The price being paid

With the insulin business becoming commoditized both Lilly and Novo Nordisk are looking for new categories with less pricing pressure. One of the more promising categories has been GLP-1 and one of the more promising drugs in Novo’s pipeline is an oral version of semaglutide. However in typical Novo fashion they are studying this promising drug to death and have yet to bring it before the FDA. Our concern with this very promising drug would be Novo would be Novo and take too long to get the damn thing to market.

Well with the news coming from Lilly today maybe it will light a fire under Novo’s bottom. This morning in Berlin the company revealed some interesting news, per a press release:

“Results from a phase 2b clinical trial of Eli Lilly and Company’s (NYSE: LLY) dual GIP and GLP-1 receptor agonist (GIP/GLP-1 RA, LY3298176) showed strong and clinically meaningful blood sugar reduction and weight loss in people with type 2 diabetes. The six-month data — showing average HbA1c reductions of up to 2.4 percentage points and an average weight reduction up to 11.3 kg (12.7 percent) – were presented today at the 54th Annual Meeting of the European Association for the Study of Diabetes in Berlin and simultaneously published in The Lancet.”

The data while early is still pretty impressive and you can bet that Lilly won’t screw around and study the damn thing to death. Which is likely why Lilly shares hit new highs and Novo’s took a beating. Lilly also released some other data which also looked good but this by far was the big news of the day and perhaps the show.

One has to wonder just what is going on in Denmark these days. The company has announced a series of long overdue layoffs to bring costs more in line with current market dynamics. Their move to develop a Tyler looks good but has some kinks that need to be worked out. And of course if they ever get their oral GLP-1 to the FDA there might just be reason for optimism. However Novo just can’t transform fast enough.

Let’s be very clear here as Lilly now has a major advantage over their main rival. Lilly has a comprehensive portfolio of diabetes therapies, orals and injectables. As today’s news show they are not resting on their laurels and they have already aligned their costs to match market conditions. Novo on the flip side has no orals whatsoever, insulin is commoditizing and while Victoza is doing well they are well behind Trulicity in the long acting space. To say they need the oral GLP-1 in the worst way is like saying it gets windy in Chicago.

Our lone issue with Lilly is their questionable move into the insulin pump space, a space where they don’t belong. Sure we could see them developing a Tyler but insulin pumps that’s a huge waste of time and money.

The reality is Novo is paying a heavy price for well being Novo. This legacy company took way too long to recognize that change was needed. They just couldn’t break from the past. Now one has to wonder if they have waited too long. The saving grace perhaps is that Lilly also at one time seemed in danger of becoming an after thought in diabetes, but as we see now they have turned it around in a major way.

What Novo should have done was buy AstraZenecas diabetes portfolio while strengthening their pipeline with some deals, deals outside of insulin. What they should have done is aligned costs well before it was obvious it had to be done. Most importantly they should have accelerated the program for the oral GLP-1 instead of doing 16 thousand different studies. The bottom line here is that Novo is paying a heavy price for being Novo.