New GlaxoSmithKline Diabetes Drug Needs Innovative Marketing Strategy

Apr.21.14 | About: GlaxoSmithKline (GSK)


A new FDA-approved drug enters GSK into the growing type 2 diabetes market.

But the field of diabetes drugs is crowded and has many well-established competitors.

Thus the drug needs an imaginative strategy to succeed in this crowded field.

A strategy connecting the drug to personal wellness and disease management should appeal to patients and providers alike.

A diabetes drug approved last week for sale in the U.S. and Europe brings GlaxoSmithKline (NYSE:GSK) into a new therapy field for the company, one that is both crowded and changing rapidly with the ageing of baby boomers and new directions in health care. As a result, GSK needs to position and market the drug to conform to this new health care landscape, a task with few guidelines or precedents.

The drug is albiglutide, marketed by GSK in the U.S. as Tanzeum, and approved by FDA on 15 April as a way for adults with type 2 diabetes to control their blood sugar levels, when used with diet and exercise. Patients administer the drug once a week with an injector pen, similar to those used by many people with diabetes for insulin injections.

The company expects to introduce Tanzeum in the U.S. during the third quarter of 2014. In late March, the drug under the brand name Eperzan was approved for adults for marketing in Europe.

Investor snapshot

GSK is a global pharmaceutical company based in London and operating in 36 countries, with research labs in the U.K., U.S., Belgium, and China, and an extensive pipeline of new drugs addressing a wide range of conditions and diseases. In 2013, the company reported revenues of £26.5 billion ($US 44.5 billion) an increase of 1 percent overall compared to 2012, but according to GSK, a 3 percent increase when products it sold off are excluded. Over the past 52 weeks, GSK's share price ranged between $48.30 and $56.73, generally trending higher over the period, but closing at $52.51 on 17 April.

Like any pharmaceutical company, GSK relies highly on its research labs and partnerships. The company calculates its research and development productivity, measured as an internal rate of return, at 13 percent for 2013. The calculation estimates probabilities of success for its pipeline medications, taking into account attributable research costs, profit margin estimates, capital investments, and working capital requirements. It then projects those probabilities against actual and predicted sales. GSK says its goal for R&D productivity is 14 percent.

About diabetes and Tanzeum

Diabetes is a chronic condition resulting from the failure of the pancreas to produce enough of the hormone insulin that transforms glucose (sugar) in the blood to energy, or for the body to resist the actions of insulin. Because insulin plays such a basic role in the body's physiology, diabetes can become a dangerous condition if left untreated, leading to complications such as stroke, heart disease, kidney failure, nerve damage, and peripheral artery disease sometimes requiring amputation.

According to International Diabetes Federation, some 382 million people worldwide suffer from diabetes, of which 24.2 million are in the U.S., with people age 40 to 59 most at risk of the disease. At least 9 in 10 people with the condition have type 2 diabetes, also known as adult-onset diabetes, where the pancreas makes some insulin, but not enough for the body to function normally. Type 2 diabetes is associated with obesity, which can be a cause of insulin deficiency, and often goes undetected for long periods of time. Type 1 diabetes, which accounts for most of the remaining cases, is an auto-immune condition where the body is tricked into attacking cells that produce insulin.

Tanzeum is in a class of drugs made by biological rather than chemical processes to produce a hormone that generates an effect similar to increased production of insulin. The drug stimulates actions that reduce production of glucagon, another hormone made in the pancreas that raises glucose levels, the opposite effect of insulin, which lowers blood sugar. The reduction of glucagon has the added benefit of inducing satiety -- that feeling of fullness after eating -- which contributes to weight loss, a desirable condition for many people with type 2 diabetes.

GSK invested heavily in Tanzeum. The company's clinical trial registry lists 28 different studies for albiglutide, all of which are either completed or not enrolling more patients. The company says 8 of those studies were late-stage trials recruiting some 5,000 patients at various stages of the disease (including those with kidney problems), testing albiglutide alone and in combination with other therapies, and in some cases against other diabetes drugs.

