Company Reports

Sanofi reported solid first-quarter results largely in line with our expectations and we're holding firm to our fair value. We continue to view the stock as undervalued with the market not fully appreciating Sanofi’s long-term growth potential and developing pipeline that also reinforces the firm’s wide moat.

Sanofi's wide lineup of branded drugs and vaccines and robust pipeline create strong cash flows and a wide economic moat. Growth of existing products and new product launches should help offset upcoming patent losses.

Sanofi reported solid fourth-quarter 2023 earnings slightly ahead of our expectations, but we aren't making any fair value estimate changes based on the minor outperformance. We still view the stock as undervalued with the market unlikely to be fully appreciating the firm’s strong position in immunology, which also gives us confidence in its wide moat.

Sanofi’s announced acquisition of Inhibrx for just over $2 billion largely nets early-stage Alpha-1 antitrypsin deficiency (AATD) drug INBRX-101 at a reasonable price. We are not making any changes to our fair value estimate based on the deal, as the sales of INBRX-101 hold the potential to offset the costs. The drug helps develop Sanofi’s midstage pipeline, reinforcing the company’s wide moat.

We hold firm to our fair value estimate for Sanofi following the firm’s R&D day that highlighted 12 new potential blockbuster drugs. The solid innovation outlook reinforces Sanofi’s economic moat.

We are holding firm to our Sanofi fair value despite the stock's pullback, likely in reaction to lowered long-term margin guidance. In tandem with slightly lower-than-expected third-quarter results, Sanofi withdrew its 2025 operating margin target of 32%. While the market had largely expected the firm to hit the 2025 guidance, we were skeptical of the guidance and had forecasted more of a continuation of the current margin (close to 300 basis points below 32%) through 2025. We view the market pullback as overdone, making the stock more undervalued.

Sanofi reported second-quarter results largely as expected and consistent with our fair value estimate. We continue to view the company as undervalued, with the market not fully appreciating a growing pipeline and the very well-positioned immunology drug Dupixent, both of which also give us confidence in the firm’s wide moat.

Sanofi’s vaccine research and development update provided details on core franchises and new vaccines but didn’t impact our fair value estimate. The encouraging pipeline developments reaffirm our conviction in the firm’s wide moat. We believe Sanofi will likely meet its vaccine sales expectation of over EUR 10 billion by 2030, up from close to EUR 5 billion in 2018.

Sanofi posted first-quarter results largely in line with our projections, and we don’t expect any major changes to the firm’s fair value estimate. The stock looks undervalued with the market not fully appreciating the large potential cash flows driven by immunology drug Dupixent. Also, while the firm hasn’t been able to significantly improve its R&D track record, the recent successful development of Dupixent in COPD (chronic obstructive pulmonary disease) and the upcoming launches of hemophilia drug Altuviiio and RSV drug Beyfortus could mark a positive inflection point in productivity, reinforcing the firm’s wide moat.

The efficacy of Sanofi and Regeneron's Dupixent appears to have extended to another inflammatory disease, as the phase 3 Boreas trial—focused on former or current smokers with type 2 inflammation and chronic obstructive pulmonary disease—has shown a statistically significant benefit for the drug on top of standard care by multiple measures. We now assume an 80% probability of approval in 2025, with potential sales peaking in 2029 around $2 billion in this indication; this puts our overall Dupixent peak sales estimate north of EUR 18 billion. This contributes to our Sanofi fair value estimate increase to EUR 113/$61 per share from EUR 110/$57. We would have included a low-single-digit increase in our Regeneron fair value estimate with this news, but we've also trimmed Eylea's sales in our model in 2028 and beyond to account for potential Medicare negotiation for the firm's high-dose version of the drug (on track to launch in 2023). We think Dupixent remains an important part of Sanofi’s wide moat and Regeneron’s narrow moat.

Sanofi's wide lineup of branded drugs and vaccines and robust pipeline create strong cash flows and a wide economic moat. Growth of existing products and new product launches should help offset upcoming patent losses.

Sanofi’s announced acquisition of Provention Bio adds new diabetes drug Tzield to Sanofi’s entrenched cardiometabolic platform. However, we don’t see the nearly $3 billion deal as significantly affecting Sanofi's fair value estimate or wide moat.

