Getting beyond the blockbuster effect
While Sanofi (NYSE:SNY) would not trade Lantus, nor would Merck (NYSE:MRK) trade the Januvia franchise, both companies must be just a little envious of the depth of Novo Nordisk (NYSE:NVO) and their diabetes portfolio. Today’s earnings announcements by all three of these companies showed both the power and limitations of having mega-blockbuster versus a complete portfolio of good but not overly great products.
Take a look at these figures, for the quarter Lantus racked up sales of $1.48 Billion which accounted for 85% of Sanofi’s diabetes portfolio. The Januvia franchise racked up sales of $919 million for the quarter, an impressive increase of 24% when compared to last year’s numbers even more impressive when Merck noted that Januvia holds 75% of the DPP-4 market. Now compare that to Novo who has a much broader diabetes portfolio which brought in nearly $2.5 billion in sales for the quarter. It’s somewhat ironic that Novo’s entire portfolio of modern insulin’s racked up sales nearly identical than to sales of Lantus alone.
Now Diabetic Investor is not necessarily making a judgment here as to which approach is a better business model, however we do believe that Sanofi and Merck carry heavier burdens moving forward than Novo does. Sanofi in particular is having a major problem capitalizing on the huge success of Lantus which faces patent expiration in 2014. While the performance of Lantus is very impressive noticeably absent from today’s call was any mention of Apidra or where things stand with devices. There was a cursory mention of their me-too, copycat once-daily GLP-1 Lyxumia® but nothing of any true substance.
The harsh reality is Sanofi is running out of time to get their diabetes house in order. Although Diabetic Investor does not anticipate a generic version of Lantus appearing as soon as the Lantus patent expires, there is no question a generic version is coming and coming soon. Even if they combine Lantus with Lyxumia, this combination is really no different than Novo combining Levemir with Victoza. As we noted earlier in the week Apidra is a commercial failure and the device area has yet to prove it can deliver meaningful sales. Time has not run out for Sanofi but the clock is ticking and if they don’t get moving the Lantus patent expiration will soon be upon them.
Merck is sitting in a better position as Januvia is not facing impending patent expiration and the company continues to grow the drug which as we noted earlier already has 75% of the DPP-4 market. Also in the pipeline is MK-3102 which is basically a once-weekly version of Januvia, a compound which is about to move to Phase 3. With the enormous success of Januvia we can only imagine what sales would be if the drugs was taken just once-a-week. (Keep in mind that unlike Bydureon which is injected just once-a-week, MK-3102 would come in a pill.) Even with MK-3102 in the pipeline the company was rather coy when answering a question about their future plans in diabetes. As everyone knows Merck is one of the many companies rumored to be interesting in acquiring Amylin (NASDAQ:AMLN) and based on how the company answered the question they did nothing to kill the rumor, if anything they added fuel to this already raging fire.
Speaking of fires the folks at Novo must be feeling like firefighters who just as they put out one fire another ignites. Just when it seemed the Paula Deen controversy was going away or at least getting off the front page along comes the request by Public Citizen for the FDA to withdraw Victoza from the US market due to safety concerns. This request at critical time for the company as they are in the midst of a fierce battle with Lilly (NYSE:LLY) and Sanofi for insulin sales. As we have noted previously with nothing in their pipeline Lilly has decided to use price as a weapon to gain share in the short-acting insulin market. Sanofi is following a similar strategy protecting their crown jewel Lantus. The company is also facing a new competitor in the growing GLP-1 market as Bydureon is now here and based on early reports appears to be doing well.
The company had hoped that Degludec (now called Tresbia®) and Degludec Plus (now called Ryzodeg®) would provide the company with a much needed boost in insulin sales yet the products remain at the FDA awaiting approval. Even with approval Diabetic Investor remains unconvinced that either drug will deliver the boost the company anticipated. As we have noted before, Novo is used to an environment where premium products are rewarded with premium prices, an environment which no longer exists and is creating havoc at the company.
Diabetic Investor was a little surprised that the company dealt with the Public Citizen issue directly. In typical Novo fashion the company delivered an impassioned defense of Victoza and noted the numerous studies, both animal and human which were conducted when the drug was moving through the approval process. While Diabetic Investor does not believe there is any reasonable scientific data that would indicate that Victoza should be withdrawn from the US market, it would foolish to simply dismiss this issue. As we experienced with the Avandia controversy the FDA does not always follow the science and is not immune from outside pressures. Unfortunately for Novo and the GLP-1 market we suspect this is not the last we have heard about this issue.
The fact is Novo is involved in a multi-front war facing multiple enemies and for the moment is holding its ground but at a very high cost. Back in the day before the diabetes market became the place to be, Novo was allowed to roam the wilderness with few credible threats to their dominance. Today, the diabetes marketplace is not just crowded but filled with strong and hungry competitors who not only want a piece of Novo’s pie but companies that will vigorously defend their own domains. Add in the wildcards of health care reform plus the global economic situation and you have vastly different environment that the company is used to operating in. Based on what was said today it appears the company is beginning to find their footing and a strategy to deal with this new world order.
Before we conclude today it’s important we address the issue of generic insulin’s as both Novo and Sanofi faced questions on this critical issue. As we noted earlier Diabetic Investor does not believe the moment Lantus or any other insulin goes off patent it will face immediate generic competition. However we do believe that both Novo and Sanofi are vastly underestimating the role generics will play and the impact they will have on the marketplace. While we agree that it will take time to get generic insulin to market we disagree that the generic version will only capture a small percentage of the market. The fact is neither Sanofi nor Novo controls reimbursement and the harsh reality is the generic versions of insulin will likely be as good as the branded versions. Simply put, they will have equal performance at a lower price point in a market that is growing at epidemic rates.
Although we did take particular delight when we heard both Novo and Sanofi take shots at Lilly for the comments they made about generic insulin. To Diabetic Investor these shots at Lilly by not one but two competitors show just how far Lilly has fallen not just in our eyes but in the eyes of their competition. The fact is while Novo and Sanofi are cognizant of what Lilly is doing but no longer concerned about what Lilly is doing. They see that Lilly is no longer a serious player in diabetes and their only weapon left in their once vast now empty arsenal is price. Oh how the once might have fallen.
