Beats looking at reality

Beats looking at reality

Perhaps the best way to summarize this morning’s earnings call from our wine drinking friends in France at that soap opera known as Sanofi (NYSE:SNY) is it’s better to live the fantasy then it is to acknowledge reality. Like a child who believes in the tooth fairy or Santa Claus, Sanofi and our favorite acting CEO Serge Weinberg continue to believe that Afrezza will be a major hit and that Toujeo will save the diabetes franchise. Management continues to delude themselves into believing that mundane things like formulary position or a competitive pricing environment just don’t matter.

Yet perhaps the best quote of the day came from our favorite quote machine, foot in mouth specialist Serge Weinberg, who sadly won’t become the real CEO (more on that in a moment) who when answering a question said that team members must be held …wait for it … accountable. Now after Diabetic Investor got off the floor as we were laughing so hard we fell out of our chair, we remembered that this is the same company who once spent $30 million for a social media campaign but when asked what they expected in return could not answer the question. This is also the same company that thought they could somehow sell more insulin by selling special lunch bags. Finally this is the same company who felt that the few patients who happen to buy the way cool now way dead iBGStar wouldn’t mind paying another $30 for an attachment which allowed the iBGStar to work with the iPhone after Apple changed the connector port starting with iPhone 5.

Accountability Serge, please. Yes it would be great IF there was accountability. If management was actually held to a standard and if they failed to meet this standard well off with their heads seems to fit the French. It would be awesome if management actually cared about such mundane things like return on investment.  What would be even better Serge if you and your fellow board members were held accountable for prematurely canning the last CEO and not having a replacement lined up to take his place. It would be great if you were truly a leader and actually followed through on this accountability pledge and resigned before you do more damage.

Thankfully based on statements made today we won’t have to wait much longer to find who will take the CEO position. As according to Serge this sucker, excuse us, the identity of this crazy person, opps, qualified executive will be revealed sometime in the first quarter. It will sad to see Serge go as it would have been just too good to have this human quote machine as the CEO, diabetes may be the gift that keeps on giving but this would have been almost too much goodness.

Turning to actual results there really were no surprises as Lantus continues to be the straw that stirs the drink for diabetes. The real issue isn’t where they have been rather where are they going. Everyone pretty much knows that when Lantus goes off patent its game over, everyone also knows that until that happens growth is flat and any price increases are mitigated by higher rebates. It’s telling in the earnings press release it states;  “Taking into account the outlook for U.S. Diabetes as well as new product launches and late stage pipeline development, 2015 Business EPS(1) is expected to be stable to slightly growing versus 2014 at constant average exchange rates, barring major unforeseen adverse events”. Or put more bluntly even though the diabetes franchise isn’t doing all that great we should be ok.

What’s scary however is managements continued belief that the recently launched Afrezza, which comes with a box warning, poor marketing support and a disastrous trier 3 formulary position will be a hit. That they cannot stop saying that 40% of patients don’t use insulin because it must be injected. Frankly this is an out and out lie and a severe misstatement of study results. The fact is patients aren’t afraid of insulin injections they are afraid of insulin. Management is implying there is a huge market for Afrezza just because it is inhaled a tactic that will only come to haunt them just like the same statements made by Pfizer (NYSE:PFE) on Exubera came back to haunt them. Diabetic Investor has yet to find anyone who does not have a vested interest in the outcome who sees Afrezza as anything more than a niche product.

Management is also deluding themselves into believing that physicians will switch patients from Lantus to Toujeo just because they MAY experience fewer hypoglycemic events. They continue to hold onto the belief that payors will actually provide top trier formulary position for Toujeo plus premium reimbursement for this same reason, the possibility of fewer hypoglycemic events. Just as they overemphasizing the fact that Afrezza is inhaled so too are they overemphasizing the lower rate of hypoglycemia for Toujeo. This morning presentation actually acknowledged what we and everyone else already knows when it comes to glycemic control Toujeo is comparable to Lantus NOT better than Lantus. Slide 28 states re: Toujeo; “Similar HbA1c lowering with lower hypoglycemia than Lantus”. Again Diabetic Investor has yet to find anyone who does not have a vested interest in the outcome who believes Toujeo will be commercially successful, like Afrezza it’s at best a niche product.

Yet not to be outdone for reasons only management knows the company has decided to resubmit Lyxumia™ to the FDA in the third quarter. Yep this the same Lyxumia NDA which was withdrawn from the FDA last year. Yes Sanofi wants approval for this once-daily GLP-1 which by the time it gets approved, assuming it does gain approval, will be the sixth GLP-1 on the market, the second once-daily GLP-1 and well behind three different once-weekly GLP-1’s. We wonder if this is what Serge meant about accountability.

Likely the only reason for this submission is the company doesn’t see the FDA approving LixiLan, a combination of Lantus and Lyxumia, without Lyxumia being approved as a stand-alone product. Never mind that Lilly (NYSE:LLY) and Novo Nordisk (NYSE:NVO) also have combo products in the pipeline which are well ahead of LixiLan or that there products don’t have to worry that GLP-1 component hasn’t been approved by the FDA.  We guess LixiLan is another example of this new accountability – great job Serge.

At some point one just might think that like Dorothy in the Wizard of Oz, management will wake up and realize the nightmare that is Sanofi diabetes. We can only hope whoever is crazy enough to accept the CEO job, and for the record the company has yet to meet our terms so don’t expect Diabetic Investor to take the job, understands the herculean task ahead. That whoever it is can repair the damage Serge has inflicted, restore morale in the rank and file and finally come up with a reasonable strategy that would transform this soap opera back into a global pharmaceutical company. Although to be honest we will miss the soap opera as it has provided Diabetic Investor with truly outstanding copy.

For the moment management continues to live the fantasy and given just how bad the reality is it’s easy to understand why. Pleasant dreams …..