French drugmaker Sanofi raised its earnings forecast for 2011 now that Genzyme is part of its business, but said the US biotech would likely miss its first milestone fee due to supply constraints of one of its key drugs.
The French drugmaker for the first time fully included Genzyme, a specialist in rare diseases, in its accounts after buying it for $20.1 billion in cash and milestone payments tied to future performance of its products.
Sanofi said Genzyme's integration should yield $700 million in cost savings by the end of 2013. Sanofi, whose second-quarter net profit fell 13 percent, is getting squeezed by lower sales of drugs losing patent protection, a problem Genzyme should help remedy.
Including Genzyme, Sanofi now expects 2011 business EPS to be 2 to 5 per cent lower against last year. Before buying Genzyme it forecast 5 to 10 per cent lower business EPS. Sanofi's outlook excludes a return of generics to its cancer drug Eloxatin in the United States.
Sanofi also said however it was unlikely that Genzyme would be able to return to full production of rare disease drug Fabrazyme until the first quarter of 2012, pushing back from a previous forecast for full recovery in the fourth quarter.
Sanofi completed the Genzyme acquisition in April, adding rare or orphan diseases to its drug portfolio. These drugs are harder to copy than chemical drugs, have a greater chance of getting reimbursed and sell at hefty prices, so investors have been watching closely for news in particular about its Fabrazyme and Cerezyme drugs after production of both was affected by contamination problems that led to the temporary closure of Genzyme's Allston plant near Boston in 2009.
While patients on Cerezyme have been able to return to normal dosing levels since the beginning of this year, Fabrazyme so far has failed to meet normal dosing level needs and needs the extra capacity of Genzyme's new manufacturing plant in Massachusetts.
"Some may gripe about the delay to Genzyme restoring full product supply," Deutsche Bank analyst Mark Clark wrote, but added:"... a quarter's delay to full supply of Fabrazyme is not a major concern."
Sanofi's growth areas - including vaccines, diabetes, emerging markets, consumer health and animal health - made up for a loss in sales to stiffer generic competition. The drugmaker's growth platforms accounted for 65 per cent of total quarterly sales.
"This year will be most challenging year in term of sales affected by patent expiries," chief executive Chris Viehbacher said in a conference call.
Sanofi reported business net income, which excludes items like amortisation and legal costs, of €2.15 billion and sales little changed at €8.35 billion.
Analysts were divided over Sanofi's numbers. Deutsche Bank's Clark said in a research note results were closely in line with forecasts and pointed to Sanofi's improved EPS guidance and increased cost savings.
But Helvea analyst Karl Heinz Koch said the numbers were lower than expected "mainly because of a faster-than-expected generic erosion of Taxotere which had a large impact on the profit line."
Cancer drug Taxotere last year lost its European and US patent protection and cheaper copies have flooded the market. Sales of the drug - at €2.2 billion in 2009 - fell to €204 million in the second quarter.
Mr Koch expected Sanofi to be able to extract more cost savings from Genzyme. "I was hoping for more cost savings ... savings should go well above $1 billion," he said.
Business earnings per share fell 13.7 per cent to 1.64 in the quarter and sales excluding Genzyme fell 4 per cent. Genzyme sales rose 16 per cent at constant exchange rates and scope to €796 million.
Reuters
