The Insulin War Intensifies

The Insulin War Intensifies

Last week pharmacy retailer CVS (NYSE:CVS) issued a revised list of drugs they are blocking from coverage. According to an article that appeared in the Wall Street Journal back on November 8th, “CVS Caremark Corp. pharmacy-benefit business is taking aim at certain treatments for low testosterone and glaucoma, among other conditions, in its latest push to steer members away from what it says are expensive drugs with available alternatives.”  According to statement issued by CVS; “For those drugs that are removed, equally effective products with lower overall costs, including many generics, remain available on the formulary.”

Hard hit by this move was insulin maker Lilly (NYSE:LLY) as Diabetic Investor has confirmed that two of the drugs on the blocked list are their short-acting insulin’s Humalog and Humulin. According to Lilly; “With regard to our insulins, we aggressively bid for the CVS business in 2011, and we’re disappointed that they did not select Lilly as their partner. We believe it’s important that patients and physicians have choices when it comes to their insulin therapy, and advocate to keep all insulins equally available on formularies. Diabetes is a serious and chronic condition and can be challenging to manage. Lilly offers a number of insulin therapies and delivery systems that no other insulin manufacturer offers, including insulin for severely insulin resistant patients, specific insulin mixes and small vials and devices.

It’s important to note that Humalog and Humulin are still available at local retail pharmacies across the country, and Lilly insulins will continue to be available at CVS retail pharmacies. “

This is just the latest salvo in the intensifying battle between Lilly and their main competitor Novo Nordisk (NYSE:NVO). It wasn’t that long ago that it was Novo who was on the short end of the insulin stick as Lilly using very aggressive pricing won some key formulary battles effectively taking share away from Novo. At the time Diabetic Investor noted that while these wins would boost Lilly’s share in the short term Novo would not sit ideally by and let Lilly continually take away share with their aggressive pricing tactics. Simply put Novo would fight back and fight back hard, which is exactly what’s happened here.

Now Diabetic Investor does not want to gloat as we predicted long ago that insulin, short-acting insulin in particular, was just the latest diabetes product that was headed down the slippery slope of becoming yet another commodity style market. That while insulin companies, who have enjoyed pushing through price increases for their insulin’s for years, would beg to differ it there really isn’t much difference between the three major branded short-acting insulin products. Yet for reasons only payors knew they continued to reimburse these insulin’s at premium levels even though they all did basically the same thing the same way. Well as we’ve said before and we’ll say again those days are gone and aren’t coming back- ever.

Payors will only become more emboldened as generic insulin, both short and long-acting, are right around the corner. It would be foolish to believe that just because Apidra from Sanofi (NYSE:SNY) has performed so poorly that Sanofi is somehow immune from this situation when in actuality they have the biggest exposure as their blockbuster long-acting insulin Lantus will soon face generic competition as well.

Now before everyone in the insulin world starts screaming about how generic insulin isn’t a sure thing and won’t hit the market right after patent protection goes away, time for a reality check. First, generic insulin is a sure thing; it’s a not question of if generic insulin will become a reality rather when they actually hit the market.  The insulin market is too large and too valuable for generic insulin not to become a reality. Keep in mind that Lilly whose branded insulin products are at risk is also developing a generic version of Lantus. So let’s stop all this nonsense that generic insulin won’t make their way into the market.

Second, even without the coming generic threat payors have learned their lesson and will no longer pay premium prices for what really is a commodity product. As we noted previously there is precedence for this as one only has to look back at the path followed by glucose monitoring products. Although it seems like a dream today, there was a time when payors actually believed that there was difference between glucose monitors and patients actually thought a glucose monitor was a medical device. But just as they are waking up to the knowledge that they actually hold the power position in insulin and can literally determine which insulin company has what market share, they woke up to these same set of facts for glucose monitoring years ago. Today the BGM market has fully transformed itself into a commodity market where price not performance rules and all evidence indicates that the insulin market is quickly following suit.

Believe it or not as bad as all this sounds things will only get worse thanks to the growing popularity of GLP-1 therapy. Yesterday Diabetic Investor noted how insulin delivery companies were doing their best to dumb down insulin therapy in what we see as desperate attempt to sell their convoluted delivery devices. As we pointed out, while insulin therapy is very effective it also requires a higher degree of patient and physician knowledge. While a company like Valeritas may believe that insulin therapy is no big deal and dosing decisions can be taken away from the patient, it just doesn’t work that way in the real world.

While there are numerous reasons why GLP-1 therapy is growing in popularity – solid glucose lowering,  weight loss instead of weight gain, low risk of hypoglycemia – to name a few. One of the hidden benefits of GLP-1 therapy is it’s about as close to an idiot proof as a therapy can get. Unlike insulin therapy, there is no need for the patient to monitor their glucose on regular basis, no complex dosing calculations, and no worries about what or when a patient eats, no carb counting and no worries about how much insulin is on board. Whether it’s Victoza which is injected just once- a-day or Bydureon which is injected just once-a-week, GLP-1 therapy is as simple as point and shot.

Think of it this way, which is better for the physician who on average spends less than 10 minutes with their patient who has diabetes and is failing oral therapies. They can add a GLP-1 which requires about 5 minutes of instructions or add insulin which requires hours of training. They can tell a patient that with GLP-1 therapy they are likely to lose weight while the exact opposite will happen should they add insulin. The physician also knows they won’t have to worry all that much about a possible hypoglycemic event with GLP-1 therapy and perhaps best of all recommending GLP-1 therapy sits well with their threats to the patient that if they weren’t good patients they would be forced to put them on insulin.

The final nail in the insulin coffin comes from the numbers themselves, there just aren’t enough Type 1 patients (Patients with Type 1 diabetes must use insulin therapy) to keep the insulin market viable. By most estimates there are approximately 5 million insulin using patients in the United States.  A number bolstered by the popularity of Lantus as many physicians prescribe Lantus as add on therapy for their type 2 patients.  According to most surveys only 12% of the diagnosed patient population actually uses insulin only, approximately 2.4 million patients. While Diabetic Investor does believe some physicians will switch their type 2 patients’ currently using insulin GLP-1 therapy, the more likely scenario is they will begin recommending GLP-1 therapy over insulin therapy to their poorly controlled type 2 patients.

The bottom line here is that insulin, a legacy product for Lilly and Novo, will soon become just another diabetes market turned upside down.  The simple fact is for all their bluster and battles with each other, the true threat to Lilly, Novo and Sanofi is not each other rather market forces which are beyond their control. Healthcare costs continue to increase and diabetes continues to grow at epidemic rates, two forces which are on a collision course.  Caught in the middle of this train wreck are the payors who must balance the interest of their stakeholders against providing patients with access to the drugs they need to manage their diabetes.

It’s becoming increasingly obvious that payors have decided they can accomplish both goals using their power to influence market share. They have done their homework and realize that for years they have been overpaying for products which were virtually identical. They know insulin companies will capitulate to their pricing demands just as glucose monitoring companies capitulated years ago. The fact is they know they hold the key to the kingdom.  Finally this newfound power will also allow payors to exact a little revenge as well, which as Ben Jonson said; “O revenge, how sweet thou art!”