Wacky Irony

Wacky Irony

This morning Novo Nordisk (NYSE:NVO) announced they had acquired two early stage companies. According to a company issued press release;

“Novo Nordisk today announced that it has entered into a definitive agreement under which Novo Nordisk will acquire Calibrium LLC and MB2 LLC, two privately held biopharmaceutical research companies based in Indiana, US.

Formed in 2013 and 2014, respectively, Calibrium and MB2 are focused on developing a portfolio of novel drug candidates for the treatment of diabetes and related metabolic diseases. The acquisition will expand Novo Nordisk’s portfolio of projects and intellectual property rights within diabetes and obesity and provide a basis for expanding Novo Nordisk’s research presence in the US.”

This news follows the company’s announcement yesterday that they were moving their oral GLP-1 into phase 3 trials plus investing $1.2 billion to expand production facilities.

Ironically at the same time the company has begun laying off sales reps. Although Diabetic Investor does not know the number of reps laid off we do know that entire sales territories have been eliminated.

Looked at in total Diabetic Investor sees all the moves as significant. First the layoffs signal something we’ve been stating for some time when it comes to the diabetes drug market, insulin and GLP-1 in particular market conditions are very difficult. Novo like everyone else in this space is doing what they can to maintain reasonable margins. This comes at a time when payors are demanding greater price concessions combined with higher rebates. The harsh reality is Novo, Lilly (NYSE:LLY) and Sanofi (NYSE:SNY) have little choice but to capitulate to these demands rather than risk losing formulary placement which translates into critical market share.

Until now Novo has not pursued the typical slash and burn strategy. In fact for a time Novo was aggressively expanding their sales force while everyone else was reducing theirs. However as the diabetes drug market moves closer and closer to becoming a full blown commodity market the company had little choice. As we have said many times the price war that no one wanted has begun.

The acquisitions also signal that the company has not forgotten the importance of keeping their pipeline full. Novo does not want to find themselves in the position Lilly or Sanofi finds themselves in today. While Lilly may have the most complete portfolio of diabetes drugs their pipeline is rather weak at the moment. Sanofi as we’ve noted has nothing of substance in their pipeline.  Being true to their roots Novo is taking the long-term view while Lilly and Sanofi have bet the ranch on the near term. The Lilly strategy may work allowing them to rebuild their pipeline but the jury is still out. Given the numerous issues with the Sanofi diabetes franchise it’s an open question whether they will even be in diabetes for the long term.

When this is all said and done Diabetic Investor suspects that Novo and Lilly will continue their long standing well documented battle for dominance in the diabetes market. The fact is diabetes is part of their respective DNA’s, diabetes is part of their legacies. Both companies have had more than their fair share of ups and downs. Some problems have been self-inflicted others market related. Yet both have righted their ships just when it seemed they were taking on water. Simply put they are in diabetes for the long haul and while they will get there in different ways they will be in the market for the foreseeable future.

The same cannot be said for Sanofi or even AstraZeneca (NYSE:AZN), although at the moment Astra stands a much better chance than Sanofi. The harsh reality is that Sanofi could not capitalize on the enormous success of Lantus. They could not build a comprehensive diabetes franchise. It was a great run while it lasted but as they say all good things must come to an end.