Novo grows as Sanofi shrinks in tough diabetes markets

Sanofi has announced that the decline in its diabetes revenues has continued in the last three months – and says the franchise will maintain this trajectory for some time.

This is in sharp contrast to its big rival in diabetes, Novo Nordisk, which turned in impressive growth during the period.

The main culprit for Sanofi’s bad news is insulin blockbuster Lantus, which is shrinking under pressure from greater-than-expected US rebates and increasing competition from biosimilars in Europe.

Lantus’ decline dragged Sanofi’s total diabetes sales down 6.6 per cent.

However newer products also disappointed in the third quarter. Inhaled insulin Afrezza and GLP-1 drug Lyxumia also underperformed against expectations.

Sanofi now forecasts that its global diabetes sales will decline by an annualised 4 to 8 per cent to 2018.

It predicts 2015 full-year sales will end 6-7 per cent lower than last year, rather than remaining flat as previously expected.

Sanofi has promised to “mitigate the impact” of the sales decline on its profits, though chief exec Olivier Brandicourt refused to confirm details of the firm’s strategy.

This could include the spin-off of business units, or cost-cutting across the business or M&A – a clearer indication is expected on 6 November when Brandicourt will present his strategy at an investor meeting.

However analysts appear unconvinced that Sanofi has the right strategy in the US for its diabetes franchise. It is one year on from the departure of former chief executive Chris Viehbacher, whose departure was partly down to the diabetes decline, and Brandicourt needs to win over doubters sooner rather than later.

Fortunately, there is better news for Sanofi in other parts of the business, which produced a 3.4 per cent increase in overall sales for the third period.

This was fuelled by growth in emerging markets, Genzyme’s specialist medicines expanding by nearly one third, with vaccines and animal health also moving in the right direction.

Novo still growing

In contrast, Novo Nordisk produced a 9 per cent increase in sales for the first nine months of 2015, resulting in an operating profit growth of more than 50 per cent. Even its blockbuster GLP-1 product Victoza posted 39 per cent growth, despite competition from Lilly’s Trulicity, reflecting rising confidence in the class among doctors.

The firm’s CEO Lars Rebien Sørensen, recently named as the world’s best chief executive [HBR registration required to view link] in any industry says the firm’s longer-term view, and belief that its products deserve a premium price, are key to its success.

Novo has maintained growth in the US and Canada despite increasing pricing pressures.

Its sales for the region grew by one third for the first nine months of the year, to about 41.2 billion kronor, or $6 billion. For Q3, North American sales hit 14.4 billion kronor, or $2.1 billion.

Growth in China has slowed to just 5 per cent in the last three months, and Novo expects this to continue as China’s home-grown drug makers gain market share with lower cost insulin products.

But the firm remains confident the built-in growth of China’s increasingly urban population will fuel growth in the longer term.

Firm on price

The company announced it had walked away from a major US contract (with an unnamed group), also because it refused to shift on the prices of its medicines.

More widely, it has stood its ground on the higher price of Tresiba, its next-generation insulin analogue, which costs 10 per cent more than its established product Levemir.

Novo has refused to launch its product in Germany after failing to agree a price, and says its full clinical value must be recognised.

Sørensen says launches of Tresiba in Europe and its uptake in the US will be ‘relatively slow’ and said the company would be happy to sacrifice faster uptake to maintain a premium price.

The company retained its full-year sales growth forecast of 7 to 9 per cent in constant currencies, and its preliminary 2016 outlook predicts mid-to-high single-digit revenue growth.

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