Image source: Eli Lilly & Co.

After Eli Lilly & Co. (NYSE:LLY) reported that it had filed for supplemental approval of Jardiance as a therapy to reduce cardiovascular risk in diabetics, Eli Lilly's shares slipped about 1%.

Investor's lackluster response to Eli Lilly's announcement contrasts excitement that sent shares soaring after the company first reported Jardiance cardiovascular data last fall. Why the different reaction this time around? Read on to find out how insurer pushback is creating a big hurdle for Eli Lilly to overcome.

Tapping into a big market
There's no denying that the diabetes market is massive and growing rapidly. Diabetes affects an estimated 387 million people worldwide, and the International Diabetes Federation estimates there will be 205 million more people with diabetes in 2035 than there were in 2010.

Because diabetes is widespread, the cost of caring for diabetes patients is staggering. An estimated $176 billion is spent directly treating diabetes patients every year. Billions of dollars in spending goes to treating life-threatening conditions caused by diabetes, such as cardiovascular disease, and additional billions of dollars are spent on medications in hopes of delaying the disease's progression.

Unfortunately, this spending has done little to alter the course of diabetes and as a result, millions of people still pass away every year from diabetes related cardiovascular disease.

Until now
Jardiance's positive phase 3 trials make it the first diabetes medicine to be clinically proven to reduce the chance of cardiovascular death. In studies involving 7,000 patients, treating patients with Jardiance reduced the likelihood of cardiovascular death by 38%. All cause mortality, and hospitalization related to heart failure also improved by 32% and 35%, respectively.

The evidence is compelling enough to suggest that Jardiance, a SGLT2 inhibiting therapy that boosts glucose excretion via urine, is about to become a key cog in standard of care for diabetics, especially in patients at high risk of cardiovascular disease.

It's too early to guess if Jardiance will displace the long-standing first-line therapy, metformin, or if it will become part of a combination therapy used alongside it and other diabetes drugs, such as Merck & Co.'s (NYSE:MRK) billion-dollar drug Januvia. Either way, if the FDA clears Jardiance for use in reducing risk of cardiovascular death, there's a very good chance it becomes a top seller.

Overcoming objections
That bullish forecast, however, is tempered by the reality that payers are hesitant to pay for Jardiance, which costs $4,800 per year.

Metformin costs only about $60 per month, and Januvia, which is typically prescribed once metformin no longer controls blood sugar, carries a similar price tag to Jardiance. Therefore, using Jardiance in concert with these drugs, Januvia would spike diabetes treatment costs and significantly dent insurer profitability.

As a result, most major insurers are approaching Jardiance cautiously. Reportedly, CVS Health (NYSE:CVS) and Molina Health want more clinical evidence of efficacy before they embrace Jardiance. Anthem (NYSE:ANTM), Cigna, and Express Scripts said they're going to stick with current guidelines established prior to Jardiance's approval for now.

Because payers are creating hoops that impede doctors from prescribing the drug, such as requiring prior authorization, and because they can put drugs in costly high tiers of their drug formularies, it's not certain when Jardiance scripts and sales could spike.

Looking ahead
The FDA will make a determination on Jardiance use in cardiovascular disease this year, but absent a shift in treatment guidelines, it's unclear when payers might be forced to loosen their purse strings and pay for the drug.

Possibly, the industry's end game is to drag its heels long enough to allow for cardiovascular studies to wrap up for competing SGLT2 drugs, including Johnson & Johnson's Invokana, which was the first to win FDA approval and remains the best-selling drug in this class. If Invokana demonstrates a similar cardiovascular benefit to Jardiance, then payers will be able to pit them against each another to force prices down.

Regardless, Jardiance is potentially the biggest advance in diabetes treatment in years, and therefore, investors are going to want to keep tabs on the company's progress marketing it.