DAY (6/15): PRRN CHALLENGE!
Hello! I am Priya, and thank you so much for being here! :)
I recently watched the '100 day challenge' to build a career in finance by The Valuation School, and immediately jumped into it. This is a series where for the next 15 days I:
1) 'Pick' a sector
2) 'Read' relevant news articles, annual reports, sector analysis reports etc
3) 'Report' what I've read
4) Make 'Notes' and see how they evolve!
To make it more interesting I've decided to pick a sector that has always been intriguing to me - the Pharma sector. I've picked 3 companies for my reference - Eli Lilly, Novo Nordisk, Johnson and Johnson.
A quick disclaimer, none of this should be treated as professional investment advise. Life is all about evolving into the best version of yourself, and I'd like to take you all on this journey of mine. Kindly only read this for gaining some additional insight, and feel free to give me any sort of feedback.
As a writer, I strongly advise you to do your own research as our team cannot assume any liability for your use of this information.
Let's get learning!
24/03/2025
Quick disclaimer: There are a lot of medical and pharmaceutical terms mentioned below. Kindly note that this blog is simply to reinforce my learning and spread knowledge. I do not have a pharmaceutical background, so kindly make some provision for scientific inaccuracies, which may be possible! :)
Yesterday's reading was a bit different from the usual, and I must say it was a big eye opener!
Why you ask? Since conventionally I have been reading news articles and annual reports, and I did start my day off that way. However, a few google searches later I found myself reading some incredible blogs from phamacists themselves who lent a great perspective into what this sector might evolve into the next decade or so.
Initially I was finishing up the latest earnings call of Novo Nordisk where I learnt about Novo's network channels.
For each unit of Wegovy purchased customers do not spend more than $25, as the rest is covered by most insurance companies. This was quite interesting to know, as this enhances the accessibility of the drugs, which is bound to boost revenues.
However amidst this the company discussed a critical issue in pharma: compounding.
COMPOUNDING?
The FDA defines compounding as "the process of compounding, mixing, or altering ingredients of a drug to create a medicine tailored to the needs of a patient".
In the real world, think of it as smaller companies taking big labels and altering its formulations to either enhance its availability or to customize patient treatments.
The likely implication of course, is that the big label loses a lot of market, as their compounded versions may be quite affordable for patients. This is obviously very unfair, and the FDA does not permit such practises, unless the drug is specifically stated to be 'rare'.
Now, how does this relate to Novo? As we know, Novo's blogbuster drugs are based off semaglutide, and this molecule is RARE but its different dosages as seen in Wegovy and Ozempic are NOT RARE.
So as long as semaglutide is on this list, Novo's key molecule is exposed to some compounding threats, as the FDA cannot object compounding of rare drugs too much (it enhances the availability of a very critical drug, so why not?)
To counter this, Novo must enhance the supply of this drug by radically transforming its supply chain and distribution, so that way this drug is no longer 'rare' and the FDA can grant some protection against compounding (in simple words, why would they allow you to modify a drug that is already very much available?).
Apparently even Tirzepatide, the key molecule in Eli Lilly's Mounjaro was also initially in the 'rare' list and has now been removed, so the FDA is actively acting against its compounding. This can help in preventing the creation of unfair substitutes in the market, which can enhance the longevity of their financial performance!
THEN COMING TO A VERY IMPORTANT UPDATE!
As the most populous country, with an incredible number of people suffering from obesity and diabetes, this market is a boon for both Eli Lilly and Novo.
I read some mixed analyst opinions about this, however, Eli Lilly has grabbed the first mover advantage with this one, which is critical, because local companies in India like Dr Reddy's/Sun Pharma/Cipla are all specialists in generics manufacturing. Consequentially, a company that penetrates first will gain faster IP protection and popularity, which can maximize its market share.
However analysts have also suggested that currently its pricing is too high for the average Indian household with a very low per capita income. The company would need to investigate its pricing strategies, and perhaps secure more efficient network channels to make this drug economically more accessible.
