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The American Diabetes Association listed the total cost of diabetes in 2012 as $245 billion, an increase of 41% compared to 2007 when $174 billion was spent. The study also estimated that 22.3 million people were living with type 1 (T1D) or type 2 diabetes (T2D) in 2012, up from 17.5 million in 2007. According to GBI Research, a leading business intelligence provider, the T2D drug market -- which constitutes a significant chunk of the total diabetes drug market -- is expected to grow from $26 billion in 2011 to $50 billion in 2021, in developed markets including the U.S., Japan, and Europe.

Diabetes is the fastest growing disease in the world today, and drug makers see that there are billions of dollars at stake, which is why they are racing to develop new therapies in hopes of manufacturing the next blockbuster diabetes drug. Previously, in Companies Race To Develop The Next Novel Blockbuster Diabetes Drug I profiled three companies that are on the forefront of novel diabetes treatments. Below are three other companies that are also developing novel diabetes platforms, and one might become the next blockbuster therapy on the market.

Johnson & Johnson Develops Two Novel Diabetes Treatments

Johnson & Johnson (NYSE:JNJ) has entered the diabetes field with two entries. Invokana, which gained U.S. Food and Drug Administration (FDA) approval in March, is a first-of-its-kind drug to lower blood sugar by reducing the amount of sugar absorbed from food into the bloodstream and then flushing the excess sugar out in the urine. Invokana, generic name canagliflozin, acts differently than previous diabetes drugs in that its action takes place in the kidneys, blocking an integral membrane protein-- sodium-glucose co-transporter 2 (SGLT2)-- from putting sugar removed by the kidneys back in the bloodstream.

Invokana has the potential to be a big money maker for J&J as the market for non-insulin treatments continues to grow, reaching roughly $1.6 billion in 2012. The drug has shown to have limited side effects, mostly urinary tract infections and yeast infections caused by the large amounts of sugar in the urine, and the lack of side effects could have a large and positive impact on sales due to the vast number of people with diabetes and pre-diabetes. Dr. Zachary Bloomgarden, Clinical Professor in the Department of Medicine, Division of Endocrinology at Mount Sinai School of Medicine, commented, "It's not hype to say that this is a new class of drug that could provide patients with a lot of beneficial results. The bottom line with this drug is that it controlled blood sugar levels without causing weight gain and caused almost no hypoglycemia. This drug could be the backbone of new treatments for type 2 diabetes."

According to Reuters, Invokana is expected to see sales reach approximately $468 million in 2016, while other analysts see that the drug could be a billion-dollar product. According to analysts from Bank of America Merrill Lynch, script sales data for Invokana for its first seven weeks on the market was better than expected, prompting speculation that the SGLT-2 class could ultimately put pressure on the more established DPP-IV and GLP-1 classes. Though too early to tell, if the drug exceeds analysts' forecasts, it would bode well not just for J&J, but other pharmaceutical companies developing similar drugs.

J&J is also in early development, along with the German drug company Evotec (OTCPK:EVTCY), for a novel diabetes treatment based on a Harvard lab discovery of a hormone that spurs replication of insulin-producing beta cells in mice, which are also found in humans. Though three or four years from replicating in humans, Harvard stem cell researchers have homed in on the hormone called betatrophin, which controls beta cell proliferation. Evotec licensed rights to the work in 2011 and sublicensed the intellectual property to J&J's Janssen Pharmaceutical.

According to Dr. Cord Dohrmann, CSO of Evotec, "Existing therapies have proven largely ineffective against the progression of most degenerative diseases including diabetes. We are enthusiastic about exploring new mechanisms that have the potential to restore beta cell function and produce first-in-class therapeutics for the treatment of diabetes in collaboration with Harvard and Howard Hughes Medical Institute."

