The once-unstoppable Novo Nordisk (NYSE:NVO) has hit a bad patch, its shares defying big-cap market trends and declining over the first half of 2013 after the FDA sent long-acting insulins Tresiba and Ryzodeg back to the clinic for years of remedial work (Biotech continues to reward investors in first half, July 3, 2012). Now with diabetes competitors Eli Lilly (NYSE:LLY) and Sanofi (NYSE:SNY) scoring big at the American Diabetes Association (ADA) meeting last month, the sector is taking stock of the Danish firm's prospects.
Two factors will be key to restoring investor faith: growing the market share for the two new insulins in the regions in which they have been approved and responding to the threat that Lilly's once-weekly GLP-1 agonist presents to the daily product Victoza. With few catalysts ahead, the Novo story will be more about the hard work of expanding sales and less about its innovation.
Novo is uniquely exposed to competition in diabetes, and as such, makes a pretty big target. Nearly $18bn of its forecast $21.6bn in sales in 2018 will be for drugs to treat the metabolic disease, according to EvaluatePharma data. It is a good place to be, however, as a half-billion people worldwide are predicted to be affected by 2030, meaning there is room for a few players. Competition in the most profitable drug classes, including long-acting insulins, remains intense, so any falter can lead to significant loss of market share.
The FDA's decision to ask for another round of phase III trials to rule out significant cardiovascular risk from Tresiba and Ryzodeg was a blow, but in the GLP-1 analogue Victoza, Novo had the fastest growing non-insulin product in the diabetes space (Dizzy day for Novo as FDA rejects Tresiba, February 11, 2013).
ADA rocked Novo back on its heels. Sanofi reported positive data for U300, its new formulation of long-acting insulin Lantus, which responded directly to Tresiba's purported advantage of reduced nocturnal hypoglycaemia (ADA – New Lantus enlivens Sanofi diabetes strategy, June 25, 2013). The French group could have as much as a three year head start in establishing this new formulation. As if that were not enough, Lilly released data on once-weekly GLP-1 dulaglutide that showed it to have better glycaemic control than another once-weekly GLP-1, Bydureon, as well as Januvia and metformin. A head-to-head trial against Victoza is expected to report later this year.
With this as a backdrop, the Danish company does not have many tools to build value, as it is still awaiting word from U.S. regulators on its Tresiba/Ryzodeg cardiovascular trial design, whilst phase III trials from its own once-weekly GLP-1, semaglutide, will not report data until 2015 or 2016. In the words of Deutsche Bank analyst Tim Race, "They have no real newsflow they can control themselves."
"There are no magic bullets," agreed Eric Le Berrigaud, analyst with Bryan Garnier in Paris. "They cannot invent new products."
All this would strike fear into the hearts of many pharma executives, but Novo does not want for confidence. In an interview with EP Vantage the group's chief science officer Mads Krogsgaard Thomsen recognised the threat from dulaglutide but said specialists and patients should not draw conclusions about its efficacy until the head-to-head reads out – after all, Victoza has withstood the threat from a weekly GLP-1 once before (Amylin scores own goal in Bydureon vs. Victoza head-to-head study, March 3, 2011).
"What I would guesstimate is that when it comes to glucose control the two agents will perform similarly," Mr Thomsen said. If that is the case, the competition will come down to the relative merits of dosing. On Victoza's side could be compliance – a once-weekly jab may be more difficult to remember – and side effects, as vomiting and nausea can ease more quickly in a product with a shorter half-life.
As for U300, its "flatter" pharmacodynamic profile than the original formulation – a characteristic that leads to fewer nighttime hypoglycaemia incidents – does not match the "peakless" profile of Tresiba, according to Mr Thomsen. He also questioned the French group's use of the percentage of patients experiencing at least one hypoglycaemia incident, but not reporting the number of incidents per patient-year of exposure. "They showed an incremental benefit on what for me is a very difficult to interpret endpoint," he said.
Righting the ship
Even if U300 gets its head-start, all is not lost. The insulin market is huge and changes slowly, as switching between products does not happen if patients are responding well. Levemir, Novo's already marketed long-acting insulin, is viewed as a disappointment, yet it is expected to grow at a 7% annual rate and achieve sales of $2.52bn in 2018. Fast-acting NovoRapid is Novo's best-seller at a forecast $4.94bn in 2018, making it the third-biggest product in the diabetes space after Lantus and Januvia.
Thus there still can be a rationale for investing in Novo, even if it has stumbled in introducing innovative products, Mr. Race said: "It's still growing. It should continue to outgrow the rest of the sector." The first half of 2013 may be one for Novo executives to forget. But the group has the good fortune of being well-established in a growing space with high barriers to entry. A steady launch trajectory from Tresiba and Ryzodeg in Europe and Japan would be a welcome first step toward righting the ship.