July 31, 2008 / 12:55 PM / 11 years ago

Weak Q2, pipeline woes sink Sanofi as Astra shines

LONDON (Reuters) - Weak second-quarter results and a series of pipeline setbacks derailed shares in French drugs group Sanofi-Aventis (SASY.PA) on Thursday, while Anglo-Swedish rival AstraZeneca (AZN.L) shone with a bright 2008 outlook.

Sales and profit both came in below expectations at Sanofi, which also dropped four experimental products from development. A fifth drug for depression faces an uncertain future.

The latest disappointments in the laboratory follow the loss of two cancer drugs earlier this month, undermining confidence in Sanofi’s ability to replace sales of older drugs now facing competition from generics and newer rivals.

Those reverses more than offset a modest increase in the company’s previously conservative earnings guidance for 2008 that still left its internal financial projections well short of analyst forecasts.

“Sanofi shows the problems that branded pharma majors have when the top-line (sales) comes under pressure and the pipeline fails,” said Charles Stanley analyst Jeremy Batstone-Carr.

AstraZeneca, by contrast, hiked its earnings guidance more than expected, after beating expectations for sales and profits in the three months to June.

Shares in Sanofi fell 4.2 percent to 45.33 euros by 1215 GMT, while AstraZeneca jumped 3.6 percent to 24.77 pounds.

CURRENCY PAIN AND GAIN

AstraZeneca said about half of its increased earnings outlook for the full-year reflected favourable currency effects, including the weakness of the U.S. dollar, its reporting currency.

It now expects “core” earnings per share of between $4.60 and $4.90, against $4.45-4.75 anticipated previously.

The rest was due to better prospects for the business, driven by key products like cholesterol fighter Crestor, schizophrenia drug Seroquel and Symbicort for asthma, as well as lower interest charges.

Top-seller Nexium, for acid reflux, is under pressure from cheaper rivals but still did better than some analysts expected.

For Sanofi, meanwhile, the strength of the euro is a serious drag on reported sales and had a negative impact of 6.5 percentage points in the quarter.

AstraZeneca reported pretax profit up 14 percent to $2.28 billion on sales of $7.96 billion, an increase of 9 percent on a year earlier.

Sanofi’s adjusted net income came in at 1.605 billion euros ($2.50 billion), down 4.4 percent, as sales slid 3.6 percent to 6.69 billion euros.

GENERIC THREATS

Sanofi and AstraZeneca are the cheapest large-cap stocks in the European pharmaceuticals sector, reflecting scepticism about their pipelines and worries about the threat posed by generics.

Sanofi shares trade on little over 8 times forecast 2009 earnings, with AstraZeneca on around 10 times, according to Reuters data.

Recently, however, their abilities to fend of the dangers posed by copycat medicines have started to diverge.

AstraZeneca’s stock has rallied by around a third since March as it has seen off immediate generic threats to both Nexium and Seroquel.

But Sanofi has lost a similar amount since January on concerns about the threat of generic competition to its two biggest products, anticoagulant Lovenox and the blood thinner Plavix.

Lovenox and Plavix also face a fight for market share against newer branded rivals, such as Eli Lilly’s (LLY.N) and Daiichi Sankyo (4568.T) prasugrel and Bayer BAYG.DE and Johnson & Johnson’s (JNJ.N) Xarelto.

Editing by David Cowell

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