Sanofi (NYSE:SNY) has transformed into a company positioned for sustainable growth through its growth platforms i.e. emerging markets, diabetes solutions, vaccines etc and has a burgeoning late-stage pipeline of new biologics. Recently, the company has been striving hard to replace its star diabetes drug Lantus which is set to lose its patent in February 2015. Putting in day and night of strenuous efforts, the company received the US Food and Drug Administration's "FDA" acceptance for reviewing the company's New Drug Application "NDA" for investigational basal insulin, Toujeo. The filing was also accepted by the European Medicines Agency "EMA" for EU countries.
Blocking Eli Lilly
Lantus is the world's most widely prescribed insulin. The drug garnered $7.78 billion in sales revenue in the fiscal year 2013. The loss of exclusivity of Lantus in February 2015 is a cause of concern for the company as it contributed a significant portion (19.1%) of the total sales revenue last year. However, Sanofi and Eli Lilly have been working on experimental insulin therapies to replace it.
Lantus, the patent protected diabetes medicine of Sanofi, controls blood sugar level very efficiently and effectively. Recently, Sanofi submitted a lawsuit against Eli Lilly and Company for infringing seven patents related to insulin and insulin injecting devices. As for now, it has resulted in an automatic 30-month stay of FDA approval for Eli Lilly's drug. Consequently, it will delay the launch of Lantus's generic version and keep it off the market until at least the second half of 2016 as opposed to its plan to make it to the market shelves following the patent expiry of Lantus.
Pierre Chancel, Senior Vice President, Global Diabetes at Sanofi said, "With the FDA's acceptance of our submission, we are anticipating the regulatory decision for marketing authorization for Toujeo in the U.S. in the first half of 2015."
Sanofi's product, Toujeo, is an improved version and has triple concentration of insulin glargine as which has the same molecular formula and efficiency as the currently on market Lantus. The high efficiency is likely to make Toujeo the obvious choice for treatment and simultaneously, provide Sanofi an active opportunity to continue to earn profits from its breakthrough formula. The company intends to charge a price that is more affordable to the healthcare systems and rather earn through higher market share. I believe the highly efficacious results of Toujeo will help in elevating the company's top and bottom line.
Upon authorization, Toujeo is anticipated to strengthen Sanofi's existing product portfolio. In order to replenish its diabetes portfolio, Sanofi is also working on LixiLan, a fixed dose combination of Lantus and Sanofi's Lyxumia (once-daily injectable glucagon-like peptide 1/GLP-1 receptor agonist). Sanofi also commenced two Phase III studies on the candidate during the first quarter of fiscal year 2014.
Competitive Landscape In US
Merck (NYSE:MRK) has also joined hands with Samsung and Biogen Idec (NASDAQ:BIIB) to work up a Lantus biosimilar. However, this may pose a lesser threat as Sanofi's Toujeo has already made it to the regulatory table.
Sanofi's active rival, Novo Nordisk's next generation basal insulin Tresiba, is facing problems in its approval process. The US launch may be procrastinated by two years or more so that the manufacturer can submit additional safety data. Once again, this may be in favor of Sanofi who can continue to exploit its monopoly-like power (80% market share). Tresiba is said to uphold the capacity to topple Lantus.
On the contrary, Eli Lilly may have brighter future prospects for its Lantus generic version, Abasria, in Europe. Lately, the EMA's Committee for Medicinal Products for Human Use endorsed Abasria for full approval. The decision is expected in the near future. A successful authorization in the European Union would give Lilly and Boehringer Ingelheim access to approximately $1.1 billion sales revenue that was previously raked in by Lantus during the last fiscal year.
Diabetes is a highly prevalent and widely spreading disease. According to the data fetched from the International Diabetes Federation and the American Diabetes Association, diabetes affects approximately 382 million people globally and 29.1 million Americans. This shows the high and upward sloping demand curve for Sanofi's insulin solution.
In the light of the efficiency profile of Toujeo and the prevailing market hindrances for Sanofi's opponents, I expect the company to withstand the competitive pressures and sustain its market lead in the diabetes market. Further, it is also cheap on a comparables basis as it is trading at a trailing twelve months "ttm" P/E of 28.07 times as compared to industry average of 35.00 times. Therefore, I recommend buying the stock.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.