Tap Dancing

Tap Dancing

Although we wouldn’t classify today’s earnings call for Novo Nordisk (NYSE:NVO) as exciting as Sanofi’s (NYSE:SNY) call on Tuesday the call was revealing nonetheless. Three themes emerged today; as we have been stating the insulin market is becoming a commodity style market where price trumps performance; it’s looking more and more that Tresiba® the company’s new long-acting insulin will NOT be resubmitted to the FDA and finally price competition is not limited to the insulin market and as anticipated has spread to the GLP-1 market.

While it was obvious that management is relishing in the fact that Sanofi is having issues, this does not mask their own issues. To say that management was tap dancing while answering questions today would be like saying Giants fan were partying into the night celebrating their third World Series Championship in five years. The very first question was a perfect example of this tap dance, when asked about pricing dynamics in the insulin market management struggled to provide a coherent answer. Listening to the answer one just might get the impression that the formula for pricing is more complex than nuclear launch codes.

More tap dancing occurred as the company faced several questions on the status of Tresiba at the FDA. Question made more difficult as the company once again just can’t get out of their own way. During the prepared remarks one slide with the title “Decision to submit interim analysis to the FDA expected during the first half of 2015” came on the screen. The company then went into a rather explanation of what may or may not happen with the FDA. Given the obvious negative tone of the these remarks analysts already smelling blood in the water picked up on this negativity and hammered away on whether Tresiba will even be resubmitted to the FDA let alone be approved by the agency.

This reminded Diabetic Investor of how the company initially handled the FDA panel meeting for Victoza when they made a huge issue out of a small one which nearly derailed what now is a successful drug. Say this about Novo they are consistent as there is never a study they don’t like. We would also recommend management stay away from the poker tables as its obvious when they are bluffing.

The last dance occurred when asked about Victoza sales, here too management opened mouth and inserted foot as during the prepared remarks they acknowledged the GLP-1 market was decelerating (honestly we just love the words management uses when things aren’t going well).  Again smelling blood in the water analysts noted that things are likely to get worse with Lilly (NYSE:LLY) about to enter the market. Here management’s answer was almost laughable as they stated that Lilly entering the market is a good thing as it will expand the market.

One day someone will have to explain to Diabetic Investor how when a competitor enters an already crowded highly competitive market with a better product that this helps sales of what now is an inferior product. Diabetic Investor does not anticipate physicians switching their Victoza patients to Trulicity, although some switching will occur. What we anticipate is that given the choice of which GLP-1 to use Trulicity will become the preferred choice which will further decelerate Victoza sales. The only good news for Novo here is that Lilly is just getting set to launch Trulicity and the damage inflicted won’t be seen for another quarter or two.

Looking into the long term Novo may not have the issues of the soap opera once known as Sanofi, but they have issues nonetheless.  As we have noted the diabetes drug market is quickly transforming into a commodity style market where price trumps performance.  The company has a serious decision to make on Tresiba and right now it seems they may not have to and the FDA will make the decision for them. Even if by some miracle Tresiba makes it to the US market it will come to market AFTER Lilly’s biosimilar Lantus, simply put the drug will be dead upon arrival. Lastly they better hope they can transition Victoza from a treatment for Type 2 diabetes into a treatment for obesity otherwise they will have to look for other terms than decelerate to describe what will be declining sales and share lose.

Looking back on Sanofi’s call and today’s call by Novo the news wasn’t all that surprising to Diabetic Investor as we have been warning everyone that this was going to happen. The handwriting has been on the wall for all who wanted to see it for some time. Why analysts choose to ignore all the very obvious warning signs is anyone’s guess. Quite frankly Sanofi did everyone a huge favor by telling the truth, perhaps now we can get past all the stupid corporate speak and go about fixing the problem.