Sanofi Earnings: Strong Dupixent Sales Offset Generic Pressures as Pipeline Makes Solid Progress

Sanofi SAN 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.

In the quarter, sales increased 3% operationally, as strong Dupixent growth (up 34%) was partly offset by generics to multiple sclerosis drug Aubagio. We expect an acceleration of growth as the firm annualizes the generic pressures by mid-2024 and new products launch. Also, low penetration rates in atopic dermatitis and severe asthma along with new indications (especially chronic obstructive pulmonary disease) for Dupixent should support a doubling of sales from 2022 to over EUR 18 billion by 2029. As Dupixent scales, we expect it to help lift overall company margins.

Beyond the expected accelerating outlook in the core business, Sanofi’s pipeline is making solid strides. Recent launches of Beyfortus for respiratory syncytial virus and Altuviiio for hemophilia should develop into multi-billion-euro products. Also, positive phase 2 data for amlitelimab in atopic dermatitis and frexalimab in MS sets up likely phase 3 starts in early 2024.

The pipeline holds a couple wild cards that could further improve Sanofi’s outlook if data is positive. Phase 3 Sarclisa data in front-line multiple myeloma could open up a major avenue of growth, although we are less bullish on this study, given the strong entrenchment by Johnson & Johnson’s Darzalex. Phase 3 data for MS drug tolebrutinib should report in mid-2024, but we remained concerned about the safety profile of the drug. Our expectations for Sarclisa and tolebrutinib are fairly low, so strong clinical data could offer upside to our fair value estimate.