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Summary

  • Almost 29.1 million of the US population (9.3% of the total population) are suffering from diabetes.
  • Toujeo reduced the rate ratio of experiencing low blood sugar levels during nighttime use by 31% while its rate ratio during daytime use was reduced by 14%.
  • Novo’s degludec offered much better efficacy as compared to Sanofi’s Toujeo.
  • Merck and Eli Lilly, among others, are all set to introduce Lantus’ biosimilars as soon as its patent expires.

The following discussion highlights the problems Sanofi (NYSE:SNY) is facing as the patent of its most important drug expires in the near future. Note that the article is not intended to cover all segments or drugs of the company. This article entails a discussion of its financials and the Lantus and Toujeo situation.

Financials

Let us first take a look at the revenue breakdown of the company. Sanofi's revenues are distributed among three major segments, wherein a large chunk is attributable to the pharmaceutical segment. The pharmaceutical segment generates about 85% of the top line, vaccines generates 8%, while animal healthcare generates 7% of the revenues. More than 50% of the pharmaceutical revenues are generated from the developed side of the world, the US and Western Europe. However, high-growth emerging markets contribute 33% to the top line of the company, while the remaining chunk is drawn from the rest of the world.

With regards to the revenue growth, the top line of the company continued to increase up until FY2012, but in FY2013 it suddenly plunged by 7.4% compared to the previous year's figure. Sanofi could not evade patent expirations, which have hit the sales of all major pharmaceuticals. As the patents of Plavix and Eloxatin expired, generic competition rapidly leached market share and hurt the performance of the company over the quarter. Presently, the company is working on its diabetic unit to avoid a further drop in sales.

Industry Overview

Let us first take a look at how the overall diabetes industry is expected to grow. According to the latest National Diabetes Statistics Report released by CDC, almost 29.1 million people (9.3% of the total population) are suffering with diabetes in the US region, and this number is expected to increase further over the coming years. Of the estimated 29.1 million afflicted patients, about 28% are not yet diagnosed with the disease.

The rate of diabetes is increasing among the population with a higher rate of both Type-1 and Type-2 diabetes across all races and age groups in the US region. The following figure compares the current figure for American diabetic patients with the historical figure:

Source: American Diabetes Association

As for Europe, diabetes may soon become a widespread issue considering the escalating rate of obesity in the region. Note that obesity is a major cause of Type II diabetes and approximately 95% of all the diabetic patients across the globe are afflicted with it. According to recent estimates, the rate of obesity has increased by double digits in Europe and 60% of the European population is currently obese. Germany is at the top of the list when it comes to diabetes in the European region, constituting about 33.5% of the market. The UK comes second with 21% of the total market. That being said, these two regions account for more than 50% of diabetic cases.

The Diabetes Market, Toujeo, and Generics

Sanofi's blockbuster diabetes drug, Lantus, is expiring in 2015, which has put stress on the future outlook of the company since two of its major drugs have already expired. The new drug, Toujeo, which is intended to replace the expiring drug's sales figure, showed somewhat positive results in the recent trial data. However, thinking that the drug would offset the sales of the expiring $8 billion drug, Lantus, would be an overly optimistic projection. Toujeo did lead to lower levels of hypoglycemia but required higher dosage. To be precise, Toujeo reduced the rate ratio of experiencing low blood sugar levels during the night by 31% while the rate ratio of the same during the daytime was reduced by 14%; the dosage to achieve these results was 10-20% higher than Lantus. In addition, the treatment does not offer any improvement on the Type-1 diabetes end. These results do not project a very positive light on the drug's future. Nonetheless, considering that the drug does offer some positive improvement upon the older version of the drug, even if with higher dosage, the European Medical Association (EMA) accepted the drug for review while the company awaits a formal approval of the drug from the Food and Drugs Administration (FDA) in the US.

In the US, the drug is expected to gain approval by 2015 and make it to the market, but considering that there are better counterparts out there, charging a premium price will remain an issue for Sanofi. I say this because the competition is fierce in the diabetes drugs market, as all companies struggle to capture a larger share of the market. Eli Lilly (NYSE:LLY), Novo Nordisk (NYSE:NVO), and Sanofi are all fighting for the same market, while the results indicated in the recent American Diabetes Association meeting indicate a relatively dim outlook for Sanofi as compared to its competitors. Novo's degludec offered a much better efficacy as compared to Sanofi's Toujeo. Degludec, with the market name Tresiba, reduced hypoglycemia among patients by 90%; the rival drug offers more flexible dosage and showed improvements in both Type-1 and Type-2 diabetic patients. These results dampen the future success rate of Toujeo, that is sure to be approved by the regulatory agencies, but is sure to fail to command premium pricing post Tresiba's arrival in the market.

On the other hand, as soon as Lantus expires, generics will cause the company's revenue stream to deteriorate. This is because Merck (NYSE:MRK) and Eli Lilly, among others, are all set to introduce Lantus' biosimilars as soon as its patent expires. In fact, patent infringement litigation is the only thing keeping Eli Lilly from introducing its biosimilar in the US region. The litigation postpones the marketing of the biosimilar until 2016 in the US region, but the company can still start selling its biosimilar version of the drug in Europe immediately after the patent expiry of Lantus. Merck is in the process of developing a biosimilar version of the same drug to allow it to effectively compete in the generics market.

Concluding Remarks

As far as the diabetes unit of the company is concerned, the future looks rather bleak. Although Toujeo is an improvement to its expiring drug, the rival drugs offer much better efficacy. As far as Lantus is concerned, its revenue stream is under significant threat from the generics competition immediately past its patent expiry. For now, Novo is leading the diabetes drugs market.

Source: Sanofi: Toujeo Is Not The Ace In Its Deck