The Domino’s beginning to fall

The Domino’s beginning to fall

As we noted last week one of the more transformative events coming to diabetes is how Lilly (NYSE:LLY) handles their biosimilar version of Lantus. Now that they have settled with Sanofi (NYSE:SNY) the company has a clear path to the US market for Abasaglar. Looking at how Lilly has handled Abasaglar in Europe where it has been on the market since earlier this year there is little question that the company will use price as weapon to gain share.

Also as we have noted all the insulin players including Novo Nordisk (NYSE:NVO) are developing strategies for how to mitigate the impact of Abasaglar. During their Capital Markets Day Novo noted they would position Levemir as a value option and Tresiba as a premium option. Still given that Abasaglar could be priced 20% to 30% lower than Lantus and works as well as Lantus it’s difficult seeing either Novo or Sanofi holding share without more aggressively discounting of their respective long-acting insulin’s.

Making matters more complex is a new law recently passed in New Jersey. This bill which was passed in May and signed by Governor/Presidential candidate Chis Christie contains the following language; “A pharmacist may substitute a biological product for a prescribed biological product.” Simply put this statement allows a pharmacist to substitute Abasaglar for Lantus. While there are other provisions in the bill which attempt to keep the pharmacist from having complete control over which drug a patient uses, the message is clear.

From the beginning Diabetic Investor has felt that Lilly has a huge strategic advantage with Abasaglar. Not only does the drug work as well as Lantus, not only will it be cheaper than Lantus but it has the additional advantage of coming from Lilly. This last part cannot be underestimated as the Lilly name is well known by physicians. Simply put physicians will feel very comfortable prescribing a biosimilar from a company with a long and distinguished history in diabetes. Or put bluntly Lilly isn’t exactly some no name company who knows nothing about insulin or diabetes.

This fact is also not lost on payors who most certainly will use the presence of Abasaglar to extort lower prices and/or higher rebates from Sanofi and Novo. Payors already held the high ground when it came to pricing, a position that will only be strengthened when Abasaglar arrives in the US.

Lilly for their part also knows that they don’t have to receive top dollar for Abasaglar and can be ultra-aggressive forcing Sanofi and Novo to play defense. As we noted last week this is why we believe Novo has an edge over Sanofi as they noted they will not play in markets where they cannot maintain reasonable margins. Sanofi on the flip side will have little choice but to capitulate to payors demands as they don’t have a broad diabetes portfolio. Either they become aggressive with Lantus and Toujeo or risk losing even more share. They don’t have the luxury of not getting into a price war.

Yes we know we are being redundant here but the fact is the diabetes drug market is commoditizing. That there are only a few categories that aren’t adversely impacted by the presence of a generic or biosimilar. The good news for Lilly and Novo is they have solid candidates in those categories, the bad news for Sanofi is they don’t have anything besides Lantus and Toujeo.

In the next few weeks we should learn the extent of the coming carnage at Sanofi, just how many will be laid off. We should also learn the fate of Afrezza and the MannKind (NASDAQ:MNKD) partnership which the way things are shaping up doesn’t look promising. The fact is if Sanofi has any hope at all in diabetes Olivier must cut costs dramatically. Frankly he has no other choice.

Some time ago we spoke about the dominos lining up, that it was just a matter of time before the stars aligned and the insulin market would transform into a full blown commodity market. Well we have now reached the point where the dominos have begun to fall and it will be Sanofi who gets crushed.