One more step …..

One more step …..

According to study published online in the journal Diabetes Care, “Use of sulfonylurea as second-line therapy for type 2 diabetes generated glycemic control and QALYs comparable with those associated with other agents but at lower cost. A model that incorporates HbA1c and diabetes complications can serve as a useful clinical decision tool for selection of treatment options.” This study which involved 15 years’ worth of actual patient data from more than 37,000 individuals, the researchers found that the newer drugs such as Januvia and Victoza cost patients and insurance companies anywhere from $1,600 to $2,400 more.

To Diabetic Investor this is yet another confirmation that the diabetes drug market is headed down that slippery slope towards becoming a commodity market. Basically what this study is telling insurers is there’s no reason to provide premium reimbursement for newer drugs like Januvia, Onglyza, Tradjenta, Byetta, Victoza and Bydureon as older now generic drugs do the job just fine. As we have noted previously drug makers are already facing tough decisions on pricing and rebates as they struggle to find the proper balance between having prime formulary placement and maintaining reasonable margins. The drug makers know that without prime formulary placement it’s difficult, if not impossible, to achieve the scale which is needed to achieve reasonable margins.

The simple fact is the balance of power no longer rests with the drug maker’s, another similarity to how the glucose monitoring market went from a medical device market to a commodity market where price trumps performance. Back in the day, now what seems a very long time ago, it was the device makers who actually had the upper hand when it came to negotiations with payors. Back then it was the device makers who were armed with data that showed how regular monitoring of glucose translated into improved outcomes and lower overall costs to the insurer. Yet this tactical advantage quickly dissipated as the device makers began playing a game of copycat.  At about the same time studies began to appear that stated the unthinkable that there was no correlation between regular glucose testing and better patient outcomes.

All of sudden the payors realized two things; first formulary placement determined market share and second patients and their physicians really didn’t care which meter they used. Simply put the payors had the leverage they needed to demand and eventually receive major price concessions from device makers who couldn’t afford to lose market share. This same scenario is now playing out in the diabetes drug market. Payors know they to a large extent determine market share and drug makers need share to remain profitable. Like the device side they see a copycat, me-too market where all the DPP4’s or GLP-1’s do basically the same thing the same way and it really doesn’t matter which one a patient uses. This study is just one more piece of evidence they can use to demand and likely receive even greater price concessions and/or rebates from drug makers.

Considering the epidemic growth rate of diabetes combined with the increased attention to costs, Diabetic Investor suspects that it’s just a matter of time before like our friends across the pond that a drugs anticipated cost will be part of the drug approval process.  A drug will not just be judged on whether it is safe and efficacious but if it’s also cost effective when compared to existing medications. Nor would we be surprised to see competitive bidding spread to the drug side. The harsh reality is that even with these newer, more advanced medications more than two-thirds of patients are not properly controlling their diabetes.

The bottom line for the diabetes drug market is that which drug a physician prescribes will be based as much on the cost of this medication as how effective it is. This study basically gives payors even more leverage as they can now say to physicians and drug makers these newer drugs don’t produce better overall outcomes and therefore are not worth the additional cost. Not wanting to risk losing market share drug makers will offer greater price concessions combined with larger rebates. This will give the payors even more leverage as they can play the existing players off each other. Just like BGM some players will eventually decide they cannot play this game and make money at the same time.

The fact is the market is transitioning to a commodity market and there is nothing drugs makers can do to stop this transition. At some point in the future when competitive bidding is implemented or price becomes a factor in the approval process everyone will mark these events as the beginning of the end for the diabetes drug market. Yet just as with BGM the seeds for the markets demise were planted well before the crops appeared in the field.