Are you paying attention Mr. Ricks?
Way back at the beginning of the year while attending the JP Morgan Healthcare conference we asked Dave Ricks Lilly’s (NYSE: LLY) CEO how the company planned to deal with the launch of Amedlog from Sanofi (NYSE: SNY). We asked simply why Sanofi would not do to Lilly in the short-acting insulin space with Amedlog what Lilly had done to Sanofi in the long-acting segment with Basaglar. The answer was underwhelming with Mr. Ricks basically saying he wasn’t that worried. Well he should be.
On Friday Sanofi reported results and during the call CEO Olivier Brandicourt stated;
“I want to highlight here that compared with the same quarter two years ago, U.S. sales of Lantus have more than halved and now represent only 30% of our Global Diabetes franchise as compared with around 50% of a somewhat largest franchise in first quarter 2016.”
During the Q&A when asked specifically about Admelog Stefan Oelrich EVP & GM, Diabetes & Cardiovascular stated;
“So, while we do not specifically comment on the precise commercial potential of Admelog, we’re making good progress, especially in the channels of managed Medicaid, where we have a very strong interest from basically all major plans and where we’ve assigned a couple of first agreements here. So, we expect of sales for Admelog during this year. Remember that we had advised previously that we see the commercial opportunity in other channels more in the 2019, ’20-time frame as the contracting for Medicare 2020 will be influenced by this – for commercial plans for 2019.”
Let’s pause for just a moment and let that sink in. So, Lantus the goose that laid the golden eggs for Sanofi has been killed by the introduction of Basaglar with US sales as Olivier stated falling by 50% over the past two years. Think about the impact on Lilly should Admelog do the same thing to Humalog, a product which had sales of almost $3 Billion last year.
As we keep saying payback is a bitch and based on the comments by Mr. Oelrich payback is exactly what Sanofi is planning. As we approach the 2019 contracting season you can bet that Sanofi will heavily discount/rebate Amedlog just as Lilly heavily discounted/rebated Basaglar when it was launched. Sanofi like Lilly knows they have nothing to lose and like Lilly knows that payors could care less which short-acting insulin a patient uses as Amedlog is basically a copy of Humalog and NovoLog from Novo Nordisk (NYSE: NVO). We hate to be redundant but the only thing payors care about is money.
It won’t be long before Lilly and Novo are in the exact same position as Sanofi was when Basaglar was launched. Do they match the price/rebates offered by Sanofi and kill margins? Do they go to “value-based” contracting which essentially is the same thing as lowering the price? Do they offer some sort of bundled deal with one their GLP-1 products?
Folks as much as people like Mr. Ricks want to over complicate things this is a simple concept to understand; when you have three products which all do the same thing the same way the cheapest of the three wins. This is exactly what happened in the long-acting segment and will happen in the short-acting segment unless Sanofi does what they do best and screws up a simple peanut butter and jelly sandwich.
Speaking of Sanofi screw ups check out their comments on their new GLP-1 which is underdevelopment – when asked about how this drug was progressing the company stated;
“we have two significant primary endpoints that we needed to achieve on the efficacy side, and we actually achieved more than our minimum primary endpoint by far on the GLP-1 and the reduction. We’re also seeing weight reduction not far from our points from our primary endpoint. The real issue is truly tolerability and the dropout of a 1/4 of the patients because of tolerability issues. And so, as you know, if you have – we have a higher GLP-1 effect in the molecule than we expected from the primate data, and we think the titration was too abrupt. And so that’s what we’re working, adjusting the titration, the dosing – ultimate dose. We will know that. We’re doing the trials now. We are looking at very innovative imaging studies that allow us – image receptors so that by the early summer, late June, early summer, we’ll know a lot better.”
Now we realize that’s a lot of corporate speak but the bottom line is the damn thing isn’t working as expected and it’s unlikely this drug will ever see the light of day.
Perhaps the best part of the Sanofi call was how the company answered all the questions directed at M&A possibilities. Analysts, especially those that cover Sanofi, may not be the sharpest knives in the drawer but hey hit them over the head enough with a baseball bat and even they have awoken to the fact that when it comes to diabetes and Sanofi things aren’t going that well. Understanding that Sanofi seems to enjoy throwing good money into bad ideas it makes sense to ask which bad idea they will pursue next.
Now the company never answers these questions directly but reading between all the corporate tap dancing the company indicated they would be receptive to acquiring or licensing. Shocking we know. And we have a great idea why not acquire Diabetic Investor. Listen to us this makes perfect sense as by acquiring Diabetic Investor Sanofi would no longer be subjected to our unique form of abuse. They could go about their business free from us merely pointing out the many and continual mistakes they are making in diabetes.
Keep in mind this a company that once spent $30 million bucks on social media but didn’t bother to ask if there would be a return on their investment. This is also the company that thought launch bags were a way cool whiz bang marketing idea. Heck they spent around $10 million trying to launch their way cool and now way dead iBGStar. And who could forget about their deal with MannKind (NASDAQ: MNKD) or the real biggie the $250 million they forked over to Google for a joint venture which has yet to produce anything more than great copy for us.
Seriously this isn’t as crazy as it sounds, and we’d be happy with just a few million. This is just the kind of deal that Sanofi loves to do in diabetes, we get what we want, and they get the pleasure of giving us what we want. Now how bad is that?
