A Clouded Future For Big Pharma's Blockbuster Diabetes Drugs

Includes: AZN, BMY, LLY, MRK, NVO
by: Psycho Analyst

Incretin drugs are a relatively new family of drugs for people with Type 2 diabetes. They work by elevating the level of GLP-1, an incretin hormone found in the gut, which has the effect of lowering blood sugar in the pancreas and curbing appetite in the brain. Some drugs in this family are a synthetic form of GLP-1. Others disable the enzyme that degrades GLP-1 so that its concentration rises to higher than normal levels.

The incretin drugs include the injectable drugs Byetta and Bydureon, sold by a partnership of Bristol-Myers Squibb (NYSE:BMY) and AstraZeneca (NYSE:AZN), and Victoza, from Novo Nordisk (NYSE:NVO). More recent oral incretin drugs are even more popular: Januvia and Janumet, from Merck (NYSE:MRK), Onglyza and Kombiglyze from Bristol-Myers Squibb and AstraZeneca, and Trajenta and Jentadueto (also sold as Tradjenta) from a partnership of Boehringer Ingelheim and Eli Lilly (NYSE:LLY). (The second drug in each pair is a pill combining both the patented incretin drug and the generic drug metformin.)

Incretin Drugs Contribute Heavily to the Bottom Line

The oral incretin drugs are the most profitable. In 2013 Januvia was Merck's number one selling drug. Januvia and Janumet combined achieved sales of $5.75 billion and represented 14% of Merck's total pharmaceutical sales for the year.

Onglyza and Kombiglyze earned $709 million dollars for Bristol Myers Squibb in 2012 which was 26% of their total pharmaceutical sales. It earned another $323 million for AstraZenaca, which was 4% of its total annual drug sales.

Only Lilly's Trajenta lagged as a sales leader--the company did not break out its annual sales in its last quarterly report. Probably because it came latest to the market and has no unique selling proposition.

The injectable incretin drugs are also highly profitable. The leader is Novo Nordisk's Victoza whose sales grew 58% in 2012. The $78 billion earned by Victoza represented 12% of Novo Nordisk's total pharmaceutical sales.

The other injectables, Byetta and the longer lasting form of the same drug, Bydureon, were acquired in August of 2012 by a partnership of Bristol Myers Squibb and AstraZeneca, who bought out Amylin Pharmaceuticals in August of 2012 for $5.3 billion dollars. Fourth quarter sales of these two drugs were $227 million for Bristol Myers Squibb--which would annualize to roughly 33% of the company's quarterly pharmaceutical sales and $111 million for AstraZeneca, which would annualize to about 4% of its annual pharmaceutical sales.

Troubling Research Hints at Severe Long-Term Side Effects

However, though these drugs continue selling briskly, recent developments cast a long shadow over their long-term prospects. In February 2013, a study conducted by researchers at Johns Hopkins that was published in the high impact journal JAMA Internal Medicine, (2/25/13), reported that people taking Byetta, Bydureon (a long-acting version of Byetta) or Januvia had double the rate of acute pancreatitis.

The FDA responded to this study by announcing on 3/14/2013 that it was "investigating reports of possible increased risk of pancreatitis and pre-cancerous findings of the pancreas from incretin mimetic drugs for type 2 diabetes." Pancreatitis is a painful condition that can be fatal. Even when it is not, it often destroys enough of the pancreas so that patients become fully insulin dependent.

The FDA investigation might be considered an empty gesture, as the FDA is notorious for delivering slaps on the wrist of the drug companies that fund it. So investors might be excused for thinking that this troubling finding is nothing to worry about. It might, after all, have been caused by statistical fluke.

Except that a brand new, elegantly conducted study, published this past week in the journal Diabetes by a top notch research team from UCLA's medical school, discovered findings that not only explain why all the drugs in the incretin family may indeed be causing pancreatitis, but also reveal that these same drugs appear to be causing highly abnormal patterns of proliferative cell growth in the pancreases of people who take them.