J&J paid $8 million upfront and could pay up to $300 million in milestones per program. Janssen's R&D division will get an exclusive shot at the small molecules and biologics in the portfolio, which hold the potential to regenerate insulin-producing beta cells. Dr. Dohrmann commented on the potential of the deal, "We are convinced that (the partnership) will lead to the development of a pipeline of exciting drug candidates in diabetes."

J&J stock has had an excellent run YTD, up almost 24%. The company's first quarter top line revenue grew 8.5% year-over-year, with positive revenue growth occurring across all three business segments. In the second quarter, sales rose to $17.9 billion, an increase of 8.5% compared to the second quarter of 2012. Domestic sales increased 8.0% while international sales increased 9.0%. Net earnings and diluted earnings per share (NYSEARCA:EPS) for the second quarter of 2013 were $3.8 billion and $1.33 billion, respectively. Net earnings for the current quarter were $4.3 billion, and diluted EPS were $1.48, representing increases of 17.7% and 13.8% compared to the same period in 2012. The company also increased its earnings guidance for full-year 2013 to $5.40 - $5.47 per share.

Eli Lilly Looks To Extend Its Diabetes Drug Pipeline

Eli Lilly (NYSE:LLY) has always been a leader developing new diabetes products, and it appears that with its co-development deal with the privately held German pharmaceutical company, Boehringer Ingelheim, it will continue to develop novel diabetes treatments. In Lilly and Boehringer’s original 2011 agreement the companies were to develop four separate diabetes drugs, though in May of 2013 Lilly terminated its co-development in regards to its basal insulin analog LY2605541. However, the two companies continue to co-developing three other drugs including one that has the potential of being a billion dollar product, empagliflozin, which has successfully met its primary endpoints in four Phase 3 trials. On September 24th the companies announced results from a new analysis of pooled efficacy data on empagliflozin, one of the new class of SGLT2 inhibitors, like J&J's Invokana, that flushes blood sugar from the body through the urine. The data showed that all four trials met their primary endpoint as treatment improved glycemic parameters, body weight, and blood pressure in adults with T2D.

Empagliflozin has been submitted for approval to the FDA and EU earlier this year and the companies hope to launch the drug sometime in 2014. If approved, the drug would compete with both Invokana and Bristol-Myers Squibb and AstraZeneca's Foxiga, which was approved for use by the EU but declined by the FDA, though the drug was resubmitted for approval in late July.

Also in co-development is LY2963016, a new insulin glargine biosimilar product, has been accepted by the European Medicines Agency (NYSEMKT:EMA) to review its marketing authorization application. Similar to Sanofi's Lantus, which controls 80% percent of the market for long-acting or basal insulins, LY2963016 is an investigational basal insulin for the treatment of T1D and T2D. LY2963016 has the same amino acid sequence as Lantus, therefore is considered biosimilar. And while not projected to reach the sales of Lantus, the drug could be a big money maker considering Lantus had sales of $6.64 billion in 2012. BioPharm Insight data projects LY2963016 to have sales of $482 million by 2020.

Another of the drugs being co-developed, Tradjenta, is off to a solid start since FDA approval in May 2011. Sales of Tradjenta, a drug designed to improve blood glucose control in adults with T2D, came in around $265 million for the first half of the year.

On September 26th Lilly announced positive patient-reported health outcomes from a Phase 3 clinical trial of dulaglutide, its once-weekly treatment for T2D. Dulaglutide is an investigational, long-acting, glucagon-like peptide 1 (GLP-1) receptor agonist. Last year Lilly released top-line results from the company-sponsored trials, reporting more patients taking the therapy had satisfactory blood glucose levels, indicating their disease was under control, with results preferable to patients given Merck's top-selling drug, Januvia, and Bristol-Myers Squibb's Byetta. Also, earlier this year it was noted that patients taking dulaglutide lost weight and had side effects that were manageable. If FDA approved, dulaglutide could also be a significant challenge to Novo Nordisk's Victoza, which generated $1.64 billion in 2012. Bloomberg project sales could reach $835 million in 2018.

