Getting caught up – Novo and Tandem Report

Getting caught up – Novo and Tandem Report

Now that Diabetic Investor is back from a well-deserved vacation time to get caught up on two recent earnings calls one from Novo Nordisk (NYSE:NVO) the other from Tandem Diabetes (NASDAQ:TNDM). We should also note that later this afternoon MannKind (NASDAQ:MNKD) reports their third quarter results which in light of what Sanofi (NYSE:SNY) reported last week should be one of the more interesting calls. Looking at how shares of MannKind have been slipping since the Sanofi call it will be interesting to see how the company attempts to put lipstick on a pig.

Looking at the results and comments made by Novo combined with what Sanofi reported it’s obvious that the insulin market is in the final stages of becoming a full blown commodity market where price trumps performance. Just as Sanofi is finding out that payors are unwilling to pay a premium for Toujeo, Novo is undergoing a similar experience with their new long acting insulin Tresiba. The harsh reality here is that while both insulin’s are somewhat better than their predecessors these slight differences are not compelling enough to demand favorable formulary placement nor premium reimbursement. Simply put Sanofi and Novo are in the same boat forced to offer lower prices and/or higher rebates to achieve favorable formulary position.

The main difference between Sanofi and Novo is while the Sanofi boat is taking on water the Novo ship is able to stay afloat. Besides have a more comprehensive insulin portfolio Novo continues to see solid sales of Victoza in spite of the fact that there are now three long-acting GLP-1’s on the market. To Diabetic Investor this points out a couple of key facts. First as we anticipated physicians are loath to switch patients from Victoza a once-daily to any of the once weekly offerings when Victoza is getting the job done just fine. Second, it also points to Novo’s strong effort to keep Victoza well positioned with payors. Third, while once-weekly GLP-1’s will likely garner a greater share of new patient starts Victoza sales will likely plateau over the coming quarters.

Another major difference between Novo and Sanofi is their respective pipelines. The simple fact is Novo has a solid pipeline while Sanofi has nothing of substance. Although it’s still very early Novo is working on a once-weekly insulin which if approved could be a true game changer. As we have noted many times when it comes to injectable therapies, either insulin or GLP-1’s, less is more. As the company noted during the call this project is in very early stages and it’s too early to tell when or if it will make it all the way to the FDA. Still this is a very intriguing project that Diabetic Investor will be keeping an eye on.

Another project further along and well worth watching is semaglutide Novo’s oral GLP-1. Based on currently available data this drug, like their once-weekly insulin, could be a game changer. Just as the insulin market is becoming a commodity market so too is the GLP-1 market. However up until the introduction of semaglutide all GLP-1’s had to be injected. Even though these injections have become less frequent and the delivery systems have improved there is no question that both physicians and patients would favor an oral GLP-1 assuming of course it performs as well as an injected GLP-1. There is no question in our mind that if this oral version of semaglutide reached the market it would be a blockbuster, possibly a mega-blockbuster.

All in all Novo is not immune to the difficult insulin market dynamics they are just dealing with these dynamics better than Sanofi. As we have noted frequently when it comes to the diabetes drug market the fight is between two diabetes heavyweights, Novo and Lilly (NYSE:LLY). At the moment Lilly has a more comprehensive portfolio of products yet Novo seems better positioned for the future with a stronger pipeline. The fact is Lilly has basically bet the ranch on the present while Novo is playing both for today and tomorrow.

Tuning our attention to the results reported by Tandem another trend is becoming obvious, that both Tandem and Animas owe Dexcom (NASDAQ:DXCM) a huge thank you. Just as Animas experienced a nice uptick in sales when the Vibe came to market so too is Tandem seeing a similar uptick in sales with the introduction of their t:slim G4 which combines the t:slim insulin pump with DexCom’s G4 system. According to the company sales of this product have gotten off to a good start and is opening new doors for the company.

A couple of thoughts here as the success of the Vibe and t:slim G4 say much about where the insulin pump market is headed. First, a huge loser here is Insulet (NASDAQ:PODD) who reports earnings this coming Thursday. Largely due to the failings of the previous management team Insulet is well behind Tandem, Animas and market leader Medtronic (NYSE:MDT) in bringing a sensor augmented pump to market. As we noted last week Insulet already facing a host of issues now has one more problem to deal with.

The success of the Vibe and t:slim G4 should also send a message to market leader Medtronic that no lead, no matter how large it may be, is safe. The simple fact is the Dexcom sensor is superior to the Medtronic sensor, physicians and patients know this and as more pump patient’s transition to sensor augmented systems the Vibe and t:slim G4 will get greater attention. Here is where we see Tandem having a slight edge over Animas as patients tend to favor the t:slim iPhone like user interface.

Tandem is also taking steps to press their non-hardware systems advantage.  A prime example of this is what the company calls Project Odyssey a web-based system that is being developed to allow users to update their pump software at home, similar to their smartphone. During the call the company stated;

“The first applications for Project Odyssey will be to provide customers who purchased a t:slim prior to April 2015 with the opportunity to update their pump software to our latest version that we began shipping after that time. They will then be able to enjoy features and benefits, such as being able to fill their cartridge off the pump.

We have historically discussed future applications for Odyssey, including turning on the Bluetooth radio within t:slim and t:flex, which will be our next focus for the project after we receive initial clearance.”

Again as we have been noting for some time for the insulin pump market in particular is no longer about who has the best hardware, that all insulin pumps do basically the same thing the same way. Looking ahead this market is as much about software as it is about hardware, systems which will help pump patients better manage their diabetes. It should be noted that these systems extend beyond the patient and include the physician. Which is why we were encouraged when the company stated;

“In the first half of 2016, we plan to launch our t:connect [ATP] portal, which will offer prescribers features they have been asking for, such as different reporting capability and streamlined access to multi-patient data. It is a project that our development group has been working on behind the scenes and that we are excited to introduce to HCPs as an additional value add for their practices.”

When it comes to the future of the insulin pump market all the players must find ways to enhance value while lowering overall costs, not a simple task. However Tandem is on the right path here as they understand the value advanced technology brings to the table. That technology can not only enhance the patient/physician experience but cut costs too. A fact that should not go unnoticed by their competitors who have yet to embrace the role advanced technology can play in this increasingly competitive market.

Yet even with all this good news Tandem is not out of the woods just yet as the company must deal with higher than normal COGS and shaky financials. Yet on the plus side they have become a more attractive takeover target as both Animas and Medtronic continue to search for more patient friendly user interfaces and advanced web based systems which Tandem has or is working.  Their installed user base is creeping up on Insulet, another company dealing with COGS which are too high. Simply put given the option of owning Tandem or Insulet, Tandem is becoming the more attractive option. Yes patients love wireless pumping and Insulet is the only viable option but given the issues facing the company Tandem is the safer choice.

Finally it should surprise no one that real big winner in the insulin pump market is not an insulin pump company but Dexcom. Yes Medtronic may have a larger installed pump patient base however with sensor augmented systems gaining traction physicians and patients are opting for systems which come with the superior sensor.

The reality is like most diabetes device markets the insulin pump market is all about scale. Medtronic may not have the best sensor but they do out gun all their competitors who work with Dexcom by a wide margin. Insulet by all accounts appears to be imploding and really doesn’t want to be in the insulin pump market. Animas has some scale but not enough to seriously challenge Medtronic. Tandem even with the issues they face is proving to be a valuable commodity. The question is who comes knocking on their door first Medtronic or Johnson and Johnson (NYSE:JNJ)?