Sanofi Stagnates

On Tuesday, French drugmaker Sanofi-Aventis (NYSE: SNY) released its fourth-quarter financial results. Sales were up 2.8% and adjusted income gained 1% for 2007 at constant currencies. If you take into account the sharply dropping dollar and other currency effects, adjusted net income gained a much larger 15.6%.

Sanofi's financial guidance for 2008 is "around" a 7% gain in earnings per share. Last year, I picked Sanofi-Aventis to underperform as a result of expected generic competition against lead drugs Lovenox, Plavix, and Ambien, and a lack of other growth drivers. Sanofi proved me partly wrong when it was victorious against the generic manufacturers trying to introduce copies of heart drugs Plavix and Lovenox.

The FDA put a wrinkle in the rug under generic-drug makers like Momenta Pharmaceuticals (NYSE: MNTA) and Teva Pharmaceuticals (Nasdaq: TEVA), which are trying to get their versions of Lovenox approved, when it requested information that the agency never previously asked for in the development of these products. Now that multiple academic groups have come out against approval of generic Lovenox products, it looks like Lovenox is completely off the hook from generic competition, at least for the immediate future.

Shares of Sanofi are sitting near 52-week lows right now, but I don't get much credit for my Sanofi call because I was so wrong about the potential for a biogeneric version of Lovenox. One of the reasons for the stagnation in Sanofi's shares is that, while the future of its top drugs is now safe, free cash flow still fell 10% last year.

The cash flow situation and slow revenue growth are a result of the hangover from the genericization of sleep drug Ambien in the past several months. As to Sanofi's future, on the spectrum of big pharma, its troubles are not as large as the issues that Pfizer (NYSE: PFE) or AstraZeneca (NYSE: AZN) are facing, but neither are Sanofi's future prospects and valuation as enticing as those of a drugmaker like Novo Nordisk (NYSE: NVO).