Sanofi SA (ADR) (NYSE:SNY) the $130 billion French drug manufacturer, is trying desperately to maintain its position as a leader in diabetes drugs. Its newest insulin product, Toujeo, just got approved by regulators for sale in the U.S., and prospects for SNY stock hinge largely on its success.
Sanofi stock, despite hailing from the surging healthcare sector — has dramatically underperformed the S&P 500 over the last year. The SNY stock price has fallen 4% in the last 52 weeks, while the S&P rallied 14% higher.
While diabetes is veritably an epidemic and insulin drugs should be a part of any major pharmaceutical company’s portfolio, SNY’s path forward will be extremely tough.
Toujeo and Afrezza Not Enough to Replace Lantus
Healthcare investors know that patents are the name of the game in drug development, and when you’ve got a blockbuster drug, the most universally feared day is the day your cash cow’s patent expires. That day is coming soon for Lantus, Sanofi’s key product and the best-selling diabetes drug in the world.
Not the best news for SNY stock.
In 2014, Lantus generated revenues of 6.3 billion euros ($7.1 billion), or nearly 19% of Sanofi’s total revenues. Lantus sales are expected to plunge as it goes off patent in 2015 and rivals like Eli Lilly and Co (NYSE:LLY) and Merck & Co., Inc. (NYSE:MRK) move in and develop comparable treatments.
Enter Toujeo, the diabetes drug scheduled to debut in the second quarter that investors hope will give SNY stock price some kind of floor. But with estimated annual sales only expected to reach $2 billion by 2018, Sanofi will have to look elsewhere to stem the bleeding from the loss of the Lantus patent.
That’s where MannKind Corporation (NASDAQ:MNKD) and its flagship product Afrezza come in. MNKD, a small biotech company whose only FDA-approved product is Afrezza, an inhalable insulin, partnered with SNY last year to help it sell the drug.
In a highly anticipated rollout, Afrezza went on the market in the U.S. earlier this month. While Afrezza could also help buffer the blow to SNY stock from the Lantus loss, Morningstar similarly sees peak Afrezza sales of around $2 billion annually, including future launches in Europe and Japan.
Although I’m bullish on MNKD stock — I think Afrezza’s delivery mechanism, the palm-sized Dreamboat inhaler, will win over fast-acting insulin users — SNY stock is another story. The Lantus speedbump is a significant one, and with Sanofi sharing 35% of Afrezza profits with MannKind, it’ll be difficult to fill Lantus’ shoes anytime soon.
With Toujeo and Afrezza, SNY stock is placing its bets on diabetes drugs yet again. But using the wild popularity of Lantus as a crutch in recent years won’t make it an easy road for Sanofi investors going forward.
The incoming CEO, Olivier Brandicourt, will aim to avoid a repeat of his experiences at Pfizer Inc. (NYSE:PFE), where its bulky inhalable insulin product Exubera failed to deliver under his watch.
Considering these headwinds, I’m not too bullish on SNY stock. And with the U.S. dollar strengthening against the euro, shares of this French-based drugmaker could use a shot in the arm.
As of this writing John Divine was long shares of MNKD stock and long Jan 2016 $7 calls. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
