Cracks in Januvia’s armor?

Cracks in Januvia’s armor?

This morning Merck (NYSE:MRK) released third quarter results which seem to indicate that the Januvia franchise is facing some serious headwinds. At first glance sales results, an 8% sales decline domestically, would seem to indicate that this blockbuster franchise is losing share. Yet the sales decline is actually more indicative of what Diabetic Investor has been stating all along, the diabetes drug market like the blood glucose monitoring market, is transforming into a commodity market where price trumps performance.

Take a look at the comments made by Adam Schechter, Merck’s President of Global Human Health:

“The franchise had sales of $1.4 billion and 2% growth ex-exchange. Growth of 15% in international markets was offset by an 8% decline in the United States. The United States sales decline this quarter was driven by lower customer inventory levels of more than $60 million.

With regard to demand, in the United States we saw a decrease of about 2% in TRx volume this quarter. However, we continue to maintain our strong market leadership position, with a greater than 70% share despite three other DPP4s in the U.S. market.

The key issue in the United States is that the branded oral diabetes market is relatively flat. Regarding price, while we saw a small benefit from price this quarter, we also continue to experience rebate and pricing pressure as this is a very competitive market.

In international markets, Januvia and Janumet sales increased 15% on a constant currency basis. We drove good volume growth in each region around the world and we maintained leadership with about a 70% global market share.

Now let me touch on our outlook for the franchise. First, in the United States we continue to focus our resources on Januvia to drive demand and to take share from the sulfonylureas. With significant new competition, we must defend market share while at the same time focus on market growth. Although this has proven to be difficult, we must change the TRx trend in order to return to growth in the United States. Second, internationally we expect good growth. The diabetes market continues to grow, and we are well-positioned as the market-leading DPP4 inhibitor. “

He later added during the Q&A:

“And with regard to 2014, we’re not giving specific guidance at this time. And we don’t typically give discounts and rebates on individual products. But what I will say is if you look at where we are today, we have about 80% access in manage care. So we believe that we will have a similar, very strong formulary position in 2014, with greater than 80% access. And as to rebate and discounting, we’ll continue to be aggressive in the marketplace, but with that said, we’re going to maintain a very strong access position for Januvia in ’14.”

He then added when asked again about the franchise;

“Let me give you some context to Januvia and Janumet. I’m going to start first at a high level, and a global high level, which says, and it’s clear, that diabetes is a growing epidemic, that it is a significant concern in almost every market around the world, including the United States. And if you talk to any government, the would tell you that they’re very concerned about the growth of expenditures due to diabetic patients. So the market underlying demographics reams very strong.

If you look at the United States, we had a decline of 8% year over year, but that was almost entirely due to customer inventory levels, where we saw a greater than $60 million decrease in the inventory levels. If you focus on TRx volume in the U.S., you saw about a 2% decline in volume.

We did see a benefit from price, but with the continued pressure on rebates and discounts, we saw several percentage points that could be attributed to price. When you think about guidance in the U.S., what you’re seeing is it’s very difficult to predict the channel movements. You saw last quarter we had 9% growth. This quarter we had minus 8%. And that’s primarily due to the changes in wholesalers and channels.

So what I am focusing on are putting the right resources behind Januvia in order to change the current TRx trend. And I believe the most important thing to watch is the TRx trend. And what we need to do as we go into 2014 is to ensure that we don’t continue to see TRx volume losses.

The fact that we still have greater than a 70% market share, despite four DPP4s in the marketplace, tells you that we have a very strong position. We are losing a little bit of market share each month, but you would expect that with four competitors. The real key is that the DPP4 market in the branded oral anti-diabetic market isn’t growing.

Typically when you have four or five new branded products in the market you see growth in the market, and you see expansion in the market. We’re not seeing that right now in the United States. So we have to focus on moving patients that are currently on sulfonylureas to Januvia or make sure that Januvia is seen as the likely next step after metformin before sulfonylureas.

Outside the U.S., it’s a very different story. Outside the U.S. we still have about 70% market share. We saw 15% growth year over year, and despite losing a little bit of market share in markets here and there, the overall market is continuing to grow. So with the market growth that we’re seeing outside the U.S., that’s why we’re still able to see very strong volume growth despite losing a small amount of market share.”

Now if all these quotes are just too much corporate speak allow Diabetic Investor to translate into English everyone understands- Basically there is no real performance difference between the many DPP4’s on the market, the competition is using price as a weapon and payors (who now hold the keys to the kingdom) are taking full advantage of this by demanding and getting greater price concessions or bigger rebates. Payors know they can get away with this as there is so little difference between DPP4’s it really won’t hurt the patient any if they take Januvia, Onglyza or Trajenta.

It’s about time everyone begins to realize that this scenario will happen again and again as we move forward. The short-acting insulin market is headed down this road already and will soon be joined by the long-acting insulin market, to be followed in short-order by the GLP-1 market. As we have been noting there really is nothing in anyone’s pipeline that jumps out as anything more than incremental progress over drugs that are already on the market; nothing for sure that would put payors in the position of paying a premium.

Get used to it but the days of drug companies asking for and receiving premium reimbursement are over and it doesn’t matter if a drug has 70%+ market share.  As long as drug companies follow the copycat path this environment will not change, which is actually part of the problem. Due to the ultra-conservative situation at the FDA combined with the current reimbursement environment drug companies are no longer being rewarded for being innovative. Simply put the risk is to too high and the possible reward just isn’t there. Many companies have basically decided to take the easy path to FDA approval and then use price as their primary weapon to gain market share.

Now before everyone jumps off the deep end Diabetic Investor does not see these results as a sign that the Januvia Juggernaut has run aground. Rather, it indicates that Merck even with all their resources and 70%+ market share is not immune to the changing dynamic of the diabetes drug market. Now we know no one wants to hear this but the diabetes drug market and it doesn’t matter which drug it is, is becoming a commodity market where price trumps performance. Take this to the bank.