Throwing your partner under the bus
“If sales are lower than they should be, it cannot be blamed on the product, but only on our sales methods, we just means we need to change them.” These words come from Matthew Pfeffer, CEO of MannKind (NASDAQ:MNKD) when asked about why Afrezza isn’t doing all that well in the marketplace. Like the Afrezza supporters on Twitter Mr. Pfeffer believes the new direct to consumer advertising campaign will help increase product awareness and ultimately sales.
Thankfully Mr. Pfeffer is not totally in LaLa land acknowledging reimbursement has been a problem and that some physicians are reluctant to prescribe Afrezza. He also acknowledged that “Exubera definitely muddied the waters quite a bit”. Yet he remains convinced that Afrezza can overcome these obstacles and become commercially successful.
The irony here is the problems he outlines we largely created by his partner Sanofi (NYSE:SNY). It was Sanofi who believed that poor formulary position would not hurt sales. It was Sanofi who put together the “sales methods”. It was Sanofi who failed to understand that physicians would be reluctant to prescribe Afrezza. And it was Sanofi who falsely believed that Exubera’s failure would not impact Afrezza sales.
The harsh reality no direct to consumer ad campaign no matter how good it is will overcome these obstacles.
Frankly Diabetic Investor isn’t surprised by anything that Sanofi has done. What’s surprising is it took Mr. Pfeffer so long to throw them under the bus. Anyone who’s followed Sanofi knows that when it comes to diabetes they have reverse Midas touch, where everything they touch turns to sand rather than gold. That the only diabetes product which has done well is Lantus and that goose is about to become a dead duck.
Perhaps there is a reason insiders at Sanofi are now taking bets on when the company will admit defeat and end their relationship with MannKind. These people who are on the front lines know full well what’s going on and just how badly Afrezza is doing, how difficult it is to sell. Not surprisingly they see management as living in some sort of fantasy land clueless to what’s going on in the real world.
There biggest concern isn’t when management will pull the plug, no their biggest concern is management won’t pull the plug. That the company will continue to plow additional resources into Afrezza, that Afrezza will become a never ending sinkhole draining valuable resources which can be better used elsewhere. Ultimately that Afrezza will become what Exubera was for Pfizer a multi-billion dollar failure.
As we have noted previously rumors are already circulating that Olivier Brandicourt, Sanofi CEO, won’t wait until the third quarter when he’s supposed to outline his strategic vision for the company, to start implementing major cuts to the diabetes franchise. Cuts which will surely include a reduction in head count with more than a fair share coming from the sales team.
One day someone will have to explain to Diabetic Investor why it is that sales people get the ax when the management team that came up with sales strategy, even if they get canned, walks away with a fat severance package. Wasn’t it our good buddy Serge who said that management needed to be held accountable for their actions? Yet we digress.
The fact is it’s becoming increasingly obvious that Afrezza is what we said it would be all along, nothing but a niche product. A product which does have a place in the treatment paradigm but nothing coming anywhere near blockbuster status. The question is will Sanofi management pull their heads out of the sand, recognize they should have never partnered with MannKind in the first place, admit they made a mistake and move on. Or will Sanofi in typical fashion drink some good wine, ignore what’s really going, hold no one accountable and throw good money into a bad idea.
Using history as a guide we sure hope that wine tastes really good.
