Sanofi (SNY) faces a variety of company-specific risks, in addition to the industry-specific risks of the pharmaceutical industry.
Intellectual property or patents
Sanofi deals with innovative pharmaceuticals and relies on its patents and proprietary rights, which give the company the exclusive rights to market certain products. Any change in these patents and rights will directly impact the financial results of the company. The company might not succeed in developing or acquiring commercially successful products sufficient in value to replace revenue loss from products losing intellectual property protection.
Supply chain and the quality of products
There are several factors related to supply chain and the quality of products that are potential risks for Sanofi:
- disruption in supply chain continuity
- failure to comply with current good manufacturing practice requirements
- quality failure in in-house manufacturing as well as raw material supply
- inadequate controls and governance of quality
All these factors may delay the launch of new products or lead to shortages in supply of current products. These factors do have regulatory, legal, and financial consequences that could materially and adversely affect Sanofi’s reputation and financial performance.
Legal, economic, and financial risks
Sanofi operates worldwide and is subject to regulatory, political, socio-economic, and financial risks in individual countries as well as globally. The company is vulnerable to the adverse impact of a sustained economic downturn. Fluctuations in foreign exchange rates and limited third party insurance coverage are also added financial risks.
Foreign exchange risks
Apart from operating and financing foreign exchange risks, Sanofi has a significant proportion of net assets denominated in the US dollar. Any fluctuation in exchange rate of the US dollar will impact the amount of equity expressed in euros. A positive change in the US dollar over the euro will be beneficial to investors who invest in ADRs, and vice versa.
Also, Sanofi reports its financial results in the euro. If any European Union country abandons the euro as its currency, it could impact the company’s financial results and even the terms of financing.
Other pharmaceutical companies like Merck and Co (MRK), Pfizer (PFE), and AstraZeneca (AZN) generally face similar risks. The Health Care Select Sector SPDR ETF (XLV) is focused on large pharmaceuticals and healthcare companies.