How will Novo counter?

How will Novo counter?

Now that Amylin (NASDAQ:AMLN) is in the hands of Bristol Myers (NYSE:BMY) and AstraZeneca (NYSE:AZN), the question becomes what will Novo Nordisk (NYSE:NVO) do. Or put another way will they counter punch and make a deal of their own or will they stand pat and give it a go with what they’ve already got? The question behind which path they choose is where Novo sees diabetes management 5 or 10 years from today. Will we still see physicians still prescribe drugs from one company and devices from another or will they be prescribing diabetes management systems which contain everything the patient needs to manage their diabetes?

Looking at the current strategies of their main competitors, Lilly (NYSE:LLY) who has chosen to go it with drugs alone and Sanofi (NYSE:SNY) who has chosen to case the systems approach, the decision the company makes now will likely mean the difference between staying relevant in the space or becoming a second trier player. As we have seen with the disastrous decisions made by Lilly’s management it is possible to destroy a legacy franchise and turn gold into sand. On the flip side we have also seen that it is far easier to talk about a system based approach then to actually come up with a system that actually works, as Sanofi for all their talk is still overly dependent on Lantus sales.

While Novo has sniffed around the device arena they have never gone beyond the investigation phase. Unlike Sanofi they do not offer a glucose monitor and at the moment have no aspirations to have an insulin pump. (Assuming Sanofi stays with their strategy it’s just a matter of time before they also offer an insulin pump.) So far the only devices Novo are comfortable with are insulin pens and now GLP-1 pens. While many have tried the fact remains that Novo has the best pen delivery systems on the market and has set the standard by which all other pen systems are measured.

The situation becomes more complex when we look at the future of diabetes management from strictly a therapy perspective. If Novo is realistic they must know that the future for insulin therapy isn’t that great. Besides facing the threat of generic, insulin usage is likely to decline as GLP-1 therapy continues to gain traction. Diabetic Investor has said it before and we’ll say it again, the rising usage of GLP-1’s is as big or even bigger threat to insulin sales then the threat posed by generic insulin. The simple fact is there are not enough Type 1’s, patients who must follow insulin therapy, to support all the current insulin players.

With Victoza Novo does have an entry in the growing GLP-1 market, but now that Amylin is in the hands of BMS/AZN and armed with Bydureon this fight for GLP-1 supremacy has heavily tilted against Novo. The knockout blow just might come when the Bydureon pen gets here sometime in the middle of 2013. As we noted when the Amylin deal was announced the BMS/AZN sales force will have the added advantage of not worrying about cannibalizing sales of their existing insulin franchise, as they don’t have one and neither will they worry about taking sales away from their one existing diabetes drug, Onglyza as it has practically no sales. While the situation isn’t exactly the same we do see some similarities between when Merck (NYSE:MRK) brought Januvia to market. Like Merck at that time, BMS/AZN is desperate for a blockbuster and given the steep price they paid for Amylin they better get one. The big difference is that Bydureon is actually a paradigm shifting drug while Januvia to a large extent owes its success to timing. The fact is Januvia is perhaps the luckiest diabetes drug ever launched.

Yet, the slowing adoption of insulin therapy and the growing usage of GLP-1 therapy is truly just the tip of the iceberg when you look just a few years down the road. As we noted several times while writing about Novo this is a company who is used to providing top tier premium products that received top tier premium reimbursement. Well those days are gone and not likely to ever return. Although generics will not be 80% cheaper than branded insulin nor do we expect generics to hit the market merely days after insulin patents expire, they are coming and will adversely impact the branded players. The fact is Novo is already facing a price war as Lilly to remain relevant has gone to the only bullet they have left in their gun and is using price to take share away. Novo is trying to fight back yet the cost to fight is killing margins.

It wasn’t that long ago when Novo teamed up with Johnson and Johnson (NYSE:JNJ) and introduced the now defunct InDuo device, a device that in retrospect was well ahead of its time. For the many newbies in diabetes the InDuo combined glucose monitoring with insulin delivery in one package.  Looking at the many interconnected diabetes management systems underdevelopment and new glucose monitors such as the Verio IQ, systems which are targeted squarely at insulin using patients, all of the a JNJ Novo partnership looks enticing. Novo brings with them a great insulin franchise, decent GLP-1 portfolio and the best pen delivery systems around. JNJ brings the leader in glucose monitoring; LifeScan along with the second player in insulin pumps Animas and let’s not forget JNJ’s latest diabetes drug Canagliflozin would fill a hole in the Novo portfolio of products.

This partnership looks even better given that JNJ’s main goal is to sell more test strips and Novo’ s main goal is to sell more insulin.  Such a combination would also provide a buffer against what Sanofi is attempting to do. Now Diabetic Investor has no idea if there is any behind the scenes animosity that would prevent these two companies from rekindling their romance but we do know that in today’s world this would be one very powerful combination. With all the deal making that’s been going on, this is one deal that actually makes sense which is why it likely will never get done.