Bristol-Myers Squibb (NYSE:BMY) and AstraZeneca (NYSE:AZN) have received approval from the European Commission for their new anti-diabetic drug Forxiga (dapagliflozin). Forxiga treats type 2 diabetes by lowering sugar levels in the blood.
The market for treatment of type 2 diabetes has been long dominated by insulin. However, SGLT2 the class of anti-diabetic drugs to which Forxiga belongs could potentially challenge this dominance as this new class of anti-diabetic drugs work independently of insulin. Forxiga reduces blood sugar levels by removing the excess sugar in the blood through the urine. It thus reduces the work for insulin.
The current market for type 2 diabetes treatment in the European Union is an expanding multi-billion dollar one. Thus, Forxiga’s sales in this market will add to the top line growth of Bristol-Myers and help to offset the decline in its sales post patent expiry of its blockbuster drug Plavix in May earlier this year.
We currently have a stock price estimate of $33.59 for the company, approximately 5% above its current market price.
Forxiga faced rejection by US FDA
Prior to receiving approval for Forxiga in the EU, Bristol-Myers had faced rejection for the same in the U.S.. The Food and Drug Administration (FDA) had denied approval for Forxiga earlier in the year on potential cancer risks arising from the drug’s use. The agency sought additional drug trial data to evaluate these risks. Bristol-Myers is expected to file a new drug application (NDA) with FDA for Forxiga detailing the sought data by mid 2013. However, this denial by FDA could weigh on doctors’ concerns in the EU and thereby impact the sales of the drug there.
On the other hand, EU considers Forxiga’s benefits to outweigh its potential risks
On the other hand, the European Commission considered the benefits of the drug to outweigh the potential risks and thereby granted its approval. The drug is the first in SGLT2 class of anti-diabetic drugs to receive approval anywhere in the world. Additionally, Forxiga lowers blood pressure levels and helps in weight loss. It is an oral treatment option and needs to be taken once a day.
In terms of market size, at the end of 2011 in Europe diabetes was estimated to affect nearly 53 million people, and this figure is projected to rise to 64 million by 2030. And type 2 diabetes constitutes nearly 95% of the total diabetes cases. This increasing market for diabetes treatment is a highly lucrative one for pharmaceutical companies. Johnson & Johnson and Pfizer are also racing to bring their own SGLT2 class of type 2 diabetes treatment options to the market. However, in the EU the first mover advantage shall rest with Bristol-Myers.
Anti-Diabetic drugs are a highly important segment for Bristol-Myers
Diabetes treatments as a therapeutic class is one of the three most important segments for the company alongside heart-related treatments and cancer treatments. Anti-diabetic drugs constitute approximately 15% of the total company value according to our estimates.
In this therapeutic class Bristol-Myers works with AstraZeneca for both research and marketing functions. Together the two companies have several type 2 diabetes treatment drugs in their portfolio. The approved drugs among these include, Onglyza, Kombiglyze and Komboglyze. The Amylin acquisition in August earlier this year added Byetta and Bydureon to this portfolio. And now Forxiga’s approval in the EU will further add to this portfolio’s growth and strengthen Bristol-Myers’ position in the diabetes treatment market in the EU.