Market leader Novo Nordisk still has lots of upside in China's rapidly growing diabetes market

One question Bernstein often gets from investors is why China isn’t a bigger part of Novo Nordisk today, given its large diabetic population. After looking at China’s healthcare policy and treatment preferences, plus Novo’s pipeline and competitions, analyst Wimal Kapadia sees more room for growth.

Although it holds the lead in China’s diabetes market, the country's contribution to Novo’s sales has been stagnant at about 11% since 2014. But in a new report, Kapadia predicts the number will bust out, growing from about DKK10.5 billion ($1.67 billion) today to DKK19 billion ($3 billion) in 2025, potentially buoyed by its leading position in the insulins market and newer GLP-1 offerings.

Just how important is China to all diabetes drug developers? The country has the largest number of diabetes patients, accounting for about a quarter of the world’s total. However, the lack of awareness, low HbA1c test prevalence and affordability have stalled the market’s growth.

But improvement in those aspects, combined with the government’s recent efforts to accelerate regulatory process for innovative drugs and to improve patient access, all represent a significant opportunity, Kapadia argues.

Novo is without a doubt the diabetes king in China. Last July, after taking a 48% price cut, Novo’s Victoza became the first GLP1 covered by the national insurance program, giving it a head-start in the Chinese GLP-1 market, which is still in its infancy with less than $25 million in sales in 2017. Bernstein suspects that value has multiplied given Novo alone reported $20 million in the first quarter of 2018, a 53% jump year over year.

Kapadia noted that GLP-1s only account for 1% of diabetes value in China, as compared to 14% in the U.S.

"In short, there is lots of room for growth and the GLP1 pipeline suggests others see the potential too, which could see competition increase," wrote the Bernstein analyst.

Just like Victoza faces an onslaught from Eli Lilly’s Trulicity in the U.S., the Chinese GLP-1 market has plenty of competition too. AstraZeneca, through its local partner 3SBio, just launched Bydureon, the country’s first weekly dosed GLP-1.

A May survey conducted by Bernstein of 52 Chinese physicians showed that doctors like the GLP-1s, with over 80% expecting growth to continue or accelerate.

"This is a positive outlook for the future of Ozempic if and when it is approved in China," wrote Kapadia.

Right now, the good news for Novo is that most doctors prefer Victoza over Bydureon or Byetta. Kapadia cautioned that it’s still early days, and as price remains the biggest driver to drug choice, the landscape might shift if Bydureon also earns a place on the National Reimbursement Drug List, not to mention AZ’s noticeable experience in pushing for continuous China growth.

Despite a sunny outlook for GLP-1s and even SGLT2s like AZ’s Farxiga launched last year in China as the country pushes for accessibility of innovative product use, insulin will still be the mainstay treatment in the country. For 2017, human insulin and insulin analogs take a 45% share, with insulin analogs gradually gaining pace at 16% volume CAGR since 2014.

"Novo Nordisk is still the market leader with a rich portfolio covering both human insulins and insulin analogues, taking ~51% of total value market share," wrote Kapadia.

But the analyst also noted that Novo, and its multinational competitors Lilly and Sanofi, have all been losing share to local players in the insulin market, meaning they’ll probably need to target the noninsulin classes for growth. So, Lilly will likely push for Jardiance and Trulicity, creating a similar competitive scene as in the U.S.

By 2025, Bernstein predicts NovoMix and NovoLog will still be the Danish firm’s best-selling products in China, with DKK4.48 billion and DKK2.56 billion in annual sales, respectively, followed by Ryzodeg, Victoza, Ozempic and Tresiba, in the range of DKK 1.5 billion to nearly DKK 2 billion.

"Yes, the numbers are large, diagnosis/treatment is improving and the regulation agenda encourages access of superior treatment. However, pricing and local competition will intensify. The risk/reward is to the upside and if Tresiba/Ozempic gain faster reimbursement, upgrades could follow," Kapadia concluded.

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