Sanofi Earnings: Solid Dupixent Growth Offsets Mature Drug Declines and Generic Pressures

Sanofi SAN 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.

In the quarter, sales increased 6% operationally, as Dupixent gains (up 40%) offset mature drug declines and generic pressures. We expect this trend will continue for several years. Even though Dupixent is posting sales that annualize at close to EUR 10 billion, we expect significant growth ahead for Dupixent with peak annual sales above EUR 18 billion. We expect continued market share gains in atopic dermatitis and severe asthma based on leading efficacy and only moderate penetration so far. Also, the recent positive data in COPD provides another major indication for growth. While Eli Lilly will likely launch a competitive drug (lebrikizumab) with a similar mechanism of action to Dupixent in 2024, we believe Dupixent’s first-mover advantage, wide indication breadth, and proven safety track record will limit the competitive pressure.

Turning to the pipeline, we still believe significant work is needed to address a relatively weak late-stage drug group. However, tusamitamab ravtansine (lung cancer), fitusiran (hemophilia), and tolebrutinib (multiple sclerosis) should all post pivotal data in 2023, representing large potential opportunities, but carry higher risks based on earlier clinical data. Longer term, the firm’s early and mid-stage pipeline holds several drugs with strong potential.