As big pharma reports earnings, is it a big deal or no deal?

Print 09 August 2016
Marie Powers / BioWorld

Second-quarter earnings season wrapped up for big pharma with a sales miss by Sanofi SA as it sought to modify its tactical pursuit of Medivation Inc., which reports its financial results after the market close on Aug. 9.

Paris-based Sanofi, which in May threatened to go hostile on its $9.3 billion cash bid for Medivation and later sought an end-run around Medivation's board, recently backed off that stance by entering a confidentiality agreement with the San Francisco-based firm. (See BioWorld Today, April 29, 2016, May 6, 2016, and May 26, 2016.)

"We are certainly pleased to have the opportunity to engage with Medivation, but I emphasize that we will remain financially disciplined throughout this process," Olivier Brandicourt, Sanofi's CEO, said on the company's earnings call.

Referring to the "sensitivity of this situation," Brandicourt asked analysts to limit questions to Sanofi's second-quarter performance. But in response to a final question from Seamus Fernandez at Leerink Partners LLC about the company's "willingness to go up in price in competitive acquisitions or potential acquisitions," Brandicourt cited "return over the cost of capital over a period of three or four years" as a key performance indicator for Sanofi's M&A expectations.

"Of course, the strategic value plays a role, no doubt," Brandicourt added. "And as in the case we are looking at currently where we want to rebuild oncology, of course that has an important value."

Still, he reiterated, "as you know, historically our company has been very, very disciplined, financially, when it comes to M&A. And that will continue."

Sanofi needs a bit of a lift after reporting that second-quarter revenues were off 0.2 percent at constant exchange rates (CER), at €8.87 billion (US$9.92 billion), despite quarterly growth of 20 percent at the company's Genzyme unit. Officials blamed headwinds in Venezuela and loss of exclusivity for Plavix (clopidogrel bisulfate). Currencies, mainly in emerging markets, had a negative impact of €382 million, or roughly 4 percent of sales.

Global sales in the company's important diabetes franchise declined by 3.2 percent in the quarter and was "in line with our guidance of minus 4 percent to minus 5 percent decline at a compounded annual rate for the period 2015 to 2018," Brandicourt said. He declined to provide details on negotiations with U.S. payers on 2017 market access, noting that "these discussions are ongoing at this point."

Last week, the FDA approved the type 2 diabetes drug, Adlyxin (lixisenatide), after a long effort that included withdrawal of a new drug application in 2013 as Sanofi sought to establish cardiovascular safety of the GLP-1 receptor agonist. (See BioWorld Today, July 29, 2016.)

The approval triggered a $5 million payout for lixisenatide inventor Zealand Pharma A/S and set the stage for an FDA decision on Lixilan, a fixed-ratio combination of lixisenatide and Lantus (insulin glargine), Sanofi's flagship diabetes product. Lixilan received a 12-2 endorsement at the FDA advisory committee meeting in May, "which makes us optimistic to receive FDA approval in August as expected," Brandicourt said. (SeeBioWorld Today, May 26, 2016.)

Praluent (alirocumab), partnered with long-time collaborator Regeneron Pharmaceuticals Inc., had second-quarter sales of €21 million, and "we continue to believe that the PCSK9 class meets a high medical need and has a tremendous commercial potential globally," Brandicourt said. U.S. prescription trends suggest that Praluent has captured about half of the PCSK9 market, he said, and "we have made some progress in market access, including an easing of step edits with several U.S. payers, although current payer restrictions will continue to limit uptake this year."

Karen Linehan, Sanofi's executive vice president of legal affairs and general counsel, said the company filed post-trial briefings in its patent dispute over Amgen Inc.'s competing PCSK9 antibody, Repatha (evolocumab). After a U.S. District Court jury ruled in March that patents covering Repatha were valid – potentially putting Regeneron and Sanofi on the hook for damages – the companies vowed to take their case to the Federal Circuit and now await a judge's ruling on the post-trial briefings. (See BioWorld Today, March 17, 2016.)

'LARGE M&A TODAY IS NOT PART OF OUR AGENDA'

Regeneron remains an important ally, Brandicourt said, defending Sanofi against analyst allegations of being a "latecomer" to immuno-oncology (I-O) by pointing to a new $2.2 billion collaboration with Regeneron last year as "a very important move." (See BioWorld Today, July 29, 2015.)

