Located in Paris, France, Sanofi (SNY) is a company focused on the development and manufacturing of pharmaceutical products, primarily for sale in the prescription drug market. It concentrates on different therapeutic areas, such as cardiovascular disease, central nervous system disorders, diabetes, and vaccines. Sanofi has a global presence as it manufactures and markets prescription drugs in Europe, the U.S. and other countries. About 25 percent of total revenue comes from North America and another 25 percent from Europe, while fast-growing emerging markets represent the majority of the remainder of sales. In the last couple of years, Sanofi has faced significant loss of revenues as several of its key products went off patent -including its blockbuster drug, Plavix. In 2013, total sales decreased 0.5 percent (CER) to ?33.0 billion as generic competition hampered revenues by ?1.3 billion. Now that the company is past its patents cliff, new products are yet to make up for the lost revenues caused by genericization and pipeline failures. Will the company be able to conduct a full recovery throughout this year? Let's take a look and see what we can find out.

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Risks

High exposure to emerging markets makes Sanofi more vulnerable to external events. Right now, Sanofi's strong entrenchment in China could come under duress as Chinese officials are aggressively reviewing pharmaceutical marketing practices. Also, the company is not immune to currency fluctuations. Last year, currency exchange movement impacted negatively on sales as the Brazilian real depreciated in comparison to the euro. However, the company is very well aware of this fact and has stated that is expecting to continue to witness currency turbulence in some emerging markets. While this may have an unfavorable impact on the company, it is not something that will come as a surprise as the company management already has considered the possibility and undergone actions in order to lessen the impact.

Furthermore, loss of revenue could also come from generic competition for drugs like Eloxatin, Aprovel/Avapro and Taxore, which will continue to have a negative impact in the coming quarters. In order to compensate for it, the company needs to successfully develop and launch new products. As to that end, the company has many candidates in different stages of development. Naturally, clinical development involves a high degree of risk and in December, 2013, the FDA issued a complete response letter for its multiple sclerosis drug, Lemtrada, requiring additional studies to be conducted. As a consequence, there could be a significant delay before the product launches in the U.S. Besides Lemtrada, other high-profile setbacks are related to the development of candidates like fedratinib, rimonabant, TroVax, larotaxel, otamixaban, AVE1542, iniparib and xaliproden.

Potential for Success

The pipeline might seem to be under pressure, but in 2009 Sanofi conducted a complete and objective review of its research portfolio, in order to reassess the allocation of resources. This has allowed the company to focus its research & development (R&D) efforts on key technologies as well as diseases which hold a greater commercial potential. As an addition to the projects it has in clinical development, the company has been looking towards in-licensing deals and acquisitions to boost its pipeline. In February 2014, Sanofi's pipeline consisted of 49 new molecular entities and vaccines in clinical development -12 where undergoing phase III studies or were under regulatory review. Furthermore, several of its products address diseases where there are no current treatments or use a novel mechanism of action, which should allow strong pricing power.

Sanofi has also spent around 23.7 million on acquisitions in 2011. Of them, 13.5 billion were spent on the Genzyme acquisition, which has provided Sanofi with a new source of growth -for both its revenues and pipeline. Genzyme pipeline includes candidates and products that will allow Sanofi to expand its presence in biotechnology. The company expects cost synergies to reach $700 million by the end of 2013. Sanofi is also set to acquire a 12 percent stake in Alnylam (ALNY) and increase its stake in Regeneron (REGN). Furthermore, it strengthened its presence in the generics market, especially in the eastern and central European markets, through the acquisition of Zentiva. Finally, after acquiring Chattem, it has become a major player in the consumer health sector. It also has collaboration agreements with Bristol-Meyers Squibb, Teva (TEVA) and Merck among others.

Sanofi's greatest fear was the loss of its diabetes franchise, Lantus. Its patent will expire between 2014 and 2015. Branded biosimilars of Lantus are expected from Merck and Eli Lilly (LLY), which could create a major drag on earnings growth post 2017. However, significant competition is not expected soon due to complexities of insulin manufacturing, and the FDA rejection of the new competing insulin degludec. This means that Sanofi will have the best-in-class insulin in the most important market for several years. The company is posed for robust growth as the diabetic patient population grows due to increasing obesity trends and more sedentary lifestyles all around the world.

Make Your Bets

Sanofi has patents, a powerful distribution network, economies of scale and diverse operations which support a future and total recovery. It also has high and healthy free cash levels, which give it room to guarantee it as well.

Still trading at a discount price in relation to the industry, this stock looks attractive. Warren Buffet has a $210 million stake in Sanofi, and other gurus like Ray Dalio (Trades, Portfolio), John hussman, George Soros (Trades, Portfolio) and Pem Watsa have also invested in it.

Disclosure: Damian Illia holds no position in any stocks mentioned.

This article first appeared on GuruFocus.