Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Diabetes drugmakers have suffered the most under a new drug-price paradigm, in which pharmacy benefit managers and insurers prod older medicines in competitive classes into costly price wars.

Sanofi and Novo Nordisk A/S hope their new two-drug diabetes combinations Soliqua and Xultophy, both approved by the FDA Monday afternoon, will help reverse this price crunch to some extent. But while these medicines will likely help in a dismal environment, they're not going to be saviors. 

Tough Times
Drug price competition has weighed on the shares of diabetes drugmakers over the past year
Source: Bloomberg

These drugs are expected to account for more than $1.7 billion in sales by 2020. But they may have a tough time meeting those expectations. For one thing, they're approved only for a relatively limited subset of patients. And according to a Bloomberg Intelligence note, because the drug doses in these combinations are fixed, they can't be adjusted for individual patient needs, which may limit uptake. Some patients may be better off taking the component drugs separately.

While new medicines generally get something of a pricing honeymoon, that's less and less the case in diabetes and other competitive markets, as pharmacy benefit managers (PBMs) get more aggressive about negotiating discounts.

Tresiba, the insulin component of Novo Nordisk's Xultophy combo, was only launched in the U.S. this January and has proved in a clinical trial to be superior to Sanofi's Lantus in reducing hypoglycemia. Yet according to Bloomberg Intelligence, the drug's U.S. imputed rebate -- the gap between gross sales and the post-discount net sales a company reports -- jumped from 25.2 percent in the second quarter to more than 40 percent in the third quarter. This suggests PBMs are unmoved by its shiny newness.  

The simultaneous approvals of these combos mean they will likely compete on price from the start. And the fact that Lantus -- the insulin component of Sanofi's Soliqua -- is set to face price-crushing competition from Eli Lilly & Co.'s copycat Basaglar suggests it may be cheaper than expected for patients and prescribers to choose "do it yourself" versions of these combos, adding further price pressure. 

These combos offer more convenience than the DIY approach, and possibly better results. But PBMs have been increasingly disdainful of convenience as a justification for premium pricing. It was this realization that prompted Novo Nordisk to give up on oral insulin, a project once seen as an industry Holy Grail.

Under Pressure
Long acting insulins are under increasing price pressure as more medicines compete for patients and insurance coverage
Source: Bloomberg

Novo Nordisk hopes its broad product portfolio and set of potentially best-in-class medicines will insulate it from this pressure, but that has not been true recently. The company has been forced to halve its long-term profit forecast, contributing to a nearly 45 percent share-price drop so far this year.

Anything these companies can do to add revenue or hold a small price advantage will help. But price pressure in the U.S. diabetes market is widespread and, to use a Sanofi executive's words, "there to stay."  Both Novo Nordisk and Sanofi will need to do more to resist it.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net