Is Sanofi a buy, despite recent stumbles?

Is Sanofi a buy, despite recent stumbles?

Pharmaceutical stocks are frequently subjected to whiplash trades, and that is evident now with sharp downward moves in names like Sanofi (NASDAQ:SNY), GSK (NYSE: GSK), Y Teva Pharmaceuticals (NYSE: TEVA).



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Price changes in that industry are often determined by the results of clinical trials or other studies. That’s exactly what happened in the Sanofi case, offering a lesson in the risks inherent in pharmaceutical stocks, even among well-established large-cap companies.

Shares of Sanofi fell 5.87% on Wednesday, closing at $42.18, following news that the company would end two studies into a potential breast cancer treatment amcenestrant. The studies were stopped after an interim analysis indicated that the drug, used in conjunction with Pfizer (NYSE: PFE) the breast cancer drug Ibrance, “did not reach the prespecified limit for continuation compared to the control arm,” according to a Sanofi news release.

“Although we are disappointed by this result, our research will advance scientific understanding of endocrine therapies in people with breast cancer,” John Reed, global head of research and development at Sanofi, said in the statement.

Does Sanofi still look promising?

However, not all analysts believe the stock is doomed. For example, Morningstar’s Damien Conover wrote: “[D]Carpet development is risky and failures are common. We do not view these pipeline setbacks as too worrisome, and we continue to believe that Sanofi will be able to develop the next generation of drugs to offset eventual patent losses, which is a key factor supporting its wide moat. In addition, limited patent losses in the coming years also give Sanofi time to refill its late-stage portfolio with several promising early-stage drugs.”

MarketBeat analyst ratings show the consensus on Sanofi remains a “moderate buy.”

Wednesday’s gap came just a week after shares plunged 7.11% ahead of a trial on heartburn treatment Zantac. Sanofi, along with Pfizer, GSK and others, sold the drug for periods of time before the FDA ordered Zantac withdrawn from the market in April 2020.

The stock is down 16.44% in the past month and 12.94% year to date.

Shares of Sanofi opened lower on Thursday.

GSK stocks were also hammered on Zantac news. The stock fell 4.32% on August 10 and another 6.71% the following day.

Plaintiffs have filed thousands of lawsuits against the pharmaceutical companies that sold Zantac, alleging that various types of cancer occurred from taking the drug. At the first trial, which was scheduled to begin in Illinois next week, the plaintiff dropped his case, saying he was too sick to continue. However, he has the right to refile his case within the next year.
Is Sanofi a buy, despite recent stumbles?

Wider health sector lagging behind

Like Sanofi, GSK was already floundering before the Zantac news. The shares are down 16.41% so far this year.

Both Sanofi and GSK are based outside the US, which means they are not tracked by the S&P 500. However, because the S&P’s large-cap health care sector is where they would otherwise be indexed, if they were domestic companies, it’s a valid comparison.

The health sector is down just 4.94% so far this year. That much better sector performance is driven by great components like UnitedHealth Group (NYSE: UNH) Y Eli Lilly (NYSE: LLY)which have strong profits in 2022.

Meanwhile, Israel-based Teva Pharmaceuticals, which at $11.54 billion is on the lower end of the large-cap rankings, lost 10.63% this week but still boasts a 24.97% gain. so far this year.

The shares fell 9.25% on Wednesday, closing at $10.01, following the company’s voluntary recall of two batches of Matzim LA hypertension medication. Testing revealed that the tablets did not dissolve properly.

More companies involved with Zantac

Teva is also linked to the Zantac case. According to Bloomberg reports this week, Teva and other generic drugmakers, including Perrigo (NYSE:PRGO) Y Dr Reddy’s (NYSE:RDY) agreed to a combined settlement totaling $500,000.

Perrigo and Dr. Reddy’s are trading lower this week.

As you can see from all the recent news-driven declines in pharmaceutical stocks, the entire industry is particularly susceptible to developments around clinical trials, lawsuits, and other events. It’s always up to investors to understand the industry risks inherent in any stock, but that’s especially true when it comes to pharmaceuticals, when big news can break at any moment and send your stock crashing.

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