Sanofi (SNY - Analyst Report) reported second-quarter 2016 business earnings of 74 cents per American Depositary Share, in line with the Zacks Consensus Estimate. Earnings were, however, down 7.1% on a reported basis and 2.1% at constant currency rates (CER).

Second-quarter 2016 aggregate sales declined 4.3% on a reported basis and 0.2% at CER. Sales were hurt by exchange rate movements of 4.1 percentage points, as unfavorable movements in the U.S. dollar and several other currencies more than offset the positive fluctuations of the Japanese yen.

Sales were also impacted by a negative currency impact related to the change in exchange rates applied for the translation of Venezuela operations, resulting from the evolution of exchange system in Feb 2016 as well as from the persistent inability to exchange Venezuelan bolivars for U.S. dollars at the privileged official rate.

In addition, in the second quarter of 2015, Sanofi had benefited from a significant increase in demand in Venezuela due to buying patterns associated with local market conditions. As a result, second-quarter of 2016 sales of €6 million was significantly lower than the year-ago tally of €199 million.
  
All growth rates mentioned below are on a year-on-year basis and at CER.

Segmental Performance

Sanofi’s new operating model based on five Global Business Units (GBUs) – Sanofi Genzyme (Specialty Care), Diabetes & Cardiovascular, General Medicines & Emerging Markets, Sanofi Pasteur (Vaccines) and Merial (Animal Health) – came into effect on Jan 1, 2016. Under this organizational structure, all Pharmaceutical sales in Emerging Markets are now included under the General Medicines & Emerging Markets GBU.

Sanofi Genzyme/Specialty Care GBU sales increased 20.1% to €1.2 billion, driven mainly by strong uptake of multiple sclerosis drugs, Aubagio (up 58.3% to €315 million) and Lemtrada (up 92.9% sequentially to €108 million).

Meanwhile, sales of rare disease drugs like Cerezyme increased 8% to €199 million while Myozyme/Lumizyme improved 13.9% to €182 million. Fabrazyme sales were €167 million, up 17.8%, benefiting from the timing of orders. Cerdelga sales came in at €26 million in the second quarter of 2016, up 62.5%.

Oncology sales decreased 3.6% to €363 million due to lower sales of Taxotere and Eloxatin.

Diabetes and Cardiovascular GBU sales declined 3.5% to €1.6 billion. The Diabetes franchise was down 3.2% to €1.9 billion, reflecting lower sales of its best-selling drug, Lantus, in the U.S. (down 7.1% to €1 billion) due to lower average net price.

Sales of diabetes drugs outside the U.S., however, increased 2% to €824 million driven by strong performance in Emerging Markets (up 5% to €358 million). Newly launched Toujeo generated sales of €141 million (up 36.9% sequentially) in the reported quarter.

Praluent garnered worldwide sales of €21 million in the reported quarter, up 75% sequentially with U.S. sales coming in at €18 million and EU sales amounting to €3 million.

General Medicines & Emerging Markets GBU sales came in at €4.5 billion, down 5.6%. Sales of Established Rx products were €2.6 billion, down 9.7%, reflecting lower sales in Venezuela and dull performance of Plavix in Japan.

Second-quarter Consumer Healthcare sales were €800 million, down 4.3%, due to the impact of Venezuela.

Sales of Generics were down 1.9% to €474 million due to lower sales of the authorized generic version of Plavix in Japan.

Meanwhile, Pharmaceuticals sales were down 1.7% to €7.3 billion, impacted by a decrease in Diabetes and Established Rx Products sales, partially offset by the multiple sclerosis and rare disease franchises.

Second-quarter consolidated Vaccines sales increased 6.3% (comparability based on reclassification of VaxServe sales – Sanofi's vaccine distribution and service provider in the U.S.) to €797 million driven by the Polio/Pertussis/Hib Vaccines franchise in Emerging Markets, and Travel and other endemics vaccines.

Second-quarter Animal Health sales were up 9.1% to €725 million driven by the success of NexGard, Merial’s next-generation flea and tick product for dogs, in the U.S., EU and Japan.

2016 Outlook

Sanofi continues to expect 2016 business earnings to be broadly stable. The company anticipates negative currency impact of around 4% on business earnings in 2016.

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Our Take

Sanofi’s second-quarter 2016 results were encouraging with earnings coming in line with expectations. However, both earnings and revenues declined year over year.

We expect investor focus to remain on the sales ramp-up of newly launched drugs Praluent, Toujeo and Dengvaxia. The company expects a lot of activity on the pipeline front this year.

Sanofi currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector are Zoetis Inc. (ZTS - Analyst Report) , Innoviva, Inc. (INVA -Snapshot Report) and ANI Pharmaceuticals, Inc. (ANIP - Snapshot Report) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).