Is this what the future will look like?
Yesterday Lilly (NYSE:LLY) announced that Trajenta, which was recently approved by European authorities, won’t be available in Germany due to the country’s drug pricing system. Under Germany’s new system, companies will no longer have the power to set prices. Companies have one year to set prices on new drugs, while negotiating a long-term price with the government. The negotiation will include cost-benefit analysis by government health officials. If a new drug isn’t deemed more valuable than existing treatments, its price will be pegged by the government.
While Lilly’s CEO John Lechleiter spent last month in Germany complaining about the new pricing system, stating “In no other place in the world has the environment for innovative pharmaceuticals changed more in the last 12 months than it has in Germany,” he really should be questioning his own motives for launching yet another me-too drug that has little if any compelling advantages over two well established competitors, one of which is a blockbuster.
Given how poorly Trajenta is performing here in the US, Diabetic Investor thinks it’s about time Mr. Lechleiter stop complaining about Germany’s drug pricing system and get back to the business of developing innovative drugs that actually offer a compelling benefit over what’s already on the market. The stark reality is while Mr. Lechleiter may not like Germany’s new pricing system, given the rising cost of healthcare combined with slowdown in the world economy; this new pricing system is a sign of things to come across the globe, including the US. He should acknowledge what is obvious to everyone else, in that governments around the globe are going broke and healthcare costs are not immune to cost cutting.
From the beginning Lilly and their partner Boehringer Ingelheim, have been trying to pawn off Trajenta as some type of miracle drug when the evidence clearly indicates that its one lone advantage over the competition is really no advantage at all. Even worse the companies have spent money like drunken sailors on shore leave promoting Trajenta. (Diabetic Investor is still waiting for our supply of Trajenta toilet paper.)
What’s so confusing here is that Lilly actually has access to a drug that is truly innovative and offers several compelling advantages over the competition with Bydureon. Rather than embrace Bydureon the company goes out and makes a deal with BI which ultimately forces their other partner Amylin (NASDAQ:AMLN) to sue the company. From the beginning Diabetic Investor has never understood the Lilly/BI deal even when you look at the other drugs which are included in the deal. We cannot understand why when they have a potential blockbuster like Bydureon coming to market they would divert their attention and resources to a loser drug like Trajenta.
Instead of making sure that the Bydureon launch goes off without a hitch, something that will be critical to the drugs success, the company alienates their partner to such an extent that they have no other choice but to take legal action.
Diabetic Investor also questions the wisdom of what Mr. Lechleiter is doing with his tour of Germany and constant complaining about drug pricing. Does he not see what is going on before his very eyes? Does he not realize that drug pricing has forever changed and companies can longer launch me-too drugs and expect wide spread insurance coverage? Does he not see the compelling value proposition offered by Bydureon? Does he not see that Lilly, once a world leader in diabetes, is in serious danger of becoming a diabetes after thought?
To Diabetic Investor his efforts seem more like a diversionary maneuver to take attention away from how badly Lilly has mismanaged their diabetes unit. Things have become so bad at Lilly that the company considers it a victory when their insulin franchise is no longer losing market share. As Diabetic Investor has noted on far too many occasions Lilly’s diabetes pipeline, other than Bydureon, is full of me-too, late to market products that at this point don’t seem to offer much in the way of product innovation.
The real question that needs to be asked is; can Lilly repair the damage they done with Amylin and effectively launch Bydureon? Will they take the bold step and acknowledge that Trajenta really isn’t the drug they thought it would be and stop wasting money on it? Will they acknowledge that the competitive landscape for diabetes drugs has changed forever and that the days of drug companies having complete control over drug pricing are gone as well?
Diabetic Investor also believes Mr. Lechleiter would be wise to remember the words of John Hebert who stated; “Don’t complain. The people who will listen can’t do anything about it, while the people who can do something about it won’t listen.”