Sticking with what they know best
This morning Bristol Myers Squibb (NYSE:BMY) signed an agreement with Novo Nordisk (NYSE:NVO) under which Bristol will acquire an exclusive global license to a discovery biologics research program focused on modulating the innate immune system as a therapy for autoimmune diseases. At first glance this news might not seem all that important yet when looked at in terms of were Novo is going its very significant. Unlike so many others in this wacky world Novo actually has a strategy, a strategy which actually has a chance at working.
While others in this category seem to be running around like the Keystone Cops lurching from one failed strategy to another, Novo has decided to bet the ranch on diabetes. That better to stick with (and yes this play on words is intentional) what they know best than to venture into areas outside their core competency. They see where this market is headed, understand who their real competitors are and who will fade away.
In some respects the diabetes drug market is returning to its roots with Novo and Lilly (NYSE:LLY) battling it out like two heavyweight champions. Each has had their share of mistakes but each has returned stronger from the experience. The main difference between them is that Novo has not ventured into the oral market as Lilly has done. Lilly has the most comprehensive diabetes portfolio, a soup to nuts approach, while Novo has a stronger presence in the growing injectable market. The company is also taking advantage of the growing obesity market by repositioning Victoza®.
Looking at the respective pipelines of these two heavyweights Diabetic Investor would give Novo a small advantage due to the oral version of semaglutide, a once-weekly GLP-1. Back in February Novo announced positive results from Phase 2 studies and is moving the drug into Phase 3. Should the phase 3 studies yield positive data this drug has mega-blockbuster written all over it.
Now everything is not perfect for Novo as they are still awaiting FDA approval for Tresiba and there is the looming patent expiration for Novolog. Another area of concern is unlike others in this space they have been expanding not contracting their sales force. Just how long the company can maintain this expense is anyone’s guess. Finally the lack of orals could hurt future sales as payors are increasingly favoring single source contracting.
Yet taken as a whole Diabetic Investor senses that Novo and Lilly see an opportunity to reestablish themselves as the premier diabetes companies. They see the turmoil at that soap opera turned three ring circus known as Sanofi (NYSE:SNY) imploding. They see AstraZeneca (NYSE:AZN) struggling to maintain momentum in the diabetes space. Additionally neither company has ventured too far outside their comfort zone nor made what would be a colossal mistake of entering the diabetes device market.
Looking ahead it’s difficult to imagine Sanofi or AstraZeneca developing and maintaining a well thought out diabetes strategy. While AstraZeneca may not have the issues Sanofi does, and then again who does, they do have issues. Diabetic Investor has always been concerned that AstraZeneca was not fully focused on diabetes, that they just didn’t know what to do with the portfolio they had assembled. Recent results suggested the company had finally found their footing and was getting their act together. However for reasons only know to management several changes have been implemented which have not been well received.
This is why Diabetic Investor believes that Lilly and Novo have a real opportunity here as they are the only diabetes drug companies who are willing to remain committed to a strategy. That they are not letting short term bumps in the road distract them from their long-term goals. The simple fact is Novo and Lilly have been around this space for years and even better both have learned from past blunders. Neither company is perfect by any means however both stand hand and shoulders above their less experienced competitors.
Novo and Lilly leading in diabetes – imagine that – the more things change the more they stay the same.
