The pie isn’t getting bigger
Look at the following information from the press release Lilly (NYSE: LLY) issued this morning when they announced earnings;
“For the first quarter of 2018, worldwide Humalog revenue increased 12 percent compared with the first quarter of 2017, to $791.7 million. Revenue in the U.S. increased 12 percent, to $504.1 million driven by higher realized prices due to changes in estimates to rebates and discounts and changes in payer segment mix, and, to a lesser extent, increased volume. Revenue outside the U.S. increased 11 percent, to $287.6 million, driven by the favorable impact of foreign exchange rates and, to a lesser extent, increased volume.
First-quarter 2018 worldwide Trulicity revenue was $678.3 million, an increase of 82 percent compared with the first quarter of 2017. U.S. revenue increased 78 percent, to $528.2 million, primarily driven by higher demand as a result of growth in the GLP-1 class and increased share of market for Trulicity. Revenue outside the U.S. was $150.1 million, an increase of 96 percent, primarily driven by increased volume and, to a lesser extent, the favorable impact of foreign exchange rates.”
What these two paragraphs illustrate is the current state of the insulin and GLP-1 markets. Simply put when it comes to diabetes drug sales revenue and profit growth comes down to what else payor relationships. As the company states the market for short-acting insulin really isn’t growing that much, while the opposite is true when it comes to GLP-1. The reality is when it comes to diabetes drugs the overall pie isn’t getting much bigger yet it’s the pieces of the pie that change in size.
Looking specifically at the short-acting insulin segment one must wonder how Humalog sales will be adversely impacted once Sanofi (NYSE: SNY) gets their act together with Amedlog. For the moment Lilly and we would guess Novo Nordisk (NYSE: NVO) are benefiting from Sanofi’s screw up. As we noted just yesterday the 2019 contracting season is coming and we suspect that Sanofi will do to Lilly in the short acting segment what Lilly did to them in the long acting segment.
While the GLP-1 category continues to grow the same situation is developing as Novo will do everything they can to make sure their new once-weekly GLP-1 Ozempic® is successful. Lilly has done a fabulous job with Trulicity but the introduction of Ozempic changes the equation just as Basaglar did in the long-acting insulin segment. While not a biosimilar Novo understands that with Ozempic being the fourth long-acting GLP-1 to enter the market about the only way they can succeed is by playing the price/rebate game with payors.
As we have been stating for some time the diabetes market has fully commoditized making formulary position the most important factor when it comes to revenue growth and profits. The truth is the battlefield has changed from producing innovative new therapies to how well a company can navigate the payor minefield. Lilly for their part has done as good a job as anyone navigating these treacherous waters but as we have seen in the past it’s never smooth sailing when it comes to fending off rivals.