A lesson learned?

A lesson learned?

Although it didn’t seem to attract too much attention last week there was a significant milestone in diabetes. Late this past Friday Sanofi (NYSE: SNY) announced “that the U.S. Food and Drug Administration (FDA) granted tentative approval for Admelog® (insulin lispro injection) 100 Units/mL, a rapid-acting human insulin analog. Admelog is indicated to improve glycemic control in adults and children with diabetes mellitus.”

Just as Lilly’s (NYSE: LLY) long-acting biosimilar Basaglar forever changed the dynamics of the long-acting insulin segment, Admelog will likely do the same in the short-acting segment. A segment currently dominated by Lilly and Novo Nordisk (NYSE: NVO) who will surely feel extreme heat as they are the only insulin company without a biosimilar.

However, given Sanofi’s dubious history in the diabetes space one must wonder if the company learned anything from the Basaglar experience. It will be equally interesting to see how Lilly and Novo react once Admelog gets full FDA approval and becomes available. About the only people who are grinning ear to ear are payors a group which has only seen a strong hand get stronger. There is no question that payors will repeat what they did with Basaglar and extract their vengeance on Lilly and Novo.

Of the two we see Lilly being better equipped to handle the impact of Admelog given the depth of their diabetes portfolio. Don’t get us wrong this is going to be painful but not as dramatic as it will be for Novo. Now Lilly could try and fight back using a combination of steeper discounts and higher rebates to protect Humalog but the impact remains the same. The same for Novo and Novolog but again the impact on margins will be material.

Still much of what Lilly and Novo do will be dependent on how Sanofi approaches Admelog. Will they have a take no prisoner’s strategy as Lilly did with Basaglar making up in volume what they lack in pricing. Will they institute further cuts to their already depleted and demoralized sales organization? Perhaps this is why Peter Guenter decided to leave Sanofi as he knew what was coming and did not wish to oversee what will become a decimated unit.

The fact is Sanofi knows firsthand what the introduction of a biosimilar can do especially when its introduced into an already over-crowded market. We will not review the many mistakes the company made when they knew Basaglar was coming but you can bet they are salivating at the chance for a little payback.

The company to watch very closely here is Novo. The fact is the company is fighting multiple battles on multiple fronts. It’s not only their insulin franchise which is under siege. As we noted last week the GLP-1 market while expanding is also commoditizing. The one product which could offer a glimmer of hope the oral version of semaglutide is not yet here and could run into its own obstacles when it does arrive. Without any other oral meds in their portfolio the company will be forced to play defense.

This company which was built to develop premium products which in turn received premium reimbursement is now struggling to adapt to a commodity market where price trumps performance. Now that it appears all the management changes are complete and downsizing has begun one must wonder if Novo will depart from their history and look outside the company for help. Again, as we noted last week they could try and acquire the diabetes portfolio from AstraZeneca (NYSE: AZN) but this is not the Novo way.

While this move was already underway we see the introduction of Admelog as pushing all companies further into value based contracting with the added burden of accepting more risk. This where things get interesting and could be a bonus for everyone in the interconnected management space. The greater the risk taking on by any of the insulin companies the more likely it will be they will use whatever means necessary to drive not just greater therapy compliance but also more effective dosing. This is the foundation from which all the interconnected companies are built.

As we have noted the strength of the interconnected companies lies with insulin using patients helping them make better insulin dosing decisions. As Lilly, Novo and Sanofi take on greater risk these systems become more valuable. So, it would not surprise us if one or these companies head out on the acquisition trail. In a crazy way, the inflated valuations for these interconnected companies could be realized, only in the wacky world could this happen.

Think also what this could mean for insulin pump companies as they too could benefit from Amedlog provided it is approved for use in a pump, something Sanofi did not get with Apidra. With a lower cost short-acting insulin we could Sanofi striking deals with Medtronic (NYSE: MDT), Tandem (NASDAQ: TNDM), Animas and Insulet (NASDAQ: PODD). Even a company like Bigfoot would benefit. Simply put as insulin becomes commodity and outcomes/value based contacting becomes the de-facto standard it will come down to who offers the best diabetes management system which produce the best patient outcomes while avoiding costly hospital visits.

Although this has taken much longer than we thought it would the day of patients being prescribed diabetes management systems rather than individual drugs and devices is getting closer and closer. And let’s not forget that the many high-tech cash rich newbies to our wacky world also have skin in the game.

The reality is diabetes management continues to evolve and money is at the center of this change. Oh, and let’s not forget about Dexcom (NASDAQ: DXCM) and Abbott (NYSE: ABT) and the role CGM will play in this evolution.

For 20 years we have witnessed several transformations in our wacky world and given what’s going on we see another coming. This is getting more interesting by the day.