Sanofi reported fourth-quarter results and issued 2023 guidance largely in line with our expectations, and we don’t expect any major fair value estimate changes based on the update. We continue to view the stock as undervalued, with the market not fully appreciating the firm’s ability to drive cash flows from immunology drug Dupixent and redeploy the gains toward successful new drug development. While the Dupixent sales gains (up 42% to EUR 2.4 billion) were impressive, the ability to drive successful drug development has been less robust recently. Nevertheless, with patent protection on Dupixent for almost another decade, we believe Sanofi will have increasing success with its earlier-stage drug pipeline, partly based on a shift toward more innovative drugs, reinforcing the firm’s wide moat.

Consistent with our expectations, the Multidistrict Litigation, or MDL, Zantac ruling dismissed cases claiming the drug caused cancer. While we don't expect any changes to our fair value estimates for GSK, Sanofi, and other drug firms that have sold the gastroenterology drug Zantac, the market's overreaction in late summer appears to have largely reversed course based on this ruling, and the shares have largely recuperated the over $30 billion in market capitalization lost when significant investor concern over Zantac litigation emerged in August. Even with the rebound, we continue to view the stocks as undervalued, with the market not fully appreciating the growth potential of the firms and their wide moats.

Sanofi reported strong third-quarter results ahead of our projections, but we don’t expect any major changes to our fair value estimate based on the outperformance, which was partly driven by earlier-than-expected flu vaccine sales. Nevertheless, we continue to view the stock as undervalued with the market not fully appreciating the long-term growth outlook for the firm supported by immunology drug Dupixent and new pipeline drugs that also support the firm’s wide moat. Additionally, we continue to view stock valuation loss earlier in the year surrounding concerns on potential Zantac litigation as excessive.

After taking a closer look at what we consider the three key elements of the Inflation Reduction Act that will affect the biopharma industry over the next decade, we're reducing our fair value estimates for 17 of the biggest biopharma names in Morningstar's coverage by an average of 2%. We think the step-down in U.S. branded drug sales from capping Medicare price increases to inflation (fully rolled out in 2023), redesigning Medicare Part D (beginning in 2025), and Medicare negotiation (beginning in 2026 for small molecules) will result in a 3% reduction in total sales for these firms by 2031, with firm-level reductions depending on the firm's reliance on the U.S. market, proportion of the portfolio targeting seniors, history of price increases, and relative size of its small molecule and biologics portfolios (as biologics are immune from Medicare negotiation for 13 years instead of nine). Our estimates factor in some ability for the industry to either benefit from certain changes (like potential increased prescription fill rates in Part D with lower out-of-pocket costs) or compensate for headwinds (like responding to inflation caps on price increases with higher launch prices). Overall, we think the effect of the Inflation Reduction Act is manageable for the industry, and we see the competitive advantages and economic moats of these firms remaining intact.

Sanofi's wide lineup of branded drugs and vaccines and robust pipeline create strong cash flows and a wide economic moat. Growth of existing products and new product launches should help offset upcoming patent losses.

Sanofi’s discontinuation of cancer drug amcenstrant does not have a major impact on the firm’s fair value estimate as we had projected peak annual sales for the drug at well below EUR 1 billion annually. However, the string of bad news (including the recent clinical hold on multiple sclerosis drug tolebrutinib) in the late-stage development is concerning. Nevertheless, drug development is risky, and failures are common. We do not see these pipeline setbacks as overly concerning, and we continue to believe Sanofi will be able to develop the next generation of drugs to offset eventual patent losses, which is a key factor supporting its wide moat. Also, the limited patent losses over the next several years also provide time for Sanofi to refill its late-stage pipeline with several early-stage drugs that look encouraging.

Shares of GSK and Sanofi are under pressure due to increasing concerns regarding legal cases related to a potential cancer side effect from the over-the-counter heartburn medicine Zantac, according to several news sources. We view the pressure as overdone, as we do not expect major legal settlements regarding the medicine. We are not changing our fair value estimates for the companies as we have already factored in minor payouts related to drug liabilities for both companies. Also, we do not expect this ongoing litigation to have an impact on the moats of GSK or Sanofi, which are much more related to strong innovation with prescription drugs that should not be affected by the Zantac legal issues.

Sanofi's wide lineup of branded drugs and vaccines and robust pipeline create strong cash flows and a wide economic moat. Growth of existing products and new product launches should help offset upcoming patent losses.