Third time a charm?

Third time a charm?

There are days when we feel for wine drinking friends in France. Yes, Sanofi (NYSE: SNY) has a host of issues and until yesterday did not have leader. A job which now belongs to Stefan Oelrich, who will be the third new leader of this unit over the last two years. Now we would like to believe that the third time will be a charm but this is Sanofi.

The company was hit with another blow when UnitedHealth announced their 2018 formulary which excluded both Lantus and Toujeo, ouch and double ouch.

The real question is just what can Stefan do if anything to stop the bleeding and begin to repair what once was a thriving unit. The company does have some new drugs coming to market but in typical Sanofi fashion they are a day late and dollar short. The reality is the company has nothing in the near term or in the pipeline that looks all that promising. And from what we’ve been hearing their partnership with Verily isn’t going all that well and to top it all off there rumors the company wants to enter the insulin pump market.

Even worse there are some things Stefan cannot change most notable is the fact that when it comes to diabetes drugs this is a commodity market. Realistically the only weapons Stefan has at his disposal are discounts and rebates, weapons which kill margins.

So, what if anything can be done other than cutting costs which has already been done.

Well if they really are interested in entering the insulin pump business, as wacky as that be, why not go all the way and begin offering diabetes management systems. Instead of selling the individual pieces of the system combine everything into one nice neat package. Then take it a step further and sell these systems using the shave club for men pricing model. Just for grins and giggles why not offer payors value/outcomes incentives where the company receives a bonus when they hit predetermined metrics or if not, successful they pay a higher rebate.

Besides insulin Sanofi does have a GLP-1 along with an SGLT2 in the pipeline. They are already invested in Common Sensing so they can pursue the “smart” insulin pen/CGM/App option. They could easily afford to buy Tandem (NASDAQ: TNDM) invest another $200 million to make the company viable. If they really wanted to go hog wild they could buy the diabetes assets from AstraZeneca (NYSE: AZN) which would round out the portfolio and allow them to go head to head with Lilly (NYSE: LLY).

Think of how this would disrupt multiple companies not just Lilly. Novo Nordisk (NYSE: NVO) who also got wacked by UnitedHealth with Tresiba excluded from the 2018 formulary. Medtronic (NYSE: MDT) and Insulet (NASDAQ: PODD) would also have to worry assuming Sanofi can get Tandem fixed. Dexcom (NASDAQ: DXCM) could come out a winner as they too are partnered with Verily and as we have reported adding in the new slap it on turn it on sensor is a much better option than the OneDrop conventional meter. OneDrop could remain in the picture and provide patient coaching.

Such a move would also impact Abbott (NYSE: ABT) who just might buy Bigfoot and develop their own “smart” insulin pen/Libre/app combination plus have something akin to the 670G with the Bigfoot insulin pump. We doubt Abbott would enter the drug side of diabetes but in this wacky world anything is possible.

The harsh reality that Sanofi and quite frankly every diabetes drug company must look at is payors aren’t going backwards. When price trumps performance as it does in a commodity market these companies must find new ways to make money. We have long contended that it was just a question of when not if companies would start selling diabetes management systems and given how market dynamics have changed this may be the time.

Thanks to CGM and interconnected diabetes management these companies now have the tools to prove they are producing better outcomes. They can prove to payors that their systems work.

Listen we know this seems like a radical idea to some but let’s get real what other options do these companies have. The old way of doing business no longer works. Either they change the paradigm or risk further erosions to already shrinking margins.

This change becomes more imperative when you consider that Apple, Amazon and other cash rich high-tech companies are making the deep dive in the diabetes pool. Companies which do not need to be in diabetes but want to diabetes. Companies with vast resources that allow them to become an immediate threat.

As Momma Kliff used to say; “You can continue on path that worked in the past and ignore the change that is going on around you or you can adapt. The old way might seem comfortable and require the least amount of work but eventually you will be forced to change. So better to drive change then have it forced upon you.”