Mannkind's (MNKD) - Get Report flopping inhaled insulin Afrezza is contributing to the deteriorating diabetes unit at Sanofi (SNY) - Get Report , the global pharmaceutical giant acknowledged Thursday.

Sanofi said diabetes sales decreased 6.6% in the third quarter to €1.8 billion, or $1.975 billion, dragged down mainly due to lower sales of its Lantus basal insulin in the U.S.

The nascent commercial launch of Afrezza continues to resemble a train wreck. MannKind's signature product contributed only €2 million to Sanofi's sales in the third quarter. That's flat with second quarter sales despite Sanofi's upgraded efforts to convince U.S. doctors to prescribe the inhaled insulin to their diabetes patients. Through nine months of 2014, Afrezza sales have totaled €5 million, well below Sanofi's expectations.

Sanofi now expects global diabetes sales to decrease 6-7% for 2015. The mid-term outlook for the company's most important business unit is no better, warned Sanofi CEO Olivier Brandicourt on a conference call Thursday morning:

"Given the change in the U.S. market dynamics, and as part of the strategic business review we've just undertaken, we've also taken a fresh look at the mid-term prospects for the diabetes franchise. Accounting for recent market trends, we now project global diabetes sales over the period of 2015- 2018 to decline at an average annualized rate of between 4% and 8%," he said.

"Approximately half of this revision is attributable to insulin glargine, and the other half is related to reduced expectations for Afrezza, Lyxumia and a de-prioritisation of our Blood Glucose Monitoring systems," added Brandicourt.

Sanofi has scheduled an investor meeting for Nov. 6 to unveil a company-wide reorganization plan. On Thursday's call, Brandicourt said changes to the diabetes unit will figure prominently in the company's restructuring.

Under the current partnership terms, Sanofi can drop MannKind and Afrezza on Jan. 1, 2016. The product's poor performance in the third quarter and its anticipated drag on future sales, as outlined Thursday, makes that option more likely.

MannKind shares were falling 4% to $3.64 in Thursday trading. Earlier this week, MannKind dual-listed on the Tel Aviv Stock Exchange in order to attract new investors and prop up its damaged stock price.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.