Time to acknowledge the obvious
There was a time when Diabetic Investor believed that Sanofi (NYSE:SNY) would become the first company to offer a fully integrated diabetes management system. A system that included the drugs and devices patients uses to manage their diabetes. We further envisioned that Sanofi would offer patient coaching or disease management. The ultimate goal was to protect the company from the coming Lantus patent cliff. Lantus is not just the world’s number one selling insulin but has become Sanofi’s highest revenue producing product.
After seeing the results they released this morning and listening to the corresponding call, it’s time to acknowledge the obvious, which is the company is not less but more dependent than ever on how Lantus performs. That the patent cliff which is getting closer by the day is becoming ever more dangerous as the company has failed to protect their diabetes franchise and capitalize on Lantus. As we noted yesterday when Lilly (NYSE:LLY) reported, the threat of a generic version of Lantus is very real and while we do not expect a generic version to be priced 70 or 80% less than Lantus, it’s mere presence will embolden payors to demand greater price concessions.
The fact is there is nothing beyond Lantus that will come anywhere close to providing even a fraction of the revenue that will be lost when the patent expires. Apidra, the company’s short-acting insulin, is a dismal failure and faces stiff competition. Their once-daily GLP-1 Lyxumia® is basically a Victoza copy-cat and even if it is combined with Lantus will face competition from Novo Nordisk (NYSE:NVO) who is also working on a GLP-1/Insulin combination. The iBGStar is basically dead in the water after Apple decided to change the connector port on the new iPhone 5 and even had this not happened the device faced a tough road.
The question now becomes does the company double down in diabetes and get back on the acquisition trail or do they make some much needed changes to how their strategy is being implemented. As we have said from the beginning the success or failure of this ambitious, never tried before strategy depended largely on whether the company could execute. The strategy itself has merit and does seem aligned with the future, however no strategy no matter how well thought out means all that much if it can’t be executed.
Today’s call gave little in the way of which direction the company is headed as there was no discussion or questions on the possible acquisition of Bayer’s diabetes device unit. Not surprisingly most of the questions focused on Lantus sales, the coming threat of Degludec and DegludecPlus, where the sales growth for Lantus came from and the new formulation of Lantus currently under development. Basically analysts are looking at Sanofi as a one trick pony and seem to have dismissed everything else the company has in diabetes. Basically everyone is acknowledging the obvious, that when it comes to Sanofi and diabetes its Lantus and Lantus alone.