FDA's approval of Tanzeum comes with a number of restrictions. The agency stipulates the drug should not be prescribed as a first-line/stand-alone therapy, but used along with diet and exercise. In addition, GSK is required to issue for Tanzeum an adverse reaction warning of thyroid cancer which was observed in lab tests with animals. The drug, says FDA, should not be used if a patient has a family history of a type of thyroid cancer called medullary thyroid carcinoma or related conditions that can lead to a predisposition to this type of cancer.

As part of its approval, the agency calls for GSK to conduct further clinical studies to determine Tanzeum's suitability for children and to evaluate the risk of developing cardiovascular disorders among patients with a predisposition of cardiovascular conditions. In addition, the company is required to maintain a registry for 15 years of any cases where patients taking Tanzeum develop cases of medullary thyroid carcinoma.

A crowded field

Tanzeum/Eperzan is GSK's first diabetes drug, but it joins a large number of therapies, some on the market in original or generic form for decades. Just in the same class of glucagon inhibitors, for example, the drug faces competition from oral drugs made by Merck (NYSE:MRK), Bristol-Myers Squibb (NYSE:BMY), and Eli Lilly (NYSE:LLY). As a result, investors should look for GSK to adopt an innovative marketing strategy that separates the drug from its competitors, to go along with its R&D investment.

In joining this crowded field, the company is entering the market at a time when more Americans (and Europeans) are ageing and facing lifestyle changes, such as reduced exercise, that can lead to obesity and diabetes. At the same time, GSK needs to develop a strategy that distinguishes Tanzeum and Eperzan from the large field of well-established competitors.

One such strategy is to link the drug to the rapidly changing health care environment that puts more of a premium on preventing the progression of chronic diseases, than responding to emergencies that result from neglecting conditions such as diabetes.

A study published in New England Journal of Medicine last week (17 April) shows how that change in emphasis is getting results with diabetes patients. In the article, researchers from Centers for Disease Control and Prevention report a sharp drop in complications from diabetes in the U.S. from 1990 to 2010, including reductions in heart attacks, stroke, high blood glucose emergencies, and amputations, with smaller drops in kidney failure.

Nonetheless, the authors conclude "a large burden of disease persists because of the continued increase in the prevalence of diabetes." International Diabetes Federation projects a 37 percent increase in people with diabetes among North Americans by the year 2035, and a 55 percent increase worldwide.

In addition, the Affordable Care Act provides for free preventive tests, including screenings for type 2 diabetes, which will likely increase the pool of new diabetes cases. For many people, catching the disease in its earlier stages also makes it possible to better manage their conditions.

GSK can put this type of strategy for Tanzeum into action by partnering with companies and organizations working to improve overall wellness and manage the health of people already diagnosed with diabetes, or in the prime age category for developing diabetes, age 40 to 59. Examples are:

  • Accountable care organizations -- groups of doctors, hospitals, and other health care providers formed to better coordinate care, particularly for patients with chronic conditions -- who would benefit from this kind of drug. Not only would patients benefit, but the accountable care organizations would share in the savings from fewer complications of diabetes.
  • Health insurance companies and employers, facing tighter coverage requirements under the Affordable Care Act including free screenings for type 2 diabetes, to reduce claims for health emergencies resulting from neglect of the condition among working people age 40 to 59.
  • Developers of home health and fitness monitors, including smartphone apps and associated exercise tracking devices, that record vital signs and provide a register of physical activity. Data from these devices can support exercise regimens prescribed with Tanzeum for control of blood glucose levels.
  • Weight loss programs designed for people with diabetes, offered either by not-for-profit organizations or for-profit companies, that can support dietary changes prescribed with Tanzeum.

These kinds of collaborations would help GSK gain a marketing advantage from FDA's requiring Tanzeum be part of an overall diabetes management program, and send a signal to the industry -- as well as investors -- that there's a new player in this marketplace.

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.