Gunning for Lantus

Gunning for Lantus

Yesterday Novo Nordisk (NYSE:NVO) announced they had filed for regulatory approval of the ultra-long-acting insulin’s Degludec and DegludecPlus in Europe. According to a company issued press release the company will also be submitting both drugs to the FDA within two weeks. Not unexpectedly the company noted that both drugs will be available with a pen delivery system.

While no one, including Diabetic Investor, would care to handicap just when these drugs may be approved their submission signals a battle royal between Novo and their nemesis Sanofi-Aventis (NYSE:SNY). While Novo has owned the market for short-acting insulin, Sanofi holds the number one slot for long acting insulin with Lantus, the world’s number one selling insulin. Levemir, Novo’s current long acting insulin while somewhat successful has never been able to distinguish itself from Lantus and has been regulated to a secondary role in the long acting insulin market.

The company hopes that with Degludec and DegludecPlus they will be able to provide physicians and patients with greater product differentiation. The main attraction with Degludec has been its flexible dosing schedule, rather than taking the drug once-daily, Novo is claiming patients can go as long as three days between injections. The company also knows that Lantus is set to lose patent protection in 2014 and that Sanofi is working on a longer acting version of Lantus. Finally they are jumping on another treatment trend where fewer injections equal greater sales. A trend the company is seeing with their once-daily GLP-1 Victoza which is off to a good start versus twice-daily Byetta, but will soon face stiff completion from once-weekly Bydureon.

Unlike Sanofi, Novo has made the decision to stay away from the device and diabetes management arena as a strategy to increase insulin sales. Diabetic Investor is aware that the company is investigating several different insulin pumps but as of yet the company seems content to stick with (excuse the play on words here) with pen delivery systems for their insulin products. As of yet we have not heard if the company plans to develop a pen that communicates with a glucose monitor or mobile app, as Sanofi is doing. Given that the company to date has stated they have no intention to move beyond pen delivery systems and expand into glucose monitoring, Diabetic Investor does not believe that at present they will pursue a “smart pen”.

This news also places an even greater burden on Lilly (NYSE:LLY), Amylin (NASDAQ:AMLN) and Alkermes (NASDAQ:ALKS) to execute when Bydureon is approved by the FDA. The fact is Lilly is no longer a factor in the insulin market when it comes to offering innovative products. The company completely missed the boat when it came to developing a long-acting insulin and their current short acting products offer no compelling advantage from the competition. Lilly is actually pushing the short-acting market further towards becoming a commodity market with their aggressive rebate strategy.  Novo has publicly acknowledged that they will not sit ideally by and let Lilly undercut them, as Lilly’s aggressive pricing strategy has already cost Novo at least three managed care contracts.

It’s unclear at the moment what Sanofi plans to do with their short-acting offering Apidra, which has struggled to gain share in the market. Given their strategy, Diabetic Investor suspects the company will attempt to increase Apidra sales by tying the drug more closely to Lantus. We also suspect that at some point the company will be in the insulin pump business and it would make perfect senses to offer pre-filled Apidra cartridges for their pump. The short-acting market could become a free for all should the company decided to battle on price as this would set up a three way battle and the only winners here will be managed care companies who will be able to play the three companies off each other.

Given the recent series of studies which have called into question the use of insulin for patients with Type 2 diabetes, the cost of newer insulin’s and the coming threat of generics Diabetic Investor believes even when Degludec and DegludecPlus receive approval that Novo will have an easy time receiving the premium price these insulin’s will likely be priced at. This is the Achilles Heel in the Novo strategy, something which they acknowledged earlier this year. It would come as no surprise to Diabetic Investor if in an attempt to fend off the newer insulin’s Sanofi started discounting Lantus, basically forcing Novo to make a very uncomfortable decision. Do they match these discounts and see their margins erode? Or do they risk seeing poorer formulary coverage and therefore lower adoption by sticking with (sorry again) with the premium price?

Looking ahead Diabetic Investor sees the insulin market, both long and short-acting, coming under increasing pricing pressure and moving closer and closer to becoming a commodity market where price rules. This will force all the players to readjust their strategies and find new methods to increase volume. This is not unlike what has happened already with conventional glucose monitors and what is happening right now in the insulin pump market. Greater volume equals lower costs and improved margins.

The real question isn’t whether the insulin market will change, this change is already underway. The real question is which company will drive the change and is best equipped to deal with the new market dynamics. Novo and Sanofi would be wise not to repeat the mistakes made by Lilly who at one time ruled the insulin market. Whether it was ignorance, arrogance or a combination Lilly failed to grasp the changes that were going on before their very eyes back when Novo was becoming more aggressive and Sanofi was launching Lantus. Late to react, Lilly went from a market leader to a third tier player. Running out of bullets the company has ultimately capitulated entirely and now must be content to use price as their primary weapon.

Diabetic Investor sees the winner here listening to something Marshall McLuhan wrote back in 1964; “Control over change would seem to consist in moving not with it but ahead of it.”