Sanofi S.A. is a French multinational pharmaceutical company headquartered in Gentilly, France. The company was formed as Sanofi-Aventis in 2004 by the merger of Aventis and Sanofi-Synthélabo, which were each the product of several previous mergers. It changed its name to Sanofi in May 2011. The company is a component of the Euro Stoxx 50 stock market index.
Sanofi engages in the research and development, manufacturing and marketing of pharmaceutical drugs principally in the prescription market, but the firm also develops over-the-counter medication.
The company covers seven major therapeutic areas: cardiovascular, central nervous system, diabetes, internal medicine, oncology, thrombosis and vaccines.
Sanofi is currently trading at a discount to its peers because a US Federal court has stopped the company from selling the drug ‘Praluent’ in the US because of patent issues with Amgen.
However, Sanofi have appealed and the order has been put on hold in order to give patients in the US continued access to the medicine for the duration of the legal process.
In the short term, however, the possibility of a trade ban remains an issue and the outcome of the appeal will only emerge in H217. Praluent is material for earnings growth as it is expected to account to 20 per cent of sales by 2022.
In the meantime, there is always the possibility that Sanofi and Amgen compromise and reach a settlement whereby Sanofi would give royalties to Amgen on Praluent sales. Sanofi’s argument hinges on the fact that the number of patients who need this drug has continued to increase and it doesn’t make sense that patients are made worse off.
Currently, uncertainty of outcome is maintaining pressure on the stock price. This creates a rare opportunity in a sector that is increasingly overvalued. Since most information about the court case is readily available, surprises are limited.
If the court votes in favour of Sanofi the share will obviously rally, in which case a price target of over €120 per share comes within range. The downside is possibly mostly priced in. The final outcome would probably be a compromise position; which would still benefit Sanofi.
The possible return on investment by adding Sanofi to an equity portfolio at this stage is definitely attractive. On the other hand, the downside appears to be limited. Potential investors should keep in mind that the risk/return balance in this stock currently is not in line with the rest of the Pharma sector. This has its advantages but also its disadvantages in the form of added risk.
Disclaimer:
This article was issued by Antoine Briffa, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.