The decision last week by Sanofi’s board of directors to remove Sanofi CEO Christopher A. Viehbacher spells a major change for the company. As interim CEO Serge Weinberg takes the helm of the company, DCAT Value Chain Insights (VCI) takes an inside look at the company’s product strengths and weaknesses and late-stage pipeline.

After posting its third-quarter results last week, Sanofi announced a major management change: the removal of CEO Christopher A. Viehbacher, who has been replaced by interim CEO Serge Weinberg, currently chairman of Sanofi, until a new CEO is named. So how has the company performed thus far in 2014 and what is its near-term strategy for growth? DCAT Value Chain Insights (VCI) takes an inside look at the company’s product strengths and weaknesses and late-stage pipeline.

Serge Weinberg Chairman & Interim CEO Sanofi

Reason for the change
In a conference call on October 29, 2014, Weinberg underscored that Sanofi’s strategy remains the same, but that there were three main reasons that resulted in the decision to change the company’s CEO, two of which related to the management approach of the former Sanofi executive. First, he said the decision related to the “management style” of Viehbacher and the need to better align the company’s teams and harness talents in a complex, diverse, and international group. He also said the board was not satisfied with the ability of the former CEO to deal, exchange, and examine strategy in a “confident manner” with the board.

On a performance basis, Weinberg pointed to “execution” issues, particularly with respect to the sales management of the company’s diabetes drug Lantus (insulin glargine). Lantus was Sanofi’s top-selling drug in 2013 with sales of EUR 5.7 billion ($7.1 billion). In its third-quarter 2014 earnings announcement, Viehbacher pointed to a “more challenging US diabetes price environment” that would impact the company’s diabetes sales throughout 2015. Weinberg also referred to overall performance issues, citing that the company performed below expectations in three of the fourth quarters in 2013 as well as other execution problems, which included previously announced issues in 2013 with the company’s generic-drug business in Brazil. During the second quarter of 2013, Sanofi determined that generic inventory levels in trade channels in Brazil were “significantly and inappropriately in excess of volumes needed to satisfy sell out demand,” as it explained in its second-quarter 2013 earnings release. The result was that the company lowered net sales by EUR 122 million ($153 million) in the second-quarter of 2013 and recorded a charge of EUR 79 million ($99 million) for the write-off of inventory and other related costs.

In moving forward, Weinberg said that a search for a new CEO is underway, and that the company is searching for an executive with pharmaceutical industry experience, with its primary focus for an external candidate outside the company. He added that the company will move forward with plans to foster growth, which would include mergers and acquisitions or partnerships. He emphasized that the company remains committed to its growth strategy, which involves an emphasis on seven growth platforms (diabetes, Genzyme [rare disease and multiple sclerosis], other select innovative products, emerging markets, vaccines, consumer healthcare, and animal health). These growth platforms accounted for 72.5% of Sanofi’s revenues in 2013.

Examining Sanofi’s product positions
Table I outlines the company’s 2013 revenues in its three main areas (pharmaceuticals, vaccines, and animal health). Pharmaceuticals (prescription, generics, and consumer healthcare) accounted for EUR 27.250 billion ($34.129 billion), or 83% of the company’s total revenues of EUR 32.951 billion ($41.266 billion) in 2013. Table II outlines the company’s pharmaceutical sales in 2013. Led by Lantus, the company’s diabetes franchise is the key product area for Sanofi. In 2013, revenues from diabetes products were EUR 6.568 billion ($8.228 billion) and increased 13.6% on a reported basis. Sales of products from Sanofi’s subsidiary, Genzyme, which include products for rare diseases and multiple sclerosis, were EUR 2.142 billion ($2.683 billion) in 2013, an increase of 20% on a reported basis. It is with other prescription pharmaceutical products that Sanofi is facing revenue pressures. In 2013, revenues of oncology products declined nearly 39% on a reported basis to EUR 1.465 billion ($1.835 billion), and other innovative prescription products, which accounted for EUR 12.466 billion ($15.591 billion) in sales in 2013, declined by 11.5% on a reported basis (see Table II ). In terms of its growth platforms, in 2013, the company reported positive gains (at constant exchange rates [CER]) in five of its seven growth areas: emerging markets (EUR 10.957 billion [$13.235 billion], + 4.4% at CER); diabetes (EUR 6.568 billion [$8.228 billion]), up 18.7% at CER); consumer healthcare (EUR 3.004 billion [$3.763 billion]), up 5.2% at CER); Genzyme (EUR 2.142 billion [$2.683 billion]), up 25.9% at CER); and select other prescription products (EUR 705 million [$883 million]), up 18.8% at CER). Revenues from two growth platforms, vaccines and animal health, declined in 2013 compared to 2012 on a CER basis: vaccines (EUR 3.716 billion [$4.654 billion], -0.1% at CER) and animal health (EUR 1.985 billion [$2.486 billion], -5.3% at CER).

