The Death of the Insulin Market as we know it.
For some time Diabetic Investor has been warning everyone that the insulin market, particularly the market for short-acting insulin, is becoming a commodity market where price trumps performance. According to an article in today’s Wall Street Journal this day is much closer than most realize. The article noted that pharmacy retailer CVS has made some major changes in their pharmacy benefit business and will stop covering more than 30 drugs next year. The article states:
“The biggest drugs knocked off the list, with combined U.S. sales of about $1.7 billion, are Eli Lilly & Co. insulin products called Humulin and Humalog. CVS Caremark cited alternatives from Novo Nordisk.
According to Lilly, it opted against agreeing to big discounts with CVS Caremark. “In light of the aggressive pricing required to win this business–and the fact that only a small percentage of Lilly’s insulin franchise would be impacted by this change–we ultimately decided it did not make good business sense for Lilly to be included,” the drug maker said.”
The statement from Lilly is somewhat of a surprise given that Lilly has used aggressive pricing to knock Novo Nordisk (NYSE:NVO) from three major managed care plans earlier in the year. At the time Diabetic Investor noted that Lilly was playing a very dangerous game and was pushing the insulin market one step closer to becoming a full blown commodity market where price would become the overriding factor in determining market share. We further noted that Novo would not just sit around and let Lilly steal share and they would fight back and fight back aggressively; which is exactly what has happened here.
This cat-fight between Lilly and Novo has serious ramifications for the third insulin player, Sanofi-Aventis (NYSE:SNY) who’s had trouble finding a market for their short-acting insulin Apidra®. As we noted just yesterday when it comes to short-acting insulin’s there really isn’t much difference between the three major brands, basically they all do the same thing, the same way. While gaining favorable formulary status has always played a major role in determining market share, Lilly has taken this game to a new level and could well be sowing the seeds of their own demise in the diabetes space.
With Humalog®, NovoLog® and Lantus® losing patent protection in 2014, the entire insulin market will be facing a serious threat from generics. Given that Lilly has nothing of substance in their diabetes pipeline it appears they are content to play the price game, hoping they can make up the lost margin with additional volume. It also appears they are making a preemptive strike against future generic competition making the price differential between their brand and the generic less onerous. Given this emphasis on price don’t be surprised when Lilly announces additional layoffs in their diabetes unit. The simple fact is you don’t need an army of sales reps when your main sales weapon is price.
Novo for their part seems to be caught between the preverbal rock and a hard place and in some respects is getting a taste of their own medicine. Some may recall back in the day when Lilly was the dominate player in insulin, Novo used the exact same tactic Lilly is using today to overtake Lilly in the insulin market. Lilly at the time was caught flat footed believing incorrectly that brand loyalty would trump price. It is only recently that the company awoke to the fact that their legacy insulin franchise would soon become extinct if they didn’t do something drastic and with no new products in the pipeline had no choice but to use price to fight Novo’s dominance.
As Diabetic Investor has stated previously Novo up until this point had been used to selling premium products at premium prices. However, a host of factors have come together that makes this strategy difficult, if not impossible, to follow. Besides Lilly becoming ultra-aggressive on price, governments around the globe are going broke forcing them to reevaluate how they reimburse for drugs and insurers facing ever rising health care costs are doing the same. Simply put Novo is being forced to accept lower prices and compete on price rather than performance. As we noted after their most recent earnings call the company is struggling to deal with these new market realities and quite frankly isn’t quite sure what to do next.
With Degludec and DegludecPlus now awaiting approval at the FDA, Novo like Lilly doesn’t have much in their pipeline and could soon be forced to institute cuts of their own. Before Lilly fired the first shot into what has turned into an all-out price war, the company aggressively added to their sales force believing that with more boots on the ground they could maintain their lead over Lilly. Considering that lower prices are here to stay and generics are coming, the company may well have no choice but to reevaluate this approach and begin cutting back.
