The issues facing Novo Nordisk
This morning Novo Nordisk (NYSE:NVO) reported results for the third quarter and the first nine months of the year. While sales of modern insulin’s continue to grow, Novo share of the insulin market is declining. The story is much different looking at the GLP-1 market which continues to grow while Victoza, the company’s once-daily GLP-1 continues to exceed expectations. The real issue for Novo is whether the glass is half empty or half full.
Consider that for the first nine months of the year sales of modern insulin’s reached $4.4 billion, while sales of Victoza reached $1.1 billion. While it seems as though both franchises are performing well, their longer term outlook isn’t as promising. As we have noted on numerous occasions the insulin franchise will soon face generic competition while Victoza is now facing a well-capitalized, motivated and more patient friendly competitor with once-weekly Bydureon now on the market. This competition will get truly intense once the Bydureon pen delivery device gets here sometime in the middle of 2013. Just as Victoza supplanted twice-daily Byetta in the GLP-1 market, once-weekly Bydureon will become the preferred GLP-1 used by physicians.
Diabetic Investor isn’t convinced that Tresiba®, the company’s new long acting insulin awaiting FDA approval will be the answer Novo needs to take share away from Lantus or beat the coming generic version of Lantus. Given that Tresiba is facing an FDA panel review on November 8th, there is no certainty that the FDA will even approve the drug. While Diabetic Investor sees no reason why Tresiba should not be approved the fact the FDA decided to conduct a panel on the drug does provide reason to be concerned.
Perhaps this is why the press release issued by the company this morning contained the following passage:
“The preliminary outlook for 2013 indicates high single-digit sales and operating profit growth, both measured in local currencies. The outlook includes an expected positive sales contribution from Tresiba®, primarily in the US, EU and Japan, countered by an impact from the challenging operating environment in major markets. In addition, the outlook for operating profit reflects significant costs related to the expected launch of Tresiba®.”
Even should Tresiba receive FDA approval, Diabetic Investor sees the drug facing a major uphill battle in the market. First, as everyone knows Novo didn’t have much success going up against Lantus with Levemir and given the issues surrounding Tresiba we doubt the results much different this time. Next, unless Novo decides to pony up big time we don’t see Tresiba receiving favorable coverage or formulary placement. Frankly there just isn’t enough compelling data that justifies what likely will be a premium price sought by Novo. Third, Diabetic Investor sees a high level of physician resistance for much the same reasons payors have; there just isn’t enough data to justify prescribing Tresiba over Lantus. Lantus is known commodity while Tresiba is unknown with a suspect data set.
The story for Novo continues to be the same as they are still struggling to deal with several issues. The insulin market is following the same path that glucose monitoring did years ago and is becoming a commodity style market where price trumps product performance. Their existing and coming offerings can no longer be considered best in class and all are facing serious competition. Favorable reimbursement and formulary policies are no longer a given and likely will get worse before they get better.
We’ve said it before and we’ll say it again, Novo has lived in world where premium products received premium prices. But these days are long gone and the harsh reality is the critical market they play in is not just becoming a commodity market but will soon face serious generic competition. While the GLP-1 market looks promising, it’s more of a mirage as the company is behind the eight ball here and won’t have a Bydureon competitor for some time.
Now before everyone starts to feel sorry for Novo and considers taking up a collection for them, it’s worth noting they are still a formidable (some would say fierce) competitor who will not go quietly into the night. The company will use all means possible to keep what they see as their position as the premier global diabetes company. Given Sanofi’s (NYSE:SNY) inability to execute on their ambitious diabetes strategy, the company understands that it’s one thing to say they want to be number one, it’s quite another to actually go out and become number one. The simple truth is even with all the challenges the company faces, they have not just talked the talk but walked the walk.
The true challenge is whether the company itself understands what lies ahead. Diabetic Investor wasn’t quite sure but given their most recent series of public statements it does seem they get it and aren’t sticking their heads in the sand. Still, Diabetic Investor remains skeptical they can fight all the upcoming battles and come away unscathed. It’s not that we think Lilly (NYSE:LLY) or Sanofi is better than Novo but looked at realistically they are not the true threat when it comes to the future of the insulin market. The GLP-1 market once thought to be a possible substitute for the coming loss of insulin revenue isn’t much different, the only real difference is who they need to be worried about.
Perhaps the most difficult challenge facing the company is their lack of control over the situation, something which must drive this company crazy. In the old days Novo would overwhelm the competition not just with more feet on the street but mountains of data designed to prove their products were best in class. This strategy just won’t work anymore as a new day has dawned in diabetes. Over the coming months we’ll see if Novo has seen the light.