For the first nine months of 2014, sales of the company’s growth platforms reach EUR 18.801 million ($23.548 billion), an increase of 10.8% at CER, and accounted for 76.1% of the company’s total sales year to date. The company reported positive growth in all these platforms, including the two largest areas: emerging markets (EUR 8.221 billion [$10.297 billion]), up 9.9% at CER) and diabetes products (EUR 5.249 billion [$6.574 billion], up 12.5% at  CER). For the first nine months of 2014, sales of its key product in its diabetes franchise, Lantus, increased 12.5% at CER to EUR 4.572 billion ($5.726 billion). In its third-quarter 2014 results, Sanofi said that it had recently concluded payor negotiations in the US and had secured favorable formulary positions for Lantus with key payors, but that “the level of rebates required to maintain these positions has increased significantly due to aggressive discounting by competitors.” The company said that the rebates will not change its earnings guidance for 2014, but expects that the increased rebates in the US and the impact of the Affordable Care Act will continue in 2015. It hopes to mitigate the impact on the diabetes division in 2015 through the launch of Toujeo (insulin glargine [rDNA origin] injection), an investigational drug that has been accepted for regulatory review in the United States and European Union, and Affreza (human insulin inhalation powder), as well as continued growth in emerging markets and therefore expects to have fairly stable sales in its diabetes division in 2015.

The potential of Affreza is key to Sanofi, which in August 2014, formed a potential $925-million licensing agreement between with MannKind Corporation, a Valencia, California-based biopharmaceutical company, for the development and commercialization of Afrezza, a new rapid-acting inhaled insulin therapy for adults with Type 1 and Type 2 diabetes. The companies plan to launch Afrezza in the United States in the first quarter of 2015. Under the agreement, MannKind received an upfront payment of $150 million and potential milestone payments of up to $775 million. The milestone payments are dependent upon specific regulatory and development targets as well as sales thresholds. Sanofi and MannKind will share profits and losses on a global basis, with Sanofi retaining 65% and MannKind receiving 35%. Under the agreement, Sanofi will be responsible for global commercial, regulatory, and development activities. Under a separate supply agreement, MannKind will manufacture Afrezza at its manufacturing facility in Danbury, Connecticut. In addition, the companies are planning to collaborate to expand manufacturing capacity to meet global demand as necessary. MannKind received approval of Afrezza from the US Food and Drug Administration (FDA) in June 2014 to improve glycemic control in adult patients with diabetes mellitus. The product consists of Afrezza inhalation powder delivered using a small inhaler.

Evaluating Sanofi’s late-stage pipeline
In its third-quarter results, Sanofi highlighted several key product approvals in the quarter. In August, the FDA approved Cerdelaga (eliglustat), a first-line oral therapy for certain adult Gaucher disease Type 1 patients. The company also received approval for a 4,000-L manufacturing process for Lumizyme (alglucosidase alfa), an enzyme-replacement therapy for treating Pompe disease.  Also, in July 2014, Sanofi and its partner, Regeneron Pharmaceuticals, announced that the companies intend to use a FDA rare pediatric disease priority review voucher in connection with their biologics license application (BLA) for alirocumab, an investigational proprotein convertase subtilisin/kexin type 9 (PCSK9) inhibitor, a new class of anti-cholesterol drugs. The priority review voucher, which the companies acquired from BioMarin Pharmaceutical, entitles the holder to designate a BLA for priority review, which provides for an expedited six-month review from the filing date instead of the standard 10-month review. Sanofi and Regeneron expect to submit US and EU regulatory submissions for alirocumab by the end of the year. The expedited review is significant as the companies compete with other companies with PCSK9 drug candidates, namely Amgen’s evolocumab and Pfizer’s bococizumab. In its vaccines business, Sanofi submitted a BLA for a pediatric hexavalent vaccine, PR5i (DTP-Hep B-Polio-Hib) to the FDA.

Overall, as of the end of October 2014, Sanofi had 46 projects (excluding life-cycle management projects) and vaccine candidates in clinical development, of which 14 projects are in Phase III or have been submitted to regulatory authorities for approval. In terms of key late-stage highlights from the third quarter, in October, dupilumab, an investigational human antibody that blocks IL-4 and IL-13 signalling entered into Phase III development for treating adults with moderate-to-severe atopic dermatitis that is not adequately controlled with topical atopic dermatitis medications. Sanofi also reported positive results for its multiple sclerosis drug candidate, Lemtrada (alemtuzumab), which it is developing with Regeneron. Another drug to treat multiple sclerosis, valetizumab, an anti-VLA2 monoclonal antibody, entered into Phase IIb trials. On the vaccine front, earlier this month, the company reported positive Phase III results for its dengue vaccine candidate and  plans to file for regulatory approval in endemic countries in Asia and Latin America. Depending on regulatory approval, the vaccine could be available in the second half of 2015.

In terms of key recent collaborations, in August, Sanofi Pasteur, the vaccines business of Sanofi, formed a research pact with Immune Design, a clinical-stage immunotherapy company, for the development of a herpes simplex virus immune therapy. Also, in September, Sanofi and Myokardia, a privately held company involved in developing precision therapies for genetic heart disease, announced a worldwide collaboration to discover and develop targeted therapeutics for heritable heart disease know cardiomyopathies, the most common form of heart muscle disease.