Stabilizing the ship

Stabilizing the ship

It seems as if the changes underway at Novo Nordisk (NYSE: NVO) are beginning to bear fruit. This morning when the company released first quarter results they updated full year guidance with an improved sales outlook. While the street seems to be reacting very favorably to this news we see this as somewhat of an over-reaction. Yes, the new management team has taken the initial steps at trimming costs, refocusing R&D and setting a new direction for the company overall.

However, even re-focused there are some things management cannot do. The insulin market remains ultra-competitive and share gains are increasingly difficult to come by without steeper discounts and/or higher rebates. The company is also looking over their shoulder as it won’t be long before a biosimilar short-acting insulin hits the market. A product which will likely do to the short-acting market what Basaglar has done to the long acting market.

The growing GLP-1 market is also showing signs of increased price pressure combined with a change in product mix. Victoza continues to perform well but this market is moving more towards once-weekly with Trulicity from Lilly (NYSE: LLY) gaining share. Novo has semaglutide coming which will surely set off a battle in the long-acting GLP-1 space and could well push this market into the price war no one wants but seems destine to happen.

The most promising product in the pipeline continues to be the oral version of semaglutide which if approved could change the dynamics of the entire GLP-1 market.

The way we see it is the company is navigating through some very rough waters. Thankfully they have come to their senses and realized that the world has changed and its price not performance that matters. It took them a long time but they are finally aligning costs with market conditions. The new leadership team now must navigate through even more difficult waters with the coming of a short-acting biosimilar and a GLP-1 price war.

The key question is will this company long known for success with injectable therapy options make the bold move and enter the oral medication arena beyond the oral version of semaglutide. Comparing the company’s results with their arch rival Lilly there is no question that Lilly has an edge given the overall depth of their diabetes portfolio. Should Novo go big and acquire an oral franchise this would help level the playing field.

Would this company not known for making major acquisitions break completely from the past. Is it possible they would make a run at AstraZeneca (NYSE: AZN) diabetes portfolio? Or would they do a series of smaller deals filing the holes in their diabetes portfolio? Something needs to be done as their core franchises insulin and GLP-1’s will face continued pressure and cost cutting will only take the company so far.

For the moment, the ship is steady but there is plenty of rough water ahead. We’re just not sure the ship as it is built today can navigate the choppy waters that lie ahead. Some changes are still needed if the ship is to sail through these waters safely.