A matter of semantics

A matter of semantics

Ok so we know that Sanofi (NYSE:SNY) is going to restructure and if we believe what the company has been saying this restricting won’t involve any layoffs, there will be no downsizing. Now before we go on here we should note that the public statements made by the company don’t jive very well with what Sanofi employees believe. Employees who continue to insist that for the diabetes franchise anyway layoffs are not just possible but imminent.

The way Diabetic Investor reconciles what the company is saying and what employees believe is a matter of semantics. As we noted just yesterday the company stated this restructuring won’t involve layoffs however they did not mention anything about what might happen here in the US. The company notably pointed their comments at the French government and European officials but there was no mention of what might happen here. This may seem like a minor point but Diabetic Investor doesn’t think so and believes that layoffs are imminent here in the US.

According to the most recent annual report less than half, 47% to be exact, of Sanofi’s employees are in Europe. 16.4% are in North America and 36.6% in other countries. Basically what this means is Sanofi can keep the French government and European officials happy and still do some significant downsizing.

Looking specifically at the diabetes franchise it’s difficult to imagine a scenario where the company doesn’t downsize. This is about the only way they can achieve any real improvements to their bottom line. The company has already noted that margins for Lantus are shrinking a trend that will likely continue with a biosimilar version coming to market. Toujeo which is supposed to replace Lantus continues to underperform and margins for Afrezza are nonexistent.

As we have noted previously the company must make some very difficult decisions in the months ahead. Do they continue to press ahead with Afrezza? How do they price Lantus and Toujeo?  Frankly Diabetic Investor has no idea how these questions will be answered about all we do know is no matter how they are answered improvements to the bottom line cannot happen without downsizing.

This leads us back to whether it’s time for Sanofi to throw in the towel and exit the diabetes market. We cannot imagine the company doubling down and making an acquisition to fill the holes in their diabetes portfolio. Such a move may look good on paper however our good buddy Serge has stated that the company isn’t looking to do a major deal and buying AstraZeneca’s (NYSE:AZN) diabetes portfolio would be a major deal.

Yet it remains unclear whether Serge would allow Olivier the freedom to sell the franchise. Therefore Olivier is between a rock and hard place as he has to figure out how to improve margins, increase sales or both. Given the dynamics of the insulin market any increase in sales would likely be accompanied by lower prices, higher rebates or both. Which basically means any improvements to margins would come from a reduction in head count.

Diabetic Investor does not envy Olivier and the very difficult situation he’s facing, a situation made more difficult by the many public statements made by Serge before he officially took command. He’s basically been told that he has to fight a battle but isn’t being given all the weapons he needs to win. Baring a major change of heart by Serge he really has no other choice but to do what CEO’s always do when they are told to improve margins which means downsizing.

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