SNY Stock: Is the Sanofi Share Price Recovering?

SNY stock is an intriguing option for investors seeking exposure to the European pharmaceutical industry. The company has advantages in terms of new product approvals and partnerships; however, the Sanofi share price has been hit as generics move in on its multiple sclerosis drug and the weightloss market speeds ahead.

What is Sanofi?

Sanofi [SNY] is a pharmaceutical company. Based in France, it has a footprint in more than 90 countries.

It has a long history of developing vaccines: it supplied the first injectable polio vaccine and developed the first flu, meningitis and rabies vaccines.

Sanofi has also developed treatments for diabetes. It continues to work on disease-modifying treatments for type 1 diabetes and is a research leader in immunology treatments.

This report will examine Sanofi’s current financial situation and consider why investors may or may not want to consider SNY stock as an option.

Sanofi Backs Novavax

In May, Sanofi announced a $1.2bn investment into struggling vaccine maker Novavax [NVAX] consisting of $500m up front and a further $700m if certain milestones are met. These milestones pertain to the co-commercialisation of a Covid-19 vaccine and the development of a combined Covid and flu vaccine. 

Sanofi will license the technology used for the Covid-flu vaccine and invest up to $200m in each new vaccine it develops using Novavax’s technology.

The Sanofi share price is up 0.6% year-to-date as of 16 July and down 5% over the past 12 months.

Sanofi’s stock has been trending up since 3 July, when its lung disease treatment Dupixent received approval in the EU as an add-on maintenance treatment for adult sufferers of uncontrolled chronic obstructive pulmonary disease (COPD). The approval made Dupixent the first new treatment for COPD in a decade, with up to 220,000 adults in the EU being eligible for treatment with the drug.

Dupixent is the brand name of dupilumab, a medication for treating certain allergic diseases such as atopic dermatitis and asthma.

Sanofi’s share price has gained 2.4% since the announcement.

Why is Sanofi’s Bottom Line Slipping?

In 2023, Sanofi increased its sales by 5.3% year-over-year to €43.1bn, driven by a 34% increase in Dupixent sales. However, adjusted earnings per share (EPS) fell 1.8% to €8.11.

In Q1 2024, Sanofi’s net sales rose 6.7% year-over-year, with Dupixent sales again contributing significantly to the increase. Adjusted EPS of €1.78, however, marked a 7.4% decline. According to Reuters, cheap competitors to Sanofi’s multiple sclerosis drug Aubagio weighed on its profitability.

Two comparison stocks for Sanofi are Novo Nordisk [NVO] and GlaxoSmithKline [GSK]. Both are pharmaceutical giants based in Europe (Denmark and the UK, respectively).

Source: Yahoo Finance

Novo Nordisk is clearly the outlier here. As of 17 July, it is the biggest company in the EU by market cap.

With a P/S ratio approximately seven times that of Sanofi’s, there is a good chance the stock may be overpriced.

However, Novo is expected to grow its revenue significantly faster than Sanofi or GSK over the next two years, for which investors pay a premium. By comparison, Sanofi and GSK are expected to grow their revenue relatively slowly.

Lofty expectations for Novo’s blockbuster obesity treatment Wegovy could be contributing to these elevated revenue growth forecasts.

Sanofi Stock: The Investment Case

The Bull Case

Analysts generally have a positive outlook for Sanofi stock. Among the five analysts polled by LSEG, the median 12-month price target of $58.94 predicts a 17.8% uptick, while even the low target of $55.00 implies 9.9% gains. On the optimistic end, some analysts feel the stock could gain 29.9% and reach $65.00.

New products, such as the vaccine developed by Novavax, and drug approvals like Dupixent could be valuable new revenue sources for Sanofi over the coming years. Grand View Research forecasts a 7.6% CAGR for the global pharmaceutical manufacturing market between 2022 and 2030, from an estimated value of $516.5bn in 2022.

The Bear Case

Sanofi’s revenue growth is expected to be relatively pedestrian compared to the likes of Novo Nordisk. Sanofi’s attempt to launch a GLP-1 drug (i.e., a competitor to Wegovy) failed a mid-stage trial in 2018; CEO Paul Hudson has indicated that it may re-enter the competition, but it is already behind the first movers in what may soon become a crowded market.

“There’s a lot of determination in companies, including ours, to say, the first wave is going to be this; what’s the second wave going to be?” Hudson told CNBC in January.

While Novo leads the way in the weightloss category, Sanofi is haemorrhaging sales of its legacy products, such as Aubagio, to cheaper entrants.

On top of this, Sanofi’s profitability slipped in the most recent full year and quarter. The company expects EPS to fall again in 2024, before rebounding the following year.

Conclusion

This report examined Sanofi’s recent highlights and its current financial situation. While the analyst community has a positive outlook for the stock, there are some headwinds for investors to consider.

As always, independent research should be conducted before making any investment decision.

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