The Future Of Diabetes Treatment And Who May Ultimately Benefit

Includes: AZN, BMY, JNJ, LLY, MRK, SNY
by: Bio Matt

Diabetes background

Type II Diabetes Mellitus (T2DM) is the most common form of diabetes throughout the world. The body's cells begin to develop a resistance to insulin, and eventually cause the pancreas to stop producing insulin as it is over stimulated for a long period of time. Within the body's cells, an upregulation of GLUT and SGLT-2 in T2DM is seen which helps maintain renal tubular glucose reabsorption. This puts a strain on the kidneys and leads to increased creatinine levels as the kidneys become overworked. SGLT2 mRNA expression was also shown in studies to be upregulated in diabetic rats. These studies showed that mRNA expression can be decreased by lowering blood sugar, however.

The current market/market share

According to GlobalData, insulins such as Lantus (Sanofi-Aventis (NYSE:SNY)) make up the largest portion of this therapeutic area, with just below 40% of revenues. While metformin has the highest prescription numbers, the generics market has split the actual revenues between many different companies worldwide. In 2012, Lantus brought in revenues of over $6.0 billion worldwide. Thiazolidinediones such as Takeda Pharmaceuticals' Actos (PINK:TKPYY.PK) make up the second largest chunk of market share (Actos 2012 revenues was about $3.0 billion) with DPP-IV inhibitors such as Merck's (NYSE:MRK) Januvia coming third ($4.06 billion in 2012 sales). Among noninsulin medications, the thiazolidinediones like Actos were the highest selling group of insulin medications in 2012 followed by the dipeptidyl peptidase 4 (DPP IV) inhibitors such as Januvia, then GLP-1 receptor agonists such as Byetta. Lantus was the top selling diabetes product in 2012 with an impressive increase of 19.3% YOY. Januvia came in second with a 23% YOY increase in sales. With YOY sales increasing on many popular products and the face of diabetes treatment shifting, a new class of products will be able to cash in on an expanding market by taking some market share away from existing products.

Recent reports linking incretin mimetics such as Merck's Januvia, and Bristol-Myers (NYSE:BMY)/AstraZeneca's (NYSE:AZN) Byetta to increased risk of cancer. This along with sub-par safety profiles will open the market up to new classes of products. Furthermore, with the DPP-IV, insulins, GLP-1, and thiazolidinediones spaces crowded with similar products, pharma will need to continue to develop innovative products with new methods of action. Another problem is that all of the products on the market either have a good efficacy profile or safety profile, but none currently can be categorized to have both. The likes of Actos (black box warning) and Avandia (Removed from European market) have good efficacy profiles, but many safety concerns that limit their use to a very small group of patients.

The type II diabetes market is a massive market, which is increasing annually. In 2011, the therapeutic market in this space was worth $23.4 billion, with its expected growth to help this space reach $35 billion by 2020. In 2011, Eli Lilly's (NYSE:LLY) insulin products made up about $3.7 billion in this market and in 2012, their two main products Humulin and Humalog only brought in a combined $1.9 billion. While insulin based products are aimed at diabetics who have advanced further along with their condition than those who would take other oral medications, it shows that the treatments will continue to shift as generics become available.

In 2010, about 6.6% of the world had type II diabetes, with many patients remaining untreated. With this number expected to more than double by 2030, this has become a popular space for pharmaceutical companies and will certainly continue to drive growth. More than 10% of the population has type II diabetes in North America, portions of South America, and the Middle East currently, with this expected to expand to Western Europe, and parts of northern Africa by 2030. In 2011, the US was the leading market with an estimated market share of 54.1%. Japan was the second leading market with an approximate market share of 13.6%, closely followed by Germany with an approximate market share of 7.7% (Source GlobalData). Patient volume has also had a compounded annual growth worldwide of about 3.3% from 2002 to 2011, suggesting that the amount spent on therapy per patient has increased much faster than patient volume itself. This is due to the introduction of higher cost products such as the DPP-IV inhibitors and the GLP-1 agonists. GlobalData also forecasts that the annual cost of therapy for T2DM patients is expected to increase at a CAGR of 3.9%.

Diabetes is one of the costliest health problems in the world with expenditure expected to account for 11.6% of the total healthcare costs, worldwide. The total estimated cost of diabetes in 2007 was $174 billion, including $116 billion in excess medical expenditures and $58 billion in reduced national productivity. The increasing number of patients with this condition, lifetime recurring costs, increase in prevalence of obesity, and an ageing population all will cause this market to continue to grow.

