r/valueinvesting
Sanofi: defensive pharma with a new CEO for potential turnaround
Sanofi is undervalued due to Dupixent's 2031 patent cliff, but strong pipeline, dividends, and a new CEO could drive a rerating.
- Attractive valuation with ~9x forward P/E and consistent dividend growth.
- Fast-growing newer drugs and Dupixent label expansions provide a runway until 2031.
- New CEO has a strong track record of doubling net income, signaling a potential turnaround.
- Impending patent cliff for its biggest drug, Dupixent, in the US in 2031.
- Volatile and flat EPS growth historically due to expensive and mixed-result acquisitions.
Sanofi share has been flat for a decade, despite continuously increasing dividend every year. They also have the fourth-biggest selling drug in the world: Dupixent, which they co-developed and co-owned with Regeneron.
They make €47B in revenue last year, €19B from Dupixent.
But Dupixent is losing its US exclusivity in the US on March 2031, and this is primarily why investors are discounting the company. They are trading at \~9x forward earnings and \~12x trailing earnings (or \~19x on some platform, depending on which earning metrics they use).
EPS growth has been volatile and flat in the past as well, as they made multiple acquisitions throughout the years to fill in their pipeline. Some worked, some don't, but Sanofi paid a lot of premium for these.
These, combined with the patent cliff fears, has depressed the share price even further lately. Based from what I read, investors are waiting for future acquisitions to replace Dupixent.
But, their other drugs, mainly ALTUVIIO, Ayvakit, and Sarclisa (which also just got approved in EU) is growing quickly and expected to make a combined €3 billion in revenue this year. Still far away from Dupixent numbers, but there is still 6 years of growth until the 2031 deadline.
Management will also extend and expand dupixent for other use cases, etc. after 2031, as is usual with pharma companies, with a plan stretching up to 2045.
Then there is the new CEO, with a strong track record of doubling the net income of her previous company, Merck KGaA.
I think this is an interesting combination of a defensive pharma + a potential turnaround. Once or if the market realises that Sanofi pipeline is strong enough to endure post-Dupixent, the share could rerate. We see similar situation happened last year with the other Merck & Co. ($MRK), where the market suddenly realises that they are strong enough for a post-Keytruda era.
Although with Sanofi, the pipeline is weaker compared to Merck & Co., and the trajectory isn't obvious at the moment, investors are being paid 5% annually while we wait.
Thoughts? I think this is worth watching at least.
My full analysis: https://open.substack.com/pub/economiyaki/p/sanofi-2031-patent-cliff-5-dividend?utm\_source=share&utm\_medium=android&r=2wzuop
turnaround. Once or if the market realises that Sanofi pipeline is strong enough to endure post-Dupixent, the share could rerate.
So what makes you think that the market is too retarded to realize this?
If the three drugs keep growing in the next few years, there is a chance that they could be strong enough to get close to dupixent revenue. The new CEO is a good sign that this could happen in the future.
Pipeline strength isnt obvious now, but that is the point, to be early before it happens and the market noticing. And the risk is low, in my opinion.
I wish you well but I am guessing you don't work in pharma because if you did, you wouldn't be this optimistic about Sanofi.
I wish you well but if you are just here to snark then there is no reason to comment. You should at least provide an argument or insight, if you do work in pharma and have an edge.
And I didnt say I'm fully optimistic full port on Sanofi, did I?
I didn't know much about Sanofi before this. The challenge is that CEO transformations usually take years so this feels more like a 3-5 year conviction play than a trade. And given that they have 6 years until the patent cliff... The risk/reward looks pretty interesting.
Yes, exactly. Timeline is years at least but its paying 5% while you wait basically, is the argument
Hey! I used to work here, specifically in the functions working on drugs like Dupi. Funny seeing both the ticker and the drug names I'm familiar with here.
Sanofi is highly stable but moves glacially. The problem is that Dupi is its cash cow and the pipeline is meager, and at least when I was there, they were mainly getting drugs through acquisitions; some were good choices like Ablynx, plenty were not, and the internal pipes were slow moving. Also, IIRC, it's not just Dupi, there's multiple drugs hitting the cliff, which will be a big shock to revenue. It takes about 10-12 years to develop a drug and with a weak internal pipeline, I think there's more room for the stock to fall and more time before the turnaround hits, assuming that this CEO lasts a while.
It's a shame because I actually like Sanofi as a company, they had great benefits and great people, and I was considering holding it, but I'd wait some more time for its pipeline to shake out.
Great insights, thanks a lot for sharing. I do agree that their past acquisitions has been mixed, at best.
And yes, the collective opinion is a wait-and-see for the company, and I can definitely see why, and it might also be the best choice for now.