4Q13 Diabetes and Obesity Industry Roundup: Revenue up 8%, largely driven by insulins; DPP-4 inhibitor growth slows – April 14, 2014

Based on results from just under 20 public companies with revenue that we regularly track, diabetes revenue across drugs (excluding generics) and devices reached an estimated $11.8 billion in 4Q13 and $43.4 billion in 2013, up 8% year-over-year (YOY) in 4Q13 and 5% YOY in 2013. Taking TZDs out of the equation, which saw a $1.7 billion (-77%) drop in sales in 2013 due to the entry of generics, growth was a more positive 10% in 4Q13 and 9% in 2013. This performance was on par with the 11% growth in 2012 (also excluding TZDs) and a bit surprising given all the cost pressure.

One of the biggest stories of the quarter was the continued slowdown in the growth of DPP-4s, with just single-digit growth for the class in 4Q13 (8%) and 2013 (9.7%). Significantly, this is the first year of single-digit growth for DPP-4s since we started tracking the class back in 2006, and quite a noticeable downtick from 31% growth for the class in 2012. Companies have primarily attributed this slowdown to higher market saturation, a slowdown of patient switches from TZDs and sulfonylureas, and the introduction of another oral alternative, SGLT-2 inhibitors. We also point out that international growth was quite high for this class as recently as 2011, with DPP-4 inhibitors as a class grew 90% internationally vs. 27% in the US; 2012 saw a significantly international slowdown in the class, with international growth slowing to 39% vs. 23% growth in the US. In 2013, there was a major slowdown in the US, with domestic growth for the class only at 3% vs. 15% international growth. In the US, we believe lingering concerns regarding incretins and pancreatic disease hurt sales meaningfully, along with heart failure concerns starting later in the year. There was also significant pricing pressure in the US, of course, with perhaps newer entrants competing on this basis. It would be harder to compete in this class vs. others as the class side effect profile has been viewed as quite benign (no hypoglycemia, no weight gain, nothing else patients or providers complain about); said another way, it is easier to compete on price.

The other major drug story of the quarter was insulin, which grew 14% in 4Q13 and 13% in 2013. This performance made insulin the industry’s strongest growth driver (57% share of growth in 4Q13) for the fifth straight quarter, driven mostly by pricing as we understand it. GLP-1 agonists saw slower growth of 22% in 2013 vs. 31% growth in 2012, though the attenuation was not as significant as that seen with DPP-4s (and perhaps to be expected, considering the class is now nearing $1 billion in sales per quarter). We believe there is meaningful untapped market potential for this class, especially with so many encouraging applications in the pipeline (e.g., improved devices and combinations with insulin) and potential for positive outcomes in CVOTs. The newest class of diabetes drugs, SGLT-2 inhibitors, continued to showed some favorable early results though certainly launching a new drug in a new class isn’t for the faint of heart. After four quarters on the market, Forxiga (AZ’s dapagliflozin) revenue totaled $8 million in 4Q13 and $23 million in 2013. The story is more positive (though also more speculative) for J&J’s Invokana (canagliflozin) – though revenue has not been publicly reported yet, analysts estimate sales were ~$100 million in 2013, and some analysts expect it to hit as high as ~$500-$550 million in 2014. We think Invokana’s performance to date is a good sign of this class’ market potential, especially with other compounds waiting in the wings – although there is a crowded market, the weight loss and no hypoglycemia and the “combinability” of the drug, given the unique mechanism, makes it quite an attractive selection though of course gaining access to it for many patients is challenging. That said, Janssen’s reimbursement program is quite attractive for anyone who has access to an insurance plan – they are guaranteed access to Invokana at $10/month!

On the device side, blood glucose monitoring continued on a downward trend in 4Q13, with sales of $1.9 billion in 4Q13 and $7.2 billion in 2013 dropping 7% for the quarter and 5% for the year. The decline hasn’t changed over the last two years, primarily due to a very challenging US marketplace where prices used to be higher combined with an ever-challenging international market, where both pricing and access (and therefore profitability) are much lower. US revenue fell by 22% in 4Q13 and 16% in 2013, while international revenue remained fairly flat (+0.4%) in 4Q13 and (+0.1%) in 2013. Conversely, the two bright spots in devices were insulin pumps and CGM. Pump sales of ~$582 million in 4Q13 grew 14%, the highest quarterly growth we’ve seen in years (since 1Q10). Pump sales in 2013 totaled $2.1 billion, up 7%. The uptick was driven by Medtronic’s launch of MiniMed 530G the US, and Tandem and Insulet also reported strong numbers to close out the year. CGM sales of ~$91 million grew 38% in 4Q13, with Dexcom’s 61% growth providing nearly all the gains. CGM sales totaled $91 million in 4Q13 and $305 million in 2013, up 38% for the quarter and 33% for the year.

This report is divided into four sections: (i) overall industry performance; (ii) diabetes drugs; (iii) diabetes devices; and (iv) obesity. Each includes bullets with broad trends and analysis, followed by a table with current and historical sales figures, growth, and market share estimates. Our report concludes with a list of key assumptions. We note that the enclosed data represents our best estimates in some cases, since a number of companies do not disclose information in great detail.

