Time for some perspective

Time for some perspective

While Diabetic Investor has never been a big fan of the Januvia franchise, there is no denying the power of the pill. This past Friday Merck (NYSE:MRK) reported another quarter of strong results which should send a clear message everyone else in the DPP4 market. Januvia sales were up 15% while Janumet sales increased 16% for the quarter. To fully appreciate the dominance Januvia enjoys consider this, for the quarter Januvia racked up $975 million in sales while Janumet brought in another $405 million, by comparison Onglyza, Januvia’s closet competitor brought in $178 million for the quarter.

The reason Diabetic Investor mentions this is to dispel any thoughts by analysts or investors that Bristol Myers Squibb (NYSE:BMY), AstraZeneca (NYSE:AZN) or Lilly (NYSE:LLY) who does not provided sales figures for their DPP4 Tradjenta, has made much ground against mighty Januvia. Listening to the various earnings calls one just might get the impression that these Januvia competitors are actually gaining ground and even cutting into the drugs massive lead. As the numbers clearly show when it comes to DPP4’s there is the Januvia franchise and really nothing else. The harsh reality is Onglyza and Tradjenta must be content to pick up the scrapes Januvia leaves behind.

We also believe that there is a lesson to be learned here by the many companies who are looking to enter the GLP-1 market. Years ago there were two blockbuster diabetes drugs from the same class of drugs; Avandia and Actos. Before the Avandia controversy took hold or we learned about Actos and bladder cancer, many believed there really wasn’t much difference between the two drugs and looking at their respective sales numbers it seemed as though both drugs were doing quite nicely. However, it’s also fair to state that both drugs also forever changed the nature of the type 2 drug market; a market that will never be the same.

Largely because of the Avandia fallout, getting a new drug through the FDA has become about as pleasant as having root canal work with no anesthetic. Not only has the process become more painful, it’s taking longer, requiring more detailed studies and has become somewhat of a roller coaster ride as the FDA has shown with consistency their ability to change directions and turn on a dime. Just when a company thinks they’ve got it right, the agency comes along and asks for more data. This is why being first to market, always an important attribute for any new drug, has become even more important.

But bring first to market is just half the story as not only has the regulatory market changed so has the reimbursement environment. Payors are no longer actively supporting two or more drugs from the same class that do the same thing. For the most part in this tight financial environment payors are basically telling late to market copycats, thanks but no thanks but we don’t see a compelling reason to cover your drug. This basically has forced these copycats to accept lower margins and poor formulary placement.

The DPP4 market also shows that physicians are getting a little tired of seeing a series of me-too copycat drugs from the same class. The fact is if either Onglyza or Tradjenta was actually better then Januvia physicians would be using them more. The simple fact is they have looked at these copycats and seen the same thing everyone else has; there is no compelling reason to use them rather than Januvia.

Diabetic Investor sees the same situation developing in the GLP-1 market as there lots of Victoza and Bydureon copycats in the pipeline but none seem to offer any compelling benefit that would make a physician prescribe them over what’s already on the market. The harsh reality for these still in the regulatory or development phase drugs, there is higher burden to meet. Given the current set of market dynamics it is no longer acceptable to be as good as what’s already on the market, those days are long gone. Today a new drug from the same class must offer a compelling benefit to what’s already on the market to stand any chance at all.

This is why Victoza did better than expected as it offered the compelling benefit of just one injection per day compared to Byetta which requires two injections per day. The same will come true with Bydureon which offers just one injection per week. The next innovation is not another once-daily or even another once-weekly rather the next hurdle to pass is a once-monthly. The simple fact is a once-monthly that carries with it the same safety and efficacy profile will trump a once-weekly, the simple truth is it does not have to better in terms of control; it’s better because the patient can eliminate 40 injections.

Any company who chooses to follow this late-to market, copycat strategy is doomed from the start and will have one weapon and one weapon only should their copycat actually make it to the market; price. They will do everything in their power to distract everyone from this fact but at the end of the day that’s all they’ll have. They will choose some minor difference between their copycat and what’s already on the market and say; “See this isn’t a knockoff but a truly innovative new therapy which will change the market forever and besides the market is so big even if we capture a small percentage of the market we’ll get our investment back several times over.”

Just take a look at the diabetes market as it stands today and Diabetic Investor dares anyone to show us two blockbuster drugs from the same class of drugs. We would even go a step further and say this principle applies to the device side too. Look at the market for insulin pumps or glucose monitors, Medtronic (NYSE:MDT) rules the pump world and LifeScan, a unit of Johnson and Johnson (NYSE:JNJ) is pulling away in the BGM world.  Whether these companies wish to acknowledge the truth or not; the fact is the diabetes arena is becoming one of the haves and have not’s.

Diabetic Investor believes that many companies have deluded themselves into believing that just because diabetes continues to grow at epidemic rates that they can come out with any drug or device and because of the sheer size of the market it will be successful; that they are somehow immune for the coming onslaught of generics or continued pressure to lower prices. The fact that diabetes is growing at epidemic rates in truth is doubled edge sword for these companies as we have been saying for years; diabetes is not just a healthcare crisis but an equally large economic crisis.

As we move into November which is National Diabetes Month, it may be wise for analysts and investors to ponder whether the companies in the diabetes world are spending stakeholder’s money wisely.  Whether management is actually taking a realistic view of the future or do they continue to live in state of denial. Change is the one constant that everyone can count on and for many of these companies change is desperately needed. Management is far too entrenched, living in the past and just can’t get out of their own way.  There was a time when they got it right; unfortunately those days are long gone.

The bottom line for the diabetes industry is that the future is coming and as Alvin Toffler said; “Change is the process by which the future invades our lives.”