Sanofi suffers a diabetes bloodbath as Medicare and price cuts compound the formulary pain

It was bad enough when Sanofi announced during its fourth-quarter earnings back in February that its diabetes sales in the U.S. fell nearly 30% after CVS Health and UnitedHealthcare axed the company’s top sellers from their formularies. But today the French pharma giant revealed that its pain in the U.S. spread into the first quarter, with diabetes sales dropping another 27%.

The problem this time? Coverage for diabetes drugs under Medicare Part D is declining—an issue that the company has been anticipating for a while. But during its first-quarter earnings announcement, Sanofi revealed that price cuts on Lantus also came into play as generic competition increased. All told, Lantus sales in the U.S. dropped 28.7% to €498 million ($602 million) during the quarter. That caused worldwide sales of the product to fall 13.5% to €1,108 million ($1.3 billion).

“Our financial performance reflected the expected first-half headwinds,” said CEO Olivier Brandicourt during a conference call with analysts following the earnings announcement. He insisted, however, that he's confident “tailwinds” will drive a “return to growth beginning in the second half of ’18.”

Sure, Sanofi still beat earnings expectations for the first quarter, but it had to cut its operating expenses to get there. The company reported net sales for the quarter of €7.9 billion ($9.5 billion) and earnings per share of €1.28 ($1.54), beating the consensus estimate of €1.16 ($1.40). The company’s total operating expenses were slashed 6% during the quarter to $6.1 billion—exceeding the cost cuts analysts expected.

Sanofi has been counting on some key recent launches to make up for its diabetes declines, but those have yet to materialize. Sales of cholesterol drug Praluent, a PCSK9 inhibitor that competes directly with Amgen’s Repatha, did grow 44% year-over-year to $49 million. But analysts were expecting $55 million.

The shortfall only confirmed that reimbursement challenges continue to impede pickup of PCSK9 inhibitors, making it difficult to imagine that Praluent will ever become the blockbuster that analysts initially predicted.

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During the earnings call, Brandicourt pointed to recent post-marketing data showing that Praluent reduced the risk of heart attack and other cardiovascular events by 15% and all-cause mortality by 15%. The company released the outcomes trial data last month at a cardiology conference, disclosing simultaneously that it would be offering price concessions to insurers that line up with a recent ICER review concluding that Praluent is worth between $4,460 to $7,975 for patients.

“With analysis showing that patients at highest risk derive the greatest benefit from Praluent, we now have a strong story to take to payers and physicians,” Brandicourt said, adding that Sanofi is in “active discussions” with several payers to ease access to the product “in return for pricing flexibility.”

Sales of Dupixent, Sanofi’s new drug to treat atopic dermatitis, came in at $107 million—far below the $144 million analysts had been expecting. Brandicourt acknowledged during the call that sales of the product were lower than they were in the first quarter of 2017, but he insisted the company does not detect a problem with “the underlying dynamics of the launch.” He predicted that the product would continue to grow as it’s approved in new markets.

Total prescriptions in the U.S. were up 25% from the previous quarter, he pointed out. What’s more, the FDA and Europeans Medicines Agency (EMA) are both considering expanding the label to include some patients with moderate to severe asthma.

“We really are at the beginning of the journey for this high-potential, groundbreaking therapy," Brandicourt said.

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Sanofi has recently bet on acquisitions to help drive growth, most notably hemophilia drugmaker Bioverativ, which it bought for $11.6 billion earlier this year. Bioverativ’s drugs Eloctate and Alprolix are expected to generate about $1.4 billion in sales this year. In January Sanofi acquired Ablynx for $5 billion, gaining a drug to treat a rare blood disorder.

When asked during the earnings call if there is more M&A on the horizon, Brandicourt said Sanofi hasn’t ruled it out.

“We always talked about the €20 billion envelope we wanted to dedicate to inorganic growth. We basically have spent about €13 billion of that, so it leaves on the table potential headroom, if we find attractive bolt-on opportunities,” Brandicourt said.

One investment Sanofi is willing to commit to in the short term is its own stock. The company announced a share buyback of €1.5 billion, which it expects to complete next year.

That’s not entirely surprising, considering Sanofi is one of the expected winners from the new U.S. tax package. Sanofi joins a large and growing list of pharma companies that have announced share buybacks, including Amgen, Pfizer and AbbVie.