1. Overall Industry Performance

• Diabetes revenue across drugs and devices totaled $11.8 billion in 4Q13 and $43.4 billion in 2013, representing 8% growth from 4Q12 and 5% growth from 2012. Excluding TZDs and generics, 4Q13 growth was 10% and 2013 growth was 9%. The 4Q13 growth of 8% is up from 5% growth in 3Q13 and 2% growth in 2Q13, as TZD sales largely bottomed out. The class’ sales dropped 53% between 4Q12 and 4Q13, from $238 million to $110 million. TZDs are now largely out of the overall industry equation now, as the move to generics has now been “annualized.”
• The pattern of slowed growth for DPP-4 inhibitors continued in 4Q13 – revenue of $2.4 billion grew just 8% in 4Q13, down significantly from 25% growth in 4Q13. For 2013, sales of $8.6 billion rose 9.7%, also a notable downtick from 31% growth in 2012. Notably, 2013 marks the first single-digit year-over-year (YOY) growth we have observed since the drug class came to market in 2007. We believe this stems from a variety of factors, including austerity moves overseas, increasingly competitive options in the US (SGLT-2 inhibitors, generic pioglitazone), concerns over pancreatitis and now heart failure, and of course, lower growth due to a higher base of sales.
• Insulin continued on a strong growth trend – sales of $5.6 billion rose 14% in 4Q13, and 2013 sales of $20.6 billion grew 13%. Both were in line with 12% growth in 4Q12 and 11% growth for all of 2012. This performance made the category the industry’s strongest growth driver (57% share of growth in 4Q13 and 59% share of growth in 2013) for the fifth straight quarter. Continuing the pattern we’ve seen over the past two years, most of the gains came Stateside – US sales grew 21% in 4Q13 and 20% in 2013 vs. international growth of 6% in 4Q13 and 5% in 2013. As we understand it, much of this growth was unsustainable and stemmed from higher prices – as biosimilars emerge in the coming years, pricing growth will no doubt become much more challenging.
• GLP-1 agonist sales of $816 million grew 21% in 4Q13; in 2013, revenue of $2.9 billion grew 22%. Overall growth in 2013 was lower than in 2012 when the class grew 31% despite the launch of a new agent in the class (Sanofi’s Lyxumia). We imagine that the slower overall growth in 2013 may have been due, in part, to the revival of the incretins/pancreatitis scare in 2013. In 4Q13 and 2013, GLP-1 agonists constituted 24% of the non-generic, non-insulin diabetes drug market by value, up from 22% in 4Q12 and 19% in 2012. We believe there is still plenty of room for the class to grow, especially with the development of more convenient injection devices and GLP-1/insulin combinations.
• The newest class of diabetes drugs, SGLT-2 inhibitors, showed encouraging early signs, particularly in the US. In 4Q13 – the fourth quarter for which AZ’s Forxiga (dapagliflozin) reported results – revenue totaled $8 million, a nice sequential uptick from $7 million in 3Q13, $5 million in 2Q13, and $3 million in 1Q13. We do not expect to see blockbuster sales for Forxiga in Europe, as reimbursement continues to be challenging – indeed, in mid-December, BMS/AZ withdrew the compound from the German market. In the US, analysts estimate sales for J&J’s Invokana were ~$100 million for 2013 and will be in the range of ~$500-550 million for 2014; these are estimates, and J&J does not yet report revenue for Invokana.
• On the device side, blood glucose monitoring (BGM) continued to decline in 4Q13 and 2013, dropping 7% for the quarter and 5% for the year (in line with the 5% decline in 2012). This is the eighth consecutive quarter in which revenue has declined for the Big Four. The 4Q13 revenue decline was driven entirely by the US, where sales were down a staggering 22% (vs. 0.4% growth internationally) – this is the largest decline seen in US BGM since 4Q08. J&J had a particularly challenging quarter in the US (down ~31%), though Abbott (-14%) and Roche (-24%) were not immune to challenges either (Bayer was down 4% worldwide, but does not break out US sales).
• Insulin pumps had a very strong quarter, with 4Q13 sales up a striking 14% to ~$582 million in 4Q13. The quarter’s striking 14% year-over-year growth – propelled by the US launch of Medtronic’s MiniMed 530G – was the highest quarterly growth we’ve seen since 1Q10. Full year sales of ~$2.1 billion grew 7%, an acceleration from modest growth of 3% in 2012, though still down from consistent double-digit growth of 10-14% from 2005-2011. Medtronic provided an estimated 72% of the insulin pump industry growth in 4Q13, and 54% of the insulin pump growth in 2013. The fourth quarter saw newly public Tandem report its first sales numbers, which totaled $10.2 million in 4Q13 and $29 million in 2013 – the results exceeded most analyst expectations and allowed Tandem to capture 1.8% market share by sales in 4Q13. Meanwhile, Insulet had another strong quarter in 4Q13, with worldwide OmniPod sales rising 30% to $58 million in 4Q13 and 27% to $206 million in 2013.
• By our estimates, the CGM market grew 38% in 4Q13 to reach ~$91 million in sales. Growth in 2013 was 33% on sales of ~$305 million. Dexcom saw impressive 61% year-over-year growth in 4Q13, a 20% sequential rise from 3Q13. During the fourth quarter, Dexcom added more new patients and sold more sensors than in any other previous quarter in the company’s history. Competitor Medtronic also had a solid quarter, with CGM sales of ~$39 million growing 16% from 4Q12. As a reminder, Medtronic does not directly report CGM sales, so this reflects our best estimate. We estimate that Dexcom provided 79% of CGM industry growth in 4Q13.

Table 1: Total drug and device revenue and growth

• The bulk of the quarter’s gains came from insulin injectables, which provided a striking 57% share of growth in 4Q13 and 59% share of growth in 2013. DPP-4s (19%), GLP-1s (13%), insulin pumps (4%), CGM (2%), and others (1%) provided the balance of industry growth in 2013. We estimate that SGLT-2s’ share of growth was 5% in 4Q13 and 2% in 2013, based on a rough estimate of J&J’s Invokana revenues ($55 million in 4Q13 and $70 million in 2013).These segments’ positive growth performance was outweighed by the continued negative performance in TZDs (2013 sales of $507 million were down 77%) and BGM (2013 sales of $7.2 billion declined 5%).
  
