Sanofi falls short in Q3 as diabetes and MS sales disappoint

Sanofi biologics
Sanofi is counting on innovations in MS and other fast-growing markets to fuel its growth.

To make up for a slow and painful decline of its aging diabetes unit, Sanofi has been counting on newer market entries like Aubagio and Lemtrada to treat multiple sclerosis. And during the third quarter, both drugs did see their sales grow—19% and 5% respectively, in fact. But that wasn’t enough to ease investors’ fears that the French drug giant’s innovation engine may not be able to outpace the diabetes decline.

Aubagio brought in €382 million ($445 million) during the quarter, while Lemtrada sales were €113 million ($132 million). Both numbers came in below analysts’ expectations. The company’s overall sales of €9.05 billion ($10.55 billion) also fell short of the average forecast of €9.26 billion. Sanofi’s net income was €1.6 billion ($1.9 billion), or €1.71 ($1.99) per share, up 1% year over year, and the company reiterated its guidance that earnings for the full year would be flat over last year.

Sanofi’s diabetes franchise has been hammered by a combination of patent expirations and pricing pressure on newer products in the U.S. Last year, both CVS and United Health removed Sanofi’s insulin mainstay, Lantus from their formularies, replacing it with Eli Lilly’s Basaglar, a cheaper biosimilar. Sanofi’s diabetes sales have dropped 20% in the U.S. year-to-date, and the company warned of an “accelerated decline” in the fourth quarter as the full impact of the CVS and United exclusions hits.

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Sanofi CEO Olivier Brandicourt said in the earnings release that the growth of the company’s multiple sclerosis franchise would help offset the decline in diabetes, as would the strong launch of Dupixent, the company’s atopic dermatitis drug. Indeed, Dupixent, which was launched in the U.S. in March, was a bright spot in the quarter, bringing in €75 million ($87 million) in sales, far outpacing the consensus estimate of €63 million. More than 7,100 physicians in the U.S. have prescribed the drug to over 23,000 patients so far, the company reported. “A strong quarter for an important new launch,” declared Sanford Bernstein analyst Tim Anderson in a note to investors.

But the launch of Dupixent has been far from trouble-free. Sanofi and its partner, Regeneron, have been fighting patent infringement claims from Amgen. Sanofi and Regeneron tried to invalidate Amgen’s patent and failed. This all happened simultaneously to another fight with Amgen, over Praluent, Sanofi and Regeneron’s PCSK9 inhibitor for patients with uncontrollably high cholesterol. Amgen initially won that fight, raising the possibility that Praluent would have to be pulled from the market, but Sanofi and Regeneron prevailed on appeal and a new trial was ordered earlier this month.

Praluent was once considered a potential blockbuster, but the product has struggled in the U.S., as payers balk at paying for the high-priced injectable medication when generic statin pills can be purchased for pennies per dose. Third-quarter sales of Praluent were just €42 million ($49 million), falling short of the consensus estimate of €53 million.

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As for the MS market, Sanofi’s executives say they aren’t concerned about the potential for growth, despite the entry of competitors to Lemtrada and Aubagio. Bill Sibold, who heads up the MS unit for Sanofi’s Genzyme, noted during a conference call with analysts after the earnings release that the overall MS market has grown about 3.7% in the last year, while Sanofi’s patient base has grown over 30%. "Having a differentiated high-efficacy product and a strong fast-growing oral product, we remain confident about the future," Sibold said. 

Investors have been speculating that Sanofi might turn to M&A to help beef up its pipeline, and that was a topic of discussion during the conference call. Sanofi’s name emerged just last week as a potential bidder for Pfizer’s consumer health unit. When asked about the potential for M&A in consumer health, Brandicourt wouldn't provide specifics, saying only that the company remains "very disciplined" about its acquisition approach and that that the consumer health division is a unit "where we will invest to sustain a leadership position over the years. Therefore we will assess opportunities," he said.

Still, Sanofi seemed hard-pressed to find good news in what ultimately was a disappointing quarter. The company did narrow its estimate of just how much its diabetes sales are likely to fall in the three years ended in 2018. It now expects an average annualized sales decline of 6% to 8%, versus its previous estimate of 4% to 8%.

In a note to investors, Leerink analyst Seamus Fernandez said he wasn’t surprised “given the sustained pressure on diabetes pricing.” Still, he said, investors will need some reassurance from the company about its 2018 prospects “in the face of the incremental pressure to the company’s diabetes franchise as a result of the formulary changes.”