Betting on a losing horse – twice

Betting on a losing horse – twice

Well day two here at JPM is off and running with a distinct international flavor with Roche and Sanofi (NYSE: SNY) presenting.  Let’s start with Roche as they said absolutely nothing about their struggling diabetes device franchise- zero – zilch – nada. Can’t blame them as quite frankly what could they possible say about this franchise which is slowly sinking into the abyss. In a way we are grateful they did not attempt to put lipstick on a pig.

Sanofi on the other hand had a lot to say unfortunately unlike Roche they are attempting to put lipstick on a pig. Although it came late in the presentation CEO Olivier Brandicourt stated he was trying to create a new culture at the company, one culture as he put where all the pieces worked together. He noted that the company was developing differentiated products and would execute better going forward.

Given that Olivier has only been on the job a short time we’ll give him some time to see if these are more than just words. And let’s give him some credit as he was smart enough to terminate the company’s partnership with MannKind (NASDAQ: MNKD). Yet given the company’s dismal track record in diabetes for any product not named Lantus we’re not overly optimistic he will succeed.

Here are just a two examples of why we’re less then enthused – Toujeo and LixiLan. Two products that are hardly different than anything already on the market. Toujeo as everyone knows is just incrementally better than Lantus while the data for LixiLan which is awaiting FDA isn’t that impressive either compared to other insulin/GLP-1 combo products. Even worse both products face stiff competition from competitors who not only have deeper diabetes experience than Sanofi but also execute better.

During the presentation we began to wonder why Sanofi continues to go against Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) with me-too copycat drugs. Where the only real weapon they have to gain share is price. To Diabetic Investor this is the classic definition of insanity doing the exact same behavior over and over again but expecting a different result.

Want even more examples of insanity take a look at the pipeline which includes – sotagliflozin a dual SGLT1 and SGLT2 and Efpeglenatide a long acting GLP-1.  Are these products different? Hardly. Are there other companies who have the exact same thing that are further along in the process? Yep. Should these products come to market will Sanofi once again butt heads with Novo Nordisk, Lilly and just for good measure in the SGLT2 category lets add AstraZeneca (NYSE: AZN) and Johnson and Johnson (NYSE: JNJ)? You bet.

Dare we offer even more insanity and keep in mind this the company that launched the once way cool and now very dead iBGStar, yep as noted yesterday Sanofi just to prove they have gone off the deep end wants to be a medical device company too. Of course they touted their partnership with Google Life Sciences as evidence they are serious about not just device but also …wait for it … interconnected diabetes management (IDM). Again keep in mind this is the same company who was at one time partnered with Medtronic (NYSE: MDT), a partnership that no longer exists because … wait for it … Sanofi couldn’t execute.

The harsh reality here and to his credit Olivier did acknowledge this, the near term outlook for the diabetes franchise is not promising. In one slide the company noted – “Diabetes sales are expected to decline at an average annualized rate of -4% to -8% at CER over 2015-2018”. But come 2019, a lifetime in this wacky world, diabetes revenues will begin to grow again. By then the company believes the me too copycat drugs in the pipeline will be on the market plus the way cool whiz bang devices developed in conjunction with Google will be taking the world by storm. Yep and Afrezza was going to be a multi-billion product -sorry couldn’t resist that one.

The sad reality here is that this “new” strategy, this “new” culture looks a lot like the old strategy and old culture. That Sanofi is trying to ride the same losing horse in a new race against thoroughbreds who have better pedigrees. The truth is they aren’t riding a horse at all, a jackass maybe but certainly no thoroughbred.