  • Insulin has now provided the industry’s largest share of growth for five straight quarters. The category’s high contribution to the industry’s share of growth is perhaps partially attributable to the slowdown in DPP-4s – indeed, the downtick in DPP-4s share of growth (-26 percentage points in 2013) was almost perfectly made up by the gain in insulin (+22 percentage points).
  • Over the past year, there has been a marked slowdown in incretins’ share of growth in the industry, from 49% in 4Q12 and 59% in 2012 to 28% in 4Q13 and 32% in 2013. The fall in share of growth was driven by slower growth in DPP-4 inhibitors, as GLP-1 agonists’ share consistently stayed in the 10-15% range in 2013. Some of this slowdown is likely due to the increased base, and some perhaps due to media and community attention surrounding pancreatitis/pancreatic cancer (and now heart failure for DPP-4 inhibitors).

Table 2: Total drug and device share of industry growth

*SGLT-2 is estimated since J&J has not yet broken out Invokana revenue. **Others include BD and Neighborhood Diabetes revenue. *** Numbers may not sum to 100% due to rounding.

2. Diabetes Drugs

DPP-4 Inhibitors

• The continued slowdown in DPP-4 inhibitor growth was a major theme of 4Q13 and 2013. Overall, DPP-4 inhibitor market growth of 8% in 4Q13 and 10% in 2013 was strikingly lower than the 24% growth seen in 4Q12 and 31% growth in full-year 2012. This slowdown is a continuation of the 10% growth we observed in 1Q13, 12% growth in 2Q13, and 8% growth in 3Q13. The trend was driven by a slowdown both in the US and internationally. US growth fell from 23% in 2012 to 3% in 2013, while international growth fell from 39% in 2012 to 15% in 2013. Companies have primarily attributed this slowdown to higher market saturation, a slowdown of patient switches from TZDs and sulfonylureas, and the introduction of another oral alternative, SGLT-2 inhibitors; indeed, with the continued success of J&J’s Invokana (canagliflozin) and the recent approval of AZ’s dapagliflozin in the US (Farxiga), we expect SGLT-2 inhibitors to continue to both grow the market and take some share from DPP-4s.
  
  • Concerns regarding incretins and pancreatic disease likely contributed to the slowdown in the second half of 2013. That dampening effect likely waned in 4Q13 and into 2014 due to reassuring statements recommending against a change in incretin prescribing behavior from high profile organizations including the ADA and EASD. See our incretins and pancreatitis primer for a chronological account of this saga.
  • However, are now seeing a new safety concern cast a slight shadow upon the DPP-4 inhibitor class: heart failure. Following the finding of a statistically significant 27% increased risk of hospitalization for heart failure in SAVOR-TIMI 53, the cardiovascular outcomes trial (CVOT) for AZ’s DPP-4 inhibitor Onglyza (saxagliptin), we heard building talk of a DPP-4 inhibitor class effect on heart failure. A non-significant trend towards an increase in hospitalization for heart failure seen in EXAMINE (the CVOT for Takeda’s Nesina [alogliptin]), as well as heart function changes seen in a study of Novartis’ Galvus (vildagliptin), are cited as factors supporting the class effect theory.
  • Depending on how seriously it is taken, the heart failure issue could serve to both dampen sales slightly for the DPP-4 inhibitor class, and also alter the balance within the market (likely at Onglyza’s expense). Takeda’s Nesina might see a slight bump, as recent data presented at the American College of Cardiology’s Scientific Sessions demonstrated CV safety in patients with a history of heart failure, and a slight CV death benefit in certain subgroups. At this point, we would not expect much of a migration away from DPP-4 inhibitors, especially given that SAVOR and EXAMINE were neutral overall for MACE and because of the class’ clean overall safety profile. However, many eyes will be on the results from other DPP-4 inhibitor CVOTs, to see if heart failure is an issue there as well (TECOS, for Merck’s Januvia [sitagliptin], is expected to end later this year]).
• The DPP-4 inhibitor market continues to be dominated by Merck’s Januvia franchise, which held 68% of the worldwide market in 4Q13 and the full year 2013 (down from 72% in 4Q12 and 73% for the full year 2012). In the US, the franchise held an 81% market share in both 4Q13 and the full year 2013 (down from 84% in 4Q12 and 85% for the full year 2012), Internationally, Januvia held a 59% share in 4Q13 and a 58% share in the full year 2013 (down from 62% in 4Q12 and 64% for the full year 2012). At the same time, Lilly, Novartis, and BMS/AZ have made small inroads. Lilly/BI’s Tradjenta more than doubled its global share of the DPP-4 inhibitor market from 1.8% in 4Q12 to 3.7% in 4Q13 (this figure does not count BI’s unreported share of Tradjenta revenue). Meanwhile, Novartis’ Galvus moved up from 20% of the ex-US market in 4Q12 to 23% in 4Q13 (Galvus is only marketed ex-US). AZ’s Onglyza franchise remained flat with a 9% global market share in both 4Q12 and 4Q13. Takeda saw its share of international DPP-4 inhibitor revenue drop slightly to 8% in 4Q13 from 10% in 4Q12. However, Takeda’s Nesina also launched in the US and captured 0.7% of the US market in 4Q13 (its second quarter of reported sales).  
• We look forward to watching how fixed-dose combinations (FDCs) and other improvements will affect the DPP-4 inhibitor market. In terms of FDCs, SGLT-2/DPP-4 inhibitor combinations are some of the most exciting options on the horizon, with combinations from AZ (saxagliptin/dapagliflozin, submission expected in 4Q14), Lilly/BI (linagliptin/empagliflozin, US timeline clouded by FDA CRL for empagliflozin), and Merck/Pfizer (ertugliflozin/sitagliptin, no timeline disclosed) in the works. All of the major DPP-4 inhibitors available have metformin co-formulations available (Merck’s Janumet, AZ’s Kombiglyze, Lilly/BI’s Jentadueto, Novartis’ Eucreas, Takeda’s Kazano). We also think once-weekly DPP-4 inhibitors, such as Merck’s MK-3102 (phase 3) and Takeda’s trelagliptin (recently submitted in Japan, phase 2 in US/EU) could appeal to many. 

