Entering Emerging Markets Doesn’t Always Translate Into Success

Entering Emerging Markets Doesn’t Always Translate Into Success

Third-quarter results for Sanofi show that it is possible to enter emerging markets and not be as successful as you expected.

Sanofi’s growth in these territories has often outstripped its rivals, but for the second quarter in a row the money from emerging markets failed to increase Sanofi’s top line. With generic competition and lagging vaccines sales, the French drugmaker posted a decline in sales and a steeper decline in profits.

Sanofi S.A. is a French multinational pharmaceutical company headquartered in Paris, France, and is the world’s fourth-largest in terms of prescription sales.

There are mitigating circumstances. The slowdown in China contributed, as did faltering generic sales in Brazil, and in total the emerging markets grew by a lacklustre 2.8% for the third quarter.

In total, Sanofi’s sales dropped by 6.7% to €8.43 billion ($11.59 billion), and profits declined by 19%, falling short of analyst estimates. Bearing this in mind, Sanofi cut its earnings forecast for the year, also for the second quarter in a row.

Times are a-changing, CEO Christopher Viehbacher said. He called the third quarter “an inflection point” that marks the end of Sanofi’s patent-cliff nightmare. All that ended in August, he said, and the company actually put forth sales growth in September.

At present, though, the numbers don’t accurately reflect the inflection. The emerging markets were not the only problem; some production issues at a vaccines plant in Toronto meant that they took a hit in sales in that area. This was exacerbated by the fact that the vaccines affected by those problems were childhood shots, which are one of Sanofi’s higher-margin products, taking a disproportionate chunk out of their profits. One of biggest impacts came from generic competition, which gave them a €191 million ($262.7 million) hit in net sales. That’s more than three times the €56 million hit in Brazil.

Thankfully for the company, there to offset all of these losses was some strong growth in diabetes, with Lantus continuing its surge. The drug made a 21% growth in sales year-over-year, to €1.46 billion ($2.01 billion), and the whole diabetes business was up 20% on a constant-currency basis. Some of Sanofi’s other growth areas such as consumer healthcare and Genzyme, made the overall picture a bit brighter. This year’s launch of multiple sclerosis drug Aubagio, as well as growth in the rare-disease, lifted Genzyme sales by 21% to €529 million ($727.6 million).

According to Viehbacher there is more to come. A few weeks ago, he pledged that Q4 would mark Sanofi’s return to growth. Viehbacher also suggested that emerging markets won’t continue to be a liability. In these new markets like China, for instance, new hospitals are being built regularly, meaning there are more potential clients in that territory. The company intends to continue investing there, and in other countries, but in a more targeted and thoughtful way, he said. “There will be some ups and downs,” Viehbacher said during a conference call with analysts. “You’re going to have currency movements, there are going to be some issues on pricing, but you are going to still see a volume increase. Here and there will be pockets of slowdown, but there’s still growth to be found. We may just have to look harder for it.”

Written by Yusuf Bhana
Yusuf Bhana
Yusuf is Head of Digital at TranslateMedia. He has an interest in how technology can help businesses achieve their marketing objectives. He's been working in digital marketing and web development since 2001 across a wide range of industries and clients.

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