The researchers found what they called "striking findings:" All the subjects who were taking either Januvia or Byetta had highly abnormal masses of beta cells, which produce insulin, and alpha cells, which produce the hormone glucagon which raises blood sugar. Indeed, they had three times as many of these cells as normal people, though the researchers note that since all these people were still diabetic at their deaths, this huge mass of cells was obviously not producing normal amounts of insulin, and on closer examination these cells were found not to resemble normal cells. They were larger than normal and distributed in "eccentric" islets.

The researchers found some of these cells that were secreting both insulin and glucagon. This kind of cell is found only in fetal tissue, and finding them in adults was highly abnormal.

Even worse, the researchers found that seven out of the eight people who had been taking incretin drugs had "hyperplastic islets" in their pancreases. This included one subject taking Byetta who was described as having " exuberant alpha cell hyperplasia."

Three of the subjects who had been taking either Januvia or Byetta were also found to have microadenomas, tumor that, while at first benign, have the potential to become cancerous. The pancreas of one patient who had been taking Januvia was also found to have a 1.5 cm neuroendocrine tumor.

Only the patients in this study who had been taking an incretin drug for their diabetes displayed any of these abnormalities. The pancreases of the diabetic subjects who were not on incretin drugs showed none of these findings, nor did the pancreases of a group of non-diabetic controls.

The researchers explain that there is a body of published animal research showing similar findings in animals taking incretin drugs and argue convincingly that the cause of the hyperplasia and tumors found in people taking incretin drugs is almost certainly due to the effect of exposure to high concentrations of GLP-1. This is characteristic of all incretin drugs, so even though the researchers only looked at the pancreases of people taking the oldest incretin drugs, Januvia and Byetta, their findings are likely to apply to all the other drugs in the class.

Investors should be aware then that if the FDA's review concludes that these drugs are causing significant amounts of hyperplasia, potentially fatal pancreatitis, and/or precancerous lesions, this entire class of drugs may be taken off the market, which will represent a major blow to the earnings of all the companies who currently profit from them.

The reason is that hyperplasia and adenomas are the earliest manifestation of the process that leads over a long period of time to the development of pancreatic cancer. Pancreatic cancer is almost always fatal, and because it rarely causes any symptoms until it has progressed to a stage where survival is unlikely, allowing patients to continue to take drugs that produce hyperplasia and adenomas in the majority of those who take them is medically indefensible.

Who Could Get Hurt the Most?

Bristol Myers Squibb and Merck are the companies most likely to suffer dramatic losses in share price should these drugs be taken off the market or suffer a significant loss of sales due to fears of cancer and pancreatitis, as they have linked their fortunes most closely to incretin drugs, which they have hoped would take the place of their former bestsellers Singulair, Plavix, and Avapro that lost patent protection last year.

While Victoza contributes significantly to Novo Nordisk's bottom line, patients taken off any of the injectable incretin drugs are likely to be switched to one of the companies line of very profitable analog insulins, possibly making up some of the shortfall. AstraZeneca and Eli Lilly & Co have the least exposure since the sales of these drugs make up less than 5% of their total pharmaceutical sales and Lilly too benefits when patients are switched to insulin (references).

Singh S, Chang HY, Richards TM, Weiner JP, Clark JM, Segal JB. Glucagonlike peptide 1-based therapies and risk of hospitalization for acute pancreatitis in type 2 diabetes mellitus: a population-based matched case-control study. JAMA Intern Med 2013 Feb 25:1-6. doi: 10.1001/jamainternmed.2013.2720. [Epub ahead of print].

Marked Expansion of Exocrine and Endocrine Pancreas with Incretin Therapy in Humans with increased Exocrine Pancreas Dysplasia and the potential for Glucagon-producing Neuroendocrine Tumors. Alexandra E Butler et al. Published online before print March 22, 2013, doi: 10.2337/db12-1686. Diabetes March 22, 2013.

Singh S, Chang HY, Richards TM, Weiner JP, Clark JM, Segal JB. Glucagonlike peptide 1-based therapies and risk of hospitalization for acute pancreatitis in type 2 diabetes mellitus: a population-based matched case-control study. JAMA Intern Med 2013 Feb 25:1-6. doi: 10.1001/jamainternmed.2013.2720. [Epub ahead of print].

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. I have no business relationship with any company whose stock is mentioned in this article.