Table 3: Total DPP-4 revenue and growth

*This chart, and our analysis of the DPP-4 market, does not include BI’s revenue share of Tradjenta, since BI is privately held and does not disclose revenues. We believe that omission is minor since Lilly’s Tradjenta revenue only makes up 4% of the US DPP-4 market and 3% of the international DPP-4 market in 4Q13. **Market shares are by sales, not volume. *** Novartis’ DPP-4 products were only available outside the US through 4Q13.

GLP-1 Agonists

• The GLP-1 agonist class grew 21% in 4Q13 to reach $816 million sales. Sales of $2.9 billion in 2013 represented growth of 22%. Overall full-year growth was lower than in 2012 when the class grew 31% - this was despite the launch of a new agent in the class, Sanofi’s Lyxumia (lixisenatide). We imagine that the slower overall growth in 2013 may have been due, in part, to the revival of the incretins/pancreatitis scare in 2013. In 4Q13 and 2013, GLP-1 agonists constituted 24% of the non-generic, non-insulin diabetes drug market by value, up from 22% in 4Q12 and 19% in 2012. We believe there is still plenty of room for the class to grow, especially with the development of more convenient injection devices and GLP-1/insulin combinations.
  
  • Novo Nordisk’s Victoza (liraglutide) continues to dominate the GLP-1 market, holding 72% market share by sales in 4Q13 and 71% in 2013.  This represents a slight increase from 70% in 4Q12 and 69% in 2012. Victoza revenue has now exceeded $500 million for three straight quarters, and Victoza broke the $2 billion/year mark in 2013. Victoza also leads the class in share of growth, providing 75% of GLP-1 agonist growth in 4Q13 and 70% of GLP-1 agonist growth in 2013.
  • AZ’s Bydureon (once-weekly exenatide) rose from 10% of the GLP-1 market in 4Q12 to 12% of the GLP-1 market in 4Q13, providing 21% of the growth in the class in 4Q13 and 28% of the growth in the class in 2013. Bydureon growth in 2013 had been somewhat lower than expected under BMS/AZ. Now that AZ wholly owns the previous alliance’s diabetes franchise, and the dual-chambered pen is now approved in the US, we hope to see greater acceleration in 2014.
  • AZ’s Byetta’s (twice-daily exenatide) market share continued to decline, down to 15% in 4Q13 from 20% in 4Q12. With the entry of another short-acting GLP-1 agonist in 2013 (Sanofi’s once-daily Lyxumia), we expect that Byetta may continue to lose share. However, there is still ample room for the GLP-1 class as a whole to expand.
  • Sanofi/Zealand’s Lyxumia (lixisenatide) is slowly gaining share, ending 4Q13 with 0.8% of the GLP-1 market share by value and contributing 4% to the growth in the class. After failing to negotiate an agreeable price with German authorities, Sanofi pulled Lyxumia from the German market on April 1, which means that Lyxumia’s international growth may suffer in 2014. As a reminder, Sanofi withdrew its submission for Lyxumia with the US FDA in September 2013 to avoid interim data disclosure from the drug’s CVOT, ELIXA, so the earliest it could reach the US market would be around 2016.

Table 4: Total GLP-1 agonist revenue and growth

*Market share by revenue.

Insulins

• The insulin market grew 14% in 4Q13 to reach $5.6 billion and 13% in 2013 to reach $20.6 billion. The US market saw very positive growth, rising 21% in 4Q13 (up slightly from 20% growth in 4Q12) and 20% in 2013 (up from 14% in 2012). International growth was a more modest 6% in 4Q13 and 5% in 2013, roughly on par with 4Q12 growth of 5% and 2012 growth of 5%. Overall, the insulin market is seeing consistently solid growth, with four straight quarters of growth exceeding 12%. The basal insulin segment and business in the US are driving much of the gains. Basal insulin supplied 65% of insulin market growth in 4Q13 and 45% in 2013, but most of this growth comes from price increases in the US, which is not sustainable in the increasingly challenging reimbursement environment.
• Market share by company: By our estimates, Sanofi’s insulin market share by sales increased from 37% in 2012 to 39% in 2013, while Novo Nordisk’s market share fell from 44% in 2012 to 42% in 2013. Lilly saw its market share drop by 1% from 20% in 2012 to 19% in 2013. Lilly’s Humalog will be replacing Novo Nordisk’s Novolog on the Express Scripts formulary in 2014, which suggests that Lilly’s market share in the US could increase in 2014 while Novo Nordisk’s could decrease.
• Market share of each insulin segment: Basal insulins’ market share increased to 47% in 2013 (from 44% in 2012), while that of human insulins declined slightly to 16% (from 18% in 2012). The market share of rapid acting insulins remained flat at 38% between 4Q12 and 4Q13.
• Our model includes only Novo Nordisk, Sanofi, and Lilly, and does not include smaller, more regional insulin companies.

