Sanofi's New Diabetes Play Moves Forward

Sanofi (NYSE: SNY  ) starts the week with a new European Union approval for the type 2 diabetes injectable Lyxumia. The drug belongs to a class of GLP-1 agonists currently dominated by Novo Nordisk (NYSE: NVO  ) and Bristol-Myers Squibb (NYSE: BMY  ) . Lyxumia probably won't jump to the front of that class, but could the new drug bolster Sanofi's blockbuster insulin as it heads toward patent expiration?

Well-established class
The continually growing market of diabetes treatments inspires a wide range of development tactics. GLP-1 agonists stimulate insulin production without causing hyperglycemia -- a common side effect of diabetes treatments. Lyxumia comes to market behind a trio of best-selling drugs that kept growing last year.

Novo Nordisk leads the field with Victoza, which had 2011 revenues of 6 billion Danish krona (about $952 million at current exchange rates) and a 50% sales growth last year. Amylin developed the once-daily Bydureon and once-weekly Byetta injections, which inspired Bristol-Myers Squibb to buy the company last summer. Bristol recently reported its fiscal year and showed Bydureon's worldwide net sales  at $78 million and Byetta at $149 million.

Lyxumia would need to beat the existing drugs in either dosage convenience or efficacy if it wanted to knock Victoza from its lead position. But Lyxumia suffered criticism that it's an efficacy clone of Bydureon. Lyxumia had lackluster results in trials when given on its own. But the drug performed better when paired with insulin.

And that's the real value of Lyxumia for Sanofi. The company's $5 billion insulin, Lantus, faces patent expiration in 2015. Placing Lantus into a new combo treatment would help alleviate that financial cliff.

The finances
Lyxumia was licensed from Zealand Pharma, and the contract has Sanofi paying the development and commercialization costs of Lyxumia and any relating combination drugs. Zealand receives milestone payments of $275 million plus global net sales royalties.

Foolish bottom line
Sanofi expects to file for U.S. approval for Lyxumia in the first half of this year. The company's portfolio is large enough that one new drug won't become a "make or break" issue. But Lyxumia stands out more than most, thanks to help it can provide Lantus.

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