Let the games begin

Let the games begin

Being from Chicago Diabetic Investor is well versed in the rough and tumble world of city politics, gang warfare and our gangster history. Yet even this experience may not be enough to prepare us for what’s about to take place in the global insulin market. According to report posted by Reuters yesterday that soap opera turned three ring circus Sanofi (NYSE:SNY) will officially launch Toujeo on Monday. Ironic as also yesterday Novo Nordisk (NYSE:NVO) announced they would be resubmitting Tresiba to the FDA earlier than expected based on the interim analysis of study data. It seems Novo officials feel very comfortable with this resubmission based on their discussions with regulators.

Not to be left out of a good fight are our neighbors to the south Lilly (NYSE:LLY) who has a generic version of Lantus all set to go once the legal issues clear and have their own branded long-acting insulin coming to market.

Should the report by Reuters prove accurate and Sanofi does launch Toujeo on Monday this tells Diabetic Investor the company is getting a little desperate. Keep in mind this is a company not exactly known for solid execution who happens to be in the midst of another diabetes product launch, which by all accounts isn’t going to well. This news should also send some ominous signals to anyone who believes incoming CEO Olivier Brandicourt will actually be running the show. Would have it hurt all that much to launch April 5th after Brandicourt took the reins on April 2nd?

Regardless of why Sanofi did it or who’s really in charge, we wouldn’t expect a warm reception waiting for Toujeo from physicians or payors. Toujeo is designed to replace Lantus and based on clinical data the only real difference between the two insulin’s is that patients using Toujeo experience fewer hypoglycemic events, a claim which did not make its way onto the Toujeo label. In terms of glycemic control Toujeo is on par with Lantus but not better than Lantus. So the main question for physicians; is there any real benefit switching a Lantus patient to Toujeo? The answer is critical as Sanofi is banking they will switch, that these conversions will catapult Toujeo to blockbuster status and make everyone forget about Lantus.

Given that Toujeo’s benefits are dubious at best physician may not even have the opportunity to switch. Payors have looked at the same data as everyone else, they know that at best Toujeo is a slight improvement over Lantus plus they know Tresiba is coming and to top it off Lilly has a generic Lantus waiting in the wings. Simply put there is no rush to provide Toujeo with favorable formulary position. Even better for payors they know that Sanofi is desperate and it’s time for some payback for all those years when Sanofi kept raising the price for Lantus as they knew there was no alternative. Simply put payors hold the keys to the kingdom and will put the screws to Sanofi when demanding lower prices, greater rebates or both.

But let’s go back to physicians for a moment and for grins and giggles assume that a patient’s coverage wasn’t a factor; would they switch them from Lantus to Toujeo?  The answer Diabetic Investor is getting is a resounding NO! These physicians just don’t see a compelling benefit plus patients who are switched would have to be retrained. Yes it seems that Lantus and Toujeo are dosed different or put more simply a patient who is currently taking 40 units of Lantus each day would take a different amount of Toujeo to get the same result. A physician cannot simply hand the patient a Toujeo pen and tell the patient to keep doing what they’ve been doing. Put in even simpler terms why screw with something that’s already working when there is little benefit and real work to be done by switching a patient.

Listen we know that no one wants to hear this but the insulin market is about to experience a knock down drag out bloody brawl or just what Sanofi, Novo and Lilly wants to avoid. The simple fact is payors have the upper hand and will extract, more like extort, lower prices and higher rebates. Just as Toujeo is just incrementally better than Lantus, Tresiba isn’t that much different. Yes just as Sanofi is trying to pawn off Toujeo as the best thing ever so too is Novo over-hyping the benefits of Tresiba.

Let’s be clear here Diabetic Investor is not saying there is anything wrong with Toujeo or Tresiba. Both get the job done and yes they are slightly better than the products they are designed to replace. However in today’s world where cost containment is the order of the day and with a generic Lantus looming on the horizon neither drug will command premium reimbursement plus Sanofi and Novo will pay through the nose to get preferred formulary access and we all know what that means.

Frankly Diabetic Investor cannot imagine a scenario where the insulin market, long and short-acting, does not disintegrate into an all-out price war between Sanofi, Novo and Lilly.  And let’s not forget there are other generic insulin’s under development, which presents another issue. What happens if say a company like AstraZeneca (NYSE:AZN) who does not currently have insulin’s decides to acquire generics and in an effort to promote their entire diabetes portfolio undercuts everyone else. Listen Astra has invested heavily to get into the diabetes market and barring an acquisition it’s not difficult to imagine them doing whatever’s necessary to protect their investment.

To Diabetic Investor the insulin market reminds of us of a great scene in the movie Casino when Joe Pesci’s character is beating the crap out of a guy with a pen. In the voiceover by DeNiro you hear him say that if you come at Nicky (Pesci’s character) with bat, he would come back with a knife, that if you came at him with a knife he’d come back with a gun, that if you came with a gun you better kill him because he won’t quit. There is no two ways about it the battle for the insulin market will be just as brutal, as the players have billions at stake.

Worse still is its payors hold the keys to kingdom and just like a Chicago alderman has never meet a payoff they didn’t like. Payors won’t be shy when demanding some sort of payoff – lower prices – higher rebates – likely both.

All along Diabetic Investor has been warning every one of the coming commodization of the diabetes drug market. That just as glucose monitors became a commodity so too will diabetes drugs. That it will be price not performance that determines formulary placement and therefore volume. This is what happens when companies in the market develop me-too copycat drugs, drugs which are only slightly better than what is already on the market.

This is also what happens when regulators stifle innovation, make it take longer and cost more to bring new products to market. In many respects Diabetic Investor cannot blame a company like Lilly for not being innovative, the costs are enormous, the risk are huge and given the state of reimbursement the payoff is dubious at best. In today’s environment it’s easier and more cost effective to produce drugs which may not be first to market but with the right infrastructure can be profitable even at a lower price point. The simple fact is at least for now drug companies are not rewarded for being innovative.

This makes us wonder how Novo will handle all this as it’s not in their DNA to worry about costs. At time when every other diabetes drug company has been cutting sales reps Novo has followed a contrarian path hiring more reps. The fact is Novo comes from a world of producing superior products that back in the day received premium reimbursement. Well they still produce excellent products the economics of the drug business have changed. The question is can Novo adapt to this new world order and right size their business to fit current market dynamics.

Honestly we’d like to say that Sanofi has a chance but baring a miracle we wouldn’t expect much from them. Looked at realistically this company is in so much turmoil that Toujeo would have to be vastly superior not just to Lantus but Tresiba to stand any chance at all. Well the data just doesn’t show this which when added to Sanofi’s proven inability to launch a successful diabetes product other than Lantus, the future looks bleak. While this may seem unbelievable Diabetic Investor is even less optimistic as it looks like Brandicourt won’t be allowed the freedom to drive change.

What we do know is that this will not be a battle for the faint of heart. That these companies will use any means possible to gain an edge. Let the games begin.