Afrezza isn’t alone

Afrezza isn’t alone

Given all the attention surrounding Afrezza, MannKind (NASDAQ:MNKD) and Sanofi (NYSE:SNY) it’s easy to forget that other new diabetes therapies are also having a rough time getting started. Trulicity and Jardiance® both from Lilly (NYSE:LLY) are also off to slow starts. As regular readers know Diabetic Investor has been intrigued by Lilly’s diabetes strategy, as they are the only diabetes drug company with a complete portfolio of orals and injectable’s.  The basis of Lilly’s strategy is actually pretty simple with payors favoring single source contracting sell the entire portfolio.

Yet the kink in this strategy is what happens when the competition decides to fight back. What happens when AstraZeneca (NYSE:AZN) protects Bydureon, Novo Nordisk (NYSE:NVO) Victoza or Novolog, Johnson and Johnson (NYSE:JNJ) Invokana or Merck (NYSE:MRK) Januvia. What happens is the diabetes drug industries worst nightmare; a price war where only payors win and everyone else loses. Yes commodization of the diabetes drug space has arrived and the first causality is any hope of decent margins.

But this is just the beginning as we all know that Lilly has a generic Lantus coming and a short time later both Humalog and Novolog will see their patents expire.  Although generic insulin’s will not be priced 80% or 90% less than branded insulin’s they will be priced 25% to 35% less giving payors even more leverage when demanding price reductions, increased rebates or both.

While this may not be what any of the drug companies wanted they are partially to blame for this situation. Frankly this is what happens when they develop me-too copycat drugs and don’t care much whether they are first to market. This is what happens when they fail to develop innovative products and launch new products which offer only slight improvements over the drug they are intended to replace, Toujeo from Sanofi is just the most recent example.

Now as hard as this may be to imagine more damage will be inflected as companies struggle to adapt to the new realities of the market. Diabetic Investor sees sales and marketing teams the first to be hit, followed by R&D. The harsh reality is with payors in control of price and formulary position these companies can no longer afford huge and very expensive sales teams or grandiose R&D departments.

Folks this is exactly what happened in the blood glucose monitoring market and as we predicted has arrived at the doorstep of the diabetes drug market.