Building on a solid foundation

Building on a solid foundation

One of the most difficult jobs in pharma land is turning a one hit wonder into a thriving franchise. Years ago Bristol Myers Squibb (NYSE: BMY) had the hottest drug in diabetes; Glucophage, a multibillion mega-blockbuster. However, the company could not capitalize on the drugs huge success and basically left diabetes when the drug went generic. Our wine drinking friends in France are the posterchild for this failure as they could not turn their one hit wonder, Lantus into a thriving diabetes franchise. Although Sanofi (NYSE: SNY) has not yet left diabetes this franchise continues to take on water.

Yet, drug companies aren’t the only companies who suffer from this affliction. Way back in the day Roche, yes Roche, ruled the glucose monitoring world thanks in large part to their Comfort Curve test strip. But Roche being Roche couldn’t capitalize on the huge popularity of this stirp and transform themselves into a thriving diabetes device franchise.

The latest company to attempt this leap from one hit wonder to a thriving diabetes franchise is Merck (NYSE: MRK) who is trying to build a diabetes franchise on the huge success of their Januvia franchise. The question is will Merck succeed were so many others have failed? Will they make the classic mistake of trying to be something they are not or will they understand their limitations?

We see this transformation even more difficult for Merck as the diabetes market has changed dramatically over the years. Today payors exert even greater control over pricing and market share. The diabetes drug world has transformed into a commodity market where price trumps performance. Diabetes management is transforming from a collection of drugs and devices to a system based approach that includes drugs, devices and apps.

AstraZeneca (NYSE: AZN) is another example of a company who tried to build a franchise yet instead of building upon the huge success of one product they tried to build this franchise via acquisition. A construction project which has failed to deliver the expected result.

Given how the diabetes market has been changing the question Merck should be asking is whether this effort will pay off in the long run. Or put another way perhaps it would be better to partner than building their own franchise. To us this is the mistake made by those who came before Merck, they failed to understand what they were would good at and what they weren’t good at.

We hate to dump on our wine drinking friends but they are the perfect example of this. Back in the day Sanofi actually had the most interesting strategy in diabetes. They did not just want to build a diabetes drug franchise but actually wanted to build a diabetes management franchise. A franchise which sold diabetes management systems. Yes, there was a time when Sanofi actually got it. Since we chronicled Sanofi’s many blunders we will not pile on. Instead let’s look at an example of why pharma companies have no business trying to be all things to all people.

For this strategy to succeed, to develop a true diabetes management system, the company would have to stray from their core competency and get into the device business. Rather than partner with existing well established diabetes device companies the company decided to partner with a lesser less established company AgaMatrix. AgaMatrix developed the way cool now way dead iBGstar glucose monitor. A meter which worked with the equally way cool iPhone.

A product which Sanofi management foolishly believed patients would pay for just because it worked with the way cool iPhone. Even worse they compounded this foolishness when they budgeted less than $10 million to launch this way cool meter. Keep in mind back when the iBGStar was being launched the company was competing against well established companies with huge marketing budgets. Companies who would not just roll over and let this way cool meter take away valuable market share.

To fully appreciate just how foolish their thinking was – giving this unit less than $10 million to launch the product is like asking the Fighting Illini to play against the New England Patriots and expecting this college team to beat one of the best professional teams. Needless to say the iBGStar just like my beloved Fighting Illini wouldn’t stand a chance.

While everyone in diabetes should have learned from Sanofi’s mistake they haven’t. Far too many legacy companies are about to repeat this mistake. They foolishly believe that they can beat our friends in the Valley simply because they have established franchises. That they can beat these well-resourced companies just because they have been in diabetes forever. Rather than try and work with these well-funded newcomers they are trying to go it alone. This in our opinion is not just foolish but naïve.

The world of diabetes is changing out in the open, in plain sight. Yet many of these legacy franchises cannot see the forest through the trees. This willful blindness will eventually prove costly as their once thriving franchises will end on the scrap heap.

Our advice to Merck is something Momma Kliff used to say all the time; “Stick with what your good at and don’t try and be something you are not.”