Novartis Restructures Implications for Drug Makers

Novartis Restructures Implications for Drug Makers

Yesterday Novartis (NYSE:NVS) announced they would be reorganizing its sales force in some markets to pay less attention to doctors and more attention to the powerful parties who pay for the drugs. This reorganization will include the elimination of 2,500 jobs, which comes on top of 1,260 job cuts in the US announced in October.

According to an article in today’s Wall Street Journal; “Joe Jimenez, chief executive of Novartis’s pharmaceuticals division, said in an interview that sales representatives in some markets would start calling on payers more heavily, bringing data to try to show Novartis’s drugs are worth their price tags.”

This move by Novartis is further evidence of the increasing pressure on drug companies as several notable blockbuster branded drugs will soon face generic competition. In the current environment drug companies can no longer concentrate strictly on a drug’s effectiveness. With healthcare costs continuing to outpace inflation there is the added pressure of proving that besides getting the job done, the drug will get achieve these results cost effectively.

Drug companies aren’t the only companies facing this pressure, medical device companies share this burden. Just as an example how long will insurers continue to reimburse insulin pump therapy without restrictions. While there is no dispute that insulin pump therapy is effective, it’s also one of the most expensive therapy options. In the first year alone pump therapy can cost nearly $10,000 followed by annual costs of $2,000+ for pump supplies. Conversely multiple daily injection (MDI) therapy has been shown to achieve comparable outcomes to insulin pump therapy at a lower overall cost.

This is one reason Diabetic Investor sees the OmniPod from Insulet (NASDAQ:PODD) as having the potential to take on market leader Medtronic (NYSE:MDT). Besides its innovative design the OmniPod is a pay as you go system that can be initiated at a fraction of the cost of conventional pump therapy. While it is true patients on the OmniPod will reach cost parity with conventional pumpers after 3 years, their upfront cost savings is attractive to insurers.

On the flip side drugs such as Byetta from Amylin (NYSE:AMLN) should benefit from this new emphasis on cost effective therapy options. Byetta’s proven ability to lower HbA1c plus the additional benefit of weight loss makes it worth the cost. Looking at the data realistically there are few drugs on the market that even come close to achieving the results seen with Byetta. This benefit will be enhanced with the introduction of the once-a-week version of Byetta set to go to the Food and Drug Administration sometime in 2009, possibly late 2008. Diabetic Investor suspects Byetta LAR will be priced at a premium which would seem a drawback under current conditions. However, LAR’s strong performance will trump pricing concerns.

David Kliff
Diabetic Investor
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