Smart Words From Novo
According to an interview published Monday in the German publication Handelsblatt, Novo Nordisk (NYSE:NVO) CEO Lars Rebien Sorensen was asked about the company possibly moving into the device arena. Sorensen stated; “We have until now decided against that because it is a completely different business.”
Many, including Diabetic Investor, have speculated that Novo would make such a move in an effort to compete more effectively with Sanofi Aventis (NYSE:SNY). Sanofi has been very public about their efforts to not only enter the glucose monitoring market but all diabetes related devices. Sanofi basically sees diabetes devices as tool to sell more of their insulin products, Lantus and Apidra. Novo on the other hand, already a leader in insulin pen technology, has preferred to stay away from commodity markets like BGM.
Novo has sniffed around the insulin pump arena and at one time had a partnership with LifeScan, the now dead InDuo device, but never seemed to have more than a passing interest in anything other than insulin pens.
Assuming that Novo doesn’t change their mind, Diabetic Investor believes Novo is making the right move here. As we have noted on numerous occasions the market conditions for BGM continue to deteriorate and the insulin pump space isn’t doing much better. Perhaps after surveying the landscape Novo felt that the only way they could truly compete in these markets was to buy their way in. Given the highly competitive nature of the insulin market and the increasing importance of the GLP-1 market, Novo likely concluded they did not want to investment valuable resources into dubious markets.
This statement also appears to leave the integrated diabetes management space to Sanofi. Again as we have reported in the past Sanofi is looking to become the first company to sell not just diabetes drugs and devices but complete diabetes management systems, systems which will not just include drugs and devices but software which allow their devices to communicate. Sanofi believes this integration of data will help patients more effectively manage their diabetes and ultimately produce better outcomes.
Perhaps having been down this road before with InDuo, Novo understands better than most just how ambitious and difficult this strategy is. While Sanofi does have a good partner in AgaMatrix for their BGM offerings, the company must be keenly aware that they will not be able to build a market presence from scratch. Given the increasing competitive nature of the BGM market where scale means everything and there is no way Sanofi can achieve this scale without buying an already established player. The iBGStar and BGStar might be neat little systems but as we have seen all too often having a neat system is meaningless when it comes to establishing market share.
The same can said for the insulin pump market another area where Sanofi wants to become a player. The simple fact here is that while many have tried no one has yet been able to figure out a cost effective method for stealing market share away from Medtronic (NYSE:MDT). With 70% of the market Medtronic effectively controls the insulin pump space and as long as they can hold onto their huge installed user base, no one will be able to catch them by capturing patients new to pump therapy. Just ask Animas and Insulet (NASDAQ:PODD) two well established pump companies with solid product offerings. Try as they might neither have been able to strip away enough Medtronic patients to become profitable.
Understanding that Sanofi is gunning for them, Novo having been around the block here just might be thinking that they have nothing to fear from Sanofi and it’s better to let them own the integrated diabetes management space. Novo understands that even with their vast resources Sanofi will find that it’s one thing to develop a strategy it’s another to actually be able to implement and then execute that strategy.
The bottom line here is Sanofi while a well-established player in diabetes, is really a one hit wonder with that one hit being a homerun in Lantus. They have had little success developing a market for their short-acting insulin Apidra, the third entry into an already developed market owned by Novo and Lilly (NYSE:LLY). Their GLP-1 under development will also come to market well behind established players Amylin (NASDAQ:AMLN) and Novo. Simply put as intriguing as their diabetes strategy looks they have yet to prove they can do anything more than sell a boatload of Lantus.
Novo on the flipside has been a major player in diabetes for many years and while they may not be the company they once were they do have the benefit of experience. And as Katherine Anne Porter noted; “Adventure is something you seek for pleasure, or even profit, like a gold rush or invading a country; … but experience is what really happens to you in the long run; the truth that finally overtakes you.” The way things are setting up Novo is betting on their experience and hoping it is Sanofi who has the adventure.
