Novo Reports

Novo Reports

This morning Novo Nordisk (NYSE:NVO) reported results for the first nine months of 2006. While the Street will concentrate on how exchange rates will affect future earnings, one thing is clear Novo is expanding their dominance as the worldwide leader in diabetes. By all measures, in nearly every market around the globe Novo is the number one insulin company.

The real question for Novo is whether they can maintain their dominance in the face of several challenges. If Novo has one kink in their armor it’s their inability to bring new products to market quickly. While the drug development process typically takes years to complete, Novo is notoriously slow in moving projects from the pipeline to commercialization. The company also seems to have a problem killing projects that have little chance making an impact on the market. A perfect example of this their continued pursuit of inhaled insulin. Given Exubera’s many problems Diabetic Investor is at a loss to explain Novo’s continued development of their AERx® system. AERx has a dubious history and even if the product came to market it’s doubtful it would have much of an impact.

Levemir®, the company’s long-acting insulin, while a solid product is having a problem distinguishing itself from market leader Lantus. While there are differences between Levemir and Lantus, it is considered a me too product by physicians who see little reason to move their patients off Lantus and onto Levemir.

Liraglutide, the company’s once-daily human GLP-1 currently in phase 3 trials, is in danger of becoming another Levemir as Byetta from Amylin (NASDAQ:AMLN) continues to gain share and will be tough to overcome. Byetta is also adversely affecting Novo’s insulin sales as physicians are now selecting Byetta as their primary option when oral therapies fail. With it’s solid performance and added benefit of weight loss Byetta’s success prevents patients from moving to insulin. Prior to the introduction of Byetta, physicians had no other option other than insulin after oral therapies failed to get the job done.

One area where Novo has consistently been behind is oral medications for the type 2 market. With Januvia now approved and Galvus soon to be approved, once again Novo find themselves behind the eight ball. One would think with the vast knowledge the company has and their excellent reputation in the market, they would aggressively pursue something in this large and expanding market. One look at the company’s pipeline, filled with insulin projects and just one type 2 drug under development, is cause for concern.

Diabetic Investor has learned that the company is pursing the development of a disposable insulin pump. It’s possible the company could develop a special insulin for this device that would allow the unit to be smaller and less costly to manufacturer than the OmniPod from Insulet. Diabetic Investor is aware of at least 10 different projects in the disposable pump market but has yet to find any that in their present form that will overtake the OmniPod. Novo has a long and distinguished history in developing high quality delivery systems and it would be a mistake to count them out even though they have no current presence in this market.

Looking towards the future it might just be time for Novo to step out of their comfort zone and look to others for the new drugs or products they need. They could easily afford to buy Insulet and use their expertise in insulin to come up with a smaller or perhaps pre-filled pod. Another possibility would be to buy Amylin, while this would move wouldn’t be cheap it would accomplish two important goals. First, it would give they would own the most valuable property in the diabetes market with an excellent pipeline of new products under development. Second, it would hamper Lilly’s (NYSE:LLY) to reinvigorate their diabetes franchise. Diabetic Investor has always questioned Lilly’s decision not to lock up Amylin earlier, a move they may soon end up regretting.

David Kliff
Diabetic Investor
847-634-4646 fax
224-715-3761 mobile