The Future of Diabetes Treatment? -SGLT-2 Inhibition

A new class of diabetes drugs that have the potential to be a breakthrough therapy in T2DM are the sodium glucose co-transporter 2 (SGLT-2) inhibitors. SGLT-2 is a low affinity, high capacity transporter requiring 1 glucose and 1 sodium molecule, which is responsible for about 90% of glucose reabsorption in the kidneys. SGLT-2 inhibition causes the proximal renal tubule glucose transporter to not reabsorb glucose into the blood, thus excreting excess dietary glucose. SGLT-2 inhibition has been shown in numerous clinical studies to lower plasma glucose, thereby lowering glucotoxicity and glycosylated hemoglobin levels. By doing this, there is potential to improve the liver's sensitivity to insulin, thus improving long-term liver function and potentially reversing the effects of the condition in the long term. SGLT-2 inhibitors also have been shown to lower blood pressure, which is another therapeutic effect as diabetics often struggle with high blood pressure and the long-term associated effects. SGLT-1 inhibitors have also been targeted as potential compounds, but their problem is specificity of cells expressing high levels of SGLT-1 receptors. The heart, lungs, brain etc, where sugar needs to be sent all express high levels of SGLT-1 receptors. Mutation in encoding gene for SGLT-1 receptors can cause fatal diarrhea. This has not yet found to occur in early clinical testing however. The problem with SGLT-2 inhibitors is their impaired effects in patients with renal insufficiencies. 35.2% of type 2 diabetes patients have moderate to end stage renal impairment, which would not allow for filtration of glucose out of their glomerulus in the kidneys. Financially, this will limit the patient population as 35.2% T2DM patients have renal impairment that would disqualify them from taking any SGLT-2 inhibitor.

Forxiga (Dapagliflozin)

Dapagliflozin is a SGLT-2 inhibitor currently being developed by Bristol-Myers Squibb and AstraZeneca. Dapagliflozin has not yet been approved for use in the US due to concerns regarding its potential risk of raising breast and bladder cancer rates in patients using the drug. It was approved for use in the EU in November 2012 however and has since been launched. While the UK is not a very large market, the rejection of NICE, the UK's National Institute for Clinical Excellence, for reimbursement may be a bellwether for reimbursement and sales in other EU countries. The most common adverse event related to dapagliflozin usage was genital infection, which only occurred in a dose dependent fashion of 5.5% in 2.5 mg, and 7% in 5 and 10 mg. This was compared to 2.3% in placebo patients. UTI's were also seen and occurred at a rate of 4.2%, 7.3%, and 6.5% in 2.5 mg, 5 mg, and 10 mg patients. This was compared to a 4.5% incidence rate in placebo patients. 9 total cases of bladder cancer out of 5478 were reported in dapagliflozin patients compared to 1 out of 3156 patients in the control group. Slightly elevated risks of breast cancer were also seen in female dapagliflozin patients compared to the control group (.4% compared to .1% respectively).

Several animal carcinogenicity tests have been run, but have shown nothing conclusive as to what causes higher risks of cancer in patients taking dapagliflozin. Neither breast nor bladder cells show elevated SGLT-2 transporters and both breast and bladder cancer are cancers that normally develop over a long period of time compared to the time which patients were on dapagliflozin. It should be noted that dapagliflozin was tested in patients with HbA1c levels from 7-10%, which would indicate that these patients were advanced T2DM patients. In several of the studies dapagliflozin showed significantly reduced plasma glucose levels and weight loss in both monotherapy and dual-therapy patients. These results are encouraging for the potential use of dapagliflozin as a first line therapy in patients, thus increasing its potential revenues. BMY/AZ's diabetes alliance will also help sales as the reps acquired from their Amylin buyout are well experienced in the sales of T2DM products. Sales experience will become more important on a daily basis as the T2DM space becomes more and more crowded on a monthly basis with new products. I previously stated that Forxiga could reach peak sales of $5 billion in my article Why Bristol-Myers Squibb is not Overvalued. While I called the recent rise in the stock correctly, I believe that peak sales for Forxiga will be slightly below my potential call. There is still a potential for $5 billion in sales, but I believe for this to happen, safety trials will need to show that cancer risks are not actually increased in dapagliflozin patients. Realistically, peak sales will probably be in the $1-2 billion range as canagliflozin has the advantage of reaching market first in the US. Sentiment is very bullish in the clinics for use of SGLT-2 inhibitors however as physicians like the combination of an effective product for both T2DM and weight loss.

