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Invokana

The FDA has just approved Johnson & Johnson's (NYSE:JNJ) Invokana (previously known as canagliflozin), a once-a-day pill to improve glycemic (blood sugar) control in adults with type 2 diabetes.

Glycemic control has become an important target of diabetic care lately since it was found that elevated levels of glucose in the blood cause many of diabetes' long-term complications.

The kidneys of people with type 2 diabetes reabsorb greater amounts of glucose back into the body compared to non-diabetic people, which may contribute to elevated glucose levels.

Invokana blocks the reabsorption of glucose by the kidney, increasing glucose excretion and lowering blood glucose levels. It expels sugar into the urine after it is filtered from the blood in the kidneys.

Invokana is a first-in-class treatment for a new class of drugs known as sodium-glucose co-transporter 2 (SGLT2) inhibitors.

The drug's safety and effectiveness were evaluated in nine clinical trials involving over 10,285 patients. In phase 3 clinical trials the drug showed strong efficacy in lowering blood glucose levels. The drug also led to meaningful decline in weight loss.

Invokana has been studied as a stand-alone therapy and in combination with other type 2 diabetes therapies including metformin, sulfonylurea, pioglitazone, and insulin. Invokana should not be used to treat people with type 1 diabetes.

The approval marks Johnson & Johnson's first move into the high-growth diabetes market.

While several major drugs available for the condition, the disease is often associated with complications like cardiovascular events and kidney impairment, therefore there is room for new drugs.

The FDA is requiring five postmarketing studies for Invokana: a cardiovascular outcomes trial, a trial to monitor for malignancies, like pancreatitis and liver abnormalities, a bone safety study, and two pediatric studies.

Market

The diabetes market is huge.

With obesity on the rise, diabetes is affecting more and more people. Over 370 million people suffer from diabetes across the globe, and the number is expected to exceed 550 million by 2030. The age bracket of 40-59 years is the most affected, followed by the age group of 60-79 years.

Type 2 diabetes accounts for more than 90 percent of cases, and in the U.S. it affects about 24 million people. In diabetic patients, over time, high blood sugar levels can lead to serious complications, such as heart disease, blindness, nerve and kidney damage.

The global diabetes therapeutics market is expected to reach $72.4 billion by 2018, growing at an annual rate of 10.4 percent from 2011 to 2018, and the diagnosis and monitoring market is expected to reach $26.0 billion by 2018, growing at a rate of 7.8%.

Competition

Invokana is facing significant competition from rivals.

Merck (NYSE:MRK) is the clear market leader with its blockbuster drugs Januvia and Janumet, and it is also developing MK-3102, which has shown promise in clinical trials.

Merck, of course, has trained sales teams practiced in selling diabetes drugs while Johnson & Johnson is a beginner in this field.

On JNJ's side, Invokana outperformed Januvia when the two drugs were compared in clinical trials. Invokana showed a decrease in body weight, a decline in blood pressure which is a durable effect, and no hypoglycemia (abnormally diminished glucose content in the blood). The weight loss is an especially welcome benefit since obesity is one of the factors contributing to diabetes.

Also, some competitors got into hot water lately with side effects. Insurance statistics show that diabetes drugs sold by Merck (Januvia) and Bristol-Myers Squibb (NYSE:BMY) (Byetta) and other GLP-1-based therapies and DPP-4 inhibitors may double a user's risk of developing an inflammation of the pancreas linked to cancer and kidney failure. The analysis was published in the journal JAMA Internal Medicine.

The FDA has been careful approving new products for the diabetes market, as with any drugs intended for mass markets.

It had previously rejected AstraZeneca (NYSE:AZN) and Bristol-Myers Squibb's Forxiga, which received a complete response letter (NYSE:CRL) last year. Novo Nordisk's long-acting basal insulin was also rejected.

All these concerns regarding competing products may help an early market traction for Invokana.

Investor's summary

Johnson & Johnson is new to the diabetes market but with a sound marketing strategy coupled with the unique features of the drug like reducing blood glucose levels and weight, it may not find it difficult to make in-roads.

What limits the revenue potential of Invokana is its lower efficacy in patients with impaired kidney functions which is a common condition in diabetic patients. Invokana increases the need to urinate because it works by blocking the reabsorption of glucose in the kidneys, which causes the sugar to be excreted in the urine.

Due to this, analyst's view towards the commercial prospects of the drug remain subdued. It may generate $800 million in peak sales, according to Tony Butler, an analyst with Barclays Plc in New York.

Financials:

Johnson & Johnson's worldwide sales for the full-year 2012 were $67.2 billion, an increase of 3.4 percent versus 2011.

Sales for 2012 included the impact of the recently completed acquisition of Synthes, Inc., which contributed 3.1% to worldwide sales growth, net of the divestiture of the DePuy trauma business, which was a condition of the purchase.

Net earnings and diluted earnings per share for 2012 were $10.9 billion and $3.86, respectively.

Primary contributors to operational sales growth were Remicade, a biologic approved for the treatment of a number of immune-mediated, inflammatory diseases; Velcade, a treatment for multiple myeloma; Prezista, a treatment for HIV; and a number of recently launched products, like Zytiga, an oral, once-daily medication for use in combination with prednisone for the treatment of metastatic, castration-resistant prostate cancer.

The company announced earnings guidance for 2013 of $5.35 to $5.45 per share, excluding the impact of special items.

The company's share price ranged from $61.71 to $81.59 in the past 52 weeks.

Johnson & Johnson needs new mass markets in order to grow its pharmaceutical business and diabetes certainly offers a great opportunity. Needless to say that moving into a new mass market takes plenty of money and a huge marketing power. Luckily for Johnson & Johnson, it has both.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Johnson & Johnson's New Diabetes Drug And Its Competitors