Lilly, a $50.66 billion market cap company, has not experienced the stock appreciation of many of its nearest competitors, which have seen double-digit growth. Lilly is up only 2% YTD. However, the company did report $1.16 EPS for the quarter, beating the consensus estimate of $1.01 by $0.15. Lilly also had revenue of $5.93 billion for the quarter, up 5.9% on a year-over-year basis. Analysts expect that Eli Lilly will post $4.14 EPS for the current quarter. Analysts at Sanford C. Bernstein restated a buy rating and have set a $61.00 target price. Analysts at Leerink Swann have a price target of $62.00 with an outperform rating. JPMorgan Chase & Co recently raised its price target to $61.00. Zacks, however, reiterated a neutral rating and have a $54.00 price target.

Neostem Licenses Treg To Develop A Novel Treament For Type 1 Diabetes

I've been following NeoStem (NASDAQ:NBS) for quite a while, as I am a big believer in the future of stem cell therapy. NeoStem, through its subsidiary Athelos, is developing a number of treatments, including a T1D treatment, based on human CD4+CD25+ T Regulatory T cells (Tregs), which increase T-cell quantities and function. The company is conducting numerous studies using Tregs including a Phase 1 trial for organ transplant tolerance, a soon-to-begin Phase 1b/2a trial for steroid resistant asthma, and a planned early 2014 Phase 2 trial to treat patients newly diagnosed with T1D. While most of the attention has been focused on new drugs for T2D, a void still exists in regards to the lack of a method to prevent and/or reverse T1D. According to Dr. Robin L. Smith, Chairman and CEO of NeoStem, "Worldwide, type 1 diabetes affects over 340 million people, and has an economic cost of over $174 billion in the U.S. alone."

In July, NeoStem announced the company entered into agreements with the University of California, San Francisco (UCSF) and the laboratories of Jeffrey Bluestone, PhD, and Qizhi Tang, PhD, to collaborate on the development of Tregs. Under the agreements NeoStem will manufacture polyclonally expanded Tregs for the T1D study, and will collaborate with Dr. Bluestone on allo-specific Tregs for organ transplant tolerance in another Phase 2 study. In September, NeoStem announced it entered into an agreement for a worldwide exclusive license of three families of patents from UCSF, which provides incremental protection for its Treg cell platform. The company now holds 22 patents pertaining to Tregs for use in both the U.S. and international markets.

NeoStem may be a small company, with a market cap of $183 million, but it continues to grow and, with its Treg program, continues to diversify its products. Since its strategic reverse split on July 6th the stock had risen over 60% to a 52-week high of $9.10 per share. However, the company priced 5 million shares at $7.00 per share in a public offering last week, and the stock has pulled back. The public offering gives the company ample working capital and alleviates any risk of dilutive financing in the near future. NeoStem closed on Friday Oct. 4th at $7.09 per share.

Conclusion

The worldwide growth of diabetes and its costs are staggering. It is clear that new medicines are needed to combat the disease. And J&J's entry into the diabetes drug market adds another powerhouse company to the mix. And while I believe that J&J is a great stock to have in one's long term portfolio, in the short term I wouldn't be surprised to see a dip on profit taking.

Lilly's stock has not moved much this year, due in part to some of its top selling drugs either falling off patent or soon-to-be coming off patent; however with its pipeline of new drugs, Lilly's stock looks poised to rise, and I think investors well see solid stock gains over the next six months.

NeoStem, with its growing stem cell platforms and expanding intellectual property, may be a breakout company in 2014. And while its PCT manufacturing is profitable, and results of its stem cell products have been favorable, if the company can gain approval for either its AMR-001 or its Treg platform, this stock could see high gains. But caution is in order; this is a small company and it is still a long way from Phase 2 studies to FDA approval.

Source: Companies Race To Develop The Next Novel Blockbuster Diabetes Drug - Part 2