Sanofi Reports – The Fat Lady Warming up

Sanofi Reports – The Fat Lady Warming up

Yesterday  Sanofi (NYSE:SNY) reported third quarter results which revealed the depth of the issues facing their once thriving diabetes franchise. According to the press release which preceded the conference:

“Given recent sales trends for the diabetes business and ongoing market dynamics, Sanofi now expects its global diabetes sales to be down between 6% to 7% at CER for 2015. Accounting for recent market trends, Sanofi now projects global diabetes sales over the period of 2015-2018 to decline at an average annualized rate of between 4% and 8% at CER. Approximately half of this revision is linked to insulin glargine and the other half is related to reduced expectations for Afrezza® , Lyxumia® and BGM (Blood Glucose Monitoring). Sanofi will mitigate the impact of this revised sales expectation on its business operating income by 2018 and will present the mid-term strategic and financial outlook for the Group on November 6, 2015.”

Given the amount of time Olivier Brandicourt spent covering the diabetes franchise it’s obvious he understands what’s going on here. It’s also becoming obvious based on the last sentence in the previous paragraph this unit is about to undergo a dramatic downsizing. As we reported previously sources inside the company are anticipating a major reduction in headcount perhaps as many as 20,000 beheadings. We further believe given the very disappointing sales numbers for Afrezza just $2 million of the quarter and just $5 million for the year, that the company will terminate the MannKind (NASDAQ:MNKD) partnership in January.

Just as we anticipated and keep reporting competition in the insulin market is fierce and Lantus sales are being adversely impacted overseas now that a biosimilar version is available. Given the results reported by Novo Nordisk (NYSE:NVO), also this morning, both Novo and Lilly (NYSE:LLY) are once again in firm control of the insulin market. While the company is trying to put a positive spin on Toujeo sales, the fact is like Afrezza sales have been very disappointing. The harsh reality is that Sanofi is damned no matter which they turn. Lantus sales are eroding and will continue to erode. Sales of Afrezza and Toujeo continue to lag behind expectations. The pipeline is devoid of anything that will help therefore it’s time do what the company does best, let the beheadings begin.

Looking ahead the November 6th investor day will likely be very ugly when it comes to the diabetes franchise. During the Q&A session of this morning’s call the company telegraphed what lies ahead telling everyone they will take steps to “mitigate” the impact of the new lower sales forecast.

The real question is other than reducing headcount and ending the MannKind partnership is there anything besides a major acquisition which would help the company become relevant in diabetes again. As we noted yesterday a Sanofi AstraZeneca (NYSE:AZN) combination has lost its luster and wouldn’t yield the desired results. Therefore we believe when it comes to diabetes it will be a slash and burn strategy getting costs in line with the new lower sales outlook.

Frankly the Sanofi story is a familiar one – failure to execute, failure to capitalize.  Way back in the day Sanofi seemed poised to change diabetes. Back then it appeared they not only knew where the market was but where it was going. Back then it was Lilly and Novo who seemed to be in trouble, failing to grasp the realities of the market. Yet as time went by Lilly and Novo regained their form while Sanofi lost touch with reality. Yet unlike Novo and Lilly it’s unlikely that Sanofi will regain their once dominate position. This has as much to do with how the market has changed as well as Sanofi’s ineptitude.  The fact is when it comes to Sanofi and diabetes the fat lady is warming up and getting ready to sing the party is over.