A delicate balancing act
Although it didn’t get the attention of the AstraZeneca (NYSE:AZN) earnings announcement, Lilly (NYSE:LLY) also announced earnings yesterday and shockingly provided a very real perspective on the diabetes drug market. The fact that the company is providing analysts and investors with more in-depth commentary shows just how far Lilly has come. In the past when it seemed the diabetes franchise was on the verge of collapsing, the company seemed out of touch with the situation and avoided providing too much detail during earnings call. To Diabetic Investor this new found confidence to share more detailed information shows how far the company has come, the turnaround isn’t complete just yet but the company is well positioned for the future.
Here are just a few comments made by Enrique Conterno, President of Lilly Diabetes during the question and answers session of the earnings call;
“we have I think very consistently said that when it comes to our innovative basal insulin, we would only see us launching that if we truly can differentiate against Lantus. Now all of our trials are basically against Lantus, we have a number of measures that we are looking at, we have talked about glycemic control, we have talked about nocturnal hypoglycemia, a better weight profile and also lower use of the meal time insulin dose with a product as some indications that we basically saw in Phase II. Clearly, we also saw some signals when it comes to side effects.”
“When it comes to diabetes, I think all of us know the payer environment is very complex, it’s challenging, both coming from the decision that payers are making as well as competition that we have. From our perspective, we believe and we continue to believe that choice continues to be extremely important. Now, we clearly see that sometimes this is not an option that we have and in those cases, we do compete for preferential access, in particular when it comes to portfolio which is what we are marketing now.
As we make the decisions, we do look at both financial and strategic considerations in terms of how competitive we are going to be with the different accounts. I would mention that in the case of Tradjenta, the engagement with the payers is done through BI.”
“First when it comes to our overall insulin business, let me provide this a bit of broader context. When we look our overall insulin franchise, we had very good volume growth worldwide. Our volume growth was basically 8% to 9% when we look at our insulin franchise and this volume growth was solid across all regions based on our ability to be competitive when it comes to our presence in different geographies.
When it come to the U.S. I think it’s important that we do recognize, there were two impacts here. There was a net pricing impact of the contract ESI and other contracts as well, as well as there was a very significant inventory effect when it comes to wholesalers. That inventory effect was in the high single-digits in the U.S. So that was an important impact for us when we look at our overall demand and all of you have access to the script data, it is very good that we have seen not very significant impact when it comes to our share performance and our overall volume performance.
Going forward right, this is something that we monitor very carefully when it comes to pricing, but we have now over 50% of the market that has gone to preferential formula is when it comes to analogs. Question is how quickly will the rest of the market go there I think it’s fair to say that we are fighting to make sure that patients continue to have choice, but at the same time as I have shared we need to be competitive whenever a payers basically makes the decision that they are going to narrow the formulary
At this stage it is difficult to make more comments when it comes to looking at the future of insulin pricing, I would just say that we do monitor this very carefully and we have become increasingly more sophisticated to think about both financially and strategically what’s in our best interest.”
“First, the market dynamic for the orals, I think we’re seeing very good growth when it comes to new patient volumes. We’ll take in combination, both the DPP-4s of new patient starts, the DPP-4 class plus the SGLT2 class. This new patient growth that we’re basically seeing is slightly above where we had expected it to be. So we’re very pleased with that. I think the SGLT2 class is off to a very good start and it seems that is being adopted very well.
When it comes to GLP-1s, I think it’s slightly different that we believe that the GLP-1 market could expand in a very significant way, but we have not seen that at this stage. We, I’ll be frank we are counting on dulaglutide to be an enormous catalyst for that growth.
I think, I’d share while we have basically looked at the dula, against liraglutide highest dose, our intent of doing that has been to basically ensure that we get the right price and reimbursement for our product.
We are not seeking to just switch patients from dulaglutide. The big opportunity that we have in this particular case is to ensure that we can expand the GLP-1 plus in a very significant way. And once again, we see dulaglutide as a pretty important catalyst to that.
You were also asking about the payer environment on both of those classes. Without going into a lot of detail, payers today view, when it comes to GLP-1s more differentiation between the products, then maybe when it comes to meal time insulin. I think that’s also the case for basal insulins. So the formularies when it comes to GLP-1s and basal insulin don’t tend to be as narrow, as they are in the case of meal time insulins.
In the case of the orals, formularies today are narrow, that is clearly a risk going forward. But it is not like the case of the meal time insulin, where you may have just exclusively one product in the formulary. In most of the formularies, when it’s comes to orals, there tends to be more than one product, maybe two products in that formulary, maybe two.”
Taken as a whole these comments show something we haven’t seen from Lilly in sometime, a clear understanding of not just where the market is but more importantly where the market is going. As we have noted in the past Lilly’s new diabetes strategy of building a comprehensive portfolio of therapy options appears to fit well into the new dynamics of the market, a market which is becoming more price sensitive. Yet the company also recognizes that performance still matters just differently than in the past. While Lilly knows it would be great if their offerings were superior to the competition in terms of performance, it’s just as important perhaps more so that their offerings are not inferior to the competition.
This in essence is the cornerstone of Lilly’s diabetes strategy, a full complement of diabetes therapy options which are equal to or greater than the competition in terms of performance. This allows Lilly the luxury of going into payors, who are increasingly looking at single source contracting, with everything the payors need at a reasonable price point. It also forces their competition into playing defense as so far no one else has the full complement of diabetes therapies options to directly compete. Novo Nordisk (NYSE:NVO) can fight in insulin and GLP-1’s but has no orals. AstraZeneca (NYSE:AZN) has the oral and GLP-1 areas covered but lacks insulin. Merck (NYSE:MRK) and Sanofi (NYSE:SNY) are basically one hit wonders with Januvia and Lantus.
As we noted yesterday Sanofi is the most desperate with the pending Lantus patent expiration. Although the Januvia juggernaut has slowed somewhat Merck is in a better overall position as their diabetes pipeline is more robust than Sanofi’s.
The key now for Lilly is execution on what looks like a brilliant yet untested diabetes strategy. It won’t be easy but at least they are no longer clueless and have once again found their stride in diabetes. Welcome back to the game Lilly.
