In 2011, Sanofi was the third largest pharmaceuticals company worldwide in terms
of pharmaceutical sales (behind Pfizer, and Merck ) according to Fitch
calculations and the number one market player in Europe. Sanofi also holds a
world-leading market position in the animal health market in 2011 and owns the
largest player in the strong growing anti-diabetic market. Due to its size, the
company benefits from economies of scale in terms of R&D and sales force and
from some market power with regards to market participants. With 31% of 9M12
group sales generated in emerging markets (US: 32%, Western Europe: 24%, ROW:
13%), the company is the largest player in this important growth region.
With its broad product portfolio - having a presence in ethical pharmaceuticals,
vaccines, over-the-counter (OTC) medicines, generic drugs and animal health
products - Sanofi benefits from a solid product diversification. At
end-September 2012 the reliance on top pharmaceutical product Lantus
(anti-diabetic drug) was 14% of group sales, and its reliance on the top-five
products was 32% of group sales. This diversification helps the company to cope
with negative developments regarding single products and segments.
Sanofi's pharmaceuticals R&D product pipeline is promising and is expected to
support the group's future cash flow generation. At end-9M12 Sanofi's R&D
product pipeline comprised 15 new molecular entities (NMEs) and vaccines in its
in Phase III trials or in registration. These include the potential blockbuster
drugs lixisenatide (Lyxumia) for diabetes and mipomensen (Kynamro), a
cholesterol-reducing drug candidate.
Fitch expects a slight deterioration in credit protection measures for 2012 and
2013 and a slight improvement thereafter. Overall, over the next few years, the
credit protection measures are expected to remain in line with what Fitch
expects for a 'AA-' rated pharmaceuticals company with Sanofi's business
profile. Sanofi's funds from operations (FFO) adjusted net leverage is strong
and stood at 1.2x at end-2011. It is well in the range expected for a 'AA-'
rating of 1.7x-2.2x in 2012. Its FFO fixed charge cover stood at 19.2x, which is
also above the expected 9x-11x range expected for its 'AA-'rating. This leaves
Sanofi with some headroom for debt-financed acquisitions.
RATING SENSITIVITY GUIDANCE:
Positive: Future developments that could lead to positive rating actions
- A reduced reliance on single products
- A sustained industry leading profitability and cash flow generation combined
with a commitment to financial ratios in line with a higher rating category
with FFO adjusted net leverage about 1.25x on a continuing basis and FFO net
fixed charge cover of about 16x on a continuing basis.
Negative: Future developments that could lead to negative rating action include:
- Major debt-financed acquisitions or share buybacks, which result in FFO
adjusted net leverage greater than 2.2x on a continuing basis
- FFO net fixed charge cover of below 9x on a continuing basis