Off With Their Heads

Off With Their Heads

Recently Walgreens (NYSE:WAG) made some major changes to upper management. Gone are Chief Financial Officer Wade Miquleon and pharmacy chief Kermit Crawford, who is set to “retire” at the end of the year. It seems like Mr. Miquleon made a minor error while forecasting fiscal 2016 earnings. It seems that he originally forecast pharmacy unit earnings at $8.5 billion but then revised that forecast a month later knocking $1.1 billion off the original number.  It seems that the finance unit, run by Mr. Miquleon and the pharmacy unit run by Mr. Crawford were not playing nicely with each other which lead to this error.

Given that Walgreens is based in Deerfield, Illinois which is just outside the great city of Chicago, home to some notorious mobsters over the years. It’s fitting that Walgreens held to their Chicago roots and promptly got rid of Mr. Miquleon and politely asked Mr. Crawford to “retire”. As Sean Conroy said in the Untouchables; “If they pull out a knife, you pull out a gun, if they send one of yours to the hospital, you send one of theirs to the morgue – that’s the Chicago way.”

As embarrassing as this situation is for Walgreens at least they held management, excuse the play on words here, accountable for their actions.

Diabetic Investor mentions this as we wonder if anyone on the Sanofi (NYSE:SNY) board of directors has the stones to hold management accountable for what’s happened with the companies diabetes unit. Will anyone pay the ultimate price for the many mistakes made, mistakes that cost the company millions possibly billions. When the MannKind (NASDAQ:MNKD) deal turns into the major failure it’s destine to be, will anyone bother to ask why this deal was done in the first place. Will the board ask management why they didn’t better prepare for the day when Lantus goes off patent? Will they ask why every attempt to expand beyond Lantus failed and failed badly?

Now Diabetic Investor doesn’t like to sound provincial or anything but we believe that the management team at Sanofi is lucky the company is based in Paris and not in Chicago.

To Diabetic Investor this has been the problem at Sanofi from day one, from the day they said very publicly they would overtake Novo Nordisk (NYSE:NVO) for global diabetes supremacy. Management wasn’t held accountable, mundane measurements such as return on investment were ignored – basically the inmates were running the asylum. Diabetic Investor remembers meeting members of the Sanofi management team who seriously believed that social media was the key to increasing Lantus sales. Yep the company bought into this pipedream, gave the team nearly $30 million to spend but didn’t ask the unit to hit any performance metrics.

The company is now repeating the exact same mistake but on much bigger scale with the MannKind deal. The company is about to flush a billion dollars, likely more than a billion when it’s all said and done, for a product that would have to reach nearly $3 billion in annual sales to break even.  While Diabetic Investor has seen some aggressive sales forecast for Afrezza, none, even the most aggressive comes close to $3 billion. This is what makes this deal so strange, it’s as if Sanofi decided to throw due diligence out the window.

Listen Diabetic Investor wasn’t the only publication to outline the many issues with Afrezza. Saying the problems with Afrezza were well known is like saying Kate Uptown is pretty.

To Diabetic Investor the MannKind deal was an act of desperation combined with some serious corporate hubris added in for good measure. Management likely looked at the numbers and knew that Afrezza didn’t have an ice cubes chance in hell of becoming a blockbuster product. Yet they also knew that the goose that’s laying the golden eggs, Lantus, was about to get cooked.  The more serious of the bunch also likely noted the Toujeo® wouldn’t come close to reaching Lantus like sales number. Plus they were concerned this supposed Lantus replacement might not get approved by the FDA as quickly the company believes it will. That the company was being naïve about the regulatory process ignoring what the FDA did to Novo with Tresbia®.

On the flip side they had witnessed the company over-analyze possible deals to a point where the company became frozen, unable to act. This exact scenario played out when the company was looking at acquiring Bayer’s struggling diabetes device unit. At first it looked like Sanofi was about to pony up over a billion bucks, then stepped away, then stepped back in and for the moment has stepped away again. It should be noted that in strange sense of irony no one thought they should do the Bayer deal, at least not for a billion or so bucks. (Diabetic Investor is beginning to believe that when it comes to blowing bucks Sanofi’s motto is Go Big or Go Home.)

Yet for reasons only known to Sanofi’s deal team they sold this bill of goods to upper management who in turn convinced the board that yep lets blow a billion bucks on a product that has more problems than France has wine.  Based on how the company has acted in the past they knew they wouldn’t be held accountable and more than likely would get promoted. The team likely said; “So what the heck, let’s throw caution and a billion bucks into the wind. Hell if nothing else it will give Diabetic Investor some great copy and just might clinch a Wacky Award trophy.”

It seems the French are ashamed of their history, a history which made Chicago mob wars seem like a pleasant walk in the park. Well back in the day French aristocracy made public beheadings a daily event. Steal some bread to eat – Off with their heads.  Publicly criticize the queen – Off with their heads.  Now Diabetic Investor does not mean to imply the French have gone soft or that they have become a bunch of wine drinking elitist, absolutely not.

We just believe that management should be thanking their lucky stars the company is not based in Chicago.