French pharma giant Sanofi (SNY) recently inked a deal to acquire Massachusetts-based medical device company Pluromed Inc. Financial details of the transaction were not disclosed.
The acquisition on closure will add LeGoo, a CE marked gel, to Sanofi’s Biosurgery portfolio. The Biosurgery portfolio currently includes brands like Synvisc, Synvisc-One (hylan G-F 20), Carticel (autologous cultured chondrocytes), MACI (Matrix-induced Autologous Chondrocyte Implantation), Seprafilm and Epicel (cultured epidermal autografts). LeGoo is already approved by US Food and Drug Administration (FDA) for temporary endovascular occlusion of blood vessels during surgeries.
We note that Sanofi’s biggest challenge is the generic threat being faced by several of its products. The company lost approximately EUR2.2 billion in sales in 2011 due to genericization.
Sanofi is looking to combat the generic threat through acquisitions/deals. Moreover, Sanofi is also introducing new products to counter the loss of revenues due to genericization of key drugs. We believe that the impending acquisition of Pluromed is a step in that direction.
Towards fulfilling the same objective, Sanofi entered into a co-promotion agreement with Veracyte, Inc. earlier in the year to provide a personalized solution for thyroid patients.
Per the agreement, Sanofi will shoulder the commercialization responsibilities pertaining to Veracyte’s Afirma Thyroid fine needle aspiration (FNA) analysis, which helps in thyroid nodule diagnosis. Sanofi will initially commercialize the product in the US. Detailed terms of the agreement were not provided.
Our Recommendation
We currently have a Neutral recommendation on Sanofi. The stock carries a Zacks #3 Rank (Hold rating) in the short run. We expect 2012 earnings to be hit by the loss of US exclusivity on Plavix and Avapro both co-developed with Bristol-Myers (BMY).
While new product launches should make significant revenue contributions in the long term, we expect Sanofi to continue to contain operating costs in order to grow earnings in the face of weakening sales of some of its biggest products.
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