By Caroline Jacobs
PARIS (Reuters) - French drugmaker Sanofi
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The French drugmaker for the first time fully included Genzyme, a specialist in rare diseases, in its accounts after buying it for $20.1 billion in cash and milestone payments tied to future performance of its products.
Sanofi said Genzyme's integration should yield $700 million in cost savings by the end of 2013. Sanofi, whose second quarter net profit fell 13 percent, is getting squeezed by lower sales of drugs losing patent protection, a problem Genzyme should help remedy.
"The numbers came in below expectations, mainly because of a faster-than-expected generic erosion of Taxotere which had a large impact on the profit line," Karl Heinz Koch, analyst at Helvea said.
Cancer drug Taxotere last year lost its European and U.S. patent protection and cheaper copies have flooded the market. Sales of the drug -- at 2.2 billion euros in 2009 -- fell to 204 million in the second quarter.
Koch expected Sanofi to be able to extract more cost savings from Genzyme. "I was hoping for more cost savings ... savings should go well above $1 billion," he said.
Business net income, which excludes items like amortization and legal costs, fell to 2.15 billion euros ($3.12 billion) in the second quarter while business earnings per share (EPS) fell 13.7 percent to 1.64.
Sales were little changed at 8.35 billion euros. Genzyme sales rose 16 percent at constant exchange rates and scope to 796 million euros. Excluding Genzyme, sales fell 4 percent.
Analysts, on average, had expected net income of 2.178 billion, sales of 8.463 billion and business EPS of 1.65 euros according to Thomson Reuters I/B/E/S.
"This year will be most challenging year in term of sales affected by patent expiries," Chief Executive Chris Viehbacher said at a conference call.
Including Genzyme, Sanofi now expects 2011 business EPS to be 2 to 5 percent lower against last year instead of its forecast issued before it bought Genzyme for a 5 to 10 percent lower business EPS. Sanofi's outlook excludes a return of generics to its cancer drug Eloxatin in the United States.
Sanofi deemed it unlikely Genzyme would meet a milestone tied to the production of Cerezyme and Fabrazyme. The two key rare disease drugs were in short supply due to contamination problems that led to the temporary closure of Genzyme's Allston plant near Boston in 2009.
While patients on Cerezyme have been able to return to normal dosing levels since the beginning of this year, Fabrazyme so far has failed to meet normal dosing level needs and needs the extra capacity of Genzyme's new manufacturing plant in Framingham, Massachusetts.
Expectations originally were for its full recovery in the fourth quarter but Sanofi now expects that to happen only in the first quarter of 2012.
(Reporting by Caroline Jacobs, Editing by Matt Driskill)