The beginning of the end?

The beginning of the end?

This morning Lilly (NYSE:LLY) and their diabetes partner Boehringer Ingelheim announced they have submitted their biosimilar insulin glargine to the European Medicines Agency (EMA). According to a press release; “Eli Lilly and Company (NYSE: LLY) and Boehringer Ingelheim today announced that the companies’ marketing authorisation application (MAA) for LY2963016, an investigational basal (long-acting) insulin for the treatment of type 1 and type 2 diabetes, has been accepted for review by the European Medicines Agency (EMA). LY2963016 is a new insulin glargine product and has been filed through the EMA’s biosimilar pathway.”

The question now becomes will this announcement mark the beginning of the end for Lantus, the world’s number one selling insulin. Although the patent for Lantus does not expire for another year, Sanofi (NYSE:SNY), the makers of Lantus, along with Novo Nordisk (NYSE:NVO), who’s Levemir® is basically a Lantus copycat, must be worried. Both Sanofi and Novo understand that in today’s environment governments and private payors see a generic Lantus as a perfect tool to cut costs. As Diabetic Investor has reported in the past Sanofi in particular will pay a heavy price as without a generic threat they have held the upper hand with payors, basically forcing through price increases, once a generic arrives the tables will be turned.

It will also be difficult for Sanofi to claim that LY2963016 is somehow inferior to Lantus as Lilly is no newcomer to the insulin market. Keep in mind here that Lilly does not have to price LY2963016 substantially below Lantus to be successful. The company could easily offer the drug at 30% or 40% discount to Lantus and still come out just fine. Again as we have noted previously Sanofi will have some difficult choices to make, either capitulate to the demands of payors or risk seeing a $6 billion franchise vanish.

Diabetic Investor should also point out that we don’t anticipate any issues with physicians prescribing a generic version of Lantus, especially when that generic is being made by Lilly. This is another claim made by Sanofi, as they seem to believe that physicians will be reluctant to prescribe any generic insulin. Quite frankly even if physicians were reluctant they may not have much say in the matter as payors could well force this change.

Although Diabetic Investor hasn’t been a huge fan of how Lilly has managed their diabetes franchise this is one time we believe they are on the right track. Back in the day developing copycat, me-too, late to market drugs wasn’t exactly a pathway to growth. However, with governments and payors looking to cut costs wherever they can it really doesn’t make much sense to develop truly innovative therapies given the regulatory and financial risks. This is the major problem facing Sanofi and Novo, as they are selling premium products but aren’t receiving premium reimbursement.

While Lilly would never acknowledge this publicly in many respects when it comes to diabetes they are looking more and more like a generic company; a generic company with experience, who understands how to manufacture insulin and comes with a brand name that’s recognized in the market. Don’t be surprised if Lilly mimics a generic company in another area as more than likely they will make some very deep cuts to their sales and marketing staffs. This right sizing is also in line with the new reimbursement environment.

Now some might say that Lilly is basically surrendering; that they have given up on being a diabetes leader. This is one time Diabetic Investor disagrees, as the entire diabetes market drugs and devices are undergoing a major transformation. Quite frankly the tables have turned so dramatically that it is Sanofi and Novo who must now change or risk losing ground. As Robert Kennedy once noted; “Great change dominates the world, and unless we move with change we will become its victims.”