Near Term Headwinds

Near Term Headwinds

This morning during the Sanofi (NYSE: SNY) presentation our new best friend Olivier stated that the diabetes franchise is experiencing “near term headwinds”. Now we would have used the term gale force winds, the good news is at least Olivier acknowledges that when it comes to diabetes and Sanofi it won’t be smooth sailing and there is lots of rough waters still to navigate. This is the good news.

Now for the not so good news. The company remains convinced that things really aren’t that bad for Lantus and Toujeo. Yes, they have lost almost every battle with Basaglar but on the bright side there is still broad coverage for Toujeo. A somewhat true statement until one considers that neither Lantus nor Toujeo are Trier 1 drugs, so yep they are covered but it’s still cheaper for the patient to use Basaglar. To wit the company does what every company does in this situation offer patients a co-pay equalization card, which unfortunately only increases Sanofi’s costs while lowering margins.

The company is doubling down on this strategy with their newest drug, Soliqua a Lantus/GLP-1 combo which launched at the beginning of the year. A drug which will compete directly against Novo’s combo product.

This strategy for Soliqua says many things; first the diabetes drug market is a commodity market. Next, the company knows that they have a fight on their hands with Novo. And third payors are in firm control of this new category just as they are with almost every other diabetes drug category.

Saying that they are experiencing near term headwinds is like saying that San Francisco had a small earthquake back in 1906.

One company that has the winds at their backs is Dexcom (NASDAQ: DXCM) as before presenting this morning the company issued unaudited results for the 4th quarter which were well great. Per a company issued press release;

“DexCom, Inc. (Nasdaq: DXCM) today reported that it achieved preliminary, unaudited revenue of approximately $168 million for the fourth quarter ended December 31, 2016, an estimated increase of 28% over the fourth quarter of 2015. For fiscal 2016, total preliminary, unaudited revenue is expected to be $570 million, an estimated increase of 42% over 2015.

“2016 was a record year for DexCom. We estimate that 80,000 to 90,000 new patients adopted DexCom Continuous Glucose Monitoring (“CGM”) worldwide and we ended the year with approximately 200,000 patients globally, up from approximately 140,000 at the end of 2015,” said Kevin Sayer, DexCom’s President and CEO.”

Listen there is no need to say this again other than it bears repeating, Dexcom continues to be the model for how a diabetes device company should be run, heck they should be a model for how every diabetes company is run. The company is in the right place, at the right time, has the best product in its category and has the coolest thing on the planet in their near-term pipeline. Market conditions unlike every other diabetes market continue to improve and CGM is becoming the standard for glucose measurement.

Now as bright as the future is this does not however mean they are worry free. Medtronic (NYSE: MDT) and Abbott (NYSE: ABT) are serious about CGM and will fight using every weapon in their arsenals including price. Other than Google, the company’s partners are fumbling about like the Three Stooges. Yes, Tandem (NASDAQ: TNDM), Animas, a unit of Johnson and Johnson (NYSE: JNJ) and Insulet (NASDAQ: PODD) act more like Larry, Moe and Curly then insulin pumps companies that have a clue.

Still we believe given the experience and strength of the company’s outstanding management team they will prevail in the end. Simply put they get it and yes, it is that simple.

Although we did not attend the Roche presentation, hard to be in two places at once, we did review the slide presentation and no surprise nothing about diabetes. A subject we doubt that was addressed in the break out either. Even if it was just what would they say; “Hey guys we’d like to say something positive here but the truth is we are as clueless as all the other conventional glucose monitoring companies and have no idea what the future will bring other than more suffering. Seriously we would like to dump this dog of a unit but we can’t find anyone dumb enough to buy it.”

We’ll finish our day with Lilly (NYSE: LLY) and like yesterday given our over booked schedule will likely write about that session in the morning. Remember other than making sure you have a badge cocktails are an essential element of JPM.