Sanofi-Aventis – Are the dominos getting set to fall?
The Sanofi-Aventis (NYSE:SNY) story is no longer just about Lantus®, which continues to show impressive sales growth. The story is expanding beyond Lantus, Apidra®, SoloSTAR® and ClikSTAR® to Sanofi becoming the first company to launch a fully integrated diabetes system. This move was reinforced this morning when the company announced their full year results and noted that they would “Be the 360° partner delivering innovative and integrated solutions for people living with diabetes”.
As the company noted in their prepared remarks when they announced the creation of a new diabetes division, they have set their sights on becoming the worldwide leader in diabetes care and specifically mentioned Novo Nordisk (NYSE:NVO) as the company they have modeled their approach after. Hopefully for Sanofi they will do a better job of executing this strategy than Novo has done lately, as Diabetic Investor has noted Novo is much different company than it was just a few years ago.
Like Novo, who has looked at wide variety of insulin delivery systems, it is well known that Sanofi is looking beyond expanding their insulin delivery system offerings and will likely enter the blood glucose monitoring market. The ultimate goal being that a physician would no longer prescribe individual drugs and devices to treat a patient; rather they would prescribe a diabetes treatment system which would include everything the patient needs to manage their diabetes. Given the trend towards device connectivity and the growing influence of the internet and mobile technology it is very likely that the devices in this treatment system will all talk to each other.
It also wouldn’t surprise Diabetic Investor is Sanofi went beyond connectivity and actually made a strong move into becoming part of the patients health and wellness team. It’s only a matter of time before every diabetes device seamlessly communicates with either a PC, cellphone or both. The day is coming when this connectivity will be done automatically with no patient action required. This data can then be transmitted to Sanofi who can then help the patient better manage their diabetes. The elements for this system are already in place but to date no one has placed them all under one roof. The fact is Sanofi has the resources to make this happen and could well change the competitive landscape in diabetes.
Look for the new diabetes division to begin this process by acquiring a major player in the blood glucose monitoring space. Given the competitive landscape and market dynamics in BGM Diabetic Investor doubts the company would buy one of the many smaller players in the space and try and build the business. More likely Sanofi would acquire a major player whose existing business would have a more immediate impact on Sanofi’s bottom line. As Diabetic Investor has been reporting the question isn’t if further consolidation is coming in BGM, rather when this consolidation is coming.
At the moment it’s anyone’s guess as to which major player would fit Sanofi’s needs. While it’s possible they could make a play for either LifeScan or Roche’s diabetes device unit, the cost even with Sanofi’s considerable resources may be prohibitive. More likely targets would be either Abbott’s (NYSE:ABT) or Bayer’s units. While neither Abbott nor Bayer has the worldwide scale of LifeScan or Roche, they do have all the necessary elements that would immediately make Sanofi a player in BGM and both could be acquired at a more attractive multiple.
Such a move would forever alter the BGM market as it is likely that both Novo and Lilly (NYSE:LLY) would play follow the leader and also enter the BGM space. Based on comments made by Lilly, they are less inclined to enter the BGM arena via acquisition whereas Novo already is sniffing around the space. Novo has already experimented with the diabetes system approach when they partnered with LifeScan on the InDuo device. Although the InDuo never caught on in the marketplace it did provide an early indication of where the market was headed.
Moving beyond BGM, it wouldn’t surprise Diabetic Investor if the company also became more active in the insulin pump space or other insulin delivery devices beyond their current insulin pen portfolio. Insulin pens have long been one of Novo’s primary strengths however over the past few years the competition has gained ground. The fact is to overtake Novo for global dominance in diabetes, Sanofi will have to develop or buy new ways to deliver insulin.
Finally it should also surprise no one that Sanofi has jumped on the GLP-1 bandwagon. Although it’s too early to tell what a combination of Lantus and a GLP-1 will be like, Sanofi understands as company they must have a quality GLP-1 to remain competitive especially in the Type 2 market, where drugs such as the long-acting once-a-week version of Byetta from Amylin (NASDAQ:AMLN), set to be approved on March 5th, will cut into Lantus sales.
Let’s just hope for their sake that when it comes to a GLP-1 that Sanofi has greater success than the company their trying to overtake who’s recently approved GLP-1 Victoza® has a host of issues.
The real story, coming not just from today’s announcements but previous statements made by the company, is that Sanofi is on the verge of altering the diabetes marketplace. Once the company begins making their moves look for the dominos to start to fall. Given the how boring most earnings calls have been and the lack of anything really exciting Diabetic Investor is anxiously awaiting for Sanofi to get started, it’s about time the diabetes space became exciting again.