Watching all this with trepidation are the folks at Sanofi as they have embarked on an aggressive strategy to overtake Novo. Unlike Novo and Lilly, Sanofi’s strategy is built around total diabetes management. As Diabetic Investor has stated previously Sanofi is looking to become the first company to sell a complete diabetes management system, rather than individual parts of the system. In the Sanofi world this system will not just include the drugs and devices a patient uses to manage their diabetes but will extend to disease management. Sanofi believes that by helping the patient more effectively manage their diabetes, they will be able to sell more drugs and devices. The main question for the company is can they pull off this aggressive and expensive strategy as quite frankly it’s never been tried before and while it looks good on paper no one, not even Sanofi, knows for sure if it will work.
All of the players are also fully cognizant that besides intensifying pricing pressure and the coming threat of generics; there is another equally large and ominous threat looming on the horizon – the increasing use of GLP-1’s to treat patients with Type 2 diabetes. Diabetic Investor has stated consistently that GLP-1’s aren’t just a threat to drugs like Januvia, but are actually a greater threat to insulin’s both short and long acting. GLP-1 therapy offers several compelling advantages over insulin therapy for Type 2 patients who are failing to control their diabetes. Unlike insulin where a patient must check their glucose levels before administering their dose, GLP-1’s are fixed dosed products and glucose monitoring is not needed. Whereas a patient on insulin typically sees weight gain, patients using a GLP-1 at minimum see no weight gain and in most cases actually lose weight. Finally and most importantly there is little threat of hypoglycemia for patients using a GLP-1 and for all the talk about why more patients don’t use insulin, the number one factor is not the “pain” of injection rather the fear of hypoglycemia.
Looking at the two FDA approved GLP-1’s; Byetta from Amylin (NASDAQ:AMLN) and Victoza from Novo, we’re beginning to see the potential for GLP-1’s to adversely impact insulin sales. While there are some concerns with both drugs adverse event profiles, physicians are becoming well aware of how these drugs work and what their limitations are. Soon these physicians will have access to a potentially paradigm shifting technology with Bydureon which is about to receive FDA approval early next year. What makes the Bydureon story so exciting is not just the fact it’s taken just once a week, what’s really exciting is that physicians see Bydureon as the answer to the biggest problem they face with their Type 2 patients- therapy non-compliance.
Study after study has concluded that for all the blathering that’s been said about the need for better drugs, the drugs we have on the market would work just fine IF patients actually took their medications as prescribed. This is why every drug company has strived to develop drugs that are taken LESS frequently. A major reason Lantus became the world’s number one selling insulin lies mainly in the fact it only needs to be injected just once a day. It’s important to keep in mind that even for patients taking oral medications, these patients don’t just take one pill per day and that it’s likely they are taking several additional medications for conditions other than their diabetes. We’ve said it before and we’ll say it again, when it comes to diabetes therapy options the less frequently the patient needs to administer their therapy option the better.
Add it all up and it’s not a pretty picture for future insulin sales. The harsh reality is there are not enough Type 1 patients, Type 1 patients must use insulin, nor are the number of Type 1 patients growing fast enough to support the current crop of insulin products. Simply put the insulin market cannot sustain itself without Type 2 patients. Should GLP-1 therapy continue to increase, Novo, Sanofi and Lilly (all of whom have a GLP-1) we could see a dramatic shift in the balance of power in the diabetes drug world. Should Bydureon come close to its potential combined with the coming threat of generics, the insulin market will soon become a full blown commodity market. The stark reality is none of the current players in the insulin market are prepared for this change and without some drastic shifts in strategy could see their various insulin franchise fall into the abyss.
Just as the blood glucose monitoring market was doomed to fail once it became a commodity market, so too is the insulin market doomed to fail if the players don’t make some serious and very painful changes to their various strategies. It’s is no longer a question of whether or not the insulin market will become a commodity market, the question is which of the players in the market will adapt to this change and survive.
