Who’s in charge?
Last week Sanofi (NYSE:SNY) announced they were reorganizing the company into three new operating units. Many, including Diabetic Investor, speculated that the next move would be downsizing, i.e. layoffs. Yet according to the company this reorganization will not lead to any layoffs. A Sanofi spokesman told the French newspaper Les Echos the reorg “contains no downsizing”. Sanofi management also assured European officials that the new structure won’t affect employment.
Now far be it from Diabetic Investor to tell Olivier or Serge how they should be running their business but one has to wonder who’s in charge here. Is Sanofi being run for the benefit of its stakeholders or the French government? Is it more important to please European officials or increase the value of Sanofi shares?
Listen no one likes it when people lose their jobs but Sanofi is not a charity, it’s a publicly traded company. The reality is everyone in pharma is struggling and like it or not layoffs are an option that should never be taken off the table.
The truly sad and largely overlooked fact is that Sanofi has no one but themselves to blame for their current situation. Their diabetes franchise is a perfect example of this. Thanks to the goose that laid the golden eggs, Lantus, the company had a chance to become a diabetes powerhouse. And there was a time when it looked they were going to do exactly that. There was time when it appeared the company had the right strategy at the right time. Yet as so often happens the company failed to execute.
So here we are today and that golden goose is becoming a dead duck. The products that were supposed to add value, Afrezza and Toujeo, aren’t doing well. Products that were preceded by Apidra and iBGStar, two colossal failures. The pipeline is full of me-too late to market copycat drugs which even if they make it to the market will come too late to help.
Yes the diabetes market has changed and yes the market is more difficult than ever. However the facts show that Sanofi was unable to adapt to these changes that they could not capitalize on the success of Lantus.
Yet Sanofi is not the first diabetes company who could not capitalize on a successful product. Roche, who reports earnings on Thursday is another company who at one time appeared ready to dominate the glucose monitoring market. They had a hugely successful product with their Comfort Curve test strip. Yet just as Sanofi couldn’t capitalize on Lantus, Roche could not with the Comfort Curve. And just like Sanofi, Roche really had no one to blame for what were some truly poor decisions. The major difference between Sanofi and Roche is, Roche realized what was going on and restructured their unit to reflex new market realities. A restructuring which included layoffs.
Back when Olivier accepted the CEO position at Sanofi Diabetic Investor wondered who really would be running the company. Whether our good buddy Serge would allow Olivier the latitude to be an agent of change. Well based on these most recent comments the answer seems to be no.
As we noted earlier we don’t want anyone to lose their job. However if Sanofi is to turn things around they must align their costs to match new market realities. They must run the company not for the French government or European officials but for their stakeholders. Stakeholders who have seen the value of Sanofi shares increase a partly 2.19% over the past 12 months while shares in Lilly (NYSE:LLY) are up 34.86% and Novo Nordisk (NYSE:NVO) up 26.45%. Over 2 years the numbers are even worse with Sanofi up just 0.74%, Lilly up 69.95% and Novo up 77.30%.
One would think that these stakeholders who are watching their investment in Sanofi go nowhere in a hurry would be screaming for change at the top of their lungs. That they would demand management make whatever changes necessary to get their investments back on track. Even if these changes meant layoffs. Yet what Sanofi stakeholders seem to have forgotten is the company is not like a normal company that’s run to increase shareholder value. That Sanofi is a three ring circus who cares more about pleasing the French government and European officials than it does about making money.
