An early Christmas Gift Courtesy of Lilly

An early Christmas Gift Courtesy of Lilly

According to press release issued this past Friday Lilly (NYSE:LLY) along with their partner Boehringer Ingelheim have submitted a new drug application for their generic  version of Lantus, the world’s number one selling insulin. The release states:

“Eli Lilly and Company (NYSE: LLY) and Boehringer Ingelheim today announced that the U.S. Food and Drug Administration (FDA) has accepted the filing of the New Drug Application (NDA) for LY2963016, an investigational basal (long-acting) insulin.

LY2963016 is a new insulin glargine product developed for the treatment of patients with type 1 and type 2 diabetes. The NDA was filed through the 505(b)(2) regulatory pathway, which allows the FDA to reference their previous findings of safety and efficacy data for an already-approved insulin glargine product, in addition to the studies of LY2963016.”

While Lilly is calling this new insulin for all practical purposes it’s nearly a carbon copy of Lantus and when approved will dramatically alter the insulin marketplace. As we have stated in the past Lilly has basically decided that it doesn’t pay to develop unique or innovative new therapy options. They have looked at the regulatory and reimbursement environment and decided that neither environment supports spending billions of dollars developing something different. Simply put the risk/reward profile for new and truly innovative diabetes drugs has become unfavorable. Better to develop a complete portfolio of diabetes drugs and then compete head on with the established leaders using price as the premium weapon to gain share. Like Diabetic Investor, Lilly sees that diabetes drug market is transforming into a commodity style market where price trumps performance.

It will be interesting to how Novo Nordisk (NYSE:NVO) and Sanofi (NYSE:SNY) react when this insulin is approved. Novo thought Tresiba, their new long-acting insulin would counter a Lantus knock-off yet the FDA didn’t cooperate as they have put a major monkey wrench in Nov o’s plans. While the company publicly remains committed to getting Tresiba approved here in the US, this news by Lilly may change their minds. Sanofi on the other hand faces a much bigger problem as when it comes to diabetes Lantus is all they have. For years the company has pushed through price increases for the drug as insurers really had no credible alternative. All that is about to change and as we have said many times payback will be a bitch as payors will gain valuable leverage when the Lilly drug is approved.

The shift in Lilly’s diabetes drug strategy reflects the new world order when it comes to diabetes management combined with reimbursement challenges. Unfortunately neither Novo nor Sanofi have come to accept this new world order continuing to live in the past. Both companies falsely believe they will be rewarded with premium reimbursement and prime formulary placement for new drugs which in reality offer only incremental improvements to what’s already in the marketplace. This of course assumes the FDA goes along and as Novo found out the hard way the FDA rarely cooperates.

Now Diabetic Investor sees Novo in a better position to compete with Lilly as their portfolio is deeper than Sanofi’s, who really has nothing beyond Lantus. However, Novo biggest problem isn’t what they have, it’s who they are. Sanofi at least has experience in dealing with patent cliff issues while Novo is flying blind here. Without a major shift in strategy Novo will slowly see their market share erode, an ironic scenario as this is exactly what the company did to Lilly only a few short years ago. Back then it was Lilly who dominated the insulin market and largely due to corporate arrogance ignored just how aggressive Novo would be. Ultimately Lilly went from first to third place and Novo became the clear market leader. Today it’s Lilly who’s taking the bull by the horns and it’s Novo who seems oblivious.

We know this will not bring Christmas cheer to any company in the diabetes drug business but it’s time to acknowledge what’s becoming more obvious each and every day, this is becoming a commodity market. That unless something is truly unique and we mean really unique, the odds of getting FDA approval plus premium reimbursement are not favorable.

Merry Christmas Everyone – enjoy the holidays.