Execution Matters

Execution Matters

Listening to the Lilly (NYSE:LLY) earnings call this morning it Diabetic Investor couldn’t help but compare where Lilly has been, where they are going with where Sanofi (NYSE:SNY) is and where they are going. Both companies faced similar dilemmas, how best to deal with patent expirations for major revenue drugs; how to compete in a diabetes drug space which is becoming a commodity style market, a market where payors are increasingly favoring single source contracting.

It would be easy to say that Lilly had a plan and Sanofi did not, but this statement would be inaccurate. A more accurate description would be Lilly is executing on their diabetes strategy and Sanofi failed to execute on theirs.  Now to be clear here we’re not sure that Lilly’s strategy will work out in the long run but it’s safe to say five years from today Lilly will be a player in the diabetes drug arena while the same cannot be said for Sanofi.

Think about that last sentence for a moment and let it sink in.

There was a time, only a few short years ago, that it looked as if Sanofi would take control of the diabetes drug space. That they would capitalize on the goose that lays the golden eggs, Lantus and leverage this blockbuster to the hilt. The company was quite public about this stating at every conference or earnings call that they were aiming to dominate the global diabetes market. That it would be them and not Lilly or Novo Nordisk (NYSE:NVO) who were masters of the diabetes universe.

First came Apidra next the iBGStar which was followed by Lyxumia and finally there is the deal with MannKind (NASDAQ:MNKD).  Given the performance of Apidra, the death of the iBGStar and the company withdrawing the NDA for Lyxumia it’s safe to say these attempts to expand the company’s presence in the diabetes market failed. Although it would unfair to classify the MannKind deal as a failure given how the market has reacted to it’s not a stretch to say there isn’t a great deal of faith that Sanofi can make this work.

Now compare that to what Lilly has done. The company does a deal with Boehringer Ingelheim, ends the relationship with Amylin and begins to build a comprehensive portfolio of diabetes therapies. More importantly they correctly see where the market is going from all perspectives, price, payors and FDA. They see that the diabetes drug market is following the same path as the BGM market and will become a commodity style market where price trumps performance. They see payors are increasingly favoring single source contracting and understand they can come out just fine selling a complete line of diabetes therapies rather than trying to leverage one blockbuster in the category. Finally they see the FDA being the FDA and reason better to take the path of least resistance when it comes to the regulatory process even if that means their offering won’t be first to market.

Given how the market has moved Lilly’s strategy looks brilliant. The diabetes drug market is becoming a commodity market, single source contracting is as hot as ever and the FDA continues to be the FDA. Even better Lilly is basically forcing everyone else in the space to rethink their strategies. In simple terms Lilly is playing offense while everyone else is playing defense.

As we have noted on more than one occasion we have no idea whether this strategy will work. And it should also be noted that as brilliant as this strategy looks today it wasn’t that long ago when it looked like Lilly would be become irrelevant in the diabetes market. Where Diabetic Investor gives the company credit is recognizing they had a problem, developing a well thought out strategy to solve the problem and most importantly executing the strategy.

The fact is execution matters and this is where Sanofi failed and Lilly succeeded and it’s that simple.