October 7, 2012 in Business

Motley Fool: Potential heightens promise for pharmaceutical firm

Universal Uclick
 
Associated Press photo

Sanofi Pasteur, the vaccines division of Sanofi, had representatives at a Walgreens in Kirkland, Wash., last month to educate Seattle-area residents about the importance of immunizations.
(Full-size photo)

France-based Sanofi SA (NYSE: SNY), the fifth-largest pharmaceutical company, recently received FDA approval for Aubagio, an oral treatment for multiple sclerosis. That holds great promise, as analysts see Aubagio’s future sales near $400 million by 2016, when some expect the overall global MS market to reach $17.3 billion.

Sanofi recently hit the skids with its dengue fever vaccine. It had expected more than $1.3 billion in annual sales from the product, but a Phase IIb trial produced disappointing results. Still, the vaccine proved highly effective against three of the virus’ strains, another trial is under way, and the World Health Organization estimates 50 million to 100 million new cases of the disease a year.

Pipeline strength is critical to drug companies, and Sanofi has more than 45 drugs, vaccines and other products in various stages of development.

Sanofi’s going to need that pipeline to combat expiring patents. Its Plavix blood thinner’s patent expired in May, with the drug having generated nearly $7 billion in the U.S. alone.

Sanofi has also performed well with its acquisitions. Recently purchased Genzyme, for example, delivered more than 8 percent of Sanofi’s pharmaceutical revenue in 2011.

With a dividend yield near 4 percent, Sanofi warrants consideration.

Ask the Fool

Q: Please explain pair trades. – S.F., Fort Myers, Fla.

A. A pair trade involves making two related trades at the same time. One is a “long” position (buying a stock with the expectation that it will increase in value) and the other a “short” position (where you borrow and sell a stock you expect will fall, planning to buy it back later at a lower price). The two securities will have a strong relation to each other.

For example, if you expect more people to stream videos at home and fewer folks to go out to the movies, you might buy stock in a streaming company and short a movie-theater stock. Thus, if you’re right on both counts, you make money, and if one count is wrong, its loss might be countered by the other one’s gain.

My dumbest investment

My top two dumbest investments would have to be buying Drugstore.com at more than $60 per share and then not hanging on to it, and also PhotoWorks, for nearly $60. My shares were worth pennies on the dollar when it was bought by American Greetings, so I didn’t even get a piece of that! – N.H., Lynnwood, Wash.

The Fool responds: Hanging on to Drugstore.com may not have paid off much. It was acquired by Walgreen last year, for more than twice its going price on the market, but by then it had been trading in the low single digits. Only some of those who had bought it after it plunged did well.

Buying such troubled companies can be a big gamble, though. There are often good reasons why a stock plunges, and it’s up to interested investors to determine whether the company’s problems are likely to be fleeting or permanent. Stocks trading for just a few dollars per share can be especially risky. Remember that there are lots of compelling companies out there, ones that are healthy, growing and undervalued. Perhaps seek them out, instead.

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