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Recently, Sanofi (SNY - Analyst Report) announced that its type II diabetes drug, Lyxumia has been cleared by Japan’s Ministry of Health, Labour and Welfare (MHLW). Lyxumia received approval in Japan as a combination therapy for glycemic control in type II diabetes patients. These patients did not receive adequate benefit from diet and exercise and sulfonylureas (with and without biguanides) or diet and exercise and soluble prolonged-acting or intermediate-acting insulin (with and without sulfonylureas).

The Japanese approval came in on the basis of the GetGoal program. The program, initiated in May 2008, consisted of 11 trials and enrolled more than 5,000 type II diabetes patients. Lixisenatide demonstrated a promising efficacy and tolerability profile in the trials. Sanofi had in-licensed lixisenatide from Zealand Pharma.

We remind investors that the European Commission (EC) cleared Lyxumia for glycemic control in adults suffering from type II diabetes in Feb 2013. The EC approved Lyxumia in combination with oral glucose-lowering medicinal products and/or basal insulin when these, in combination with lifestyle management, did not provide adequate glycemic control. The drug is under review in the US for the treatment of adults with type II diabetes.

Approval of Lyxumia in Japan would not only boost the drug’s sales potential but also strengthen Sanofi’s diabetes portfolio further which already includes blockbuster product, Lantus.

Although Sanofi holds a strong position in the diabetes market, we note that the market is highly crowded with players like Novo Nordisk (NVO - Analyst Report), Eli Lilly and Company (LLY - Analyst Report) and AstraZeneca (AZN - Analyst Report).

Sanofi carries a Zacks Rank #3 (Hold). We remain concerned about generic erosion confronting most of Sanofi’s key drugs including Plavix, Avapro, Lovenox, Taxotere, Eloxatin and Xatral. The genericization of Avapro and Plavix is expected to negatively impact Sanofi’s business net income by around €800 million in the first half of 2013.

Sanofi is looking to combat headwinds by containing operating costs. Additionally, new product launches should make significant revenue contributions in the upcoming quarters.

Companies that currently look attractive include Novo Nordisk, carrying a Zacks Rank #2 (Buy).

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