Astra Reports- Lilly Changes Leader

Astra Reports- Lilly Changes Leader

This morning AstraZeneca (NYSE: AZN) released second quarter results which paint a mixed picture. Astra is one of the few diabetes drug companies that has a portfolio which is close to what Lilly (NYSE: LLY) has. Lilly also made news yesterday with the announcement and follow on press conference regrading John Lechleiter decision to retire at the end of the year. He will be replaced by David Ricks, currently head of the company’s biomedicines division.

Diabetic Investor finds the choice of Mr. Ricks to succeed Lechleiter an interesting one as many had speculated that Enrique Conterno, President of Lilly Diabetes was also in the running to get the top spot. In fact, after our wine drinking friends beheaded their CEO and began searching for a replacement Mr. Conterno’s name was among the many mentioned as a possible candidate. A job we are told he was going to be offered until he took himself out of contention. According to people familiar with the situation at the time Mr. Conterno didn’t see much upside at Sanofi (NYSE: SNY) and felt he had a good shot at replacing Lechleiter.

The question now becomes will Mr. Conterno remain at Lilly and continue to oversee the diabetes franchise or will he move on as so often happens when someone is passed over. Given that Mr. Ricks is just 49 years old its likely baring a major screw up that he will be at the helm for some time.

One company that won’t have an opening anytime soon is Astra as speculation is rampant once again that the company is a takeover candidate only this time around it is Novartis not Pfizer who will make a run at the company. Some may recall back when Pfizer made their run at the company CEO Pascal Soriot, who in a bit of irony was also rumored to have been offered and declined the Sanofi job, made a spirited defense of the company noting that the diabetes franchise was one of the reasons the company should remain independent.

Well things haven’t exactly turned out as Mr. Pascal said they would. As we noted in the past while Astra has assembled a nice portfolio of diabetes drugs, this portfolio has no star and has been hurt by series of ownership changes. Onglyza, the company’s DPP4 is well behind market leader Januvia. Farxiga, their SGLT2 is trailing Invokana while Bydureon, their once-weekly GLP-1 and what was supposed to be their star player, is just slightly ahead of Trulicity, although Bydureon has been on the market much longer than Trulicity.

We aren’t even going to talk about the company’s pipeline as quite frankly we don’t think it will be Astra’s pipeline much longer. The way we see it Mr. Pascal won’t make the same mistake twice and should Novartis make a run at the company he will gladly accept their offer. This is of course is after the normal song and dance about the initial offer not being high enough.

The fact is when it comes to their diabetes franchise they are outgunned in every category they compete in and are missing critical components that would allow them to more effectively compete in the future. The only weapon they have at their disposal is price and/or rebates as their entire portfolio consists of me-too products.

The harsh reality is they should have accepted Pfizer’s offer and Pascal knows he screwed up. The company does have some fine oncology products which seems to be the reason why Novartis wants to go after the company.

Just what Novartis would do with the diabetes franchise is anyone’s guess but we do have some advice for the company. Whatever they decide to do, do it quickly and decisively. If they are going to spin it off, then do it and do it fast. If they are going to keep it, make clear what the strategy is. Quite frankly there is not time to sit back and see how things go before ultimately making a decision, this franchise needs help and needs it yesterday.

When the final chapter is written for this franchise it will be one of missed opportunities, too many changes in ownership and a directionless strategy. Bydureon is the perfect example of all this – a drug which by all accounts should be owning its category, yet with all the changes in ownership it took the company way too long to get the pen delivery system to market. Next they failed to lock up prime formulary position before Trulicity and Tanzeum were approved by the FDA. Simply put the door to the long-acting GLP-1 market opened, they failed to walk through it and close it behind them.

The best and perhaps only hope for this franchise is new ownership, this is not the ideal solution but given the way Astra has screwed things up it’s difficult to imagine anyone doing worse. That of course assumes this franchise is not sold to Sanofi who is about the only company that has the capacity to screw up this franchise even more.