Sanofi Can No Longer Raise Diabetes Drug Prices to Drive Growth & Satisfy Investors | Pharmaguy's Insights Into Drug Industry News |

For another clue to the unrest on Sanofi's ($SNY) board, take a look at the third-quarter earnings report. There's not much red ink on the page, that's true: Sales are up 4%. Earnings up 8%. CEO Chris Viehbacher's growth platforms surged by 10%. The trouble lies in Viehbacher's canned quote.

"We have recently seen a more challenging U.S. diabetes price environment which will impact our diabetes sales throughout 2015," Viehbacher said in Sanofi's earnings release. That bland statement spelled doom to investors, triggering a selloff. Shares dropped the most in 5 years, Reuters notes, and slashed Sanofi's market value by €9.2 billion ($11.7 billion).

Sanofi's diabetes franchise has been a huge growth driver, thanks to Lantus, which dominates its category. It's by far the biggest seller in Sanofi's entire portfolio, and when it comes to diabetes, Sanofi's other meds are also-rans by comparison. For the quarter, Lantus brought in €1.57 billion, an 8% increase. So far this year, it's racked up €4.57 billion ($5.83 billion), up almost 9%.

Check out the drug's U.S. sales, though. For the year, they're up more than 13%. For the third quarter? 5.8%. That's a big slowdown. With some two-thirds of Lantus sales in the States, growth-engine trouble in the country is a major drag. And now, Sanofi expects its diabetes franchise to sit idling.

Problem is, Sanofi has fueled Lantus growth not only by pumping up volume, but by raising prices. U.S. prices, to be exact. From 2007 to 2013, the price increase amounted to 160%, according to Bloomberg data.

No more. Pricing pressure in the diabetes market is intense, thanks to big payers and their newly exclusionary formularies. While list prices may not change much, rebates are rising, which means a big bite out of net sales. Pharmacy benefits managers Express Scripts, CVS Caremark and their smaller rivals have pitted drugmakers against one another to win discounts, leaving some products out in the cold.

While Lantus isn't one of those products, except in a couple of cases, the Q3 earnings release suggests that Sanofi had to push down prices to keep its preferred placement on some top formularies that went into effect Aug. 1.

Plus, Lantus is now facing biosimilar competition from Eli Lilly ($LLY) and Boehringer Ingelheim, which won European approval of their knockoff version. European sales of Lantus aren't that large, and in the U.S., Sanofi has managed to hold Lilly and Boehringer off with a patent lawsuit. The infringement fight could keep their copycat product off the U.S. market till 2017. But sales erosion in Europe only adds to the pressure on Sanofi's franchise.