A New World?

Before we cover the results released by Novo Nordisk this morning a few words on the President’s proposal to end the rebate game. The proposal would ban rebates paid by drug companies to PBM’s in government plans such as Medicare. Now this is just a proposal however if implemented would turn the landscape upside down. The price discount rebate game is a major pain for drugs companies but it’s until more details are known it’s difficult to gauge what impact this would have on the competitive dynamic. Suffice it to say everyone will be anxious awaiting the details here.

Turning to Novo finally at long last the company stated they will submit the oral version of semaglutide at the end of the first quarter using a priority review voucher which puts the drug on a fast track for approval. We suspect the FDA will approve the drug which places a heavy level of expectations on Novo to execute. This drug does have great potential provided it can overcome it’s somewhat complex dosing regimen. Still as the first oral GLP-1 to hit the market this is a milestone.

And quite frankly this drug couldn’t come at a better time for Novo as their core insulin franchise continues to struggle. Unlike the GLP-1 franchise which continues to perform well the insulin market has fully commoditized which has killed margins. We suspect this same dynamic will play out in the GLP-1 market which makes the oral version of semaglutide even more important.

Although it would have been unthinkable only a few short years ago from all outward appearances Novo is transitioning from an insulin to GLP-1 company. While we don’t see the company abandoning insulin we can see them deemphasizing insulin when it comes to resources, basically they will gut this franchise putting money into the more profitable and growing GLP-1 franchise.

While we know that Novo is working on a Tyler and has sniffed around the insulin pump space the company did not mention any efforts they underway in the insulin delivery space. We suspect like their main competitor Lilly and their other competitor Sanofi, they see insulin delivery systems as a tool to sell more insulin. The fact is insulin has become a volume game and the more volume the better.

These are definitely strange times at Novo as the company continues to adapt to how market conditions have changed. Finally at long last they realize that they will not get premium reimbursement for the products they make. They have awakened to the fact that insulin has become a commodity and that the money is in GLP-1’s. They have jettisoned the old guard and are becoming a leaner more focused organization. The real question is did they wait too long to make this transition.

The oral version of semaglutide is key test for the company for if they fail it would signal a long tough road ahead.