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Sanofi Shakes Off Patent Losses

The drugmaker faces less long-term volatility as the focus shifts to steady businesses.

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In tandem with its research and development update,  Sanofi (SNY) announced optimistic pipeline guidance along with flat to slightly growing guidance for diabetes sales through 2018. While the diabetes outlook matches our projections, the pipeline guidance runs above our expectations. We don't expect any changes to our fair value estimate based on the pipeline outlook, as we need to see more clinical data from earlier-stage drugs before increasing our projections. However, the improving pipeline reinforces our conviction in Sanofi's wide economic moat, as the company's drug division carries the strongest margins and the next generation of drugs looks more secure as the pipeline has improved over the past two years.

On the pipeline, Sanofi provided aggressive guidance of EUR 30 billion in five-year cumulative non-risk-adjusted sales from new launches from 2014 to 2020. The expectation runs above our corresponding expectation of EUR 22 billion and consensus expectations of EUR 25 billion. We believe the company is more bullish on pipeline drugs with less public clinical data, such as dupilumab for dermatitis and asthma. Further, a big unknown is the pricing for pipeline products, and Sanofi might be expecting pricing above our expectations for new drugs--in particular, cholesterol-lowering drug Praluent.

Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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