Round and Round we go

Round and Round we go

Well it seems as though AstraZeneca (NYSE:AZN) just can’t decide what to do with their diabetes franchise. While everyone else in the diabetes drug space is either eliminating sales positions or outsourcing sales functions, Astra is moving in the opposite direction and is actually adding sales people.  It seems as though the company believes they can increase sales and fend off competitors with more boots on the ground.

Now it’s way too early to know whether this latest restructuring will yield the hoped for results but one has to wonder just what management is thinking. Put another way, do they really have a coherent well thought out strategy for diabetes or are they scrambling to come up with one?

Diabetic Investor has long maintained that the Astra, next to Lilly (NYSE:LLY) has the most complete portfolio of diabetes drugs with the notable exception being insulin. That if they are to have any chance at all to compete with Lilly they will either need to add insulin, become more aggressive on the price side or both.  The fact is Astra has a nice portfolio yet none of the components can be considered first in their respective category.

Once the only company with a long-acting once-weekly GLP-1, they are now competing with Lilly and GlaxoSmithKline (NYSE:GSK). They are second to Januvia in the DPP4 category and second to Johnson and Johnson (NYSE:JNJ) in the SGLT 2 category.  Without insulin in their portfolio they lack the ability to compete with Lilly head on. Lilly also has a DPP4, SGLT2 giving them a better chance to meet the demands of payors who are favoring single source contracting.

This is why we believe that Astra should either get on the acquisition trail or sell the franchise. By all accounts Bydureon for many reasons never achieved significant market penetration and is now vulnerable as the new long-acting GLP-1’s are better than Bydureon. While Novo Nordisk (NYSE:NVO) was repositioning Victoza, their once-daily GLP-1 as treatment for obesity, Astra failed to reposition Byetta, their twice daily GLP-1.  This basically means for Astra to garner a greater share of the market they have little choice but to use price as a weapon.

As we have noted in the past there are several companies who with the addition of Astra’s diabetes portfolio would be able to compete with Lilly head on. Besides Novo, the portfolio also fits nicely within Sanofi (NYSE:SNY) who of all the diabetes drug companies is in the most trouble. Lantus as everyone knows is coming off patent and while management seems to see Afrezza or U300 as possible replacements, neither will even come close. We suppose it’s possible that someone else could come along but given the dynamics of the diabetes drug space anyone without an insulin wouldn’t be able to maximize synergies.

Since the day Amylin was acquired by Bristol Myers Squibb (NYSE:BMS) and then sold again to Astra our biggest concern has been can with all these changes in ownership the portfolio reach its potential. We speculated, correctly as it turns out, that projects such as getting the Bydureon pen delivery system to market would be adversely impacted. Instead of being able to capitalize on owning the only once-weekly GLP-1 with an easy to use delivery system, Bydureon is just one of three. While it may have taken Lilly longer to put all the pieces together their strategy of building rather than buying now looks brilliant. Perhaps Lilly was counting on what we’ve always known, namely that given the opportunity to screw things up most companies will. It’s easy to say today that as Bristol/Astra, then Astra was buying their way into the diabetes they forgot the most important thing.

It’s one thing to buy into the market, it’s another to actually have a strategy that allows a company to effectively compete in the market. The diabetes drug space as we’ve noted is quickly transforming itself into a commodity style market where price is paramount. A market where it is no longer necessary to own the best in class drugs, rather to own a portfolio of drugs that do the job effectively. We wouldn’t go so far as to say innovation is dead, however the cost and risk to be innovative has increased dramatically.

It will be interesting to see which company, if any, sees that without a major strategy shift they could be on the outside looking in. That Lilly will be relentless in their quest to regain diabetes dominance. Round and round we go….again.