Are they in or out?

One of the bigger stories this week was Sanofi’s decision to basically exit diabetes, a decision that came a stunning admission that they “over-invested” in Onduo their joint venture with Verily. Yet days later comes word that the company has made an investment in the diabetes space. Per a press release issued yesterday;

“ALCOR / Eligible PEA PME), a French company specializing in the development and manufacturing of medical devices and smart drug delivery systems, announces today the signature of a worldwide partnership agreement with SANOFI for the use of Mallya technology, a connected device for insulin pens.”

It goes onto to state;

“As a result of the agreement, Sanofi is to pay BIOCORP a further €2 million upon signature of the contract (last July, BIOCORP received a first payment of €4 million). In addition, a third payment of €1.5 million is expected in 2020 when Mallya is effectively launched on the market.”

Now a few points after you stop laughing. First in the grand scope of things this isn’t a huge amount of money, not for a company that has blown millions in diabetes anyway. Second, this is all about Tyler and Sanofi still sells insulin and needs a Tyler to keep selling insulin. Third, the agreement is non-exclusive which is good for ALCOR as the way things are going Sanofi might not have any diabetes assets a year from now.

The harsh reality when it comes to the insulin market is insulin has become a commodity and in a commodity market price trumps performance. The battle is no longer who has the “best” insulin but who has the cheapest insulin. This is what gets formulary position and that is what drives volumes which in turn drives profits. Lilly, Novo Nordisk and Sanofi all see Tyler as a method to gain an edge but in the end, Tyler will also become a commodity.

Tyler combines all the elements that are driving insulin management these days- a CGM – connected insulin pen and an insulin dosing algorithm. While some insulin dosing algorithms are better than others, they all get the job done. There are more connected pens than there are lakes in Minnesota, so they too are commodities. About the only piece in the Tyler puzzle that has yet to commoditize is CGM for right now only Dexcom and Abbott make a sensor that is reliable and accurate.

There is no question in our mind that Tyler will have a substantial and positive impact on insulin using patients. Tyler will take 99% of the guess work out of insulin dosing and ultimately should produce better patient outcomes. Tyler will also do this at an affordable price point when compared to the new crop of hybrid closed insulin delivery systems. This is one reason we continue to believe Insulet, Tandem and Medtronic should all pursue a Tyler of their own.

It’s not outside the realm of possibility that Dexcom and their partner Companion Medical, perhaps the only connected pen company that’s actually real, could market a Tyler of their own. As we have stated in the past Tyler should be the domain of the insulin companies but since they continue to lollygag and don’t you just hate lollygaggers, but let’s not go all Bull Durham here. There is an opportunity for someone other than the insulin companies to own the Tyler market.

This is one reason we mentioned the possibility of Verily doing an about face and instead of replacing Sanofi buy their diabetes assets instead. In the first nine months of this year diabetes has generated almost $4 BILLION in revenue for Sanofi, which may not be what it was but isn’t chump change either. Sanofi has an established infrastructure and has already stripped much of the cost out of the franchise. Heck with numbers like that Verily might just be able to find a private equity firm to partner with and then leverage the acquisition to the hilt. As we noted earlier this week as poorly as this franchise has been managed it does have value.

This would push Verily into the Austin market overnight. Just as refresher Austin is Tyler’s younger brother and is our code name for diabetes management systems, systems that include everything a patient, their physician and coach need to help the patient effectively manage their diabetes. While Tyler is insulin specific Austin is not therapy specific and is right up Onduo’s alley given they are targeting patients with Type 2 diabetes. Sanofi may be lacking oral meds but let’s face facts the majority of Type 2’s are using generics anyway.

Not sure how long we have been writing about Austin, it seems like forever, but the way things are developing we may at long last be on the verge of someone selling a complete diabetes management system. A system which could if Amazon gets involved could include delivering all the components of this system right to the patient’s doorstep. Remember Amazon owns PillPack and is now selling glucose monitors. Like the techies in the Valley they also have gobs of money and could easily acquire the other assets they would need to have Tyler and Austin.

This possibility is another reason Lilly and Novo better be paying attention. It’s also likely one reason Novo is in the midst of becoming a GLP-1 company that happens to sell insulin on the side. Lilly for their part has made the deep dive into diabetes devices but so far this dive has been more of a belly flop.

The fact is diabetes management continues to undergo a transition and is headed in a direction that Sanofi cannot go. Mr. Hudson had the smarts to see this and should be commended for doing what needed to be done. Now let’s see if he has one more trick up his sleeve for if he does the real fun could begin.