As for Novo, while they are trying to penetrate by this year, they do face a roadblock from their molecule semaglutide, who's patent expires by 2026 (outside US). This further enhances their exposure to compounding, and the later they enter this market, the more harmful it will be.
FINALLY SOME VERY INTERESTING MACRO INSIGHTS IN PHARMA!
As per this blog by ZS healthcare is revolutionizing everything about disease prevention and I'm honestly all ears!
They say that in the long term, healthcare research is not focussed on the discovery of molecules (or medications) but rather fixing an issue at the cell level or genetic level!
Interesting technologies like the below are just a starter dose:
1) Genome sequencing: Our genetic information is stored as nucleotic bases, which are piled up in a unique sequence. Understanding this sequence can help to decode the genetic implications of certain diseases.
2) Transcriptomics: Studying the complete set of RNA molecules at the cell/tissue/organ and organism level.
3) Fusion proteins: Enhancing the potential of in built proteins in the body by fusing it with other proteins so it can independently attack diseases.
4) Oligonucleitide therapies: Literally transforming the genetic information itself, to avoid inheriting genetic conditions!
Notice how none of them are medications, but rather transformative therapies! ZS say that when pharmaceuticals collaborate with such medical researchers the impact is going to be ASTOUNDING. Even recently Novo has collaborated with Harvard's Medical Resaerch wing to identify the sub classifications within Type 2 diabetes, and such a nuanced approach is truly going to be RADICAL!
TECHNOLOGICAL ENVIRONMENT
We had briefly gone over the impact of AI in pharma in our Day 2 blog, however multimodal/longtitudinal data can have a very noticeable impact on clinical trails. Longtitudinal data helps to track the same sample at different points in time.
This can be very instrumental for a company like Novo. While reading about the Cagrisema testing, the company often mentioned 'titration issues', about how many patients initially started on a higher dose, and then either due to side effects or rapid weight loss, they tapered down their dosage (with physician support). It can be quite interesting to measure the impact of the drug on their bodies across specific time intervals, which can help to further establish the efficacy/non efficacy of such drugs.
Also, there's something called multimodal data which is also pretty cool?
It can help to establish unique relationships among databases and I can see it being used extensively in this sector. If you read yesterday's blogpost, you'd remember I discussed the importance of positioning each new drug in branded obesity seperately in the market. They might have similar benefits but their market positioning is important.
I can see multimodal data coming in handy here, as understanding the different benefits a compound can have in the body, can help to market each drug uniquely, which can help in covering a wide spectrum of obese and diabetic patients.
Apart from this, AI can help in better diagnostics which can obviously help in truly tapping the potential of this market. It can also help in unburdening healthcare workers, thereby enabling patients to place more trust in the healthcare system.
This is completely my opinion TBH, but when patients trust doctors more, I notice they tend to trust their prescriptions more, and they stick with the medication for longer.
This is why patient connection too, is so important. Eli Lilly has partenered with numerous 3P pharmacies to help deliver some of their products directly to patients and these little tweaks can actually make a big impact on those people who are already struggling with their diseases.
SOME KEY INSIGHTS FOR THIS MARKET BEFORE I LEAVE!
-The population of the world aged 60 and above is expected to reach a ridiculously high number given the lower birth rates, and improvements in healthcare. Remember those aged 60 and above are already so hard to convince, in terms of taking care of their health. Hence medicines that have the least side effects and are most convinient to use are the key.
I notice Cagrisema, despite its poor efficacy, is still having minimal side effects compared to Wegovy, and this could be a gamechanger in the long term.
-In terms of marketing, hyperpersonalization can truly make a difference. The US Inflation Reduction Act (you can read more in Day 2's article) is expected to reduce pharma companie's revenue by 31%, and hence tapping into that segment of the population that is covered by private insurance, is also very critical, as there is a potential to realize more prices.
All in all, the key here is to segment the patient base in pharma as much as possible and keep innovating to solve each nuanced problem of theirs. This is truly how the indsutry can overcome challenges like compounding/generics/biosimilars etc and make a lasting impact on shareholders!
SEE YOU ON DAY 7 :))
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