Is anyone paying attention?

Is anyone paying attention?

There are times in this wacky world of diabetes when Diabetic Investor wonders whether or not anyone is paying attention to what’s happening. As we continue to shift through the avalanche of data that was released at last week’s annual ADA conference one reoccurring theme resonates loud and clear; when it comes to the diabetes drug market innovation has disappeared. Secondarily companies in the space continue to delude themselves into believing that incremental improvements to existing drugs will save the day.

Here are just two examples of what we’re talking.  During the conference Lilly (NYSE:LLY) released results from six completed clinical trials for their insulin glargine product. Basically what these studies revealed was that the Lilly offering did the same job as Lantus. Should the Lilly insulin glargine receive FDA approval it really wouldn’t matter whether a patient used Lantus or the Lilly insulin glargine. Simply put physicians and more importantly payors would have options.

In effort to combat what Lilly released Sanofi (NYSE:SNY), the makers of Lantus released data for Toujeo®, the product which they hope will replace Lantus.  This study noted that patients using Toujeo experienced fewer nighttime hypoglycemic events. Now we don’t want to minimize the importance of avoiding hypoglycemic events, however Toujeo didn’t offer any other compelling advantage over Lantus.  Simply put Toujeo is incrementally better than Lantus.

We could go on here as there were several studies that compared the various GLP-1’s and SGLPT-2 against each other but that’s not the point. The point is as much as everyone wants to believe that payors aren’t paying attention they are. It’s almost ironic that the drug companies themselves are giving payors the ammunition they need to demand and likely receive greater price concessions. That all these studies reinforce what we have been saying, the diabetes drug market is now that slippery slope headed straight towards commodization.

At some point every company in the diabetes drug space will face a dilemma; what’s more important margins or market share. The fact is payors, just like they did in BGM have taken control over pricing. With so many copycat offerings in each drug category they can demand and likely receive even steeper price concessions.  So again what will the drug companies do? Will they sacrifice margins to maintain market share hoping to make up lost margin through additional volume or will they try and maintain margin knowing full well that they will likely lose share if they follow this path?

This dilemma will also create more tough choices for the drug companies. Will they follow the path of the BGM companies and cut costs to the bone or will they attempt to double down hoping that more boots on the ground will lead to increased sales?   And what about R&D? Given the current market and regulatory environment can they afford to be innovative? Are they willing to risk millions of precious capital on the possibility that innovation will produce a blockbuster?

Look at what happened with Novo Nordisk (NYSE:NVO) and the now delayed Tresiba®. Novo spent millions developing Tresiba and high hopes for the drug.  Now the FDA is making the company spend millions more on additional studies; studies which will take years to complete. Even if the drug is finally approved, and there are no guarantees it will be, it will come to market at the worst possible time.

It’s for these reasons Diabetic Investor wonders whether or not anyone is paying attention.  Do they see what’s going on or are they deluding themselves? The harsh reality is the sooner they get with the program the better.