Have we come full circle?

Have we come full circle?

Yesterday Bristol Myers Squibb (NYSE:BMY) made the following statement; “Evolve the disease areas and drug platforms on which we concentrate our research efforts to drive growth for the company in 2020 and beyond by discontinuing broad based discovery work in hepatitis C, diabetes and neuroscience. The company will continue to focus on HIV, HBV, heart failure, oncology, immunoscience and fibrotic diseases.”  Now keep in mind this the same company that paid over $5 billion to buy Amylin back in 2012. A company which is now discontinuing its research efforts in diabetes, a disease which is growing at epidemic rates and for all outward appearances needs better therapy options.  Has Bristol lost their mind or do they know something everyone else does not?

Looked at realistically Diabetic Investor believes Bristol is making the right decision albeit for different reasons that lead the company to make this move. As Diabetic Investor has been stating for some time looking over the pipelines of the major diabetes drug companies there is really nothing that stands out and makes one all the excited. The fact is after years of innovation in the space the diabetes drug pipeline has hit a wall and the progress, if it can be called progress, is incremental at best. Yes we know it’s getting a little redundant but the diabetes drug space is quickly transforming itself into a commodity market where price trumps performance.

This is the main reason why Lilly (NYSE:LLY) has decided better to adapt to the changing marketplace than to invest millions, more like billions, in trying to develop innovative therapies which may or may not pay off in the long run. While physicians always want new and better drugs the fact is we now have an ample supply of diabetes drug which if used as prescribed do the job just fine. Yes there is room for improvement but quite frankly any improvement being worked on at the moment is incremental at best.

While Diabetic Investor believes that the FDA is being overly conservative with their stance on Tresiba, the fact is the agency is probably doing Novo Nordisk (NYSE:NVO) a huge favor. Although Novo seems to believe Tresiba is a major improvement over Lantus, the data tells a different story. As is becoming common the improvements, if they can be called improvements, are incremental at best. Add in the fact that Lilly is working on a Lantus copycat, that a biosimilar version will also hit the market and the case for Tresiba becomes even more problematic.

Again looked at realistically why would Novo want to spend even more capital getting Tresiba approved here in the US when this capital can be used more effectively elsewhere. As we noted earlier this week this is what makes the comments made by Novo’s CEO seem so out of touch with reality. Lilly and now Bristol have seen the handwriting on the wall, two organizations not exactly known for being innovative or forward thinking, why is Novo continuing to live in LaLa land.

Just in case anyone doubts the transformation going on in the diabetes drug market look at the results Merck (NYSE:MRK) announced for their Januvia franchise. Yes the franchise remains a juggernaut however the franchise is not immune from pricing pressure as their CEO acknowledged during the company’s earnings call. To Diabetic Investor this is just further confirmation that the diabetes drug market is quickly transforming into a commodity market.

Now it is possible, even likely, that this lack of innovative pipelines is temporary still the fact remains that factors beyond science are impacting the decisions made by companies like Lilly and Bristol. These companies see that the regulatory and reimbursement environments are less than favorable. They also are keenly aware that it is equally unlikely this environment will change in the near or even the long term. Frankly it does make sense to invest precious capital into developing innovative therapies when the risk and possible payoff just isn’t there.

The question isn’t whether or not Bristol is making the correct decision, rather why did it take them this long to make it. It also makes one wonder when Sanofi (NYSE:SNY), another company that seems to be suffering from delusions of grandeur, will wake up and smell the coffee. The diabetes drug market may be huge and expanding; however the risk reward profile for drug development has become negative. It’s time everyone realizes this and the sooner the better.