Who’s willing to take a chance?

Who’s willing to take a chance?

Sir Joshua Reynolds wrote; “Invention, strictly speaking, is little more than a new combination of those images which have been previously gathered and deposited in the memory; nothing can come of nothing: he who has laid up no materials can produce no combinations.” Although he wasn’t commenting on the prospects for generic insulin, he might as well have been. As generic insulin isn’t really isn’t inventing anything new but understanding how to copy another’s idea and then sell it for cheaper than the original.

With Lantus®, the world’s best-selling insulin coming off patent in 2014 combined with Humalog® and NovoLog® falling over the patent cliff shortly thereafter, the threat of generic insulin; both short and long acting are a very real possibility. Considering that each of these drugs has sales in the billions and that diabetes continues to grow at epidemic rates many are eagerly awaiting the arrival of a generic. Yet with all this anticipation there are several important and as yet unanswered questions about generic insulin. Today Diabetic Investor will try and answer some of the more pressing questions as we’re sure more questions will arise as this process plays itself out.

Paramount on everyone’s mind is how the FDA will handle a generic, as unlike generic pills there is no set regulatory path for generic insulin. Having spoken with experts who have experience dealing with the FDA the simple answer is that there is a regulatory pathway it’s just not a straight path as the unlike other drugs no one has yet to submit a generic insulin for approval. The general consensus that’s emerging from many interviews is that we really won’t know how the FDA will handle a generic until one is submitted to the agency or put another way someone has to be the guinea pig.

In many respects the FDA and the drug approval process isn’t that different from how laws are made. Just as courts look to established precedents when making their decisions, the FDA follows a similar path. However when there is no precedent the FDA just like the courts most form a process on their own and once a decision is made what was a new and untested case becomes the precedent which others follow.

Although not directly analogues this is what happened when the first GLP-1 came before the FDA. Byetta was the first GLP-1 to be submitted for approval and as everyone knows it didn’t exactly have the easiest time getting FDA approval. While there are varying explanations as to why it took so long for Byetta to receive approval almost no one will discount the fact that the FDA just wasn’t comfortable with a whole new class of drugs no matter how good the data looked. And it’s important to keep in mind Byetta was approved BEFORE the Avandia controversy which has impacted every diabetes drug submitted to the FDA since, just ask the folks at Novo Nordisk (NYSE:NVO). Diabetic Investor suspects had Byetta come to the FDA after the Avandia controversy the final decision would have been mush different. Yet with Byetta approved, it did establish a precedent which allowed companies like Novo and now Sanofi (NYSE:SNY) and GlaxoSmithKline (NYSE:GSK) to follow with their GLP-1’s.

The harsh reality is no one, not even the FDA knows for sure what information will be required for approval until someone actually submits a generic for approval. Diabetic Investor suspects the FDA has some general guidelines in mind as the agency has been approached on the subject and knows it’s just a matter of time before they will have to deal with the process. Companies aren’t necessarily flying blind; let’s just say at the moment they are flying through a dense fog hoping that as they fly further the fog will lift and provide clearer visibility.

Diabetic Investor would also suggest not to read too much into Pfizer’s (NYSE:PFE) decision to end their relationship with Biocon, as we don’t believe as many do that this decision means that generic insulin cannot be profitable or that regulatory hurdles are just too high. Diabetic Investor suspects the reason for the break-up had more to do with who controlled what and of course, money. Keep in mind this is still the wacky world of diabetes and history shows that even large companies like Pfizer aren’t immune to doing wacky things when it comes to diabetes. Keep in mind this is the same company that blew billions on Exubera, do we need to say more.

Now this does not mean for a minute that how the FDA handles generic insulin applications will not impact how or if companies proceed as the agency and its actions will go a long ways towards determining what this market will be like. Given that insulin has been around forever and is a very well-known commodity it is quite possible that the agency will not require extensive, lengthy and expensive clinical trials. The agency is not immune to the fact that diabetes is growing at epidemic rates and while not part of its mission the cost of treating diabetes is known and does play a role in the process.

On the flip side the diabetes epidemic and the popularity of drugs like Lantus and NovoLog, could work against a generic as the agency could just as easily decide with so many patients using these drugs their generic versions should be subjected to the same rigorous clinical trial process as the branded versions. Unlike generic versions of popular drugs like Lipitor which are easily manufactured, the manufacturing process for insulin while not overly complex is more complicated and will factor into the approval process as well.

The simple truth is until a company actually submits a generic for approval all this is just well informed speculation. It would also be naïve to believe that a generic application won’t be forthcoming just because the regulatory process is not set in stone. Consider the following in 2012 HumaLog had sales of $2.6 billion, Novo’s modern insulin’s sales of $6.2 billion and Lantus nearly $7 billion in sales. Add in the fact that diabetes continues to grow at epidemic rates and physicians are encouraged to treat their diabetes patients more aggressively which will translate into even greater insulin sales. Although GLP-1’s will cut somewhat into the usage of insulin, insulin is a well-known commodity and in a generic form will be favored by payors over the more expensive GLP-1’s. Finally no one can ignore the ever present fact that everyone, with the exception of drug companies, continues to be concerned with rising cost of treating diabetes.

Now these facts won’t stop companies like Novo, Lilly and Sanofi from trying to convince everyone that generic’s aren’t a threat and they will continue to sell boatloads of their products, but this is just a well-planned smoke screen as they attempt to figure out how they will compete against a generic. These companies have both the blessing and curse of knowing the insulin market. They know the ins and outs of manufacturing, marketing and working with payors. However they also know the same statistics outlined above and that payors would like nothing better than to have a generic option.

As Diabetic Investor sees it they have two basic options, beat’em or join’em. Given that almost everyone suspects should a generic make it through the FDA it will not cost 80% less rather more like 20 or 30% less than the branded option. This smaller price differential opens the door to the possibility that a company like Sanofi could lower the price of Lantus to blunt the adoption of a generic, sacrifice margin to maintain market share. This also buys the company time to develop their new version of Lantus which once ready will have a built in patient base that can be converted from the old version to the new one. Although not everyone will convert Sanofi still comes out a winner.

The other option would be for a company who isn’t doing all that well in the insulin market, Lilly for example, to use their existing infrastructure, experience and name recognition to become the dominate generic player. Just as Novo came to dominate Lilly, pushing the company to also-ran status in the insulin market, Lilly would like nothing better than a little revenge and turn the tables on Novo. Lilly, like everyone else in the insulin worlds knows there really isn’t that much difference between the three branded versions of short-acting insulin and could well decide that it’s better to dominate the generic market. Unlike others who might enter this space Lilly could use their long history in the diabetes space to their advantage as physicians would be less apprehensive about using generic insulin manufactured by Lilly than they would with some no-name company they never heard of.

There probably a third option which would be to play in both worlds, something more easily accomplished by Sanofi as their short-acting insulin Apidra has been a dismal failure and it wouldn’t take much to convert the Apidra line to generic line. Sanofi could well decide to protect the Lantus franchise and use the a generic Apidra almost as a loss leader, not unlike when a grocery store sells something for below costs knowing it will bring shoppers into the store who will then also buy more profitable items.

About the only thing we know for certain is that insulin market, which is already transforming into a commodity style market, will become even more competitive and price sensitive. Secondarily it’s also becoming obvious that although generic insulin isn’t here yet and no one has even submitted an application to the FDA, the mere possibility of there being a generic is already impacting the market. Can’t wait to see the sparks fly when a generic is submitted to the FDA as that application and its outcome will likely forever change the insulin market.