The Business of Diabetes: Is Novo Nordisk's Pullback from Greece Really A Greek Tragedy?

Most Americans likely missed the news from Greece this weekend, but it involved Novo Nordisk, the dominant European supplier of insulin (though certainly not the only one) and the company's decision to stop supplying certain types of insulin (17 products, to be exact) to people in Greece who have type 1 diabetes and require insulin for their very survival. (See here for links to the news stories) The reason: the Danish company refuses to cut prices by 25% which is being demanded by the Greek government.

According to the BBC, Greek citizen and economist Pavlos Panayotacos, whose 10-year-old daughter Nephele has diabetes, wrote to the company expressing concern about the company's move. Novo Nordisk's chairman, Lars Sorensen, wrote back to Mr. Panayotacos shifting responsibility away from his company by stressing that it was "the irresponsible management of finances by the Greek government which puts both you and our company in this difficult position". Not exactly the model of social responsibility Novo Nordisk claims to be in it's corporate brochures!

Novo Nordisk spokesman Mike Rulis also said in an e-mail statement to Reuters a 25% price cut did not allow Novo to run a sustainable business in Greece. Such a cut also would bring prices in Greece "way below what other European countries are paying", Rulis added. Hmmmmmm, this comes after something like 6 consecutive quarters of the company's executives boasting to investors that the company had managed to steadily increase prices (especially in North America, to a somewhat lesser extent elsewhere in the world) on insulin which resulted in higher profit margins on it's insulin products (a smaller percentage can be attributed to greater production efficiencies). One has to wonder how they could have increased their profit margins and still loose money with a 25% price cut, or would it merely revert prices back to where they were in mid-2008, before the global economic slowdown. It's not like inflation has been a huge issue for most of the world (although that could be a problem in the future as long as so many countries, including the U.S. and the U.K., continue to live beyond their fiscal means), so what we're really talking about a hit to Novo's investors, who have grown used to steadily increasing margins and rapid growth from the company while rivals showed much slower growth.

In Defense of Novo Nordisk?

I am certainly the last person to defend any pharmaceutical company, and I believe Novo Nordisk has created a Public Relations disaster for themselves with this action and it's somewhat cold response to these issues, and I have to admit, quite deservedly so. But I DO believe that some comments on this subject have been quite misplaced.

First, Novo Nordisk is not, as some have mistakenly claimed, leaving any Greek type 1 patients to die without access to Novo Nordisk insulin. In fact, Novo Nordisk will continue selling vials of Novolin biosynthetic human insulin (Regular and NPH) in Greece, but the company's more costly pen devices will no longer be sold in Greece, and it's "modern insulins" (Novolog and Levemir) will also be discontinued there, at least temporarily. But before everyone is ready to castrate the Novo Nordisk Apis bull (featured in the company logo, see here for more background on that), let's remember that NO patient requires Novolog or Levemir for survival; these are patent-protected, proprietary molecules, and patients can survive just fine with regular insulin, in much the same way as all patients with diabetes did before these costly new products were introduced in the late 1990's. In fact, a number of meta-analyses conducted have raised some very legitimate questions as to whether these new insulins truly deliver superior glycemic control, because the average HbA1c has barely budged (it has come down, but not by a margin commensurate with the increase in per patient spending on these "modern" insulins) since analogues first appeared.

Novo's Political Stance: We Will Not Be Bullied Into Price Cuts

This really appears to be the company taking a political stance that it will not be bullied into price cuts (the Greek government was demanding across-the-board price cuts of 25%). The company told the Greek government it will not lower the prices of its most recent insulin products, so-called "modern" insulins, and insulin products for use with pen injection systems. As a result wholesalers have stopped ordering these products as they would have to sell them at a loss, Novo claims.

The Greek government's financial woes are well-known, and it has been reported that Greece owes billions of Euros for medicines and equipment purchases made on behalf of state hospitals. Novo Nordisk claims it's owed $36 mm dollars by the Greek state. Greece's National healthcare system is funded by tax revenue, and the Greek Health Service wanted the price of insulin and other drugs to come down because they're broke and heavily in debt. There is some concern that other insulin manufacturers, notably Eli Lilly & Co. which is based in the U.S. and Sanofi Aventis, which is based in France although it's insulin business, which had its origins from Germany's Hoechst AG decades ago, is based in Germany, might follow Novo Nordisk's lead on this issue, this seems unlikely right now. Of note: outside of its core market in Germany and Austria, Sanofi Aventis does not sell biosynthetic human insulin, only insulin analogues, which carry much higher prices anyway.

Competitors' Responses

It seems quite unlikely that competitors will follow Novo Nordisk on this move (at least from my perspective). First, as I commented on one of my fellow d-blogger's postings, back in February 2010, Sanofi Aventis publicly identified diabetes as a "top priority" in pharmaceuticals and even established a global division to help the company achieve its aim of becoming the top firm in diabetes treatments (see here for the text of this story), with a goal of unseating Novo Nordisk for leadership. While Cafe Pharma derided the notion that was likely to happen, most of that came from Novo employees, who conveniently forget that when Novo first entered the U.S. market back in the 1980's as a partner to established U.S. insulin manufacturer ER Squibb & Sons (which would later merge with Bristol Myers), Novo remained an also-ran in the U.S. market for nearly 25 years. It wasn't until the advent of managed care in the U.S. that Novo was able to grow, largely because the company was more experienced than Lilly in dealing with formularies in many European markets.

