Does it matter?
Been thinking about whether the consolidation in the private payor space actually matters for diabetes drug and device companies. Our initial reaction was of course this matters as the new larger combined companies will have even greater leverage. Yet on second thought we realized that while these larger companies will have more leverage when it comes to diabetes drugs and devices it’s already a commodity market.
Although only a handful of diabetes drug companies have reported earnings already it’s pretty obvious that besides seeing continued pricing pressure competition to maintain share and formulary position is fierce. Looked at realistically there is no one drug that stands out, that’s worthy of premium reimbursement or prime formulary position. Perhaps the last drug to achieve this status was Lantus, however today Lantus has competition it is no longer the only long-acting insulin.
The same can said for nearly every diabetes drug category orals and injectables. The reality is while there may be slight differences between some of these drugs, the differences are not compelling enough for a payor to favor one over another. Take a look at the long-acting once-weekly GLP-1 category where there are 3 drugs. Yes there are some differences between these drugs yet they all do basically the same thing the same way.
This situation has been going on in the device space for years and not just glucose meters but also insulin pumps. Yes there are some slight differences between systems but nothing so compelling that a payor would pay a premium.
We hate to say this but the world of interconnected diabetes management (IDM) is headed down this same path. Let’s be honest here there are only so many ways to gather data, analyze it and then make recommendations to the patient. This is one reason we believe that the so-called “best” system won’t necessarily be the winner as quite frankly there is no such thing as “best” system. Diabetic Investor has looked at hundreds of these way cool whiz bang devices that work with way cool whiz bang apps and the reality is the differences between them are slight.
This is why scale has become more important than ever. This is not like the old days when a small BGM company could do very nicely with only a tiny slice of this huge market. Back in the day these companies would make something for pennies and sell it for dollars, those days are long gone. The same can be said for drugs payors know they have the upper hand and are exerting this power every chance they get. This is what happens when you have so many copycat me-too drugs in every category. There are always exceptions to this but by and large scale drives everything.
The more we look at this wacky world the more firmly convinced we are that consolidation in devices and drugs will continue. There are just too many me-too copycat drugs and devices. Do we really need over 40 different glucose meters or five insulin pumps? How many DPP4’s do we need? Or what about long-acting insulins?
So to answer our question while this consolidation in the payor space will have some impact the harsh reality is for diabetes drugs and devices it will won’t be as bad as everyone thinks. Or put another way these are already commodity markets where price favors performance.