The process begins

The process begins

According to a company issued press release Sanofi (NYSE:SNY) is restructuring their operating units the release states; “Sanofi today announced plans to evolve its business with the creation of five, Global Business Units: General Medicines & Emerging Markets, Specialty Care, Diabetes & Cardiovascular, Sanofi Pasteur and Merial. This new structure will be implemented beginning in January 2016.” Heading up the Diabetes & Cardiovascular unit will be Pascale Witz.

This news is not totally unexpected as new CEO Olivier Brandicourt will soon unveil his strategic vision for the company. However as we have been reporting it does not appear he will wait until then to make major changes in the diabetes franchise. Rumors are rampant that changes to the diabetes franchise will come as soon as the end of July. Although details are sketchy at the moment nearly everyone believes these changes will not only involve a major overhaul of the diabetes sales force but also changes to management.

Should these rumors turn into fact it would mark a major departure from the past perhaps signaling that Sanofi will finally hold management accountable for their performance. Yes we know that our good buddy Serge has said that people should be held accountable but up until now that’s all it has been talk. It would refreshing to see this talk turned into action and actually see Sanofi act like any other major pharmaceutical company and get away from being a three ring circus.

No matter how the unit is overhauled the problems facing the diabetes franchise are sizable. A key question is what the company will do with Afrezza. By every indication sales of Afrezza are vastly underperforming even the lowest estimates provided by analysts. The recently initiated direct to consumer advertising campaign may raise awareness for the drug yet it will do nothing to overcome the many structural issues facing Afrezza. What the company needs to decide is just how much time can they afford to give Afrezza.

As we have noted in the past the worst case scenario would be for the company to continue to pour even more resources into Afrezza. To make the same mistake that Pfizer (NYSE:PFE) did with Exubera. The way we see it better to limit the damage already inflicted and cut ties with MannKind (NASDAQ:MNKD) before Afrezza becomes a sinkhole.

Next on the to-do list is what to do with Toujeo. Again as we have noted in the past Toujeo has a huge advantage over Afrezza because there is ready made market for the drug; existing Lantus users. It also has another advantage as unlike Afrezza which carries almost no margin, the company can make money with Toujeo. Better to allocate resources to Toujeo which stands a chance at becoming commercially viable than to allocate resources to Afrezza which may never be commercially viable.

Assuming for a moment that Afrezza gets the ax and Toujeo is given priority the next question is what to do with Lantus and the coming of generics. Here the answer isn’t quite so clear as how they handle Lantus will directly impact sales of Toujeo. Should the company decide to offer Lantus at vastly reduced prices to remain viable, physicians will have little incentive to switch patients from Lantus to Toujeo. This is the problem as Toujeo is only a slight improvement over Lantus. Physicians do not have a compelling reason to switch patients and cost as we all know is major consideration.

The other option would be to price Lantus and Toujeo at similar levels, hope that physicians are reluctant to switch patients to a generic Lantus and offer higher payor rebates for Lantus. This option would allow payors to keep both Lantus and Toujeo on formulary with added benefit of blunting the impact of a generic Lantus. In effect Sanofi would make Lilly (NYSE:LLY) and Novo Nordisk (NYSE:NVO) play defense.

The simple fact is all things being equal physicians are loath to change a patient’s therapy regimen especially when that regimen is working. Switching typically switching occurs when either the existing therapy isn’t working or when there has been a change in the existing therapies formulary status. This is one reason Novo has been able to gain share in the long acting insulin market as payors know that Lantus and Levemir are of equally quality. This allows Novo the opportunity to buy their way into a preferred formulary presence which is what they have done.

With the only viable generic Lantus, many including Diabetic Investor, believe Lilly would use price as their primary weapon to gain share and formulary access. However should Sanofi discount Lantus directly, through higher rebates or both, Lilly would be placed in a difficult position. The reality is priced equally it would be hard to imagine any physician prescribing a generic Lantus when the real thing cost the same or lower.

Last on the list is what to do about the pipeline which is filled with me-too late to market copycat drugs. Although we don’t see the company abandoning these compounds, excuse the expression, new blood is needed.

One last thought even though we don’t think it will happen, if the company is truly serious and wants to remain a player in diabetes they should consider making a play for AstraZeneca’s (NYSE:AZN) diabetes portfolio. Yes we know this is unlikely but it would fill the holes in Sanofi’s portfolio and make the diabetes drug market an all-out battle between them Lilly and Novo. Like we said we doubt this would happen but this is the wacky world of diabetes where anything can and usually does happen.

Stay tuned folks as things are getting more interesting by the day.