Companies That Are Fighting The Insulin Battle

Includes: ALKS, BMY, LLY, NVO, SNY
by: Peter Geschek

Markets: The diabetes drug market is gigantic.

According to the International Diabetes Federation, the number of people with type 2 diabetes is increasing in every country of the world.

The reason for the rise is not known, but it is believed that as countries become wealthier, lifestyle factors associated with type 2 diabetes -- such as weight gain, less healthy diets, and less physical activity -- tend to become more common.

In 2011, 366 million people had diabetes in the world; by 2030, this is predicted to rise to 552 million. There are approximately three new cases every ten seconds, or almost ten million per year in the world. IDF also estimates that as many as 183 million people are unaware they have diabetes.

Diabetes costs at least $465 billion in healthcare expenditures in 2011; 11% of total healthcare expenditures for adults, that is, people 20 to 70 years of age. Sales of drugs to treat the ailment grew 12% in 2011 to $34 billion, making them the fourth-biggest therapeutic class by sales worldwide, behind medicines for cancer, cholesterol, and breathing disorders, according to market researcher IMS Health.

Because insulin manufacturing has huge up-front costs and relatively narrow margins, it is less likely that generic competitors will scramble to enter the business as patents lapse. In 2010, China surged to the head of the pack in terms of countries with the most diabetic residents, with 92 million in 2010, Reuters reports.

There are now about 92 million diabetics in China. Spending on diabetes reached $17 billion in China in 2011, a tiny amount compared with the $465 billion spent worldwide. Nevertheless, it represents about 5% of total healthcare spending in China, and that figure is rising.

In the United States, where costs have also ballooned, diabetes accounts for about $1 in every $10 spent on healthcare, according to the American Diabetes Association.

Symptoms: Diabetes is caused by a lack of insulin, which the body needs to convert blood sugar into energy. Left untreated, it can lead to kidney damage, blindness, heart problems, and death.

There are two types of diabetes: Types 1 and 2. Type 1 represents complete insulin deficiency due to destruction of beta-cells in the pancreas. Type 2 is characterized by some degree of insulin resistance and insulin deficiency. People with type 2 diabetes have trouble processing sugar in their blood, but do not generally require insulin to manage the condition. Type 2 accounts for about 80% of all diabetes cases.

Patients with type 2 diabetes are usually given oral medication such as metformin (Glucophage) at first, but later, they often need insulin injections to regulate their blood-sugar levels.

Lantus: Lantus is the world's number-one selling insulin brand in terms of both sales and units (source: IMS, 2011 sales) and is available in over 70 countries worldwide.

Made by Paris-based Sanofi (NYSE:SNY), it dominates some 80% of the long-acting insulin market worldwide and, according to Sanofi, is used by 7 million patients. In 2011 Lantus had sales of around $5 billion. This figure represents an 11.56% increase over sales in 2010. Lantus revenues grew 20% a year during the period 2007-11.

However, analyst Tim Anderson of Bernstein believes sales will slow to an annual rate of 6.5% from 2012-16, and from 2015 onwards, sales of the drug are likely to go into decline, assuming generic "biosimilars" arrive on the market around that time.

Consensus forecasts also predict annual Lantus sales will continue to rise to just under $7 billion by 2015 before declining thereafter, according to Thomson Reuters Pharma data.

Lantus, or insulin glargine, is a long-acting analog human insulin and is superior to other basal insulins. For adult and children six years of age and older with type 1 diabetes mellitus and adults with type 2 diabetes mellitus who require basal (long-acting) insulin for the control of hyperglycemia (dangerously high blood sugar), one daily injection is required.

The injection is administered using syringes or specific pens including Lantus SoloStar, which is a pre-filled disposable pen, or the newer ClikStar, which is a reusable insulin pen. FDA is conducting an ongoing safety review to determine if Lantus increases the risk of cancer.

Rivals: Lantus has been a dominant player in its field for the last decade. But now rivals are closing in: the Danish company Novo Nordisk (NYSE:NVO) and Eli Lilly (NYSE:LLY).

Novo has a new insulin called Tresiba, or degludec, that expects to receive FDA approval on October 29, when the verdict will also be delivered on a related combination production called Ryzodeg, or degludecplus. European approval is expected in the second half of 2012.

Tresiba's advantage is that it can be administered at any time, providing diabetes patients with greater flexibility, whereas Lantus must be injected at the same time every day, although not necessarily at mealtimes.

Trial results presented at a conference in Lisbon in September 2011 showed that Tresiba works as well as Lantus at controlling blood sugar.

Two Phase 3 studies published in The Lancet reveal that the ultra-long-acting insulin Tresiba reduced rates of nocturnal hypoglycemia (dangerously low blood sugar) in patients with type 1 and type 2 diabetes by 25%, compared to Lantus. Nighttime hypoglycemia is particularly dangerous because people are asleep and unable to take measures against it.

According to Novo's Chief Medical Officer, Alan Moses, Tresiba has an action profile that can last up to 42 hours, and possibly even longer, as opposed to Lantus's 24-hour limit.

