Drugs to treat diabetes, mostly injectable insulin, have become a $34 billion annual business crowded with manufacturers of relatively similar products. Novo Nordisk (NVO) wants to stand out from the pack. Following the example of consumer product companies, the Danish drugmaker is betting that it can add product enhancements to basic insulin and command higher prices in wealthier nations. Explains Chief Executive Officer Lars Sørensen, pounding his desk for emphasis: “A country like the U.S. ought to be able to offer people the most modern insulins and not giving them Third World insulins.”
Novo Nordisk, which gets half its $11.1 billion sales from insulin, this year is seeking U.S. and European regulatory approval for its newest treatment, degludec, in a bid to unseat Sanofi’s (SNY) Lantus as the world’s best-selling diabetes treatment. Sørensen says degludec is “the fundamental part” of a strategy to boost Novo Nordisk’s sales by shifting patients in developed nations from older, cheaper forms of insulin that must be taken just before mealtimes to more expensive chemically altered versions that are absorbed more slowly and act longer.
Degludec’s advantage is that it can be administered at any time, providing diabetes patients with greater flexibility, whereas Lantus must be injected at the same time every day, although not necessarily at mealtimes. Trial results presented at a conference in Lisbon in September showed that degludec works as well as Lantus at controlling blood sugar.
Sanofi CEO Chris Viehbacher is taking the challenge seriously. On a call with analysts in July, Viehbacher said a trial funded by its Danish rival was designed to unfairly favor degludec over Lantus. Sørensen scoffs at the suggestion. “To me it sounded somewhat hollow and a little bit desperate,” the Novo Nordisk chief says. “But of course, it’s their most important product, so I can understand why he might be a little bit desperate.”
Diabetes afflicts 366 million people worldwide, killing one every seven seconds and incurring annual health-care costs of $465 billion, according to estimates by the International Diabetes Federation. The disease is caused by a lack of insulin, which the body needs to convert blood sugar into energy. Left untreated, it can lead to kidney damage, blindness, heart problems, and death.
Sales of drugs to treat the ailment grew 12 percent last year, to $34 billion, making them the fourth-biggest therapeutic class by sales worldwide, behind medicines for cancer, cholesterol, and breathing disorders, according to market researcher IMS Health. Because insulin manufacturing has huge up-front costs and relatively narrow margins, it is less likely that generic competitors will scramble to enter the business as patents lapse. Lantus generated sales of €3.5 billion ($4.7 billion) last year, compared with 6.9 billion Danish kroner ($1.3 billion) for Novo’s Levemir, an older insulin that degludec is designed to replace.
Sørensen says Novo Nordisk plans to charge as much as 30 percent more for degludec than Sanofi charges for Lantus. That could be a tough sell. Tim Race, an analyst at Deutsche Bank (DB) in London, says the crucial question is whether degludec’s “tiny convenience benefit,” as he puts it, will be enough to convince cost-conscious public and private health insurers to pay so much. “That seems a bit rich, given that their drug is effectively the same as Lantus,” says Race. “In the current health-care environment, if you price at crazy premiums, you’ve got to assume that volume is hampered.” Race expects degludec to be able to only command a price premium of between 10 and 15 percent.
Relatively new insulins have already been targeted in recent studies in Europe as drug categories where national health plans could find meaningful cost savings. Longer-lasting chemically modified products such as Lantus and Novo’s Levemir accounted for 85 percent of total insulin spending by Britain’s National Health Service in 2009, compared with 12 percent in 2000, researchers from Cardiff University in Wales wrote in the British Medical Assn.’s journal, BMJ Open. The authors said the state-run medical system could have saved as much as £625 million ($966 million) over the last decade by steering patients toward older, human insulins that cost less and work just as well.
“Any type of premium pricing is becoming more and more difficult,” says Mark Evans, an endocrinologist who teaches at the University of Cambridge. “If Novo really are going to try to premium-price this, they will have a tough, tough battle” getting insurers to go along.