My how the world has changed

My how the world has changed

It seems like it was just yesterday when all a glucose monitoring company had to do to increase share was launch a new meter, give them away for free and then watch the bucks roll in. It wasn’t that long ago when Walgreens, CVS and Rite Aid would feature a free monitor in their popular Sunday circulars. It wasn’t that long ago when companies aggressively used TV to tout their latest greatest offerings. The BGM business was so enormously profitable that companies were, believe it or not, actually kind of caviler in their approach as it seemed anything they did turned to gold.

Talk about going from the Penthouse to the Outhouse, look around today and meters are rarely given away for free, profits are a mere shell of what they were and now it seems everything a BGM company does turns gold into sand.

One has to wonder whether the folks at Lilly (NYSE:LLY), Novo Nordisk (NYSE:NVO), Sanofi (NYSE:SNY), Merck (NYSE:MRK), GlaxoSmithKline (NYSE:GSK), and AstraZeneca (NYSE:AZN) have learned from their BGM brethren as the day of reckoning is quickly approaching the diabetes drug market. The diabetes drug market is on the verge of fully transforming itself into a commodity style market where price trumps performance. While the diabetes drug market for the moment does not face the threat of competitive bidding, the market is following the path the BGM market did years ago.

A critical error made by BGM companies back in the day was their failure to see how their market was transforming before their very eyes. In their defense this indifference to events was somewhat understandable as there was plenty of money being made and the future transformative events were, well in the future. Yet the seeds of the BGM markets demise were planted when times were good and when a company is fat and happy they tend to ignore the looming storm clouds that were on the horizon.

Diabetic Investor sees the diabetes drug market at this juncture today as the storm clouds are on the horizon. Insurers see a world filled me with me-too, copycat drugs plus have the added threat of generics. They also realize that they are to a large extent picking the winners and losers, that the commercial success or failure of a particular drug is not determined by the physician or patient. This is exactly what happened in the BGM market years ago.

The real question is what if anything can diabetes drug companies do to stop this from happening. The harsh reality is companies are not like Superman who can stop a speeding bullet, jump tall buildings and run faster than a locomotive. The market is going to transform and all they can really do is adopt corporate strategies that allow them to profit. They will need to develop lower cost organizations and not just fewer sales reps in the field. Cost containment is the order of the day and extends into every aspect of how these companies operate; everything from drug development to physician outreach.

Some tough decisions are coming for companies like Sanofi and Merck who currently have mega-blockbusters but nothing in their pipelines that can replace what will be mega-sized holes when generics come along. Novo is also facing tough decisions just from a different perspective, yes the pipeline is rather weak but Novo still has robust portfolio. Novo’s big issue is learning to adapt to the new more price competitive environment they play in. The company can no longer afford to over-spend on developing new products which for all practical purposes are just improved versions of existing products, improvements which are nice but not truly innovative. They must accept the fact that premium reimbursement is a rarity, something like the Chicago Cubs winning a World Series, yes it happens about once every 100 years or so.

As much as Diabetic Investor sees Lilly well positioned for the coming commodization in the diabetes drug market, there is no guarantee this strategy will work because frankly it’s never been tried before. The strategy looks good on paper but will it work is anyone’s guess. The same is true for Astra who spent billions to become a player in the market, billions which will be well spent if they execute or wasted if they don’t. The company has some solid offerings but one has to question whether the GLP-1 portion of their portfolio has already suffered too much damage and may not repairable.

Looking ahead Diabetic Investor believes the winners and losers in the diabetes drug market will be determined not by who has the “best” drug in the category rather by which company can best navigate in this new and changing environment. The waters ahead are going to be choppy and it will take a steady hand at the helm to insure the ship arrives safely.