Has Sanofi SA (ADR) (NYSE:SNY) Fallen Enough?

January 20, 2015, 13:10 pm ET, BY Barry C.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

There is plenty for investors to dislike about French drug maker Sanofi SA (ADR) (NYSE:SNY):

• Shares of the Paris-based firm are down more than 21 percent since late September 2014.
• About three months ago the company brusquely sacked its CEO after a series of perceived missteps that evidently outweighed some notable achievements. The CEO, Christopher Viehbacher, was generally liked by the investment community.
• Sanofi's diabetes franchise appears to be in trouble, with its drug Lantus facing increased competition. The company has projected flat sales for its diabetes offerings, in great part due to increased generic competition when Lantus loses its patent protection next month. Several of the company’s other well-performing drugs are scheduled to go off patent in the near future.

Despite these struggles, Sanofi, formerly Sanofi-Aventis, might be a good buy for investors willing to accept some risk – and, perhaps, a dose of uncertainty going forward.

Let’s start with the company’s dividend. At $1.91, it yields 4.3%. Even if the stock didn’t move a dime from its current price of $45, investors could sit back and collect more than 4 percent on their money, not bad when you consider the thinning yield on the10-year Treasury and the scramble for safety as the result of a tempestuous stock market.

There are other reasons to be optimistic about Sanofi’s fortunes. A big one is based on a recent report on biopharmaceuticals from McKinsey & Co. It showed that among pharmaceutical companies, Sanofi was a leader in deriving revenue from biopharmaceuticals from 2000 to 2012.

Calling biopharmaceuticals “among the most sophisticated and elegant achievements of modern science,” the authors of the report stress that these drugs do their job remarkably well. They are highly effective in treating patients and don’t have the debilitating side effects that accompany other pharmaceutical products.

Biopharmaceuticals represent a huge and growing opportunity. According to the report, biopharma sales currently account for about 20 percent – or $163 billion -- of the worldwide pharmaceutical market. Moreover, its 8 percent growth rate is by far the fastest growing segment of the industry. In fact, notes the report, biopharma’s current growth rate is twice that of conventional pharma and is expected to increase at the 8 percent clip for the foreseeable future.

Because they’re safe, effective and have been able to treat previously untreatable conditions, innovative biopharmaceuticals have allowed their marketers to command higher prices for the drugs.

Sanofi’s expertise in biopharmaceuticals appears to give the company a leg up over the competition going forward.

And late last year, Sanofi said that it expects to add up to 18 new products to its portfolio between 2014 and 2020. With its broad array of branded drugs and vaccines and new products coming on line, the company should be able to offset softening pricing in the insulin market.

Analysts expect Sanofi to generate $42.45 billion in sales in 2015, earning $3.25 per share. That gives the company a very digestible P-E of about 13 based on forward earnings. In combination with its sweet dividend, the company’s emphasis on biopharmaceuticals and a healthy pipeline, Sanofi just might be attractive to investors.

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