Winners After Novo Nordisk’s Insulin Rejection

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The good news is, some companies will be carving themselves out a nice-sized piece of the United States’ insulin pie. The bad news is, Novo Nordisk (NYSE:NVO) won’t be one of those companies … at least not yet. Its long-acting insulin drugs Tresiba and Ryzodeg were sent back to the drawing boards earlier this week by the Food & Drug Administration.

Although the FDA had no particular problem with either drug’s efficacy, the agency was concerned enough about the effect these drugs might have on diabetic patients’ hearts. Novo Nordisk will need to backtrack and gather the data on how Tresiba and Ryzodeg affect cardiovascular systems, then resubmit that information with the new drug application. NVO doesn’t expect to finish that round of studies in 2013.

While it’s not an outright “no” from the FDA, in the world of biopharma, time is money. Every day that Novo doesn’t have its insulin on the market is another day a competitor can enter and penetrate what is nationally a $9 billion (annually) market, and globally a $14 billion market.

In that light, who wins in the shadow of Novo Nordisk’s loss?

Novo Did Not Pass Go, Did Not Collect $200

Just so there’s no misunderstanding, Novo already had a commanding lead in the global insulin race, controlling about 50% of the world’s market with its existing diabetes drugs and injection tools. Last year, nearly 78% of Novo Nordisk’s sales were driven by diabetes-related products, or roughly $10.5 billion of its $13.5 billion in total sales.

Yet, Tresiba and Ryzodeg were expected to ramp up the company’s diabetes revenue by $2.8 billion within a few years, as the drugs would get Novo into the long-acting insulin market. The biggest insulin market is the United States, however, so with that opportunity off the table for at least a year, the opportunity for competing drug companies to establish a position in the U.S. market is still no small matter.

Eli Lilly (NYSE:LLY) and Sanofi (NYSE:SNY) will be first in line, using their size and stature to muscle in without Novo getting in the way.

Sanofi is the maker of Lantus — a long-acting insulin that already generates about $6 billion in annual revenue after being on the market for a decade.

Eli Lilly also is working on a long-acting insulin, simply called LY2605541 for the time being. It’s currently in Phase 3 trials, and as such has been behind Novo’s drugs in terms of the calendar, but may well be able to pull ahead now that Novo has been set back at least a year.

But can Eli Lilly’s project actually unseat Lantus, the undisputed leader in the long-acting insulin space with an 80% market share? Some say it could take a pretty good swipe. In comparative testing against Lantus, Lilly’s drug showed better blood sugar control, and weight loss in some patients; both are critical for diabetics. On the other hand, Lilly’s insulin also raised liver enzyme levels to a greater extent than Lantus, and was more often linked to hypoglycemia.

Still, both Sanofi and Eli Lilly are better positioned to serve a market that’s really warming up to long-acting insulin, while Novo Nordisk is on hold.

One Other Player

While the rejection of Tresiba and Ryzodeg put the focus on long-acting insulin, it’s not necessarily a forgone conclusion that long-acting insulins are deemed to be the best fit for diabetes patients. What if a convenient delivery method — regardless of how long it lasts — was the bigger need?

Enter MannKind (NASDAQ:MNKD).

MannKind is developing an inhaled mealtime insulin called Afrezza. Like Novo Nordisk’s drugs, it was widely assumed Afrezza would be approved in early 2011, but also like Novo’s drugs, the FDA sent Afrezza back for more testing. Though the market has heard little about the company since then, with Novo out of the limelight for a while, there might be room for one more player to step up and fill the void. MannKind is of particular interest right now simply because it’s going to be in front of the FDA again sometime in late 2013, or more realistically, early 2014.

While Eli Lilly and Novo Nordisk are getting ready to do battle in the long-lasting insulin market, MannKind could sneak in and win over patients with convenience, and fewer side effects.

The Last Word

All that being said, this might well be one of those times where the market’s making more out of the news than is merited. Tresiba is already approved in Europe and Japan as well as some other minor markets, and Ryzodeg is essentially the same drug delivered in a different format; Novo can go on while waiting for the United States’ FDA.

And, even if it had been approved for the U.S., the company still knew it had a long road ahead trying to chip away at Lantus’ leadership. The uproar might be meaningless unless Eli Lilly can get a good lead on Novo and secure its No. 2 spot.

That’s going to be tough to do, however, as both Lilly’s and Novo’s drug would likely win any FDA approval at about the same time.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2013/02/winners-after-novo-nordisks-insulin-rejection/.

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