No surprise here

No surprise here

As much as the drug companies don’t want to acknowledge it, they all know when it comes to the market for diabetes drugs it’s becoming a long and painful march towards commodization. The harsh reality is this strategy of developing “new” drugs which are just incrementally better than the drug they were designed to replace has backfired in a big way. Sanofi (NYSE: SNY) was the first to experience this failure as payors just weren’t buying that Toujeo was better than Lantus. Sanofi was basically forced to offer a lower price and higher rebates just to get Toujeo on formulary.

As we warned Novo Nordisk (NYSE: NVO) was making the same mistake with Tresiba. Like Sanofi they played the hypoglycemia card and unfortunately for Novo the payors didn’t fall for the same tactic twice. According to a published report by Bloomberg;

“Express Scripts designates Tresiba as a “non-preferred” option available on a higher co-payment tier than Sanofi’s best-seller Lantus and other insulins.”

The story goes onto state;

“In pricing negotiations for diabetes drugs in general, manufacturers, particularly those based in Europe, are showing more flexibility and realism than in the past, with discussions occurring earlier in the process, he said.

“They under-appreciated our ability to move market share several years ago,” Miller said. “Now, all of the leadership teams have come up to speed on that.” -Miller is Steve Miller, chief medical officer for Express Scripts.  (The full story can be found at http://www.bloomberg.com/news/articles/2016-03-03/express-scripts-says-novo-s-insulin-data-not-convincing-enough?cmpid=yhoo.headline)

Now we don’t want to say we told you so but what the heck we did. Frankly we were a little surprised that Novo even pursued this path with Tresiba, they knew it didn’t work with Toujeo, they had seen all the data yet they played the same card that Sanofi played. Now this type of behavior is expected from our wine drinking friends but not from Novo, honestly they should have known better.

In a few months both Novo and Sanofi will have a much bigger problem to deal with when Basaglar, Lilly’s (NYSE: LLY) biosimilar version of Lantus. As Mr. Miller correctly notes payors have the ability to move market share, which is really a polite way of saying they hold the keys to the kingdom. That if companies like Novo and Sanofi don’t capitulate to their demands then so be it, the business goes to Lilly.  And this is not just happening in the insulin market but EVERY diabetes drug category.

The question is can the drug companies do anything to prevent what is looking like a very nasty price war. To be honest we think not. Just as BGM companies became their own worst enemies and did not differentiate their offerings history is now repeating itself in the drug space. Do we really need 5, yes 5 long-acting insulin’s all of which do the same thing the same way? Do we need 3 once-weekly GLP-1’s, 3 SGLT2’s, 4 DPP4’s ….

The reality is drug companies have two possible options, the first should be obvious develop truly innovative therapy options something like Novo’s oral GLP-1 or Intarcia’s micro pump. The second is differentiate using additional biomarkers. Novo’s critical mistake with Tresiba was playing on Sanofi’s turf and concentrating solely on HbA1c and hypoglycemia. The fact is payors are looking for ways to differentiate all these me-too products – as the Bloomberg article notes – Victoza Novo’s once daily GLP-1 is not currently covered by Express Scripts yet this could change based on the results from an ongoing cardiovascular study.  The reality is when it comes to getting preferred formulary position it’s not just price but data that matters and as long as drug companies continue to use the same biomarkers in their studies they are playing into the hands of payors.

We know this is beginning to sound like a broken record but one of these companies has to be bold enough to change the paradigm. To go beyond copying what everyone else is doing and change the vey way the game is played.

As we noted before we’re not sure they can avoid the coming price war entirely as price is a powerful weapon. However, this does not mean that price alone will be the deciding factor. Look at it this way, let’s assume there are three drugs competing all of which appear to do the same thing the same way.

Yet what happens when one company comes to the negotiating table armed with a data set the others don’t have and basically says; “Mr. Payor we understand that price is important and we are willing to match the price of our competitors. However, I’d you to look at how our offering is different than the other two, look at how we do controlling glycemic variability, which as you know is an important measure of control, now I’d like to compare our data set with the other two but they don’t have any data on the subject. So in essence Mr. Payor we are not just giving you a great price but a better product.”

This may not be paradigm changing but the fact is drug companies better have something besides price to use as a weapon or they are doomed and will fall into death spiral.