Table 5: Total insulin revenue and growth

*Only Lilly, Novo Nordisk, and Sanofi are included in our analysis. **Rapid acting analog category includes pre-mixed. ^#Market share by revenue.

SGLT-2 Inhibitors

• The newest class of diabetes drugs, SGLT-2 inhibitors, showed encouraging early signs, particularly in the US. As a reminder, Forxiga was the first SGLT-2 inhibitor to the market worldwide, entering the EU in mid-December 2013. In 4Q13 – the fourth quarter for which AZ’s Forxiga (dapagliflozin) reported results – Forxiga revenue totaled $8 million, a nice sequential uptick from $7 million in 3Q13, $5 million in 2Q13, and $3 million in 1Q13. In 2013, Forxiga revenue totaled $23 million. We do not expect to see blockbuster sales for Forxiga in Europe, as reimbursement continues to be challenging – indeed, in mid-December, BMS/AZ withdrew the compound from the German market. In the US, J&J’s Invokana has been approved in the US since late March 2013. Analysts appear to expect ~$100 million in sales for Invokana for 2013 and ~$500-550 million for 2014; these are estimates, and J&J does not yet report revenue for Invokana – we hope to see that change soon. By the end of 3Q13, J&J reported that it had captured 17% of the US new to brand prescription (NBRx) share in endocrinology in people with type 2 diabetes excluding insulin and metformin (making it the number one branded drug in NBRx share in that market). We think Invokana's solid performance in the US indicates that there is room in the SGLT-2 market for plenty of growth here, especially when fixed-dose combinations begin launching (Xigduo, AZ's SGLT-2/metformin FDC, was approved in the EU on January 22, 2014).
• Looking to the future, the SGLT-2 inhibitor class’ presence on the global market continues to grow with Forxiga and Invokana expanding into new markets, and new agents joining them on the US and EU markets.  On January 8, 2014, the FDA announced the approval of dapagliflozin under the new trade name Farxiga (three days earlier than the PDUFA date of January 11). During J&J’s 4Q13 financial call, the company announced that Invokana had been approved in Europe and that is expected to launch the agent in Germany and the UK in 1Q14. On March 5, Lilly announced that it/BI received a Complete Response Letter from the FDA for empagliflozin due to “deficiencies” at BI's manufacturing facility for empagliflozin (see Lilly's press release). However, on March 21, the EU’s CHMP recommended the approval of empagliflozin in Europe.  

TZDs

• The thiazolidinedione class (TZDs) continued to see major declines in sales (excluding generics). Year-over-year, TZD revenue declined by 54% in 4Q13 to $110 million, and by 77% in 2013 to $507 million. Takeda’s Actos is the only major brand accruing revenue in the TZD drug class, accounting for 99% of non-generic TZD revenue in 4Q13 and 2013. In late 2013, the FDA removed many of the restrictions on the sale of GSK’s former blockbuster Avandia (rosiglitazone), but sales of that drug have diminished substantially (GSK no longer reports Avandia revenue). The figures above exclude revenue from generic pioglitazone from companies such as Ranbaxy, Teva, Mylan, and Watson Pharmaceuticals.

3. Diabetes Devices

Blood Glucose Monitoring

• The Big Four BGM companies (J&J, Roche, Abbott, and Bayer) brought in an estimated $1.9 billion in BGM revenue in 4Q13, representing a 7% decline in sales. For all of 2013, sales of ~$7.2 billion dropped 5%. This is the eighth consecutive quarter in which revenue has declined for the Big Four. We’d note that 4Q13 had a fairly easy comparison, as sales were down 3% in 4Q12 – the increasingly negative trend is certainly not reassuring for the BGM industry. The declines are entirely attributable to the US market – in 4Q13, revenue declined 22% in the US YOY and remained nearly flat (+0.4%) in international markets. While the consecutive quarters of revenue decline across the Big Four will serve as easier comparisons going forward, we expect to see continued sales declined due to increased pricing pressures in more developed markets  – this will be especially true in the US as CMS’ national competitive bidding program for diabetic supplies continues (we understand some of the private payers are making large cuts).
• The effects of competitive bidding were evident in 4Q13, the second full quarter since the law took effect on July 1, 2103. J&J’s US sales were down a striking 31% in 4Q13 (down 1% internationally), the largest decline of the Big Four. According to the company’s 2Q13 financial call, Medicare sales accounted for just over 20% of J&J’s business. We suspect that all of the Big Four will continue to be hit hard by competitive bidding, which will necessitate new strategies for coping with a challenging marketplace – J&J recently reorganized its Diabetes Care business and recently launched its long-awaited OneTouch VerioSync Bluetooth-enabled meter in the US. Abbott plans to innovate within the new Flash Glucose Monitoring System category, and Roche expects 2014 launches of the Accu-Chek Insight (next-gen pump + meter remote) and Accu-Chek Connect (meter with Bluetooth connectivity to a smartphone app and the cloud). Rounding out the Big Four, Bayer remarked in its 2013 Annual Report that it will “focus on strengthening product lines and expanding into further attractive segments of the diabetes market.”
• Roche led the Big Four with a 34% market share in 2013, up only slightly from 33% in 2012. The gain likely stems from reduced exposure to the US market – only 21% of Roche’s business comes from the US, down from 23% in 2012; this exposure, we note, is also less than what Bayer, J&J, and Abbott experience (25%, 39%, and 40%, respectively). We estimate that LifeScan’s share of the Big Four dropped from 32% in 2012 to 29% in 2013, while Bayer gained 1% in its share of the Big 4 market (up to 18%), and Abbott gained 0.7% (up to 18.2% from 17.5%).

