It’s a mad, mad wacky world

It’s a mad, mad wacky world

This morning Roche and AstraZeneca (NYSE: AZN) reported first quarter results each of which reflect the new state of our wacky world. We now live in a world dominated not by performance rather by price. The road to riches is no longer having the latest greatest thing but managing costs to reflect new market realities.

Let’s look at Roche first as their story is the simpler of the two. As we all know the glucose monitoring market is a complete disaster prices continue to decline along with usage. Making matters worse is new technology which will only hasten the demise of this once very lucrative business. Roche like Johnson and Johnson (NYSE: JNJ) would like nothing better than to exit this market but like JNJ cannot find a buyer for their struggling franchise.

In some respects, Roche is also following Abbott’s (NYSE: ABT) strategy. Like Abbott they have chosen to basically abandon or deemphasize the US market unlike Abbott they do not have anything serious in CGM. The company does have a CGM but it’s so far behind the Libre it’s difficult imagine this system gaining much if any traction in the market. Even if they remain committed to CGM besides the Libre they must battle against CGM market leader Dexcom (NASDAQ: DXCM) and Medtronic (NYSE: MDT).

We should mention they too have an insulin pump but here too they are well behind the competition. The reality is Roche is waiting to see if JNJ can pull off a sale of their unit before deciding what’s next for their unit. Should Sanofi (NYSE: SNY) buy JNJ’s unit it would at least give Roche some idea what their unit is worth. At that point, they may well decide to do what we thought they were going to do and spin off the unit into a separate privately owned unit or place the unit back up for sale. In the meantime, they will do what everyone else is doing waiting to see what happens with JNJ.

The story at AstraZeneca is one of making the best of a bad situation. As we have noted the company has the most complete portfolio of diabetes drugs next to Lilly (NYSE: LLY). In the past, we noted that not having any insulin offerings was an obstacle not allowing them to compete head on with Lilly. However, given how the insulin market has commoditized not having an insulin isn’t the obstacle it once was. Still the company does not have one first in class diabetes drug which forces the company to use price and/or rebates as the only weapon to gain share.

They could have owned or at least dominated the long-acting GLP-1 market with Bydureon but because of poor choices Trulicity from Lilly is hampering growth. The same can be said for their DPP4 Onglyza which competes with the Januvia juggernaut. Perhaps learning from past mistakes the company has decided to heavily discount/rebate their SGLT2 Farxiga to compete with Jardiance from Lilly and Invokana from JNJ.

Back in mid-March the company released results from the CVD-REAL study which per a company press release;

“The CVD-REAL study assessed data from more than 300,000 patients across six countries, 87% of whom did not have a history of cardiovascular disease. The data showed that across this broad population of patients with T2D compared to other T2D medicines, treatment with SGLT-2i medicines – Farxiga (dapagliflozin), canagliflozin, empagliflozin – reduced the rate of hospitalization for heart failure by 39% (HR 0.61; 95% CI 0.51-0.73; p<0.001) and death from any cause by 51% (HR 0.49; 95% CI 0.41-0.57; p<0.001). For the composite endpoint of hospitalization for heart failure and death from any cause, the reduction was 46% (HR 0.54; 95% CI 0.48-0.60; p<0.001).” Although the data was not as ground-breaking as the EMPA-REG data for Jardiance it was good enough to keep alive the belief that all SGLT2’s have cardiovascular benefits. The CVD-REAL data also reinforces what we have been saying that payors still have the upper hand when it comes to demanding discounts and/or higher rebates. This is also one reason sales for Jardiance came in lower than anticipated for Lilly. Jardiance may have better data but it’s not better enough to demand more favorable position or put more simply once again price trumps performance. Later today it will be Tandem (NASDAQ: TNDM) and tomorrow our wine drinking friends in France will report. Neither will report much in the way of good news but both in their own way will shed more light on just how wacky world has become.