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Sanofi lifts profit forecast as second quarter beats expectations

By Natalie Huet

PARIS (Reuters) - French drugmaker Sanofi raised its full-year profit forecast on Thursday as it posted stronger than expected quarterly earnings, driven by its rare disease and diabetes businesses and higher sales in emerging markets.

Shares in Sanofi, which have underperformed the rest of the European pharmaceutical industry after a string of disappointing results last year, rose as much as 4 percent.

Sanofi has sought in recent years to shake off the impact of patent losses on big-selling drugs, such as blood thinners Plavix and Lovenox, by betting on diabetes, rare diseases and over-the-counter treatments. It also revamped its research to launch new, harder-to-copy and pricier biologic drugs.

It has invested 1.4 billion euros ($1.9 billion) so far this year to raise to 22 percent its stake in U.S. biotech Regeneron, its partner on several promising experimental drugs.

One of these, cholesterol drug alirocumab, could reach the U.S market in the second half of next year, at the same time or ahead of U.S. rival Amgen, Chief Executive Chris Viehbacher told reporters on a conference call.

Sanofi now expects business earnings per share (EPS) to grow 6-8 percent this year at constant exchange rates, up from an initial guidance of 4-7 percent that was widely seen by analysts as unusually cautious.

Deutsche Bank's Mark Clark, who has a "buy" recommendation on Sanofi stock, said the market was letting out a sigh of relief after a lot of nervousness around the company's previous guidance. He added that with first-half sales up 5 percent and EPS up 10 percent at constant exchange rates, Sanofi's results were "genuinely encouraging".

Including their latest gain, Sanofi shares are now up roughly 3 percent so far this year but still lag the European healthcare index, up nearly 12 percent amid a wave of mergers and acquisitions. Sanofi stock trades at around 14 times forecast earnings, at a discount to peers whose average price-earnings (PE) ratio is closer to 16.

Viehbacher said the group saw upside in its vaccines business, in decline so far this year. The unit should return to double-digit sales growth in the second half, Viehbacher said, forecasting "a very successful" flu season in the United States.

However, he noted the United States was becoming a tougher market in terms of pricing. "That bears watching and would be my only point of caution for the future," he said.

MATURE PRODUCT CHATTER

Pricing pressures from cash-strapped governments seeking to restrict their healthcare spending and tough competition from generics has prompted drugmakers worldwide to rationalize their businesses and triggered a wave of mergers and acquisitions.

Viehbacher has said Sanofi is always on the look-out for acquisitions to boost its core businesses but will not do deals at any price. He stuck to this line on Thursday.

Sanofi is also looking to offload a portfolio of some 200 mature drugs in Europe, valued at 6.3 billion euros, as it strives to reduce exposure to price cuts and relatively high manufacturing costs on the continent, according to an internal document circulated by a labor union.

Within the industry, "everybody is talking to everybody" on what to do with mature drugs, Viehbacher said. He noted that these products, while on the decline, still generated a lot of cash flow and it was not easy to find a solution for them.

Sanofi's second-quarter business net income, which excludes amortization and legal costs, rose 3.9 percent to 1.54 billion euros, or 1.17 euros a share, on sales of 8.08 billion. Analysts polled by Reuters had expected EPS of 1.14 euros on sales of 8.1 billion.

A stronger euro against the U.S. dollar and other currencies shaved 5.5 percentage points off quarterly sales growth. At constant exchange rates, sales in emerging markets - which account for over a third of Sanofi's revenue - rose 16.5 percent, driven by Latin America and China, and 9.4 percent in the United States. They fell 2.8 percent in Western Europe.

Sales of Lantus, the world's most prescribed insulin, rose 16.3 percent over the quarter, to 1.56 billion euros, while Sanofi's animal health unit Merial returned to growth, helped by the launch of new flea and tick control drug NexGard.

(Editing by Mark John, Andrew Callus and Mark Potter)

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