Sanofi SA (ADR) (NYSE:SNY) is the world’s No. 5 pharmaceutical company. It has over 100 manufacturing sites in 41 countries and has 110,000 employees in 100 countries. Its five top divisions do $40 billion in sales every year, and it plows about 14% of that into its research and development projects.
This is a big pharmaceutical company. And it’s a very good one.
But in the run up to the U.S. presidential election, the favorite, Hillary Clinton, was promising big changes for big pharma as well as the big healthcare insurance companies.
Because of this, the healthcare sector in general and pharmaceuticals in particular didn’t fare very well until the U.S. elected a new president and it wasn’t Clinton. Paris-based SNY fell victim to this trend.
But now things are looking up, and we have the opportunity to get into Sanofi at a very reasonable price and very healthy dividend yield. The stock is off 5% year to date, but in the past three months, the stock has been on a quiet little rally. The dividend is at a very healthy 4.1%.
And there are big changes that will come to pass over 2017 that make now a great time to grab a stake in SNY.
The Future for SNY Stock
The biggest move that’s underway is that Sanofi intends to sell its generics business. Not only will that mean a big inflow of cash, but it will also mean SNY stock will be increasingly aggressive in finding new acquisition targets.
Generics, like its vaccine divisions are strong, but they aren’t big money makers. And now that the Affordable Care Act looks like it’s in its death throes, a big stable of generics isn’t going to add much value any longer. SNY needs new drugs in the pipeline, and the best way to do that is to find partners or good biotechs that it can bolt on to current operations.
Most recently, there is talk that Sanofi is interested in Swiss biotech Actelion (headquartered in San Francisco) that specializes in ‘orphan diseases.’ That means diseases that affect less than 200,000 people. Examples are cystic fibrosis, ALS, Tourette’s and others.
The fact is, these rare diseases provide great opportunity for biotechs because there is little competition in these sectors, and a cure or helpful therapy can be priced significantly higher that for other, more common diseases. Johnson & Johnson (NYSE:JNJ) made a bid for Actelion recently, but the biotech was cool to the offer. Now many expect SNY to step in and start a bidding war.
Sanofi is also working with biotech Regeneron Pharmaceuticals Inc (NASDAQ:REGN) on the next-generation cholesterol drug, Praluent. It is also about to launch a new eczema drug that is another joint venture with REGN.
The point is, SNY is making all the right moves now and has the faith of long-term investors like Warren Buffett, Ken Fisher, John Paulson and Francis Chou, who all hold significant positions in their funds.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
