The subtlety of a sledgehammer

The subtlety of a sledgehammer

After listening to a replay of Sanofi’s (NYSE:SNY) earnings announcement Diabetic Investor can’t quite figure out which is truer; the company is either blind to what’s going on in the diabetes market or they have some secret plan that they don’t want to share just yet. Whatever it is one thing is certain, their plan to create an company that would challenge Novo Nordisk (NYSE:NVO) for global dominance in the diabetes market hasn’t worked out all that well, and by many measures could be classified as a failure.

While Lantus continues to roll along nicely, Lantus is the only thing in the diabetes franchise that is performing. Apidra continues to go nowhere and for all practical purposes the company’s attempt to enter the BGM market is all but dead and buried. And the company continues to delude themselves into believing that Lantus won’t face a serious generic threat or that a pipeline of copy-cat me-too late to market drugs will somehow save the diabetes franchise.

Here are the facts just in case anyone needed to be reminded; as powerful a brand as Lantus has become this will not save the brand when a generic gets here, and a generic will get here. As we have noted in the past, the mere fact that a generic will become available will provide payors with the leverage they need to demand and likely receive substantial price concessions from the company.

In the ultimate irony, Lilly (NYSE:LLY) the company who never entered the long-acting insulin market could be the first to offer a generic version of Lantus; Lilly the same company that started the price war which is turning the short-acting insulin market intro a commodity market. We mention this only because it seems like Sanofi has decided to copy one of Lilly’s biggest mistakes; rather than invest in innovative solutions they like Lilly want to protect their precious dividend. Rather than do something bold and transformative, the company like Lilly has basically decided to wave the white of surrender.

It seems unlike Novo, the company which Sanofi said they wanted to emulate, they chose instead to copy Lilly and their ultra-conservative play it safe tactics. That it’s more important to satisfy the demands of the investment community than to do what a pharmaceutical company is supposed to do; develop innovative medicines that help patients manage their diabetes more effectively. Honestly other than Lantus what does the company have to show for their once bold statement that they were going to supplant Novo as the global diabetes leader?

There was a time when Diabetic Investor believed that Sanofi could have become the first company to offer a complete diabetes management system, a system which would not just include the drugs a patient uses to treat their diabetes but contain the devices used to monitor and manage their diabetes. A system which would ultimately some sort of disease management or diabetes coaching that would help the patient achieve better outcomes. We knew this was an ambitious strategy but also believed it was a necessary one if the company were to have any chance at all at separating themselves from everyone else.

As Diabetic Investor pointed out on numerous occasions the key to this strategy wasn’t capital, human or financial, but whether the company could execute. Time and time again the company proved they just couldn’t get out of their own way. Whether it was the iBGStar, a well-intentioned effort that was under financed and basically killed when Apple changed the connector port on the new iPhone 5, or the company’s on again, off again attempt to buy Bayer’s diabetes unit. Yet this failure to execute went beyond devices as their efforts to enter the expanding GLP-1 market are well behind the established competition. Unless something changes dramatically, Lyxumia® looks to be the Tradjenta of the GLP-1 category.

Any way it’s measured it’s clear that Sanofi isn’t close and we would actually argue, is now further away from supplanting Novo than it was when they originally embarked on their diabetes strategy. A strategy designed to capitalize on the huge success of Lantus, which has clearly failed. The company may not see it but everyone else does.