Craziness all around

Craziness all around

“Jefferies initiated coverage on MannKind (NASDAQ: MNKD) with a Buy rating and a price target of $10.00. Analyst Shaunak Deepak said he was taking a contrarian stance ahead of Afrezza launch. He sees peak Afrezza sales of $3.2 billion.” This little tidbit comes from streetinsider.com and just shows that there still people who believe in Santa Claus and the Tooth Fairy.  The post includes the following passage from Mr. Deepak:

“We believe Afrezza could address a major unmet need among patients poorly controlled with oral drugs that have not advanced to injectable agents. Surveys of insulin non-adherence suggest a not insubstantial portion of patients reject insulin due to reluctance to take shots. Accounting for other factors that influence patient avoidance of insulin, we believe Afrezza could be used as a first-line insulin for almost 8% of type 2 patients failing oral drugs, worth $1.6b in peak U.S. sales. We believe Sanofi would promote Afrezza as a first-line insulin to gain and retain patients for its $8b+ insulin franchise.”

Now Diabetic Investor doesn’t know Mr.Deepak and we’re sure he’s a fine analyst but when it comes to the wacky world of diabetes, he don’t know jack.  We just love it when analysts cite marketing surveys , surveys which 99% of the time have results which back their conclusions. Yes it’s true that when asked patients would prefer that insulin was inhaled rather than injected, this is not news. Yet in the real world it’s equally true that patients prefer drugs which are covered by their insurance, are easy to use and don’t come with more issues than Napa has wine.

An even bigger problem for Mr. Deepak is his belief that Sanofi will promote Afrezza as a front-line therapy option; a belief which presumes that Sanofi actually has a game plan for Afrezza.  A belief which seems to predicated on the assumption that Sanofi by some miracle will actually do something right in diabetes.  To Diabetic Investor this shows that Mr. Deepak is either an overly optimistic fellow, or not an overly bright fellow or has been using an old Exubera bong. No one, not even the folks at MannKind have stated that they see Afrezza as a front line therapy option, not even Al Mann who thinks Afrezza is the greatest invention since electricity.

His strong belief that Sanofi will actually do something right in diabetes also shows Mr. Deepak really hasn’t done his homework.  Honestly this  is not all that unusual for an analyst, many of whom who swallow whatever a company is feeding no matter how bad it tastes.  Now had Mr. Deepak bothered to perform even the slightest due diligence he may have learned that when it comes to diabetes and Sanofi, outside of Lantus, things haven’t exactly gone all that well.

Still this is America where everyone is entitled to their opinion no matter how ill-informed or stupid it is.

Sticking with the insulin market, and yes this play on words is intentional, Lars Sorensen the chief executive for Novo Nordisk (NYSE:NVO) gave an interview and had some interesting things to say. According to an article published in today’s Wall Street Journal Mr. Sorenson thinks Novo is doing just fine and doesn’t need to make a major acquisition to remain relevant in the diabetes market. Stating; “We have no plans whatsoever in buying anything larger than things we can finance through our own cash flows.”

It seems that Mr. Sorenson believes the insulin market is large enough and growing fast enough that they really don’t need to move beyond injectable therapy options.  Perhaps he has watched as Sanofi has consistently failed to capitalize on the huge success of Lantus, expanding well beyond their expertise; noting that he does not want to destroy value by getting into areas that company just doesn’t understand.  Given what’s happened at Sanofi it’s hard to argue with Mr. Sorenson.

While Diabetic Investor understands this belief we’re not sure we agree with it. Yes insulin use is increasing yet at the same time competition is also increasing. Add in the growing popularity of single source contracting, the coming of generic insulin’s plus the continued emphasis on cost containment it all adds up as a huge issue for Novo, a company whose core competency is injectable therapy options.

We can certainly understand Mr. Sorenson’s reluctant to move outside Novo’s comfort zone as there are several notable examples of how this strategy can backfire. Sanofi is not the first, nor will they be the last company who got out of their comfort zone and fell flat on their face.  Novo has seen this disaster up close and personal. Still we can’t help but wonder if this reluctance to move beyond injectable therapy options is a sound strategy or an overabundance of fear. We also wonder while the company ponders their next move if they aren’t letting the competition dictate how this game is going to be played.

As we have noted before Lilly (NYSE:LLY) is getting set to make an all-out assault on the diabetes market.  A strategy which is definitely working already as it is forcing everyone to play defense.  The fact is Lilly has been preparing for war and understands there will be many bloody battles ahead. They now own the most complete arsenal of diabetes treatment options and they are not afraid to use price as weapon to gain share.  The question is will this take no prisoners approach work or will it spark a very nasty price war.

The market is changing as we speak and Diabetic Investor is beginning to wonder whether Novo sees this change coming or are they about to make a critical misstep by failing to adapt to these changes. Time will tell but the way we see it time is also running out as the battle is getting set to begin.