Who’s in charge?

Who’s in charge?

One of the more intriguing questions as we open the New Year is just who’s in charge of a patients diabetes management regimen. When the clock struck midnight and 2014 arrived several interesting changes went into effect at CVS Caremark and Express Scripts which will impact patient drug options. CVS is dropping Lilly (NYSE:LLY) products Humalog, Humalin, and mixed products in favor of substitutes from Novo Nordisk (NYSE:NVO) insulin lines Novolog and Novolin. On the other hand, the reverse is set to take effect for patients affected by Express Script changes — Novo Nordisk insulin vials are out, and Lilly insulin products are in. On the flip side Novo is taking a hit at Express Scripts as Victoza is out while Byetta and Bydureon are in.

To Diabetic Investor these changes are just further evidence that the diabetes drug market is fully transforming into a commodity market where price trumps performance; a transformation that will go into overdrive when generic versions of Novolog, Humalog and Lantus get here.

The simple fact is like the diabetes drug market is following the exact same path as the conventional blood glucose monitoring market did years ago. Once payors figured out that all BGM products where basically the same and they controlled which company gained or lost market share it was game over. Simply put control over pricing shifted from the companies who made BGM products to those who paid for these products. Payors used this new found leverage to their advantage by demanding and receiving major price concessions. This same situation is now playing out for diabetes drugs. Payors know that there is little difference between drugs and like BGM they, not the drug companies, have control over market share.

As we have written previously only Lilly has a strategy in place that has even the slightest chance of working in this new environment. Novo, Sanofi (NYSE:SNY) and to certain extent Merck (NYSE:MRK) are all struggling to develop a strategy. Of the three Diabetic Investor sees Sanofi in the worst possible position as without Lantus the company has nothing in the diabetes drug space. It will be interesting to see what Sanofi does when Lilly’s version of Lantus, which is now at the FDA awaiting approval, hits the market.  Although the company remains publicly committed to the diabetes space one has to wonder whether or not the company is considering a major restructuring. The company has already back tracked from their once aggressive strategy which included some colossal and costly failures.

Just in case anyone thinks that a company who once stated that they wanted to dominate the diabetes space could actually do a complete reversal and actually exit the market take a look at what’s happening at Johnson and Johnson (NYSE:JNJ). To their credit JNJ has seen the handwriting on the wall and is now in the process of dismantling their diabetes franchises. While the company remains the number one player in BGM they know that this leadership position cannot overcome the poor market dynamics for BGM. It’s just a matter of time before JNJ is out of diabetes entirely.

The bottom line for diabetes and it doesn’t matter whether it’s drugs or devices the new world order demands operational efficiencies. Companies can no longer afford to risk capital on developing new and potentially innovative options when the possible reward is problematic at best. Yes there will be incremental improvements in drugs and devices but when it comes to major truly innovative options these are years away. The sooner everyone realizes how the market is changing the better as the good old days are taking a hiatus and likely won’t return for some time.