Sanofi (NYSE:SNY) will be making a milestone payment of $15 million to Zealand Pharma now that the first phase III study protocol for diabetes candidate, LixiLan, has been approved by a Health Authority. Sanofi plans to initiate phase III studies on the candidate by the end of this quarter.

What is LixiLan?

LixiLan is a once-daily, single injection combination of Sanofi’s Lantus (basal insulin) and Lyxumia (once-daily injectable glucagon-like peptide 1/GLP-1 receptor agonist).

Sanofi had in-licensed the right to Lyxumia or develop products containing Lyxumia from Zealand Pharma.

We remind investors that Lantus is one of the top revenue generating products at Sanofi. According to the company, Lantus sales were €4.2 billion in the first nine month of 2013.

On the other hand, Lyxumia has been launched in Japan and is still being rolled out in Europe.

Lyxumia is yet to be approved in the U.S. where Sanofi withdrew its new drug application (:NDA) for the drug in Sep 2013. As discussed at the recently help J.P. Morgan Healthcare Conference, Sanofi intends to resubmit the NDA in 2015, following the completion of the ELIXA cardiovascular outcomes study.

Our Take

Subject to positive data from phase III studies and subsequent regulatory approval, LixiLan has the potential to be the first combination of basal insulin and GLP-1 receptor agonist to enter the diabetes market. Although we are positive on the news, we note that the market is highly crowded with players like Novo Nordisk (NYSE:NVO) and Eli Lilly and Co. (NYSE:LLY).

Sanofi carries a Zacks Rank #3 (Hold). Some better-ranked stocks include Allergan (NYSE:AGN). The stock carries a Zacks Rank #2 (Buy).

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