"We believe that there is a huge space of possibilities for combinations, by monoclonal combinations, bispecifics, even trispecifics," added Elias Zerhouni, president of global R&D. In terms of the Regeneron partnership, Sanofi has "significant plans" to launch PD-1 inhibitor REGN-2810, which is in pivotal trials in multiple combinations.

Brandicourt didn't rule out additional bolt-on deals for Sanofi but said "large M&A today is not part of our agenda." Instead, the company is focused on delivering on its 2020 roadmap and strengthening key therapeutic areas, including oncology.

In his earnings update, Cowen and Co. analyst Steve Scala concluded that Sanofi's earnings visibility "remains limited as diabetes is under pressure, and new competition is on the way. Pipeline progress continues at Sanofi, but might be stronger at other companies. Sanofi's product diversification, emerging markets exposure and improving consumer presence are distinguishing points, but don't offset risks."

On Friday, the company's shares (NYSE:SNY) picked up 3 cents to close at $42.63.

Attention also turned across the pond to Astrazeneca plc, which reported few surprises in its second-quarter earnings but saw speculation grow on its prospects as a takeover target, including a Reuters story that cited Novartis AG as a potential suitor. Astrazeneca's shares (NYSE:AZN) spiked 9 percent Thursday following the company's earnings call but were quieter Friday, closing at $34.14, for a loss of 14 cents.

Pascal Soriot, CEO of the London-based pharma, was mum on the topic during the company's earnings call.

In his earnings report, however, Leerink's Fernandez said the stock movement could not have been attributed to Astrazeneca's quarterly revenue of $5.6 billion, slightly above the consensus of $5.54 billion, or earnings per share of 83 cents, or 42 cents per split-adjusted American depositary share (ADR), compared to the Street consensus of 80 cents, or 40 cents per ADR.

"In our view, the share performance can only be explained by two things: 1) fence-sitting investors finally engaging ahead of a broad array of clinical catalysts, or 2) broader speculation of a takeout by [Novartis AG]," Fernandez wrote. "We continue to view the company's pipeline as strong, but barring an offer before year-end, the +25-30 percent post-ASCO price performance factors in meaningful pipeline success."

He added, "We continue to believe that AZN is well-positioned to deliver at least 10 exciting new drugs over the next five years, and we forecast the business to evolve from having >60 percent primary care small-molecule exposure to becoming a leader in biologics and specialty care with particularly exciting opportunities in oncology and immuno-oncology as well as respiratory biologics."

The downsides: "Near-term earnings growth is challenged by patent expirations," Fernandez said. "A major restructuring of the business that orients the company more toward the specialty segment – de-emphasizing AZN's primary care presence – would add value, in our opinion."

In his flash note, Jefferies analyst Jeffrey Holford suggested the recent takeout talk culminated in a day of "short-covering" on shares, pointing to Astrazeneca's I-O pipeline as a potential driver. But he was cautious on the risk/reward ratio of the phase III MYSTIC study of durvalumab (MEDI4736) in combination with tremelimumab – an asset that recently failed a phase IIb study as a monotherapy in second- or third-line treatment of unresectable pleural or peritoneal malignant mesothelioma – along with the pharma's "deal-driven disruption, deteriorating base business, patent expiries and poor earnings/cash flow quality. (SeeBioWorld Today, March 1, 2016.)

"Our overall perspective [is] mixed, but leaning towards 'No Deal,'" Holford concluded.

In other earnings news:

United Therapeutics Inc., of Silver Spring, Md., reported second-quarter revenues of $412.6 million, an 18.8 percent increase over the same period in 2015, driven by rising sales of pulmonary arterial hypertension (PAH) drugs Remodulin (treprostinil injectable), at $158.9 million, up 16.9 percent; Orenitram (treprostinil extended-release tablets), at $38 million, an increase of 46.7 percent; and PDE5 inhibitor Adcirca (tadalafil), at $90.9 million, an increase of 33.3 percent. Sales of Tyvaso (treprostinil inhaled) fell by 7.6 percent year-over-year, to $107 million. Second-quarter net income hit $206.1 million, or $4.39 per diluted share, increases of 107.8 percent and 129.8 percent, respectively. The company reported cash, equivalents and marketable securities of $948.6 million as of June 30. In June, Orenitram gained a label expansion from the FDA for reducing morbidity and mortality in PAH. On Friday, the company's shares (NASDAQ:UTHR) gained $2.02 to close at $121.01. (See BioWorld Today, June 27, 2016.)

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