Editor's note: Details about rilzabrutinib have been corrected in this article.
Sanofi (SNY -0.31%) believes it has a potential blockbuster in its innovative new BTK inhibitor that has "the potential to be a first- or best-in-class treatment of several immune-mediated diseases." If the company is right, investing now could pay off handsomely in the future, for those with patience.
Why you should consider buying Sanofi
Sanofi's rilzabrutinib performed well in its phase 3 clinical trial, meaning the company can now apply for approval. The drug is a type of BTK inhibitor that combats disorders found in B lymphocytes, also known as B cells. "The results of this study reinforce rilzabrutinib’s potential to be a first-in-class oral, reversible BTK inhibitor that can provide clinically meaningful improvements for people living with severe immune-mediated diseases like [immune thrombocytopenia] ITP," Houman Ashrafian, executive vice president, head of research and development, Sanofi, was quoted as saying. BTK inhibitors have also shown effectiveness as a treatment for such diseases as non-Hodgkin lymphomas.
The excitement over its clinical trial success stems from its efficacy compared to the competition. Rilzabrutinib works at a smaller dosage and has fewer unwanted side effects. Those traits immediately make the drug promising in the marketplace.
In addition, rilzabrutinib's ability to work effectively in low dosages has developers confident that the drug could be used against other diseases beyond the B cell type. That's why Sanofi sees the potential for big future sales. In late December, Sanofi said that by 2030, it expected $11 billion in added annual sales from 12 drugs -- including five that are already launched and seven, including rilzabrutinib, that could be launched.
By year's end, expect Sanofi to ask U.S. and European authorities for permission to begin producing and marketing rilzabrutinib for treating immune thrombocytopenia, a blood-clotting disorder.
Where Sanofi is now
Sanofi began 2024 with a 7% increase in Q1 sales, beating analysts' expectations. The company had a share price of $49.23 at the close of April 30, which put it halfway between its 52-week high of $55.93 and its 52-week low of $42.63.
Sanofi's yearly gross profit margin of 68.5% and its 17.8% free cash flow margin are higher than the sector's median. The median free cash flow margin isn't close at less than 1%.
However, both margins took a blow in Q1. Cash flow wasn't as high as it could have been due to decreasing sales of insulin drug Lantus. The company expects the decline in cash flow to have a small carryover effect into the second and third quarters.
For Q1, Sanofi's gross margin dipped 2.6 percentage points due partly to the expiration of its exclusivity rights for multiple sclerosis drug Aubagio. It also discontinued its COVID-19 vaccines.
There was also an inventory adjustment. When standard costs dropped, the company performed a one-time revaluation. According to the chief financial officer, the change accounts for nearly half of the Q1 gross margin drop. The CFO believes the effect will be minimal for the rest of the year.
Reasons to be patient with Sanofi
Sanofi has a goal of nearly $14 billion in revenue by the end of 2024, driven by sales of Dupixent, which treats inflammatory conditions. The drug continued to be a winner for Sanofi, recording a year-year-over sales increase of over 50% in the U.S. and 25% worldwide in the most recent quarter.
Sanofi expects its 2024 earnings per share to pull back a little before rebounding in 2025. The company predicts the dip will be in the low single digits. Meanwhile, the drugmaker's stock is offering a 3.9% dividend yield.
This year, overall earnings may not be noteworthy, but Sanofi is preparing for the rewards to come with rilzabrutinib and its other drugs. Now looks like an excellent time to start a position in the stock.