Table 6: Total BGM revenue and growth

*BGM revenue calculation is complicated by the fact that J&J, Roche, and Abbott only report Diabetes Care results and each company’s Diabetes Care total includes some fraction of non-BGM revenue – insulin delivery for Roche and J&J, CGM for Abbott, and A1c business for Bayer. We roughly estimated the subsets of revenue for each – see our assumptions in the insulin delivery section for more details. Bayer does not break out specific revenue or growth of its Diabetes Care franchise; thus Bayer BGM revenue was roughly estimated based on Contour results, overall Medical Care growth, and past Diabetes Care performance; revenue includes estimated contributions from Bayer’s A1c business. Additionally, growth is presented in terms of USD, and different numbers are possible with different currency conversion assumptions; for this analysis, we used 1.1068 USD per CHF for 4Q13 (1.0790 for full year 2013) for Roche’s analysis, and 1.3609 USD per Euro for 4Q13 (1.3280 for full year 2013) for Bayer’s analysis. **Bayer does not provide US/International splits; we roughly estimate a 25%/75% split. Roche reports North American revenue; thus, US/international revenue is slightly distorted as Roche US revenue includes some fraction from Canada.

CGM

• By our estimates, the CGM market grew 38% in 4Q13 to reach $91 million in sales. Growth for 2013 was 33% as full year sales reached $305 million. CGM accounted for 4.6% of the worldwide glucose testing market (Big Four BGM revenue plus CGM revenue) in 4Q13, up noticeably from 3.2% in 4Q12. The gain reflects continually strong CGM sales alongside eight straight quarters of declining Big Four BGM sales. By our estimates, the US still accounts for more than two-thirds of the worldwide CGM market.
• In 4Q13, Dexcom recorded $51 million in product revenue, up an impressive 61% year-over-year and up 20% sequentially. Most importantly, this performance was on two very challenging comparisons, as sales rose 52% year-over-year in 4Q12 and 102% year-over-year in 3Q13. The 20% sequential gain from 3Q13 was particularly notable, given that quarter’s record high sales. During Q4, Dexcom added more new patients and sold more sensors than in any other previous quarter in the company’s history. We estimate that Dexcom provided 79% of CGM industry growth in 4Q13. Dexcom’s full year 2013 product revenue totaled $157 million, up 69% from 2012.
  
  • For 2014, Dexcom management guided for product revenue of $205-$225 million (31%-43% growth from 2013). This is slightly wider on the top and bottom end of the 35-40% growth range than management has used in the past ($211-$217 million). The guidance builds in Dexcom Share (currently under FDA review) and the pediatric indication (FDA approval announced on February 4), but no partnership revenue from the integrated Animas Vibe (under FDA review) or Tandem t:slim (FDA filing expected in 2Q14).
• In 4Q13, we estimate that Medtronic’s CGM sales totaled $39 million, growth of 16% from 4Q12. Our model ballparks full year 2013 CGM sales at $145 million, representing 9% growth from 2012. As a reminder, Medtronic does not directly report CGM sales – we use a 91%/9% pump/CGM revenue split based on an unlabeled bar graph presented at Medtronic’s Analyst Day in June 2012. To minimize assumptions, our model applies the same overall Medtronic Diabetes sales growth rate (16%) to both pumps and CGM in 4Q13.
• Our 4Q13 estimates suggest Dexcom has 66% of the US CGM market by sales (on par with 66% in 3Q13). It’s tough to say for sure, though Dexcom’s notable market share uptick from 4Q12 (59%) could partially be an artifact of the underlying assumptions (see below). Still, Dexcom’s business is firing on all cylinders, so a gain is certainly to be expected. Medtronic’s US business should accelerate in 2014 with the continued commercialization of the MiniMed 530G and Enlite sensor (4Q13 was its first full quarter on the market). In international markets, we estimate that Medtronic retains a 76% CGM market share by sales. Dexcom has not historically focused outside the US (only 8% of its business is international), though we expect that will become more balanced over time.
• This year should see continued strong adoption of CGM. Dexcom secured pediatric approval of the G4 Platinum in January, allowing the company to market the G4 Platinum to children 2-17 years old in the US (~450,000 patients) and to an additional 800-1,000 pediatric endocrinologists. Dexcom Share and the Animas Vibe are currently FDA review, with potential launch of both products to occur in 2014. Medtronic should see continued adoption of the Enlite sensor in the US, which saw strong growth in its first full quarter on the market in 4Q13. Outside the US, Medtronic’s Enlite Enhanced (also called “Enlite 2”) was made available in six European countries in February, with further expansion in Western Europe expected this year. The expected international launch of the MiniMed 640G/Enlite 2 (predictive low glucose suspend) by October 31 could also accelerate CGM growth.

Table 7: Total CGM revenue and growth

*Estimated. We expect CGM revenue to be minor. ** Market shares are by estimated US and Worldwide revenue. ^Medtronic and Dexcom do not directly report US/OUS CGM numbers. Dexcom’s US/OUS split is based on comments during Dexcom’s 4Q13 financial update – the international business accounted for 8% of product revenue in 2013, up 80% year-over-year. For Medtronic, we assumed a 91%/9% pump/CGM revenue split based on an unlabeled bar graph presented at Medtronic’s Analyst Day in June 2012. To minimize assumptions, our model applied the same overall Medtronic Diabetes sales growth rate (16%) to both pumps and CGM in 4Q13. It’s likely that on a growth basis, Medtronic CGM sales were different from pump sales in the US and worldwide.

