Rock and Hard Place

Rock and Hard Place

Looking at the results released by AstraZeneca (NYSE: AZN) this morning they show just how difficult and competitive the diabetes drug space has become. Before we get into greater detail about the results it’s important to remember a few key points. Next to Lilly (NYSE: LLY) AstraZeneca has the most comprehensive portfolio of diabetes therapies, the major hole being no insulin’s. This collection of therapies has only been under Astra’s control for a short period of time which is part of the problem. At one time Astra was partnered with Bristol Myers Squibb (NYSE: BMY). Finally, even though they have a comprehensive portfolio none of their offerings with the possible exception of Bydureon is a leader in its respective category. Simply put they are playing for second or sometimes third place.

At first glance the results seemed impressive with overall diabetes sales up 26% year over year. Yet like so many things in diabetes the devil is in the details. Results for Onglyza, a DPP4 that’s up against Januvia, deceased by 4%. Sales for Bydureon, a once-weekly GLP-1 which is up against Trulicity and Tanzeum, came in under expectations. Farxiga/Forxiga, an SGLT2 which is up against Invokana and Jardiance, looked good until when compared to how well Invokana is doing.

As we noted before Astra is not contending for the gold medal and in many categories they must be content to compete for the bonze. Unlike Lilly they cannot walk into a payor and offer a complete portfolio of diabetes therapies as they have no short or long-acting insulin. Nor can they claim that any of their offerings are best in class. The one shot, excuse the expression, they had was with Bydureon but with Trulicity and Tanzeum in the category offering superior delivery system Bydureon has a serious fight in their hands. A fight will only get tougher as Novo Nordisk (NYSE: NVO) will have their once-weekly GLP-1 on the market.

One of the main issues with Astra has been getting all the diabetes assets under one roof. This revolving door of ownerships and partners never allowed Astra to develop a cohesive well thought out strategy. This structure also seriously damaged some of the few advantages the company once had, a perfect example of this is how long it took to get the Bydureon pen delivery system approved by the FDA. This failure to execute cost Bydureon what could have been a major advantage and opened a window of opportunity for Trulicity and Tanzeum. Ultimately Astra had no choice but to use price and/or rebating to fend off the competition.

We have long maintained that a perfect match for Astra would be another troubled diabetes drug company none other than Sanofi (NYSE: SNY). Add insulin to the Astra portfolio and they could go head to head against Lilly. This of course assumed, and in this wacky world nothing but stupidity should be assumed, Astra could execute once they added insulin to their portfolio. The fact is we should have known better as about the only thing Astra has proven is that cannot execute which actually makes them a perfect match for Sanofi.

The question is where do they go from here or to be even more blunt do they have any other option but to use price as weapon to compete. This is what drives companies like JNJ or Novo crazy as they can execute but because of the ineptitude of who they compete against they are forced to compete on price. The simple fact is the price war that no one wants yet seems destine to happen can almost be directly linked to the ineptitude of companies like Sanofi and Astra.

The reality is each day it looks more and more that this conversion to a commodity market is a forgone conclusion. Not only are there too many me-too copycat drugs but there are far too many inept companies like Sanofi and Astra.