Words matter

Take a look at the two following statements from the Lilly earnings press release;

“For the second quarter of 2018, worldwide Humalog revenue increased 13 percent compared with the second quarter of 2017, to $769.8 million. Revenue in the U.S. increased 19 percent, to $464.5 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.”

“Second-quarter 2018 worldwide Trulicity revenue was $779.8 million, an increase of 62 percent compared with the second quarter of 2017. U.S. revenue increased 61 percent, to $612.4 million, primarily driven by higher demand as a result of increased share of market for Trulicity and growth in the GLP-1 class.”

While it may go unnoticed to many the wording of these two sentences in a nutshell explains the state of the diabetes drug marker while also illustrating some coming issues. The 13% growth in Humalog revenue did not come from the sale of more insulin, the revenue growth came from Lilly not having to offer anticipated discounts or paying rebates. By comparison the Trulicity growth was real growth or put simply more physicians are prescribing the drug.

As we have noted on many occasions insulin has become a commodity. This market both long and short acting isn’t about who has the best insulin it’s about who has the best formulary presence and contracting. The question for Lilly here and Novo Nordisk as well, is what happens if Sanofi ever gets their act together with Amedlog. Will the short-acting market experience the carnage experienced in the long-acting market when Lilly introduced Basaglar, which is doing quite nicely. Or will Sanofi do what they always do and screw up yet another diabetes drug?

What’s happened to the insulin market should not be lost on the GLP-1 market which continues to grow. As bright as the sun is shining on this market today dark clouds loom on the horizon. To their credit Lilly has grabbed this market by the horns and is dominating the long-acting once weekly segment. However, Novo who owns the once daily segment with Victoza now has their once-weekly on the market and will give Lilly a serious run for their money. As crazy as it may seem with their history many have suggested that Novo is now a GLP-1 company first and an insulin company second. And it will be very interesting to see what happens when Novo gets their oral version of semaglutide to market.

On the non-injectable side Jardiance is finally realizing its potential but is still facing stiff competition from Invokana and Farxiga. As the press release states;

“The company’s worldwide Jardiance revenue during the second quarter of 2018 was $147.2 million, an increase of 43 percent compared with the second quarter of 2017. U.S. revenue increased 28 percent, to $85.6 million, driven by increased demand, partially offset by lower realized prices due to changes in estimates to rebates and discounts.”

Translation the market continues to grow but the payors remain in control asking for and getting bigger discounts and higher rebates. Again, as we have stated many times the SGLT2 market is proof diabetes drugs have become commodities where price trumps performance. Anyone who has looked at the data knows Jardiance is the best drug in the category but even with this impressive data has faced an uphill battle gaining share.

Turning to the pipeline the company does have an oral GLP-1 under development which sounds interesting. The company noted they will be releasing study data on this drug during EASD followed by a call which tells us the data must be compelling. The oral GLP-1 space is next frontier for this expanding market.

The best part of this mornings call which followed the earnings release came when someone asked whether Sanofi will ever be a serious player in diabetes. Which is kind of like asking if the Cleveland Browns will win the Superbowl this year. Could it happen, sure. Will it happen well let’s just say based on history for both Sanofi and the Browns it’s highly unlikely and that my friends is being overly kind.

All and all when it comes to diabetes Lilly continues to perform well. As always there are challenges ahead but given the depth and breathe of their portfolio the company is well positioned.