Insulin Pumps

• We estimate that the insulin pump market grew 14% to ~$582 million in 4Q13 and 7% to ~$2.1 billion in 2013. The quarter’s striking 14% year-over-year growth – mostly due to Medtronic – was the highest quarterly growth we’ve seen since 1Q10. Meanwhile, the 7% growth in 2013 was an acceleration from modest growth of 3% in 2012, though it was still down from consistent double-digit growth of 10-14% from 2005-2011. In 2013, we estimate a fair balance between 7% growth in the US and 8% growth internationally. The ~60% US/40% international revenue split we saw in 4Q13 has remained roughly the same since 2007.
  
  • Medtronic was the big story of quarter, providing an estimated 72% of insulin pump industry growth in 4Q13. The company’s worldwide sales rose 16% in 4Q13, spearheaded by 21% growth in US sales in the first full quarter since the October launch of the MiniMed 530G/Enlite. The results far exceeded management’s prior estimate for “mid-teens” growth and turned around six straight quarters of growth <0.5% (including three quarters of negative growth) in the US.
  • Sales of Tandem’s t:slim insulin pump and related supplies totaled $10 million in 4Q13 and $29 million for 2013, a nice upward trend from 4Q12 sales of $2 million and 2012 sales of $3 million. Tandem shipped 2,406 t:slim pumps in 4Q13, 2.5 times the number shipped in 4Q12. Tandem saw sequential increases in pump shipments in every quarter in 2013 – since launch in August 2012, 7,500 pumps have been shipped. In the 4Q13 call, management reported that 45% of Tandem’s installed base is new to pumping. Despite the company’s small market share by sales of 1.4% in 2013, it provided an estimated 17% of the pump industry’s growth in 2013. Looking ahead to 2014, Tandem estimates sales will fall in the range of $48-$54 million, a 66-86% year-over-year increase from 2013.
  • Insulet had another strong quarter in 4Q13, with worldwide OmniPod sales rising 30% to $58 million in 4Q13 and 27% to $206 million in 2013. This was remarkably consistent with the 29-30% growth seen in 2011 and 2012, impressive considering the much higher base of sales. Insulet CEO Mr. Duane DeSisto called 2013 “a monumental year for Insulet,” with nearly 30% OmniPod growth, the company’s first quarter of operating profitability, the upgrade of over 60,000 patients to the new OmniPod, expanding margins, and manufacturing capacity to now produce one million pods per month. In line with 2013 performance, management expects 2014 OmniPod revenue to grow 30% and new patient adds to grow 25%.
  • We estimate J&J Animas sales did not grow in 4Q13 and stayed relatively flat at -0.4% growth in 2013 – it’s tough to know for certain, since LifeScan and Animas sales are not individually broken out. However, given that combined worldwide LifeScan/Animas sales fell 12% in 2013, including a 24% drop in the US (and just 1% growth internationally), we think flat growth is a conservative best-case scenario. The Animas Vibe will hopefully provide a bright spot in the coming quarters – the Dexcom CGM-integrated pump was launched in Canada in January 2014 and a US launch could occur in 2014 (currently under FDA review).
  • By our estimates, Roche had worldwide sales of $60 million in 4Q13 and $212 million in 2013. We estimate sales were down in the US (-24% in 4Q13 and -16% in 2013) and grew modestly internationally (2.5% in 4Q13 and 0.7% in 2013). On the pipeline side, Roche’s Accu-Chek Insight insulin pump system is expected to launch in the EU in 2014 (a delay from the original 4Q13 guidance), and an FDA filing is anticipated in 1H14.
• At the end of 4Q13, we estimate that Medtronic continued to lead the pump market with ~68% worldwide market share by sales, followed by 10% for Roche, 10% for J&J, 10% for Insulet, and 2% for Tandem. Compared to the market share figures at the end of 4Q12, Tandem gained 1.8 percentage points (0% to 1.8%), Insulet’s share moved up by 1.2 percentage points (8.8% to 10.0%), Medtronic gained 0.8 percentage points (67.4% to 68.2%), Roche’s share dropped two percentage points (12.3% to 10.3%), and J&J dropped 1.4 percentage points (11.1% to 9.7%). We note that these are rough estimates given that Medtronic, Insulet, J&J, and Roche do not directly report pump sales.

Table 8: Total insulin pump revenue and growth*

*We cannot be certain about these numbers, since Medtronic, Roche, Insulet, and J&J Animas do not directly disclose their insulin pump revenue. Medtronic’s ~91%/9% split between pumps and CGM stems from graphs presented at the company’s 2012 analyst day. Insulet’s estimates are based on management’s comments in the company’s 4Q13 call: nearly 30% year-over-year worldwide OmniPod growth; the international business “more than doubled” in 2013”; and 4Q13 saw a $4 million reduction in Neighborhood Diabetes sales. J&J Animas’ pump figures are based an assumption of zero growth in 3Q13 and 4Q13, the same overall Diabetes Care US/OUS split, and a rough estimate of the J&J’s pump/BGM split. Roche’s assumptions include: 1) a 92% pump/8% BGM sales split estimated from a 2Q13 slide’s bar graph depicting 1H13 Diabetes Care sales; and 2) the same North America/Outside North America sales split as for overall Diabetes Care.

