Novartis and Lilly Report

Novartis and Lilly Report

This morning Novartis (NYSE:NVS) and Eli Lilly (NYSE:LLY) reported third quarter results.

Not surprisingly during the Novartis call there was a great deal of interest in their DPP-4 Galvus which should receive FDA sometime in the very near future. With Januvia, Merck’s (NYSE:MRK) DPP-4 receiving approval this past Tuesday, the key concern among the analysts was how Novartis planned on marketing Galvus. Based on the available data Galvus and Januvia are almost mirror images of each other. While there are minor differences between the products Diabetic Investor has not found a glaring difference that would compel a physician to prescribe one drug over the other. Both Merck and Novartis are doing their best to position their DPP-4 as superior.

For those looking for a comparable situation one only needs to look at the battle between Avandia from GlaxoSmithKline (NYSE:LLY) and Actos from Lilly, both part of the TZD class of drugs. Like Januvia and Galvus, Avandia and Actos are similar drugs. IN 2004 sales of Avandia and Actos reached nearly $4 billion in the US with Actos holding a slight market share advantage. Diabetic Investor sees a similar market developing for Januvia and Galvus, with the initial edge going to Galvus mainly because the company already has some experience in the diabetes market. This slight advantage could easily be offset by the fact that Merck really needs a hit and is likely to pull out all the stops to insure Januvia reaches blockbuster status. As we have mentioned before our next issue will take a detailed look at this battle, in particular the marketing tactics used by both companies. If you political attacks ads and mud slinging for the upcoming election is bad, it’s nothing compared to what’s going on behind the scenes between Novartis and Merck.

Before we leave the Merck Novartis battle it should be noted that although neither Januvia nor Galvus have shown any serious adverse side effects during clinical trials some physicians are concerned that the drugs have not been adequately examined. This isn’t unusual when a new class of drugs come to market, as we all know physicians tend to be a conservative bunch. We are watching this side of the story closely to see if this is just normal reluctant to a new drug class or if there really is something lurking that could dampen Januvia or Galvus sales.

Moving onto Lilly, they should be thanking their lucky stars that Byetta is doing so well. When it comes to diabetes and Lilly Byetta is the lone bright spot in an otherwise dismal business segment. The company reported worldwide Humalog sales of $322.2 million a 5% increase which was mainly due to higher prices here in the US and a slight up tick in demand ex-US. Domestically Humalog continues to struggle as Novo Nordisk (NYSE:NVO) remains relentless in their quest to gain market share. During today’s call the company stated they were committed to their insulin franchise and pointed to the introduction of new delivery devices, pens in particular, as a way to reverse Humalog’s slide. Diabetic Investor has seen the new pen and if Lilly is counting on this device to increase Humalog sales they better have a back-up plan. Novo continues to offer not only solid products and outstanding delivery systems and it’s difficult to imagine Lilly’s new pen making a dent. The fact of the matter is Novo is a juggernaut while Lilly appears to be sinking ship in the insulin market.

With their recent announcement that they plan to ICOS for $2.1 billion in cash one has to wonder if they are acquiring the wrong company. Yesterday Amylin (NASDAQ:AMLN), the makers of Byetta, reported strong results and has an exciting portfolio of products in their pipeline. Granted Amylin may be a more costly acquisition however it would money well spent. If Lilly isn’t careful someone else may come along and make a play for Amylin, a move that could cripple their prospects to remain a relevant player in the diabetes market.

David Kliff
Diabetic Investor
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