Invokana (Canagliflozin)

Invokana, Johnson & Johnson's (NYSE:JNJ) recently FDA approved SGLT-2 will be the main competitor for BMY/AZ's Forxiga. Invokana (canagliflozin) will be the first of the SGLT-2 inhibitors to hit the US markets, which will give it an initial marketing advantage within the world's largest T2DM market. Approval was expected as the FDA's Endocrinologic and Metabolic Drugs Advisory Committee had voted 10 - 5 in favor of its approval in January of 2013. The prescribing information recommends a 100 mg once-daily dosage for patients initiating treatment, with the potential dosage increasing to 300 mg once daily in patients requiring additional glycemic control and an eGFR above 60. The only warnings given surrounding prescribing Invokana are if a patient has renal insufficiencies (eGFR below 45) or an increasing LDL-c while taking the medication. Johnson & Johnson will need to run 5 post-marketing studies to further assess safety. These include a cardiovascular outcomes trial (CANVAS), an enhanced pharmacovigilance program, a bone safety study and two pediatric studies. Cardiovascular concerns arose from the fact that 13 patients taking canagliflozin had a cardiovascular SAE in their first month taking the product compared to only 1 in the placebo group. This reversed after 30 days however and canagliflozin lowered LDL in many patients. The trials run by J&J were the largest T2DM trial run to date with over 10,000 patients enrolled. This is a positive as it will provide ample data for clinicians to review and leave little doubt in their minds regarding efficacy and safety.

Canagliflozin has shown a good efficacy profile, with one study showing a 200 mg dose providing almost a 50% decrease in plasma insulin levels and over a 20% decrease in plasma glucose levels at 60 minutes after a meal. Plasma glucose and insulin levels were also much more stable with levels at 4 hours remaining much more stable than that in the placebo group. A larger study also showed a 7.6-8.0% reduction in A1C levels in canagliflozin patients compared to -.22% for placebo after 12 weeks of administration. This study also showed that adverse events were mild to moderate and balanced across all arms of the study. The most frequent AE seen with canagliflozin were genital infections, which were also seen in dapagliflozin patients. This most likely has to do with the increase of glucose excretion, which is known to cause higher UTI rates. Clinicians are still trying to determine why this actually occurs as higher glucose rates do not directly cause a better growth rate for E.coli.

Many analysts believe that Invokana will be a second or third line therapy in patients who do not have sufficient control with a monotherapy such as Merck's Januvia. I am more bullish on this product and believe that with some additional safety information, this and dapagliflozin will become first line therapies and revenue drivers for J&J, AZ, and BMY. Several analysts predict that sales will be between $500 million and $1 billion at the peak, but by 2020, I believe that peak sales could easily reach $3 billion. As safety concerns linger for Januvia and several other DPP-IV inhibitors, I believe that physicians will slowly transition to using SGLT-2 inhibitors. Furthermore, the efficacy shown in studies was better for patients on an SGLT-2 inhibitor than those taking Januvia. An additional $3 billion annually would increase current J&J revenues by less than 10% in the pharmaceutical space, but this new generation of diabetes treatments is still very important to the companies developing them and the patients being treated with them.


The future of the diabetes market will continue to increase in revenues and number of total products for the next several decades, during which pharmaceutical companies will continue to grow revenues in this field by creating drugs to address the issues associated with this disease. I believe that the SGLT-2 inhibitors will become a leading class in T2DM treatment in the future, which will ultimately benefit the likes of Bristol-Myers, AstraZeneca, and Johnson & Johnson (Possibly Boehringer Ingelheim and Eli Lilly, too). Further clinical safety data will need to be seen before these products hit blockbuster status, but the potential can be seen in the Phase II and III studies of dapagliflozin and canagliflozin. While T2DM is a terrible and burdensome condition to have, you may be able to cash in on pharmaceutical companies who have robust pipelines in this area as these products will continue to drive revenues. I still like BMY, but it has increased 26% over the past 3 months, so it is becoming a bit expensive. I also do like JNJ anywhere below $80 as pharmaceuticals will continue to drive growth.

Disclosure: I am long MRK. 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.