Moving in opposite directions

Moving in opposite directions

Last week Sanofi (NYSE:SNY) and AstraZeneca (NYSE:AZN) reported second quarter results which reflect the opposite directions these companies are moving.  While sales of Lantus remain strong it’s clear that for Sanofi Lantus is all they have when it comes to diabetes. This is in sharp contrast to AstraZeneca who has a deep diabetes portfolio which seems to be finding it’s footing in the market.  The question is can Sanofi get its diabetes mojo back and can Astra remain focused.

Based on what was said last week it would be overly kind to say that Sanofi is struggling. The company continues to delude themselves into thinking that Toujeo®, their Lantus replacement, will be a major hit. They can talk all they want about lower hypoglycemic events but the fact is payors won’t pay a premium for this one minor improvement. This is especially true considering that the drug likely won’t hit the market until mid-2015 at the earliest.  (Given what the FDA did with Tresiba® we’d say that Sanofi is being overly optimistic with this launch date. ) The fact is it really won’t matter much when Toujeo gets here. The dominos are setting up for the eventual demise of the Lantus cash machine and quite frankly there isn’t much Sanofi can do about it.

Perhaps this is the reason Sanofi has experienced a series of executive departures from their diabetes unit. A unit who’s stated and very public goal was to overtake Novo Nordisk (NYSE:NVO) for global diabetes dominance.  The fact is Sanofi has failed miserably when it comes to pulling off this overly ambitious strategy. Long time readers may recall that Diabetic Investor was initially impressed with what Sanofi was trying to do but did note that talk was cheap and it was an open question whether or not the company could execute. Well as it turns out talk was not cheap but very expensive and not just the millions of dollars that were wasted. This lack of execution allowed the competition to blossom or in the case of Lilly (NYSE:LLY) to regain their diabetes mojo.

The company now has a very serious decision to make that is if management is being realistic about the future.  Either the company makes a major acquisition or milk the Lantus cash cow while they still can. Quite frankly there is no middle ground here as the competition is better positioned for the future.  Once a generic Lantus gets here and it will get here, it will be game over for Sanofi if they don’t do something major.  Toujeo and the alliance with Medtronic (NYSE:MDT) won’t show anything of substance for years, if ever.  To Diabetic Investor it would be poetic justice if the company actually acquires MannKind (NASDAQ:MNKD) as not only would this provide some truly great copy it would signal how desperate the company has become.

It’s almost ironic that the perfect target for Sanofi would be AstraZeneca.  As we have noted before the only thing missing from the Astra portfolio is in insulin. With this addition Astra could then take on Lilly in what could be a truly epic battle for diabetes leadership.

It’s also ironic that Astra is in almost the exact same position as Sanofi was when they embarked on their ambitious strategy. The company has amassed a comprehensive portfolio of diabetes therapies, many of which have blockbuster potential, perhaps mega-blockbuster. Yet like Sanofi the company must execute and in that regard they have had mixed results.  The company touted the better than anticipated launch of Farxiga in the US yet has still failed to get the FDA approved Bydureon pen to market.

Thankfully for Astra the Bydureon pen is the only diabetes device they are interested in. Looking back a major mistake for Sanofi was entering the diabetes device arena, not necessarily because these devices didn’t have place in the company’s strategy. Rather when it comes to devices pharmaceutical company’s just don’t get it and quite frankly never will. Hindsight being what it is, it would have been better had the company partnered with a major device company rather than trying to build share from scratch.

Still the idea of Sanofi acquiring Astra isn’t as crazy as one might think quite frankly they need each other. Sanofi needs Astra to remain relevant in diabetes while Astra needs Sanofi so they won’t have to live up to expectations. While the company was fending off Pfizer (NYSE:PFE) the company was very public about why they shouldn’t accept Pfizer’s offer.  Astra was very public about not just where the diabetes franchise is but where it was going. Now we know that companies like to embellish while making estimates for future growth rates but when it came to Astra and diabetes these embellishments scaled new heights. The luxury of Sanofi acquiring Astra would be the company would not have to actually achieve these very lofty expectations.

On the flip side here we could easily understand how just as they did with Pfizer the company could reject an overture from Sanofi. Yes the offer would be likely be substantial as due to the Pfizer bid we already know what didn’t get the job done. Still Astra might take a look at Sanofi’s track record and conclude that when it comes to diabetes these folks couldn’t make a peanut butter and jelly sandwich without screwing it up.  That Sanofi would spend countless hours debating which should come first the peanut butter or jelly, they would spend even more time debating whether it should be chunky peanut butter combined with grape jelly or smooth peanut butter with strawberry.

Come to think about it Diabetic Investor can’t see this deal as actually happening not because it doesn’t make sense, it does. The real problem is Sanofi’s inability to make a decision. This in a nutshell is the reason the company has so many problems.  Their indecisiveness allowed the competition to either regroup or grow stronger.  Combined with their inability to execute once they actually made a decision and it’s easy to see why this ambitious strategy really never had a chance of success.

The question is can Sanofi make a Lilly like turnaround and regain their diabetes mojo. Then again is it possible to regain something they never had in the first place?