We track Emerging Markets growth rates for our covered companies. It has accelerated consistently since mid-2016; in Q3 2018 it was 11.6% y/y. From Q1 2012 to Q3 2018, y/y growth has been: 6.4% (10.3% (9.1% (9.5% (6.4% (10.3% (9.1% (9.5% (7.4% (6.1% (3.9% (9.5% (6.4% (8.3% (10.9% (8.0% (7.5% (4.7% (3.6% (3.2% (4.4% (1.8% (3.6% (3.3% (5.8% (6.1% (7.4% (7.5% (9.1% (9.5% (11.6% (Exhibit 1).
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This report covers the bull/bear case, current controversies, relative growth prospects and more for our 10 US & EU global pharmaceutical companies.
The Medicare coverage gap, aka “donut hole”, has been a component of the Medicare Part D program since it was established in 2003. The presumed intent of the donut hole was to increase patients’ financial responsibility during some part of their care, with the hope that they would help contribute to making rational drug choice decisions. However, the enactment of the Patient Protection and Affordable Care Act (the “ACA”) in 2010 has sought to undo this – it encompassed legislation to lower beneficiaries’ financial exposure, with the goal of eliminating it completely by 2020.
We recently wrote a brief investor update on the investment case for BMY (BMY: Summarizing the Investment Case). In it, we said that it is time to move on from the idea that Opdivo+Yervoy in lung cancer is going to work. This is because the totality of the evidence thus far (from both BMY and AZN) has been that anti-CTLA4 therapies just don’t seem to do much in this particular tumor type. A bearish view on CTLA4 is not a thesis change for us, but for many of the former “bulls” on the stock it has been, and it is one of the reasons BMY shares have struggled.
On November 19th, we published a report (Global Pharmaceuticals - Removal of "Protected Drug Class" Status Coming?) claiming that the Administration may seek to change language related to the six “protected drug classes” in the near-term. Proposed changes have just been released (along with other proposals aimed at helping to manage healthcare spending; not addressed in this report). These proposals are not finalized, meaning it is not clear what ultimately survives the comment period that comes next; implementation would likely begin in 2020.
Presently, six classes of drugs are protected from aggressive formulary management in Medicare Part D plans. This “protected drug class” policy came into effect in 2003 when Medicare Part D was first established.
Sanofi (SAN) reported 3Q18 financial results on Wednesday (10/31/18), before the open. The company beat on EPS on solid revenues (in-line with our estimate but ahead of consensus). FY2018 guidance was raised.
Sanofi reported 3Q18 financial results this morning (10/31/18). This report summarizes key takeaways from the conference call that go above and beyond information provided in the press release.
SAN reported higher 3Q18 product revenues of €9.39B vs. consensus of €9.14B and in-line with our estimate of €9.38B. Business EPS came in higher at €1.84 vs. consensus of €1.71 and our €1.77. Helping performance in Q3, relative to our model, was higher Other Operating Income, Share of Profits from Associates, and a lower tax rate. Overall, a quiet, decent quarter.
Our rating of Peer Perform on Sanofi is unchanged. There is not a lot of risk to the story, and its valuation is on the low end (as it chronically is), but in our model growth lags and it is not at all clear that SAN’s R&D prospects – historically among the weakest in our sector – will get better anytime soon. A new head of R&D has been hired, and sometime in the coming months he will unveil his vision of the future but turning around R&D fails more often than it succeeds, and even if it does succeed, it takes a long time and deeper investments. A more tried and true (and quicker) way of gaining a pipeline is through M&A, but earlier this year SAN spent most of what it had earmarked for acquisitions on two different transactions (one of which introduced new uncertainty), and these won’t be enough to change the earnings trajectory meaningfully enough, in our view. Absolute downside with SAN seems limited, but outperformance relative to peers seems elusive.
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