Lilly, too has lost market share for insulin (today, it's a one-trick pony in the insulin analogue business, with only a rapid-acting analogue available but no long-acting product in its line-up at all), and might see this as an great opportunity to steal market share from it's bitter rival Novo Nordisk. Also, the company recently reorganized and made diabetes a business unit reporting directly to the CEO, so there's more at stake today than there was a few years ago when insulin was in a business unit with other therapeutic areas and was not a primary focus for management at the time. Today, the diabetes unit must show growth, and this is a great way for Lilly and Sanofi to grab share, though I doubt either company will do so if they can't make any money.

There are several other insulin manufacturers in Europe also worth noting here, and none have (thus far) followed Novo's move. One is a U.K. division of a company now owned by an Indian biopharmaceutical and healthcare giant known as Wockhardt, Ltd. Also, Poland has two insulin manufacturers of its own, one being a former state-owned enterprise known as Polfa Tarchomin which first began in 1823, and the other being a much more recent biotech startup known as Bioton, which has grown mainly by expanding into Russia, Ukraine and elsewhere in the former Soviet Union, plus India, Israel and having operations further afield in the Pacific region, notably in Australia, Singapore and China. Bioton, however, has substantial debt, so its growth prospects are likely to be limited until the company can de-leverage itself somewhat. In addition, Merck's Schering-Plough business in the Netherlands is one of the largest contract-manufacturers of insulin (both natural and biosynthetic) on earth, and in fact, is the chosen supplier of biosynthetic human insulin that Connecticut-based Biodel, Inc. has contracted with (I believe that was a 5-year contract signed in early 2009 if I'm not mistaken) once it has regulatory approval for it's VIAject rapid-acting insulin.

The Greek insulin tragedy has already been documented by at least two d-blogging peers, one being an American blogger based in Hong Kong entitled Diabetes 24/7 by Elizabeth Snouffer (see her posts here and here) and the other one being U.K. blog "Put Up or Shoot Up" (see here); naturally I've commented on all of those postings, as you might expect, because I am quite opinionated!

But there are several issues raised by the Novo Nordisk Greek moves. First, if insulin were truly a competitive market, Novo Nordisk's moves would not invoke such fear. But it's not a competitive market by any stretch of the imagination, so today, Novo reportedly controls something like half of the world's insulin market. While the U.S. has not pursued antitrust measures very much over the last 8 years, European regulators have scrutinized monopolistic behavior more closely. Apparently, Novo does not have a monopololy according to European antitrust regulators, but the company's immense worldwide market share has enabled it to influence the market beyond it's market share alone would otherwise suggest. In fact, Novo's dominance in insulin pen design prompted development of both Lilly's Humapen Memoir and Sanofi Aventis' SoloSTAR pens (for both Apidra and Lantus) -- both products have increased competition in the pen device sector. In fact, Novo Nordisk came back with a me-too version of Lilly's Humapen Memoir last fall called the Novopen Echo (see here for the news release).

For the moment, none of the handful of competitors have followed Novo's lead, although traditionally in an oligopoly such as the insulin market, the few competitors have played follow the leader, as I've hinted already, there are signs that Novo's ability to call the shots have slipped in recent years.

What will rivals do in Greece? Will they use Novo's pull-back to grab market share?

Only time will tell. If I had to guess, I would say that Lilly might try to grab some share, since it's really a one-trick pony when it comes to analogues (rapid-acting only, no long-acting analogue) and now that the diabetes business has been made a separate business unit reporting directly to the CEO, there is pressure for management to demonstrate growth that did not exist when insulin fell in with a multi-product, multi disease business model that existed previously. As for Sanofi Aventis, in February, the company identified diabetes as a "top priority" in pharmaceuticals and established a global division to help the company achieve its aim of becoming the top firm in diabetes treatments (see here for the text of this story). True, neither company is going to sell their products at a loss, but this might be the ideal opportunity for these rivals to cash in on Novo's pullback from the Greek market, however small that may be.

In the interim, some have asked whether Novo should bear the cost of Greece's financial mismanagement. Probably not, but Novo (as well as Lilly and Sanofi Aventis) have all aggressively raised prices in a mostly deflationary environment, much to the dismay of healthcare providers worldwide (including nationalized heath insurance plans as well as private healthcare insurance companies in the U.S. and elsewhere). The sad reality is that as long as we allow our markets to be dominated by a small number of companies, patients there will always be a risk of this type of situation happening. Argentina's insulin company, Laboratorios Beta, was born from the Argentine debt crisis and the subsequent lack of affordable insulin in that country. But elsewhere in the world, including Greece and the U.S., have not learned those lessons, and we've allowed greater industry consolidation in the name of economic efficiency. But to avoid continued price increases in a deflationary economic environment, we must have government policies in place that encourage competition in the insulin market, which has simply not been the case for as long as I can recall. But if we had a more dynamic, competitive environment, this type of situation would be much less likely.

As I alluded to in my New Year's posting back in January (see here for details on that), if and when newcomers gain regulatory approval for their new insulin products, I believe Novo's ability to call the shots as the leader will be drastically curtailed (as it loses market share, and they stand to lose the most as the current market share leader), and we can only hope that happens sooner rather than later. As for Novo's "Changing Diabetes" campaign, I cannot help but wonder if this is the kind of change the company had in mind, because frankly, it looks like more of the same, monopolistic behavior we as patients have seen from insulin suppliers for decades!