Sanofi - Underweight PT upgrade to €87 from €85
Risks to Consensus Diabetes and EPS forecasts remain
Outside the upcoming strategy update (Nov 6, ‘15) and dupilumab Phase III data (1Q’16), we continue to see risk to Consensus Business EPS forecasts in 2016/17. This risk comes from pressure on the diabetes business which we
expect to intensify due to Novo’s Tresiba US approval and Sanofi’s LixiLan data showing an inferior profile to Novo's Xultophy. As a result we expect Sanofi to achieve a Business EPS 2015-20 CAGR of only 5% (sector 8%) and
hence we expect the shares to remain at a discount and set a Jun ‘16 PT of €87 based on 15x 2016E EPS (15% discount).
* Diabetes franchise still expected to be below expectations: For Toujeo and
Lantus we continue to believe consensus is too high. Our FY’15 forecast for
Toujeo of €83m is 37% below BBG Cons. at €131m (FY’16 JPMe €222m vs.
Cons €360m) and for Lantus we forecast €6,694m vs. Cons. at €6,736m
(FY’16 JPMe €6,228m vs. Cons €6,282m). In addition, we believe the early
stages of the Praulent launch may be slower than expected. For Praulent
we forecast FY’15 at €64m, c. €30m lower than Cons. with €95m (FY’16
JPMe €328m vs. Cons €356m). Overall this suggests to us limited potential
for upgrades to the key products in the next 6-12 months.
* Next catalysts in 2H’15/early 2016: We expect the strategy update to be a
positive, but LixiLan data and Tresiba approval could increase pressure
on Diabetes: (1) Nov 6, 2015 Strategy update: we do not expect significant
changes to the group structure; (2) LixiLan-L Phase III data in 3Q’15 – we
expect the profile to be inferior to Xultophy (Novo); (3) Potential approval of
Toujeo competitor Tresiba in the US on Oct 1. In early 2016 positive
dupilumab data could be tempered by the impact of 2016 guidance: (4)
Dupilumab Phase III data in Atopic Dermatitis – positive data expected and
seemingly largely reflected by the market with Consensus 2020 forecasts of
€1.2bn (JPMe €906m after 70% risk adjustment); (5) FY’15 results: potential
for modest Cons. cuts around 2016 guidance.
* Minor changes to forecasts; we remain 1% to 6% below Vara Cons. We
have made minor changes to our Business EPS forecasts by 1-3% for 2015-
20. Our forecasts remain 1.5% below Vara Cons in 2016 and 5% below in
2017 likely driven by greater pressure on the diabetes business, requirement
for continued SG&A investments and more limited profitability of the
Regeneron pipeline assets.