place vaccine orders now.

Meanwhile, Sanofi-Aventis's strategy of expanding its presence in emerging markets and in generics medicines, is expected to continue boosting the company's bottom-line results. Following the acquisition of Zentiva (Czech Republic) and generics players in South America, Sanofi-Aventis recorded generic medicines sales of 302 million euro in the third quarter, equivalent to 251.2% growth year-on-year. Growth would have been only 16.3% y/y on a constant structure and constant exchange-rate basis, while growth at constant exchange rates (but incorporating the new structure) was 273.3% y/y in the third quarter.