Sanofi and Bayer Report

Sanofi and Bayer Report

This morning we heard from two diabetes companies moving in opposite directions, Sanofi-Aventis (NYSE:SNY) and Bayer. As we noted yesterday the dismal market conditions in blood glucose monitoring are taking their toll on Bayer. According to the company’s earnings release; “The Medical Care Division was affected by the negative development of the U.S. diabetes care market, which also held back sales of Contour® blood glucose measurement systems. Sales of this product line fell by 6.5 percent (Fx adj.) overall.”

Also as we noted yesterday Bayer is taking action at their diabetes unit changing the management structure and restructuring (job cuts) their sales force. Diabetic Investor can’t say we’re surprised by the results or the company’s response. The reality of the situation is that it was next to impossible for anyone to replace Sandra Peterson, who has moved onto Crop Science, and the outstanding job she did bringing the diabetes unit back to life. Whereas the unit had nowhere to go but up when Sandra took over, it had nowhere to go but down when she left the unit. Diabetic Investor does not necessarily believe the unit’s poor performance can be directly tied to the new management team although we do know moral has fallen among the sales force.

Rumors have been circulating that Bayer in an attempt to sell more test strips; will buy privately held CellNovo, an emerging insulin pump company. As reported many times insulin pump patients are the most frequent testers of glucose and while insulin pump patients make up fewer than 10% of the overall insulin market they account for nearly 25% of all test strips sold. Given the complex and changing dynamics in the insulin pump market one has to wonder if Bayer is jumping from the frying pan into the fire.

The story at Sanofi-Aventis (NYSE:SNY) really isn’t about where they have been but where they are going. While Lantus continues to perform well the company knows they cannot ride the Lantus horse forever. To build upon Lantus, the company must boost sales of their short-acting insulin Apidra and bring their once-daily GLP-1 Lixisenatide, currently in Phase 3 trials, successfully to market. Given the market dynamics for GLP-1 therapies we’re not quite sure Lixisenatide will be a major commercial success but the fact is you can’t be a player in diabetes and not have a GLP-1. As we saw yesterday when Novo Nordisk (NYSE:NVO) reported, GLP-1 therapy is gaining traction and soon could become the dominate treatment option for poorly controlled type 2 patients.

But the true story for Sanofi goes beyond their drugs and devices. Sanofi views the patient with diabetes a lifetime patient and wants to sell them not only their drugs and devices but to help them better manage their diabetes. As Diabetic Investor has noted on several occasions no one in diabetes has even attempted such an ambitious effort and there is no guarantee Sanofi can pull it off. What we do know is that the company is more popular than an ice cream cone on a hot summer day. It’s not an overstatement to say that every company and we mean every company with a diabetes related product, device or service are throwing themselves at the company.

It’s also no surprise that every rumor circulating in the diabetes arena somehow and in some way involves Sanofi. Sanofi has made it very clear that they want to be the global leader in diabetes and have committed the resources, both human and financial, to accomplish this goal. To the many companies looking to enter this market this is breath of fresh air as the current players whether they be drug or device companies remain stuck in neutral or moving in reverse. Wanting to recoup their investments these newcomers view Sanofi as the goose that lays the golden egg who will come along and buy them.

This gives Sanofi an incredible amount of power in the diabetes space allowing them to cherry pick the best available companies while at the same time providing them a detailed look into the future of diabetes drugs, devices and services. The key here is due diligence, as we have seen many times before success in this space it is not only knowing who to buy but being able to turn the acquired company into a winner.

Based on what Diabetic Investor has seen so far one thing is crystal clear, successful or not, Sanofi is at the epicenter of the diabetes world. As the diabetes world watches and waits for Sanofi to move, the dominos are lining up. Once the company makes their moves the dominos will begin to fall and the diabetes landscape will be changed forever. The diabetes market is getting set for transformational change and there is no doubt that that Sanofi is not only the catalyst for this change but they are leading the way.