Seeking Alpha: Sanofi's Trying To Go On Offense While Playing Defense

Drug companies face what I consider to be an under-appreciated dilemma when managing their portfolios - the tradeoffs between market size and competition. Sanofi (NYSE:SNY) has done quite well for itself for years by working within a small oligopoly in insulin and vaccines, but now there are concerns that biosimliars and novel compounds from Novo Nordisk (NYSE:NVO) and Lilly (NYSE:LLY) will threaten that business. What's more, while Sanofi does have good exposure to rare diseases through its Genzyme business and multiple potential blockbusters by virtue of its relationship with Regeneron (NASDAQ:REGN), it has what increasingly looks like a token presence in oncology - the must-have market in many investors' minds.

I can't say that I'm a big fan of Sanofi at today's price. I think the company has backed itself into a corner in diabetes where it will have to fight hard to push me-too and also-ran drugs and I expect ample competition in cholesterol and anti-inflammatory/autoimmune diseases. I think long-term revenue growth in the mid-single digits and FCF margins in the mid-20%'s are reasonable expectations for the company, but that's not enough to drive an attractive valuation.

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Sanofi's Trying To Go On Offense While Playing Defense