With Tresiba there is more freedom and flexibility to adjust when the injection is taken. Moses explains:

We did a study where we forced a separation of injection time. Some days we had patients take Tresiba first thing in the morning. The next day, at night. The time varied between 8 and 40 hours between injections. When they did that, there was no deterioration of glucose control.

So theoretically, patients could take Tresiba only once every other day. But that wouldn't work for everyone, and Novo hesitated to seek FDA approval for such an unconventional treatment routine. Novo will recommend patients take Tresiba at consistent times each day.

Tresiba is Novo Nordisk's second attempt to catch up with market-leading Lantus after the 2004 introduction of Levemir, a drug which has not done as well sales-wise. The reason Novo Nordisk has failed to keep pace may be that Levemir came out later than Lantus and has also proved not as long-lasting for many patients.

Lantus generated sales of €3.5 billion ($4.7 billion) in 2011, compared with 6.9 billion Danish kroner ($1.3 billion) for Novo's Levemir.

Tresiba is a much improved insulin and Novo's management has high hopes for it. There is of course the matter of retail price. Some press reports suggested that Novo is planning a 30% premium over Lantus's price. If true, Tresiba may be a tough sell.

Eli Lilly: Then, of course, there is Eli Lilly's entry, LY2605541. This drug is currently in Phase 3 trials and the results are expected in 2013, suggesting it will arrive on the market not long after Tresiba.

Lilly's new long-acting insulin LY2605541 is already causing a stir after signs in mid-stage Phase 2 clinical tests that it may help patients lose weight.

If confirmed in later trials, this side effect could prove a unique selling point for the drug against other therapies for controlling type 2 diabetes, a disease that is closely linked with obesity.

GLP-1 drugs: When oral medication is not enough to control blood glucose levels, a doctor may prescribe an injected medication other than insulin. Known as incretin mimetics, drugs in this new class of type 2 diabetes medications mimic the action of glucagon-like peptide-1 (GLP-1), a hormone that increases insulin production when blood sugar is high.

The GLP-1 class's share of the total diabetes care market increased to 4.5% in November 2011, compared to 3.2% in November 2010, according to Novo Nordisk.

GLP-1 drugs are Byetta and Bydureon from Amylin Pharmaceuticals (AMLN), Victoza from Novo, and several others still at the development stage.

The main ingredient in both Bydureon and Byetta is exenatide, a hormone derived from the saliva of the Gila monster, a poisonous lizard found in the Southwestern United States and Mexico.

Exenatide (Byetta) was the first GLP-1 to hit the market; liraglutide (Victoza) was approved by the FDA in 2010. Byetta and Victoza act only when blood glucose levels are high, so they do not cause hypoglycemia (low blood sugar). As blood glucose decreases, these medications stop stimulating insulin release.

Bydureon received FDA approval in January 2012.

Bydureon is injected once a week. Its main competitor is Novo Nordisk's Victoza, a similar drug injected once a day. Alkermes (NASDAQ:ALKS), which supplied the technology that allows for the slow releases of Bydureon inside the body, is receiving royalties on sales of the drug.

Despite the less frequent injections, Bydureon is unlikely to be preferred to Victoza, since data from one of Amylin's own trials suggest Bydureon is slightly less effective in controlling blood sugar than Victoza. Also, it is more cumbersome for a patient to prepare Bydureon for each injection and the needle used is larger than for Victoza.

Bydureon now owns the edge in dosing, but because Victoza is so well-entrenched, Amylin could face challenges on the reimbursement and formulary access front.

Low and high-doses of Victoza cost about $3,400 and $5,000 per year, respectively.

A high dose of Byetta costs about $3,500 annually.

Amylin projects the wholesale price of Bydureon will be about $4,200 a year - between the costs of low dose and high dose Victoza.

Victoza achieved global market share leadership with 58% share in the GLP-1 segment in November 2011 compared to 30% in November 2010, according to Novo.

Net sales of Byetta for the quarter ended March 31, 2012 reached $120.6 million.

For the same time period Victoza sales were 1.99 billion kroner, up 81% from the previous year, (approx. $333 million).

Sanofi's Lyxumia, a new experimental diabetes treatment, is in the same GLP-1 drug class as both Byetta and Bydureon. The French drugmaker hopes to file for approval with the FDA in the fourth quarter of 2012.

Oral pill development: The future dream of the insulin business is to develop an oral insulin pill.

It is a nearly impossible task. Many companies have tried it in the past, but the attempts went down in flames.

An oral insulin pill would have to get past the body's defense mechanisms. Assuming it survived acid attacks during digestion, it would have to pass through the gut wall to reach the liver and remain in the bloodstream long enough to be absorbed. Otherwise the patient might be exposed to hypoglycemia.

Novo Nordisk executives are now confident they have a 50% chance to get it right. They are spending $2 billion on the effort.

If successful, an insulin pill could reach peak sales of from $5 billion to $10 billion, estimates Vincent Meunier, an analyst at Exane BNP Paribas in Paris.

At this point Novo has only completed animal studies and tested their experimental version in 100 humans, with NN1953 just past Phase 1. The tests are being conducted at the Profil Institute for Metabolic Research near Dusseldorf, Germany. An earlier version, known as NN1952, was abandoned after failing early tests.

Peter Geschek,

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.