Mixed Signals

Mixed Signals

This morning when Lilly (NYSE: LLY) reported first quarter results we were expecting sales of Jardiance to be on the upswing. As we reported last week when Lilly’s partner in diabetes Boehringer Ingelheim reported results it seemed as though the EMPA-REG data was finally having a positive impact on Jardiance sales. Simply put we expected sales of Jardiance to be increasing faster than the SGLT2 class, that the EMPA-REG data was pushing it past Invokana and Farxiga.

The company did note that sales were increasing however they attributed this sales growth more to the growth of the SGLT2 class and not directly linked to the EMPA-REG data. Reviewing the slides, the company used today it does appear that prescription growth for Jardiance has been flat over the past few months.

What this tells Diabetic Investor is a couple of things. First, as we have noted previously Johnson and Johnson (NYSE: JNJ), the makers of Invokana, has done a good job of locking up formulary position. Second, payors while impressed with the EMPA-REG data are believing the cardiovascular benefits seen with Jardiance will be seen with Invokana and Farxiga, in other words this is a class effect and not unique to Jardiance. Something JNJ and AstraZeneca (NYSE: AZN), the makers of Farxiga, were hoping for. Third, given this set of circumstances price/rebates will continue to be the primary weapons used to gain favorable formulary position.

Now all this could change should the cardiovascular data from JNJ and AstraZeneca, for their respective SGLT2’s, fail to meet expectations. However, until that time it will be business as usual in this space. Which begs the question just where is the bar set for JNJ and AstraZeneca, again as we noted last week, it’s difficult to imagine a scenario where either Invokana or Farxiga outperform Jardiance. Therefore, we believe all JNJ and AstraZeneca has to do is be in the same ballpark as Lilly, that they don’t need to have “better” data rather data which is near or matches what Lilly has. This will reinforce the existing and prevailing belief that the cardiovascular benefits seen with Jardiance apply to all SGLT2’s, that yes, this is a class effect.

Should this scenario become fact the SGLT2 category will continue its upward trajectory and the battle will come down to who offers the best combination of price and rebates. In other words, the SGLT2 category will be the same as every other diabetes drug category.

Looking at the remainder of Lilly’s diabetes portfolio there really wasn’t any major surprises. Although Humalog worldwide sales declined by 11%, with US revenues falling 14%, we attribute this more to ultra-competitive nature of the insulin market. As the company noted in their press release; “The decrease in realized prices experienced during the first quarter of 2016 was related to changes in estimates for rebates and discounts resulting in the overall decrease in revenues. The company does not expect this trend to continue throughout the year.”

Trulicity, the company’s once-weekly GLP-1, continues to show solid growth as like the SGLT2 category the GLP-1 category continues to grow. The company did note that Trulicity has been garnering an increasing share of this category which is hardly shocking given how badly AstraZeneca has handled Bydureon, their once-weekly GLP-1.

The most widely anticipated offering in the portfolio is Basaglar, the biosimilar version of Lantus, which will be launched in the US in December. Given that the drug is only available outside the US and has only been on the market for short time it’s difficult to gauge how payors, physicians and patients will react when it becomes available here in the US. Based on what we have seen so far it’s apparent that Lilly won’t be shy when it comes to using price as a weapon to gain favorable formulary position for Basaglar. This places our wine drinking friends in France between the preverbal rock and hard place. Will Sanofi (NYSE: SNY) go toe to toe with Lilly when it comes to price/rebates or will they go nuclear and undercut Lilly making more difficult for Basaglar to gain traction. And let’s not forget that Novo Nordisk (NYSE: NVO), like Sanofi, has two long-acting insulins on the market.

Frankly Diabetic Investor is finding it difficult to imagine a scenario where the insulin market, both short and long-acting, does not become an all-out bloodbath. Nor can we imagine any clear winners here. When it comes to the insulin market running a lean and mean operation is the order of the day.

Turning our attention to the company’s pipeline when it comes to diabetes nothing jumps out which is understandable given that company has already built the most comprehensive diabetes portfolio on the market.

All in all, Lilly is well positioned for where the diabetes drug market is and where it is going.