4. Obesity

• The obesity market continues to prove quite challenging, due in part to low HCP and societal awareness of obesity as a disease requiring medical treatment, and poor (though improving) reimbursement. Vivus’ Qsymia generated revenue of $24 million in 2013, its first full year on the market. In 4Q13, Qsymia sales totaled $7.7 million up from $6.4 million in 3Q13. Arena/Eisai’s Belviq was launched in June 2013 and posted revenue of $7.5 million in 4Q13 (up from $5.4 million in 3Q13) and $17 million in 2013. Vivus ended 2013 with 43% of US commercial lives covered for Qsymia, just shy of its previous goal for 50% of commercial lives covered by year-end. Eisai indicated that it ended 2013 with 60% of commercial lives covered for Belviq.
  
  • Direct comparisons between Vivus and Arena/Eisai are difficult, since Vivus recognizes revenue when a script is sold to a patient and Arena/Eisai recognize revenue when Belviq is stocked. As a result, Belviq revenues likely benefited from distributors purchasing their initial stock during 2Q13 and 3Q13.

Table 9: Qsymia and Belviq revenue (millions USD)

• GI Dynamics’ EndoBarrier sales were $1.1 million in 4Q13 and $2.3 million in 2013, up from $0.3 million in 4Q12 and $0.7 million in 2012. Ongoing clinical trials include the US pivotal trial ENDO, the British RESVISE-Diabesity, and the French ENDOMETAB trial. As of the end of 2013, 21 study sites had initiated recruitment, and 13 sites had enrolled patients. Additionally, GI Dynamics has said that REVISE-Diabesity – which has treated its first patients – will be an important step towards making EndoBarrier Therapy more mainstream in England.

Appendix: Key Assumptions

• As noted in the previous bullets, many of the analyses in this report are based on estimated numbers. All market share numbers in this report are calculated by sales, not volume. We prepare this quarterly report because we think the results are directionally interesting, but we cannot emphasize enough that it is far from “perfect” and should not be taken as such.
  
  • For DPP-4 inhibitors, we omitted revenues from BI’s share of Tradjenta sales, since BI is privately held and does not report its share of Tradjenta revenues. We believe that this omission would only lead to minor distortions, since Tradjenta revenue makes up ~3% of global DPP-4 inhibitor revenue.  
  • For GLP-1 agonists, Lilly did not break out international Byetta product sales from US Byetta services revenue from 1Q13 to 4Q13, so the Byetta revenue is an estimate based on historical breakdown.
  • For insulins, we tracked only Lilly, Novo Nordisk, and Sanofi, and did not incorporate the smaller private companies that also participate in the market. 
  • For BGM, we estimated J&J, Roche, and Abbott’s BGM sales, since they only report Diabetes Care results. Each company’s Diabetes Care total includes some fraction of non-BGM revenue – insulin delivery for Roche and J&J, CGM for Abbott, and A1c business for Bayer. Furthermore, Roche reports North American revenue instead of US revenue, meaning that its US/international revenue is slightly distorted, as Roche US revenue includes some fraction from Canada. Bayer does not break out specific revenue or growth of its Diabetes Care franchise; thus, Bayer BGM revenue was roughly estimated based on Contour results, overall Medical Care growth, and past Diabetes Care performance. Bayer’s BGM numbers still include estimated contributions from its A1c business. Bayer does not provide US/International splits; we assumed a 25%/75% split. Overall, we have the least confidence in Bayer estimates. For necessary conversions, we used 1.1068 USD per CHF for 4Q13 (1.0790 for full year 2013) for Roche’s analysis, and 1.3609 USD per Euro for 4Q13 (1.3280 for full year 2013) for Bayer’s analysis.
  • For CGM, market shares are based on estimated US and Worldwide revenue. Medtronic and Dexcom do not directly report US/OUS CGM numbers. Dexcom’s US/OUS split is based on comments during Dexcom’s 4Q13 financial update – the international business accounted for 8% of product revenue in 2013, up 80% year-over-year. For Medtronic, we assumed a 91%/9% pump/CGM revenue split based on an unlabeled bar graph presented at Medtronic’s Analyst Day in June 2012. To minimize assumptions, our model applied the same overall Medtronic Diabetes sales growth rate (16%) to both pumps and CGM in 4Q13. It’s likely that on a growth basis, Medtronic CGM sales were different from pump sales in the US and worldwide. We are unsure of Abbott’s CGM revenue, but expect the revenue to be minor (though it may grow over time as the FreeStyle Navigator II becomes more widely available, and once the company’s Flash Glucose Monitoring system launches [expected in Europe in 2H14]).
  • For insulin pumps, we cannot be certain about these numbers, since Medtronic, Roche, Insulet, and J&J Animas do not directly disclose their insulin pump revenue. Medtronic’s ~91%/9% split between pumps and CGM stems from graphs presented at the company’s 2012 analyst day. Insulet’s estimates are based on management’s comments in the company’s 4Q13 call: nearly 30% year-over-year worldwide OmniPod growth; the international business “more than doubled” in 2013”; and 4Q13 saw a $4 million reduction in Neighborhood Diabetes sales. J&J Animas’ pump figures are based an assumption of zero growth in 3Q13 and 4Q13, the same overall Diabetes Care US/OUS split, and a rough estimate of the J&J’s pump/BGM split. Roche’s assumptions include: 1) a 92% pump/8% BGM sales split estimated from a 2Q13 slide’s bar graph depicting 1H13 Diabetes Care sales; and 2) the same North America/Outside North America sales split as for overall Diabetes Care.

-- by David Zhang, Adam Brown, Hannah Deming, Jessica Dong, Hannah Martin, Manu Venkat, and Kelly Close