Sanofi bets another $1.7B on diabetes to pad its lagging pipeline

Sanofi ($SNY), stockpiling diabetes assets with eyes on Novo Nordisk ($NVO) and Eli Lilly ($LLY), inked a deal worth up to $1.7 billion to bring in a late-stage treatment for the disease, partnering up with Lexicon Pharmaceuticals ($LXRX).

Under the agreement, Sanofi is paying its partner $300 million up front and promising as much as $1.4 billion in milestone payments for the rights to sotagliflozin, a next-generation treatment for both types of diabetes. Lexicon's drug works by interrupting the process by which glucose is shuttled around the body, diverting excess blood sugars out through the urine to improve outcomes for diabetics.

On-the-market treatments like AstraZeneca's ($AZN) Farxiga and Johnson & Johnson's ($JNJ) Invokana do the same job by targeting sodium-glucose cotransporter 2, or SGLT2, but sotagliflozin is a dual inhibitor of both SGLT1 and 2, a difference Sanofi is betting will give the drug a competitive advantage. The treatment is now in two Phase III studies in Type 1 diabetes with data expected in the second half of 2016, and Sanofi is plotting to start late-stage trials in Type 2 next year.

The deal comes one day after Sanofi entered a partnership with South Korea's Hanmi Pharmaceutical in which it has promised up to $4.2 billion for a trio of diabetes programs. That agreement gives the French drugmaker a long-acting agonist of GLP-1, which helps the body produce insulin of its own, plus a weekly insulin analog and a fixed-dose combination of the two.

Each agreement is designed to fill a hole in Sanofi's diabetes pipeline, as the company works to keep pace with Novo, Lilly and others. Novo dominates the crowded GLP-1 market with the blockbuster Victoza, and Lilly became the first contender with a weekly product when it launched Trulicity last year. The SGLT2 space is similarly competitive, with AstraZeneca and J&J jockeying with a treatment from partners Lilly and Boehringer Ingelheim while Pfizer ($PFE) and Merck ($MRK) work through Phase III together.

The quickly changing diabetes landscape has particularly affected Sanofi as the insulin Lantus, long the drugmaker's cash cow, has ceded ground around the globe to newer, longer-acting alternatives. Last week, the company revealed that it expects diabetes sales to slip about 7% in 2015 and decline well into 2018, as new products including the inhaled insulin Afrezza and Lantus heir Toujeo underperform expectations.

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