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Sticking Point: Sanofi’s Diabetes Franchise Is Crucial to Sorting Out a Mess

In Wake of CEO’s Dismissal, Investors Look for Strategy for Rejuvenating Pipeline
By ED SILVERMAN

In two weeks, Sanofi SA Chairman Serge Weinberg faces a crucial test.

He must quarterback a long-planned meeting with investors to review the pipeline the beleaguered drug maker is trying to develop. This is a task that former Sanofi Chief Executive Chris Viehbacher had been expected to handle, of course, but he was dismissed last week amid a tumultuous set of events that revealed some strategic disarray.

The timing is tough. Like many other global drug makers, Sanofi has its share of challenges. But one particularly vexing issue is likely to be on investors’ minds: How can Mr. Weinberg and, later, whoever is hired as chief executive, rejuvenate the all-important Sanofi diabetes franchise?

To what extent the diabetes business played a role in the recent boardroom intrigue remains unclear. Mr. Weinberg has maintained Mr. Viehbacher’s downfall was caused by management style and a failure to communicate, such as not telling the board about plans to sell an $8 billion portfolio of drugs that would have likely meant a loss of jobs in France. Local employment is a very sensitive issue.

Nonetheless, the diabetes franchise is key to Sanofi’s fortunes. Its existing portfolio accounts for about 21% of revenue, but nearly all of that is generated by one medicine, the Lantus insulin. And the outlook suddenly grew dim, when Mr. Viehbacher disclosed last week that price discounting was rampant and the 2015 sales outlook was flat.

The revelation sent Sanofi shares down 10% that day. Unlike Eli Lilly & Co. and Novo Nordisk A/S, Sanofi lacks a wide array of medicines. But touting a few pipeline candidates on Nov. 20 is unlikely to assuage investors. Only the Toujeo insulin is near approval, and there is skepticism this is only an incremental improvement upon Lantus.

This may be another issue for Sanofi, since a biosimilar version of Lantus is pending. A biosimilar is designed to emulate a brand-name biologic.

European regulators recommended a Lilly biosimilar and Sanofi filed a lawsuit to block Lilly from introducing its product in the U.S.

There is another potential wrinkle involving a biosimilar. Right now, there is no regulatory mechanism by which biosimilars are seen as interchangeable with a brand-name biologic. Sanford Bernstein analyst Tim Anderson said this may be possible with insulin, since the FDA has traditionally used a different mechanism to approve insulin.

Such a scenario would matter to Sanofi, because doctors would seemingly have greater confidence to prescribe a biosimilar if they know the FDA believes a medicine is essentially identical to a brand-name drug. Mr. Anderson believes this is “highly unlikely” right now.

But “for Sanofi, interchangeability with generic insulins could be quite damaging,” he writes in an investor note. “If it were to become apparent that substitutable generics to Lantus were increasingly likely, the investment case for Sanofi would weaken even more than it recently has.”

Meanwhile, Sanofi must hope a recent deal Mr. Viehbacher struck with MannKind Corp. to market the Afrezza inhaled insulin product will be a winner. Opinion is divided. Despite a crash-and-burn experience Pfizer Inc. suffered with such a product, supporters say Afrezza has a better delivery system and many diabetics don't like injectables.

Afrezza will be priced similarly to some injectable devices, but skeptics say diabetics will still have other options and payers must be convinced to give Afrezza preferential treatment for deciding reimbursement.

If the Afrezza deal sputters, one analyst says Sanofi may have to make a drastic decision.

“Sanofi will have to go big or go home,” says David Kliff of Diabetic Investor, who believes Sanofi should either acquire another company or diabetes portfolio. A prime candidate, in his view, is AstraZeneca PLC. “The simple fact is that Lilly and Novo have experience and formulary presence on their side.”


http://online.wsj.com/articles/sticking-point-sanofis-diabetes-franchise-is-crucial-to-sorting-out-a-mess-1415299834