Had to happen

Had to happen

This morning Lilly (NYSE: LLY) stated in a press release;

“Eli Lilly and Company (NYSE: LLY) today announced actions to streamline operations to more efficiently focus resources on developing new medicines and to improve its cost structure. Global workforce reductions, including those from a U.S. voluntary early retirement program, are expected to impact approximately 3,500 positions.

With the streamlining efforts announced, the company expects annualized savings of approximately $500 million that will begin to be realized in 2018. These initiatives are part of a broad productivity plan underway at the company to improve its cost structure, particularly fixed costs.”

This is the new reality that every pharma company must live with particularly those in diabetes. This is just more evidence that this market continues to commoditize making it essential for companies like Lilly to be as efficient as possible. The harsh reality is that these companies no longer need huge and very costly sales teams as these teams no longer influence prescribing patterns. While no one likes it very much payors have a greater impact on market share than ever before.

We suspect in the coming months Novo Nordisk (NYSE: NVO) who has begun their own restructuring to control costs will become even more aggressive. The same can said for Sanofi (NYSE: SNY) and AstraZeneca (NYSE: AZN).

The question becomes what if anything these companies can do to regain leverage with payors. When performance doesn’t matter this isn’t easy. A fact which will also impact the future of diabetes management. As we have been stating these companies have a responsibility to their stakeholders who expect a return on their investment. Why spend millions of dollars developing new and better medications without the opportunity to make a decent return.

Far too often the people who complain about the high cost of drugs are also the same people who clamor for new and better drugs. They seem to believe that companies will make major investments without considering a return on those investments. This is not just misguided but also foolish as these companies are not beholden to patients they are beholden to their stakeholders. This is no way means they are evil, which many seem to believe, but this is a business and we know of no business that lasts very long when they cannot make money.

We’d like to believe that drug and device companies could regain somewhat of an edge by producing better patient outcomes. This would benefit everyone however for all the lip service payors give to better outcomes the fact is they too have stakeholders. Yes, they talk a good game but when it comes to patients with diabetes they want to manage them as cheaply as possible.

So, this puts us at the crossroads. How can all the various constituencies who have competing interests be satisfied without hurting patients? We’d like to say we have an answer but we don’t. The reality is there are no easy answers for if there were they’d be in place already. The fact is all the constituencies, including patients, must be willing to give up something to get something and right now that doesn’t seem doable.