What will change bring to Sanofi?
It seems that our wine drinking friends in France are in the midst of a management purge. Now that Olivier Brandicourt has taken command executives who were brought in by the former CEO Chris Viehbacher continue to leave the company. As we have noted before this is not all that unusual when a new CEO takes command. The question isn’t why these people are moving on, the real question is will the people who replace them bring anything new to the company.
The way Diabetic Investor sees it Sanofi (NYSE:SNY) has reached the fork in the road for their diabetes franchise. As everyone knows Lantus, the world’s number one selling insulin is struggling and will soon face generic competition. It’s far too early to tell whether Toujeo, the drug which is supposed to replace Lantus, will live up to expectations. Based on early reports from the field we’d say it won’t but it’s still early. Afrezza continues to disappoint and like Toujeo we just don’t see this drug being anything more than a niche product.
The pipeline doesn’t offer much hope as the cornerstone of this pipeline is me-too way late to market GLP-1. Even if combined with Lantus this product will face stiff competition as Sanofi isn’t the only company working on a GLP-1/long-acting insulin combination.
Complicating matters for Sanofi is the fact they cannot buy their way out of the problems they face. At one point Diabetic Investor felt a possible solution was to go big and buy the diabetes portfolio from AstraZeneca (NYSE:AZN). Other than Lilly (NYSE:LLY), Astra had the most comprehensive portfolio which when added to Sanofi’s insulin portfolio would have given the company a chance at competing more effectively. However this was before two of Astra’s drugs, Onglyza and Farxiga, came under attack. The fact is other than Astra there is no other company Sanofi could buy that would fill the holes in their diabetes portfolio.
This leaves Sanofi very little wiggle room as about the only other viable option would be to dramatically alter their cost structure. This goes beyond just layoffs as the entire diabetes organization needs to be radically restructured. Simply put Sanofi must bite the bullet and admit they can no longer afford a huge sale force. Nor can the company afford to continue to throw good money into products like Afrezza, a product which has virtually no margin. At this point Toujeo is the only viable option for the company as it has a built in market and even with the heavy price competition in the insulin market it is profitable.
Yet there is another possibility what Diabetic Investor calls the nuclear option as Sanofi could be truly bold and sell their diabetes portfolio. Given the problems at Astra and the amount of money they have invested to build their diabetes portfolio they could see Sanofi’s portfolio as a solution to their problems. Selling to a private equity group is also another option. The fact is a private equity group stands a better chance at making the radical changes needed for this portfolio. Using history as a guide it’s not an understatement to say that radical restructurings are just not part of Sanofi’s DNA.
We suppose it’s possible that the company could double down in diabetes and attempt to build a better pipeline while they undergo a restructuring of their operations. Yet this seems unlikely as the cost would be huge and given the competitive and regulatory environment the possible payoff is far from certain.
No the way we see it Sanofi has a choice to make, either dramatically alter their cost structure or say goodbye to diabetes entirely. Like we said they have come to the fork in the road and it’s time to make a decision.