Barclays Upgrades Sanofi, Not Too Concerned About Praluent Risks

Sanofi SA (ADR) SNY shares have lost 9 percent year-to-date, mainly on concerns related to diabetes and Praluent. Barclays’ Michael Leuchten upgraded the rating for the company from Equal-Weight to Overweight, while maintaining the price target at €84. Although US diabetes trends may remain unfavorable, investor focus may shift to the ex-US diabetes franchise.

Sanofi’s stock valuation has been below the NPV since the company’s profit warning in 2014, analyst Michael Leuchten mentioned. He added that the pressure on shares was caused mainly by the lack of visibility into the diabetes franchise. This in understandable, since a growth recovery by 2018 depends on “the shape of the diabetes franchise and the intricately linked cholesterol lowering agent Praluent.”

Related Link: If Medivation is Sold, Brean Thinks It'll Be For Far More Than Sanofi's Bid

Probable Shift In Investor Focus

Leuchten commented, however, that the market’s focus is likely to shift to the ex-US diabetes franchise, which is dealing well with biosimilar erosion. Sanofi would be able to meet its guidance of 3-4 percent top-line CAGR for 2015-2020, which would boost valuation.

“Cholesterol agent Praluent may still face a permanent injunction, but this is now only €4/share of NPV. With Sanofi’s Rump amounting to an NPV of €59/share, the current share price risk weights both the diabetes franchise as well as Praluent,” the analyst wrote.