French pharmaceuticals group Sanofi-Aventis said on Wednesday second-quarter adjusted net profit fell 6.3 percent, more than analysts had expected, as generic competition and a strong euro hit sales.
Shares in the world's third-biggest drugmaker, which had already suffered a major setback in June when its new obesity drug was rebuffed by U.S. experts, fell more than 4 percent on the disappointing figures.
Sanofi reaffirmed guidance for earnings per share growth of around 9 percent this year assuming an average euro/dollar exchange rate of $1.25, although it added that at actual exchange rates in the first half, growth would be near 4.3 percent.
The group announced plans to buy back up to 3 billion euros ($4.11 billion) worth of shares before May 2008 -- a move that will boost returns to shareholders, if only modestly.
The plan follows similar, but more decisive, action by GlaxoSmithKline last week, which pledged to more than double its buyback programme to 12 billion pounds ($24.4 billion) over the next two years.
Head of pharmaceuticals Hanspeter Spek told analysts the quarter had been particularly difficult and performance should improve in the second half of the year.
Net profit fell to 1.678 billion euros in the three months to June 30 from 1.791 billion in the year-earlier period.
Current operating profit fell 5.1 percent to 2.329 billion euros on sales down 2.0 percent at 6.939 billion euros. Analysts had on average expected operating profit of 2.499 billion euros and sales of 7.038 billion, according to a Reuters poll.
Sleeping Pill Hit
Revenues were hit by declining sales of sleeping pill Ambien and cancer drug Eloxatin, following the launch of generic rivals in the United States and Europe, respectively.
"I think the margin hit from having lost (patent protection on) Ambien was a bit more than expected," said Ben Yeoh, an analyst with Dresdner Kleinwort in London. "The share buyback of 3 billion isn't enough to really move the needle but might be taken as a small positive."
The hit to Ambien in the United States was considerably worse than expected, sending worldwide sales of the product plunging 46 percent from a year earlier to 252 million euros.
Analysts had on average expected 337 million. Sanofi said that without the impact of copies of Ambien in the U.S. and Eloxatin in Europe, second-quarter sales would have been up 7.1 percent.
It also reported a recovery in sales of blood thinner Plavix, which had been hurt in the first quarter by a stock overhang of a U.S. generic version, launched last August but blocked within weeks by a New York judge.
Lovenox, an injectable anticoagulant, was the biggest seller with sales of 671 million euros in the quarter and Spek said he expected it to remain number one, despite analyst fears of generic competition.
Discount to Sector
Sanofi's problems with Acomplia, which was once touted as a potential $3 billion-a-year plus seller, have hit investor confidence hard and its shares now trade on just 11 times forecast 2008 earnings, a discount of more than 20 percent to the European sector average.
Finance chief Jean-Claude Leroy said he believed the shares were now cheap, which was why the company had decided to embark on a sustained share buyback programme for the first time since the merger of Sanofi-Synthelabo and Aventis in 2004.
But investors disagreed and the stock fell 4.1 percent to 59 euros by 0815 GMT.
Analysts at French brokerage CM-CIC said a research note that the scale of the buyback was disappointing and any re-rating of the share would now depend on the group's research and development update on Sept. 17.