Is Bristol turning the quarter?

Is Bristol turning the quarter?

For some time Diabetic Investor has been wondering when Bristol Myers Squibb (NYSE:BMY), who reported third quarter results this morning, would wake up and realize they have a drug named Bydureon. A drug which just so happens is the only approved once-weekly GLP-1, a market which continues to show impressive growth. It’s not an overstatement to say that the GLP-1 market is perhaps the only diabetes market which is not only growing but looks to see even greater growth in the future.

Yet for reasons only known to the company it seemed as if they didn’t realize that Bydureon if marketed and sold properly has the potential to become a blockbuster. Based on previous earnings calls the company barley acknowledged Bydureon even existed. Additionally based on reports from the company’s field force it seemed like the inmates were running the asylum, as there was no clear direction. Simply put the sales and marketing efforts for Bydureon were a complete mess.

Looking over the results announced this morning it appears the company may be turning things around for Bydureon. Not only did the company acknowledge the drug but noted that sales are finally beginning to show serious signs of life. The tale of the tape, for the third quarter worldwide sales reached $80 million compared to $20 million last year. For the first nine months of 2013 sales hit $205 million with $182 of that coming here in the US. Now before we get too excited here it’s important to note that while it is nice to see results improve the drug is still a long way from achieving its potential. Even more ominous is if the company doesn’t get its act together they will soon have competition.

Based on comments made by the company it seems as if they are not sticking their heads in the sand and fully acknowledge just how competitive this market is becoming. They also seem to realize how much the reimbursement environment has changed, understanding that price is now just as important, if not more so, than how a drug performs. The real question is can they navigate this difficult environment while building enough market share for Bydureon to fend off the future competition.

To understand how difficult this market has become consider that Lilly (NYSE:LLY) who also reported results today has their own once-weekly GLP-1 Dulaglutide which was recently submitted for approval both here and in Europe. While there are some differences between Dulaglutide and Bydureon, the two drugs based on all available public data basically do the same thing and achieve comparable results. Dulaglutide may have a slight advantage with a smaller needle size, an advantage that may be mitigated somewhat if Bristol ever gets the Bydureon pen to the market.

With no major performance differences between the two drugs payors gain the upper hand as they can basically determine market share through formulary placement. This is exactly what’s happened in the short-acting insulin market and the DPP4 market. Basically companies in these markets have a choice capitulate to the demands of payors, accept lower margins or risk seeing their particular drug regulated to also-ran formulary status. Lilly has fought this battle in the short-acting insulin market with Novo Nordisk (NYSE:NVO), while Merck (NYSE:MRK) has fought this with Bristol in the DPP4 market. As Diabetic Investor has reported in the past not only are these battles fierce, even when a company wins the battle they may lose the war.

It also doesn’t help Bristol any that Lilly seems content to accept lower margins and has made the decision to use price as their primary weapon to regain dominance in the diabetes market. As Diabetic Investor has previously reported Lilly’s new diabetes strategy is to offer a comprehensive portfolio of diabetes drugs and then leverage this portfolio with payors by offering them discounted pricing should they take on the entire line. To their credit Lilly sees that none of the compounds under-development in the diabetes drug sector offer much more then incremental progress than what’s already on the market. Better to follow the Wal Mart philosophy of stake it high and let it fly, rather than spending millions, sometimes billions, to build a better mouse trap.

This is why the decisions that Bristol makes today regarding Bydureon are critical. This is why they should do whatever they can to get the Bydureon pen to market as quickly as possible. Simply put right now they own the long-acting GLP-1 market and better to take full advantage of this fact as eventually this advantage will disappear. Should they be able to build significant market share for Bydureon they will be in much better negotiating position when Dulaglutide does get here. This doesn’t mean they will have it on easy street rather better to negotiate from a position of strength, something Merck has done fairly well in protecting the Januvia franchise.

The bottom line here is that everyone has to get used to the idea that just as the glucose monitoring market has fully transformed from a medical device to commodity market, so too is the market for diabetes drugs. Everyone also needs to understand that the people who control market share, the payors, know this and will use their considerable clout to demand and receive lower prices; this is exactly what they have done with BGM and will do it all over again with diabetes medications. A new day is dawning let’s hope for Bristol’s sake they are awake.