Returns From Sanofi Consumer Expansion Could Point To More

Sanofi's launch of Xyzal Allergy 24HR in the US helped remedy its slumping consumer health product business with more than $43m sales in the first quarter as the division's overall revenues grew nearly 5% to $1.5bn.

The French pharma's strategy of driving consumer health business growth by expanding the product lineup played out during the first quarter not only with the launch of OTC switch Xyzal Allery, but also with further integration of OTC drug and vitamin brands recently acquired from Boehringer Ingelheim GMBH. Company execs said they are looking to further strengthen the consumer business, including through potential acquisitions and Rx-to-OTC switches.

During Sanofi's April 28 earnings briefing, CEO Olivier Brandicourt said the Xyzal launch "enhanced" revenue growth for the consumer product business, which he claims "now ranks as the leading global player" in consumer health care products.

Additionally, an early and strong cough and cold season in Europe helped drive sales growth for the unit. There also was improvement from some emerging markets, but that sector "is still not where we want it to be, mainly due to the tough economic environment in Russia," Brandicourt said.

Alan Main, Sanofi's executive vice president for consumer products, suggested Xyzal results could improve during the current quarter, noting that the product "was just getting in its pipeline fill into the retail sector at the end of the first quarter."

Sanofi expanded is US OTC lineup during the quarter with the Xyzal Allergy launch, which also put the firm in the pediatric 24-hour allergy treatment competition.

Main added, though, that the US allergy season might not create high demand for Sanofi's and other firm's products. "It's obviously a bit too early to indicate there, although the first signs of allergy season in the US. are relatively weak. But we're not near the peak season yet, which comes in the next 2 or 3 weeks," he said.

Like Brandicourt, Main described Sanofi's integration of Boehringer Ingelheim's product lines as on track since the January closing its acquisition of privately held BI's consumer products business, excluding China, and €4.7bn ($5.2bn) in exchange for Sanofi's Merial animal health business. (Also see "Sanofi CEO Sets Growth Target For Consumer Health Business" - Pink Sheet, 30 Oct, 2016.)

"We saw no business disruption in the first couple of months of operation," Main said, adding that Sanofi expects to achieve synergy targets it identified in the deal.

The firm's overall net sales grew 11.1% on a reported basis to €8.65bn ($9.45bn). Led by the Xyzal Allergy launch, its US consumer business sales grew 2.4%, or 18.7% when including BI's products, to €348m ($380.1m). Along with Xyzal, Sanofi's Allegra Allergy (fexofenadine hydrochloride) line helped drive Sanofi's OTC allergy and cough/cold lineup to 12.9% growth.

Sales of Sanofi's OTC, vitamin and personal care brands slipped 1.2% to $2.6bn for full-year 2016 after ending the year with 2.7% fourth-quarter growth to $890.3m following decreases during the first three quarters, including a 4.3% dip during the April-June period. (Also see "Sanofi's Consumer Business Starts 2017 With 'Reassuring' Momentum" - Pink Sheet, 9 Feb, 2017.)

'We Would Be Open' To More Consumer Deals

The BI deal, Brandicourt acknowledged in response to analysts' questions, might not be the end of Sanofi's deal-making to grow its consumer products business. Consumer health care is on the table for expansion through mergers or acquisitions as a "treatment area" in which Sanofi already claims some market-share leadership, the CEO said.

Results during the January-March period show the BI acquisition is "working well," but don't represent the end of consumer health expansion for Sanofi, he said. "Does that mean that in the mid-term or longer term, we wouldn't look at eventually strengthening even further this business? Of course not. So, we would be open."

Consumer health is among the areas "we wanted to strengthen. We have done definitely a very important step there. But it might not be the end of the story and opportunities will be critical or will determine the future of that aspect," Brandicourt added.

In addition to M&A, Rx-to-OTC switches are part of Sanofi's tool kit for growing its consumer business, with the first-quarter launch of Xyzal Allergy 24HR its latest introduction of a new ingredient in the nonprescription space.

FDA in January approved a new drug application to switch its Xyzal Rx allergy treatment to OTC in 5 mg tablets indicated for children 6 and up and adults and in a 2.5 mg per 5 mL "Tutti-Frutti" flavor oral solution, indicated for children 2 and up as well as older children and adults. Sanofi already competed in the OTC antihistamine market with Allegra Allergy, but the fexofenadine hydrochloride line currently is limited to a 12-hour product for children while other nonprescription antihistamine brands such as Claritin and Zyrtec and private label versions of those already offered 24-hour formulations for children. (Also see "Xyzal Switch Extends Sanofi Into OTC 24-Hour Children's Antihistamine" - Pink Sheet, 2 Feb, 2017.)

Also in Sanofi's OTC switch plans is potentially the first erectile dysfunction treatment to be available nonprescription in the US. It has exclusive rights from innovator Eli Lilly & Co. apply for Cialis OTC approval in the US, Europe, Canada and Australia. Cialis (tadalafil) is available Rx in the US in 2.5-, 5-, 10- and 20-mg doses and can be used as needed or once daily. (Also see "Cialis Or Viagra Switch? Sanofi Survey, Pfizer Help Wanted Ad Could Be Signs" - Pink Sheet, 18 Nov, 2016.)

Sanofi stated in August that it was talking with FDA about submitting an NDA for a Cialis switch. The firm did not respond a May 1 request for comment to update the switch initiative.

Market analysts emphasized concern for Sanofi's outlook in the diabetes treatment space, but some also noted the consumer unit's contribution to its earnings.

Morningstar's sector director, Damien Conover, said in a same-day research note that he considers Sanofi's stock "undervalued" because he "investment community appears overly focused on the challenges in the diabetes group." Consumer health care, on the other hand, along with Sanofi's specialty care and vaccines businesses are not getting enough credit for the firm's "solid positioning," he said.

Conover also noted that comparisons to the year-ago quarter are complicated by Sanofi's deal with BI and the end of is vaccine joint venture with Merck, but he expects "the stronger entrenchment in consumer health care will enable the firm to more efficiently market the product portfolio."

Sanofi's share price on the Nasdaq exchange bumped up when it released its first-quarter results, from the previous day's close of $46.83 to $47.44 in early trading on April 28, and after leveling off later that day, have continued climbing to as high as $48.15 on May 2.

From the editors of the Tan Sheet.