Sanofi (SNY) R&D Expenses And Price Cut Might Further Impact Free Cash Flow

$Sanofi SA(SNY)$ is expected to report its financial results for fiscal Q1 2025 on 24 April 2025 before the market open.

The consensus estimate for the revenue from the analyst hover around €9.7 billion to €9.8 billion for Q1 2025. This would represent a potential decrease compared to Q1 2024 revenue (€10.46 billion).

For the consensus forecasts for earnings per share (EPS) for Adjusted EPS (ADS) are around $0.90 to $0.95, slightly below the ~$0.95-$0.96 reported in Q1 2024.

From tipranks, the consensus EPS forecast is looking at $0.92.

Sanofi (SNY) Last Positive Earnings Call Saw The Share Price Decline By -2.40%

Sanofi had a positive earnings call on 30 Jan 2025 which saw its share price declined by 2.40%.

The earnings call reflects a strong performance in sales and strategic growth, especially in new product launches and the vaccines segment. However, there are concerns about increased expenses, slight gross margin decline, and impacts from healthcare policy changes. Despite these challenges, the company's growth outlook and pipeline advancements contribute to a generally positive sentiment.

Sanofi (SNY) Guidance On Several Pipeline Advancements

The call provided extensive guidance for Sanofi's performance in 2024 and set expectations for 2025. The company reported a 10.3% increase in Q4 net sales at constant exchange rates, reaching €10.6 billion, with full-year sales up 11.3% to €41.1 billion. Key drivers included new product launches like Beyfortus, which achieved blockbuster status, and Dupixent, which surpassed €13 billion in sales. The gross margin was slightly down at 74.3% due to the lack of COVID revenues, despite a 0.8% increase when excluding COVID impact. R&D expenses rose by 14.6% to €7.4 billion, in line with plans to bolster the pipeline. Business EPS rose by 4.1% to €7.12, exceeding initial guidance. Looking ahead, Sanofi expects sales growth in mid-to-high single digits and business EPS growth in low double digits for 2025, with an anticipated positive foreign exchange impact of 2% to 3%. The company also plans a €5 billion share buyback and predicts sales reductions from portfolio simplifications by €250 million.

The call highlighted several pipeline advancements, including positive Phase 3 results for drugs like fitusiran and ongoing development in key areas such as RSV vaccines and immunology, underscoring Sanofi's commitment to R&D and strategic focus areas.

Q1 2024 benefited from earlier deliveries of flu vaccines; a similar early pattern was not anticipated for Q1 2025, suggesting potentially lower year-over-year vaccine sales comparisons for the quarter. The company estimated a slightly positive currency impact on Q1 sales and EPS (+0.5% to +1.5%). Impacts from divestments were expected to reduce sales by approximately €40 million in Q1.

Factors Influencing Fiscal Q1 2025 Performance

In Q4 2024, Sanofi reported double-digit sales growth for the third consecutive quarter, with strong contributions from new product launches and existing products like Dupixent.

Beyfortus achieved blockbuster status in its first full year of sales, with significant sales growth and expanded RSV protection to more than 6 million babies globally. Gross margin decreased slightly due to the absence of COVID revenues in 2024, despite an increase in operating expenses driven by R&D.

Free cash flow was impacted by price cuts of Lantus, elimination of factoring of receivables, and unfavorable exchange rate impacts, resulting in a closing free cash flow of €6 billion.

Pipeline Developments: Success of late-stage candidates (e.g., BTK inhibitor for MS, next-gen COVID/flu vaccines).

Sanofi's R&D efforts resulted in positive Phase 3 results for several drugs, potential launches, and regulatory progress with 21 acceptances of regulatory submissions.

R&D expenses increased by 14.6%, and SG&A expenses increased by 4.5%, reflecting high activity levels and preparation for upcoming launches.

Dupixent’s Trajectory: Expected to surpass €13 billion in annual sales by 2024, potentially driving growth into 2025. Dupixent exceeded the sales target of €13 billion, driven by strong demand from over 1 million patients globally. The drug grew by 16% in Q4 alone.

Vaccines and Pandemic Preparedness: Ongoing demand for flu shots and potential new products (e.g., mRNA-based vaccines). Sanofi's vaccines business crossed the €8 billion sales milestone, driven by Beyfortus and strong performance of the flu franchise.

Patent Expirations: Generic/biosimilar competition for older drugs (monitor impact on revenue). Sanofi anticipates modest headwinds from changes to Medicare Part D under the IRA, which could affect sales and profit margins.

Market Trends: Inflation, supply chain stability, and regulatory changes (e.g., U.S. drug pricing reforms under the Inflation Reduction Act).

Sanofi improved its ranking in the 2024 access to medicine index from eighth to third place, highlighting its commitment to global health.

Sanofi (SNY) Price Target

Based on 6 Wall Street analysts offering 12 month price targets for Sanofi in the last 3 months. The average price target is $64.75 with a high forecast of $67.00 and a low forecast of $63.00. The average price target represents a 27.21% change from the last price of $50.90.

I think while we looked at how SNY price target lined up, there are some strategies we might want to watch for :

1. Digital Health Investments: AI-driven R&D and patient engagement tools.

2. Portfolio Optimization: Potential divestments of non-core assets (e.g., consumer healthcare) to focus on innovative medicines.

If these two strategies work out well, we might see a much positive price target move.

Technical Analysis - Exponential Moving Average (EMA)

From the technical, RSI is showing that SNY is gaining momentum with a recent crossover in the RSI MA, but if we looked at the share price trading, it is in a downward trend, which have the bears still in control, and they are trying to make a bearish move.

Though analysts generally project mid-single-digit revenue growth for Sanofi through 2025, assuming pipeline success and Dupixent’s dominance. Margins may face pressure from R&D spend and pricing headwinds.

I think investors might take a wait-and-see approach and see how Sanofi share price would moved before its earnings.

Summary

Sanofi anticipated the usual Q1 impact on its key drug Dupixent due to annual insurance deductible resets in the US, potentially leading to lower sequential growth. Modest headwinds from the Medicare Part D redesign were also expected.

But I think as investors we need to pay attention to the factors especially the R&D expenses and price cut which might further impact the Q1 earnings, and with the macroeconomics of pharmaceuticals tariffs impending, these risks concern need our attention.

Appreciate if you could share your thoughts in the comment section whether you think Sanofi could still ride through the expenses and tariffs impact for a significant earnings for Q1 2025.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.