A Heavyweight Battle
Just in case anyone has forgotten that diabetes is a business today’s earnings from Lilly and Dexcom’s pre-announcement of their earnings yesterday reinforced what Momma Kliff said many times; If you want a friend get a dog. Shares in both companies are selling off this morning not because there is anything structurally wrong with either company, nor are the markets they play in contracting no they are selling off because results failed to meet analysts’ expectations. In. Lilly’s case Trulicity sales seem to be slowing while in Dexcom’s case great results were not great enough.
Since Lilly had their call first let’s review what was said, with a follow up post on Dexcom after they report later this afternoon.
Let’s start with the good news which could turn into excellent news for Lilly as they did note that Tirzepatide which has moved into Phase 3 continues to perform very well in clinical trials. As we noted yesterday this drug is very high on our watch list as it target is the largest patient population Type 2 patients and based on early results this has blockbuster written all over it. The next big event will be the top-line results from the SURPASS trial followed by more detailed results later in 2021. Not quite sure we’d classify tirzepatide as a game changer just yet, but it has that potential.
Now onto the not so good news as Trulicity, Lilly’s leading product, has run into competitive issues combined with changes to channel mix. There is no indication that the GLP-1 market overall is slowing and in fact continues to grow quite nicely. However Trulicity is not the only long-acting GLP-1 and faces a tough competitor in Ozempic from Novo Nordisk. Just as Lilly and Novo used to battle over their respective insulin franchises this fight has now shifted to their GLP-1 franchises.
Trulicity is also suffering from a channel mix problem. Rather than go into all the gory details let’s say this the better the drug does the more rebates the company pays. Throw in the fact that growth in the Medicare channel does add volume but also comes with a lower realized price. Put in very simple terms when it comes to sales where it’s sold is just as important as how much is sold.
We really don’t want to spend too much time on these issues as channel mix, rebates and net realized prices are part of the normal ebb and flow of the business. The analysts care about such things as they tend to focus on short term results while ignoring longer term trends. Here is what we know;
1. The GLP-1 market is solid and will continue to grow.
2. Competitive pressures in this market will only INTENSIFY over time as GLP-1’s have become the lead products for both Lilly and Novo.
3. Just as insulin became a commodity and an afterthought GLP-1’s will also commoditize over time.
4. This commoditization places increased pressure on companies to continually innovate and with Tirzepatide we see Lilly ahead of Novo when it comes to innovation.
5. This is a battle between two heavyweights Lilly and Novo Nordisk. This is Muhammad Ali vs. Joe Frazier II. Just as Ali Frazier battled three times Lilly and Novo have switched their fight from insulin to GLP-1.
As we state many times we’ve been covering this wacky world for more than 20 almost 30 years and since day one these two companies have been going at each other. Way back in the early days Lilly was fat and happy treating Novo almost as nuisance rather the serious competitor they were. This lackadaisical attitude cost Lilly dearly as Novo not only became a serious threat but started beating Lilly on a regular basis. Things became so bad at Lilly that their legacy in diabetes seemed to be over.
Thankfully they picked themselves off the canvas and began to fight again and fight they did. It was now Novo who became complacent ignoring how the market was changing. Lilly knew they had Novo on the ropes, and they pounded away relentlessly. Novo was wounded but not beaten as they slowly began to comeback, they changed their tactics and once again became a serious challenger.
Today Lilly has a more comprehensive diabetes portfolio while Novo has become more of a one option fighter. Yet neither company will surrender to the other nor will either allow another challenger to enter the ring. At one time Sanofi seemed poised to take the crown but like so many who tried and failed they didn’t have the legs or brains to stick with these real heavyweights.
We’re not sure if this battle will ever end as frankly there is no reason it should. These are two heavyweight champions both of whom who have worn the crown at one time or another. Lilly may have the big belt today, but Novo won’t be on the canvas long, it might be a standing eight count, but they haven’t been knocked out and when it comes to owning the crown it takes a knockout. With tirzepatide in the wings Lilly could be getting ready to deliver that knockout blow, time will tell.
