A Walk on the wild side?

A Walk on the wild side?

Years ago there was a time when it seemed as if Lilly (NYSE: LLY) had lost their way, that their legacy diabetes franchise was in danger of becoming irrelevant. At the time it didn’t appear that they had a clue as to where this market was going and quite frankly didn’t seem to recognize that if they did not make some major changes this once proud franchise would become a second tier player. Simply put their major competitors were killing it and it was Lilly diabetes that was getting killed. Listening to this morning’s earnings call the message was clear, those days are long gone and Lilly is now the company that’s killing it.

Looking over today’s results a few items caught our attention. Although Jardiance, the company’s SGLT2 has been getting all the attention given the EMPA-REG results, this data set has yet to translate into additional sales and increases in market share. According to the company sales for Jardiance reached $40.1 million for the quarter and $78.3 million for the first half of 2016. Just by way of comparison Invokana, another SGLT2 from Johnson and Johnson (NYSE: JNJ) achieved sales of $383 million for the quarter and $708 million for the first half of 2016. As the company acknowledged during today’s call even with the data from EMPA-REG JNJ has done an excellent job of locking up prime formulary position.

As we have reported Invokana along with Farxiga, AstraZeneca’s (NYSE: AZN) SGLT2, have been subject to adverse label changes and neither yet have any hard cardiovascular data. At the same time Jardiance will be getting a positive label change. Yet even with data on its side Jardiance is running against the wind given Invokana’s favorable formulary position. This may change over time but for the moment, the issues with Invokana aren’t prompting any changes from payors.

Diabetic Investor suspects the entire SGLT2 class will continue to grow and Jardiance will get its fair share of this growth. Will it replace Invokana as the leader in the class? Unlikely but we suspect Jardiance will close the gap.

We were somewhat surprised that Trulicity, the company’s once-weekly GLP-1 achieved sales of $201.3 million for the quarter. This is another category where we see continued growth and like Jardiance, we see Trulicity growing along with the class. Lilly has the potential to own this category given that it does not appear that GlaxoSmithKline (NYSE: GSK) is putting a major effort into Tanzeum their once-weekly GLP-1 and AstraZeneca continues to struggle with Bydureon their once-weekly GLP-1. By all accounts Bydureon should own this category but the many missteps made by Astra have opened the door for Lilly.

It’s way to early to get any gauge on how Basaglar, the biosimilar version of Lantus, will do here in the US. The product is available in Japan and selected European countries and seems to be doing well. However, the real test will come when it goes head to head with Lantus and all the other long-acting insulin’s.  The way we see it this all comes down to how the company prices the product and how fiercely the competition tries to protect their respective franchises. The simple fact is Lilly has everything to gain with Basaglar and not much to lose, it’s the competition that has the truly tough decisions to make.

Nothing mentioned today has changed our belief that the diabetes drug market is becoming a commodity market. The results of Jardiance show how formulary position can offset what appears to be better performance. The fact is payors have largely dismissed any negatives with Invokana while assuming it will have similar cardiovascular benefits to Jardiance. Simply put payors still hold the upper hand when it comes to pricing and JNJ should be commended for locking up formulary position while they had the chance.

The key going forward is to take this comprehensive portfolio of diabetes drugs and become the drug provider of choice for the coming integrated diabetes management systems of the future. Systems which we have noted will have everything a patient needs, drugs, devices and apps. Systems which will not be built by Lilly but systems which need all that Lilly has to offer. Don’t be surprised at all if this conservative Midwestern company takes a walk on the wild side and hooks up with those laid back folks in Silicon Valley.

As has been said many times we do live in interesting times.