Change is tough

“Change is the process by which the future invades our lives.” – Alvin Toffler

Although Mr. Toffler wasn’t referring to Novo Nordisk (NYSE: NVO) who reported results this morning, he could have been. This company which once ruled the diabetes kingdom is caught in the vortex of departing from the past and repurposing itself for the future. Not only does this involve change in people but a change in how the company does business. The people part is easy, the rest well let’s just say change is tough.

As we anticipated sales of the core insulin products were less than impressive. As we witnessed with Lilly (NYSE: LLY) yesterday the insulin market has fully commoditized. Like Lilly Novo must pony up higher rebates combined with bigger discounts to stay on formulary. A situation which will only get worse when Amedlog from Sanofi (NYSE: SNY) arrives. Novo sells a ton of Novolog and like Lilly will face another intense price decrease when Amedlog hits the market.

The bright spot continues to be Victoza but even here the competition is fierce. Victoza is holding its own and continues to be a bright spot among the dark clouds. When it comes to the GLP-1 market several dynamics are in play. First, Victoza is believe it or not benefiting from how well Trulicity is doing, think a rising tide lift all boats. Second, GLP-1 therapy has now trickled down to the primary care physician level, PCP’s who treat nearly 80% of all patients with diabetes. Third, greater payor acceptance and therefore improved patient access.

This should bode well for Novo as they have the oral version of semaglutide coming, but the key question is when. Even with all the changes the company has made one thing hasn’t changed as Novo just loves to do studies and then after those studies are done do some more. Now back in the day this wasn’t a problem as there was no rush to get new products to market. The insulin franchise was going strong making plenty of money, so it was ok if it a new product moved at glacial speed.

Well that’s not the case today. The insulin franchise will never ever be what it was and while it will continue to make money, it’s making a lot less money. Price competition will come to the GLP-1 market plus new GLP-1 delivery systems loom on the horizon as well. There is no reason to believe that GLP-1 market will not at some experience the all-out fight that the insulin market is going through right now. The simple fact is if Novo wants to regain their dominance they need the oral version of semaglutide and they need it yesterday.

The company is running 10, yes 10, trials for this drug and if history repeats itself, and it always does, the drug won’t go to the FDA until 2019 at the earliest. By that time the insulin market will be a complete mess and the GLP-1 market will be more competitive something Novo will part of as they have no choice but to heavily discount and rebate the injectable version of semaglutide, Ozempic to gain share. So, the price they don’t want in the GLP-1 market will happen by their own actions. This is why the oral version is so damn important as it has the potential to be a mega-blockbuster but only if the damn thing gets here.

Novo is suffering from the peanut butter and jelly problem. Most people need three things to make a peanut butter and jelly sandwich, peanut butter, jelly and bread. That of course unless your Novo. Novo would study every possible variable before making their sandwich. They would analysis every possible combination, which bread is best, which peanut butter is best and which jelly is best. Never mind that all this analysis over complicates and delays everything. The fact is Novo wants to have the best damn peanut butter and jelly sandwich ever made.

The harsh reality is Novo has a real fight on their hands and while they are attempting to change, change comes slowly.

We should note no mention was made of any interest in entering the device arena. However, this was not the case for Roche who also reported results this morning. While we have no intention of listening to this call we did view the presentation and yep Roche wants back in to the increasingly crowded and ultra-competitive insulin pump market. The company noted that they intend to launch the Solo patch pump in Europe this year.

Yes, this company which spent over a billion dollars to acquire Disetronic only to run that company into the ground is about to re-enter this market. They have chosen a different horse but there is no reason to believe this new horse is any faster than old horse that is now in the glue factory.

Now it could be that Roche sees having the Solo as a way to increase the value of their diabetes device unit which continues to sink into the abyss. They see that Johnson and Johnson (NYSE: JNJ) is about to fetch over $3 billion for LifeScan and they too would like nothing better than to find someone to take this unit off their hands. Unlike JNJ who shutdown Animas, Roche may believe that the Solo will make their unit more salable, it won’t but it’s the only logical explanation as to why they would launch the Solo.

The question is does Roche also have a taste for Chinese food like JNJ does.