Is Sanofi's Dividend Safe?

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Sanofi (NYSE: SNY) is one of the globe's biggest drug companies. It's a major player in diabetes treatments, vaccines, and consumer medicines and is often included in dividend portfolios. However, …

Sanofi (NYSE: SNY) is one of the globe's biggest drug companies. It's a major player in diabetes treatments, vaccines, and consumer medicines and is often included in dividend portfolios. However, looming patent expiration on its top selling drug, falling margin, and potential competition from Eli Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) could all impact Sanofi's bottomline and threaten Sanofi's dividend. In the following slideshow you'll learn whether I think Sanofi's dividend is safe and see how Sanofi's dividend matches up to Lilly and Novo Nordisk.

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  • 1. Is Sanofi’s Dividend Safe?
  • 2. Is Sanofi’s dividend safe? • $45 billion in annual sales. – A leader in vaccines, diabetes, biologics, animal health, & consumer OTC. – $15 billion in sales in emerging markets. – $14 billion in sales in the United States. • $6.5 billion in research and development spending last year. However, Sanofi faces a significant patent risk and margin risk. • It’s top selling diabetes drug Lantus loses patent protection in 2015. – $7.5 billion in annual sales. – 17% of Sanofi’s total revenue. – Competitive threats both from biosimilars in development at Lilly and from new long lasting insulin in development from both Eli Lilly and Novo Nordisk. • Its operating margin has fallen from nearly 19% in 2012 to less than 16%. Sanofi is one of the largest global drug manufacturers.
  • 3. Patent Risk First, let’s consider the patent threat. Sanofi’s Lantus is the top selling diabetes medicine on the planet. • Two consecutive years with year-over-year growth near 20% • 13 consecutive quarters of double digit year-over-year growth. • 8 million patients. • 5th best selling drug overall. • Patent expires 2015. • Sanofi filed suit against Lilly’s biosimilar. • Delays competition until 2016. • Lantus successor in late stage trials. • Toujeo (U300) in phase 3. – Improves night time blood glucose. – Improves day time blood glucose. – FDA filing expected soon. • Long lasting insulin competition. • Novo Nordisk’s Tresiba approved in the EU. • Tresiba phase 3 trials in the U.S. ongoing.
  • 4. Margin risk Now, let’s consider the margin risk. Sanofi’s operating margin has fallen by 3% since 2012. • Spending on R&D to develop new drugs has grown by roughly $200 million. • SG&A has similarly grown. Sanofi is in the middle of a cost restructuring. • $2.7 billion in cost savings targeted by the end of 2014. • Significant reinvestment of these savings back into growth/R&D programs.
  • 5. Reasons for dividend optimism Fast growing therapies in the first quarter: – Lantus: up 13.5% year-over-year to $1.96 billion. – Apidra for diabetes: sales up ~20% to $102 million. – Consumer healthcare: up 18.6% to $1.2 billion. • Allegra up 14% to $141 million. – Rare diseases up 8.5% to $657 million. • Cerezyme for Gaucher disease up 6% to $228 million. • Myozyme up 7.8% to $164 million. • Fabrazyme up 13% to $133 million. – Aubagio, an oral MS drug: up 305% to $106 million. – Other products include Multaq, Jevtana, Zaltrap, Plavix, and Lovenox. – Generic unit sales up 8% to $572 million. A rich platform of products and a solid pipeline of potential new therapies. Pipeline opportunity: •Toujeo (U300): potential Lantus heir. •Cerdelga: Gaucher disease. •Awaiting approval. •Alirocumab: Cholesterol lowering PCSK9 drug. •Potential filing in 2015. •Sarilumab: Rheumatoid arthritis. •Potential filing in 2015. •Dupilumab: Atopic dermatitis & asthma. Plus… •Purchased a 12% equity stake in RNAi drug developer Alnylam. •Owns 20% of Regeneron. •Partner on alirocumab.
  • 6. Current yield Sanofi board paid out 55% of its business earnings per share as dividends in 2013, or $3.81 per share. Sanofi’s dividend has increased annually since 2004 and despite risks facing Lantus in 2016, its current yield of 3.52% is nicely higher than Eli Lilly and a bit higher than Novo Nordisk -- two diabetes competitors. For now, Sanofi’s dividend appears safe, but investors should keep an eye on the pipeline and progress of Lantus biosimilars.
  • 7. . The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.