Alphabet’s Verily, Sanofi Team Up in Diabetes JV

The $500-million joint venture called Onduo to focus on improved diabetes care

a1French pharmaceutical giant Sanofi S.A. (NYSE: SNY) announced that it has formed a joint venture with Alphabet Inc.’s (NASDAQ: GOOGL) Verily Life Sciences LLC (known as Google’s life sciences unit until last December) to come up with new ways to monitor and treat diabetes. The joint venture (JV), called Onduo, will have equal investments of $248 million each from Sanofi and Verily. In August 2015, Sanofi said that it would collaborate with Alphabet to come up with new ways to monitor and treat diabetes. An example of growing ties between the pharma and tech sectors, Onduo will leverage Verily’s expertise in miniaturize electronics, analytics, and consumer software development, with Sanofi’s clinical know-how and experience in bringing innovative treatments for diabetes.

a2The JV would initially focus on the type 2 diabetes community, specifically on developing solutions that could help people make better decisions about their health, ranging from improved medication management to improved habits and goals. Products to be developed would include connected objects such as smart insulin delivery devices, smart measurement devices, and an interface and an integrating platform that helps physicians and patients monitor the disease.

The Sanofi-Verily JV will also aim to develop ways to improve medication management and habits for patients and will be led by Joshua Riff as chief executive officer.

Verily on the forefront of diabetes management

The Verily-Sanofi deal comes after Verily teamed up with British drug maker GlaxoSmithKline PLC (NYSE: GSK) to create a new company called Galvani Bioelectronics for the development and commercialization of bioelectronic medicines on August 1st, 2016. Bioelectronic medicines use electrical impulses rather than chemicals or proteins to treat diseases such as arthritis, diabetes, and asthma.

Source: Google
Source: Google

In the past, Verily has already developed innovative medical technologies like the smart contact lens in partnership with Swiss drugmaker Novartis International AG (NYSE: NVS) that measures glucose levels and helps monitor diabetes. Its smart contact lens has a LED system that could warn users of high or low blood sugar by flashing tiny lights. The device, which uses tiny chips and sensors to measure glucose levels in tears, is expected to take many years before commercialization. In August 2015, Alphabet also said it would work with DexCom Inc. on a bandage-sized sensor connected to the cloud.

Diabetes population expected to surge in next two years

a4Nearly 400 million people worldwide have diabetes, with type 2 accounting for more than 90% of the cases. Without proper treatment, it can lead to a wide variety of serious health complications, which include heart attacks and cancer. Diabetes, which will affect an estimated 600 million people by 2035, costs about $245 billion a year in the U.S. alone in health-care resources and lost productivity, according to the American Diabetes Association.

Diabetes involves keeping track of blood sugar levels, diet, multiple medications and other health issues, an area where new tools and sensors will be helpful. The Sanofi-Verily JV will focus on creating best-in-class biocompatible sensors that could help monitor blood glucose levels. Google and Sanofi will develop ways to store and analyze glucose levels in real time, enabling patients and their doctors to respond more quickly to peaks and troughs in blood sugar and avoid long-term complications associated with poor management of the disease.

Sanofi faces intense competition in diabetic drugs

Sanofi’s best-selling insulin drug Lantus, which clocked 2014 U.S. sales of $4.47 billion, is facing intense competition from many biosimilars launched in the market in recent months. Biosimilars are copies of biologic drugs that have a shorter development cycle as compared to the typical 10-year development cycle of a pharmaceutical drug. Faced with a slump in demand for Lantus, Sanofi is relying on new treatments including its Toujeo insulin to help make up for the Lantus revenue shortfall. To add to its woes, CVS Health Corp. (NYSE: CVS) replaced Lantus with Eli Lilly & Co.‘s (NYSE: LLY) drug Basaglar in its 2017 list of covered drugs in August 2016. Basaglar is Eli Lilly’s cheaper version of the insulin that is scheduled to be sold in the U.S. starting December 2016.a5

While Sanofi’s JV with Verily is focused on finding new methods to treat diabetes, it would also help the Company diversify into new areas in monitoring the disease and make it less reliant on drug sales in the future years.

Stock Performance

a6Sanofi’s stock ended the day at $39.22, gaining 0.08%, at the close on Wednesday, September 14th, 2016, having vacillated between an intraday high of $39.54 and a low of $39.06 during the session. The stock’s trading volume was at 2,275,779 for the day. The Company’s market cap was at $103.17 billion as of Wednesday’s close.

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