What will it take?

What will it take?

Last week Novo Nordisk (NYSE: NVO) released headline data from their SWITCH 2 trail. The purpose of the trial was to compare the hypoglycemia occurrence in people with type 2 diabetes treated with Tresiba® or insulin glargine. According to a company issued press release;

“The observed rate of severe or blood glucose confirmed symptomatic hypoglycemia was 186 events per 100 patient years exposed to Tresiba® and 265 events per 100 patient years exposed to insulin glargine during the maintenance period. This reduction was statistically significant, and the trial thus met its primary endpoint by demonstrating a reduction of 30% when people were treated with Tresiba® compared to insulin glargine.”

Also last week Lilly (NYSE: LLY) announced the FDA has accepted a supplemental New Drug Application for Jardiance® (empagliflozin) based on cardiovascular risk reduction data from the landmark EMPA-REG OUTCOME® trial. Lilly is hoping the FDA will allow for a label change for Jardiance based on this data, a move which they hope will give Jardiance a leg up on Invokana and Fraxiga.

As we noted when Lilly reported earnings while the cardiovascular data from the EMPA-REG OUTCOME trial was historic this excellent data has yet to translate into higher sales for Jardiance. We see two main reasons why higher sales for Jardiance have yet to materialize. First, the general consensus is that all SGLT2’s will provide this benefit or in other worlds this data isn’t unique to Jardiance. Second, Johnson and Johnson (NYSE: JNJ), the makers of Invokana, has done an excellent job of locking up formulary access.

Basically what Novo, Lilly and everyone in the diabetes space is looking for is an edge, a way to differentiate their products from the competition. This is what happens when the general perception is there are far too many me-too copycat drugs available. That there is no reason to have 5 long-acting insulins or 3 SGLT2’s all of which do basically the same thing the same way. Simply put what all the companies want to avoid is a price war which is exactly what will happen if they cannot differentiate one drug from another.

Drugs companies know that payors hold the key to the kingdom and without preferred formulary position it’s difficult if not impossible to accumulate share. The harsh reality is payors are in the catbirds seat and can demand lower prices and/or higher rebates. In the absence of differentiation price and/or higher rebates are the only weapons a company has to gain favorable formulary position. Weapons which will lead to the last thing these companies want, an all-out price war.

Sanofi (NYSE: SNY) tried to differentiate Toujeo® from Lantus using the same tactic Novo is attempting with Tresiba, a lower incidence of hypoglycemia. While it’s true that hypoglycemia can be a serious even life threatening event, it is also true that the lower incidence seen with Toujeo and now Tresiba isn’t that impressive. Simply put Toujeo and Tresiba are just incrementally better than Lantus, the current gold standard when it comes to long-acting insulin. Sanofi and Novo also know that this gold standard will soon have generic (biosimilar) competition from Lilly’s Basaglar.

Based on what we have seen so far it seems that Lilly is content to allow a price war in the long-acting insulin market. Basically they are forcing Sanofi and Novo to play defense, to come up with reasons why their newer long-acting insulin’s are superior to Basaglar. Frankly based on the data we have seen for Toujeo and now Tresiba neither Sanofi or Novo has made a compelling argument, at least not one strong enough to resonate with payors. This is the reason Sanofi was forced to heavily discount Toujeo as payors just weren’t buying what Sanofi was trying to sell, that Toujeo was worth the higher cost.

Diabetic Investor is anxiously awaiting the cardiovascular data for Invokana and Fraxiga. (Both JNJ and AstraZeneca (NYSE: AZN) the makers of Fraxiga, have ongoing cardiovascular studies.)  Once available we’ll find out if the cardiovascular data is as good as it was for Jardiance. Should the data from Invokana and Fraxiga studies come close to the Jardiance data the SGLT2 category will benefit overall but it will not prevent a price war.

This begs the question just what will take to prevent a price war, what will stop the commodization of the diabetes drug market. A market which now has 5 long-acting insulin’s, 3 short-acting insulin’s, 3 SGLT2’s, 3 long-acting GLP-1’s and 4 DPP4’s. While there are some minor differences between these me-too copycat drugs these minor differences just aren’t enough to prevent the price war everyone wants to avoid.

Anyone looking for a historical precedent need only look at what happened to the conventional glucose monitoring market. A market which has fully transformed into a commodity market. A market which became saturated with me-too copycat products all of which did basically the same the same way. Many seem to believe that competitive bidding ruined this market. The fact is the market was headed to commodization before competitive bidding and the institution of competitive bidding only made a bad situation worse. Competitive bidding may have made this happen faster but it did not cause the market to collapse this would have occurred regardless.

So far we have yet to see any reason that drug companies will avoid a similar fate. Just as payors wrestled pricing power away from BGM companies, they are now doing the same with drug companies. That freight train which has already plowed through BGM companies leaving nothing but wreckage in its wake is now on a new track, a track which is aimed directly at diabetes drug companies. The train is gaining steam and picking up speed. The question is can these companies do anything to at minimum slow down the train let alone stop it altogether.

The harsh reality is if they don’t do something and do it in a hurry, the train will become unstoppable.