Scary Results

We’re not sure if they celebrate Halloween in Paris but there is no way to sugarcoat the results Sanofi released this morning. When it comes to their diabetes franchise the results were downright scary; per their press release

“In the third quarter, global Diabetes sales decreased 9.2% to €1,375 million, due to lower glargine (Lantus® and Toujeo® ) sales in the U.S. Third-quarter U.S. Diabetes sales were down 24.3% to €571 million, reflecting the previously announced changes in coverage of the Part D business and a continued decline in average U.S. glargine net prices.”

The question isn’t whether they can turn this franchise around, they can’t. The question is what they will do next. Given the horrible market dynamics in the insulin market there is no chance for a turnaround here. They have nothing of substance in the growing GLP-1 market, so no help here. Their pipeline is weak so no help here either.

The one lone area in diabetes where they may have a chance is their much-ballyhooed partnership with Google. A partnership that seems to be going nowhere in a hurry. A partnership which according to our sources isn’t all kibbles and bits. Rumors continue to swirl that Sanofi is so unhappy with the progress being made or perhaps we should say the lack of progress they are giving serious consideration to buying out Google and going it alone.

OnDuo is accumulating all the pieces of the puzzle the question is can they put them all together and make a pretty picture. They now have access to a patch pump, the Dexcom sensor and a “smart” pen. Like everyone else they are targeting patients with Type 2 diabetes and like everyone else they want to improve outcomes while driving costs lower.

We don’t question the goals of this partnership we question the commitment and strategy the partners have chosen. Sanofi has invested heavily in this project but being Sanofi, they just can’t get out of their own way. This is a common problem when any drug company gets into the device arena. It should be obvious that these two markets are dynamically different that is unless you are primarily a drug company.

Sanofi is not the only drug company with this affliction as Lilly is also venturing into the treacherous device waters. Novo for their part seems content for now to stay away from the insulin pump market but this could change given that their main competitors are making the deep dive here. Perhaps we’ll get a better picture of Novo’s device plans tomorrow when they report results.

The real problem facing all the insulin companies is the insulin market both long and short acting has commoditized. While the GLP-1 market continues to expand and grow it will also commoditize in the near future. In an attempt to sell more insulin, they all see systems as a way to drive growth. As we have noted all three companies are all working on their version of a Tyler. Two of three have access to an insulin pump or are foolishly developing their own insulin pump.

What we’re driving at here is that all three will end up in the same place when this ride is over. Whether they realize it or not the device market has also commoditized. This market never has been nor, will it be about who has the coolest toy in the toy chest. This market is no different than the insulin or GLP-1 markets as it’s all about getting patients to play with the toys.

Which means it’s all about getting preferred formulary access. Which means the power remains in the hands of payors. Which means they are playing the same price/discount/rebate game just with different products. Which means lots of time and money will spent all to end up in the same place.

Worse is they now have new competitors on the horizon. Although Amazon only has BGM at the moment it’s only a matter of time before they expand their offerings to include all the toys in the diabetes toy chest. And let’s not forget that Tandem, Insulet and Medtronic will fight to protect their turf. Oh, and should we mention there is a plethora of insulin pump and Tyler wannabees.

It’s a little mind boggling that with the exception of Novo that neither Sanofi or Lilly have chosen to take the shortest distance between two points. Rather than acquire an insulin pump company and build from this base they have made the decision to start from ground zero. A strange decision considering that scale is critical in this market. Also, strange considering that scale is virtually impossible and very costly to establish starting from ground zero.

This is why we question the commitment and strategy these companies have chosen. If they were serious, they would go big and acquire either Tandem, Insulet or both. If they were serious, they wouldn’t foolishly believe they can build a better mouse trap. The path they have chosen is the most difficult which makes us think they really aren’t serious and just going through the motions. Unfortunately, this going through the motion’s strategy is going to cost them lots of money with little if any chance for a return on their investment.

What’s really scary here is everyone seems committed to this foolishness. They are either unwilling or unable to see things as they are and are intent seeing things as they think they are.