J&J 1Q13 – Diabetes Care revenue down 10%; submits PMA for Animas Vibe with integrated CGM; Invokana (canagliflozin) launched – April 17, 2013

Yesterday, Johnson and Johnson CFO Dominic Caruso led the company’s 1Q13 financial results update. Worldwide revenue for 1Q13 totaled $600 million, down ~10% on both a reported and operational basis from 1Q12 – the comparison was only moderately challenging, as 1Q12 sales were up 5% and 7%, respectively. The quarter’s decline marked the fourth consecutive quarter of negative growth and the lowest quarterly revenue since 1Q10. The sales decline was the most severe in the US: revenue totaled $283 million and declined 20% YOY. That comparison was particularly challenging – a during 1Q12, sales grew 13% in the US, largely due to the launch of the OneTouch Verio IQ meter. Internationally, sales were nearly flat as reported and up 1% operationally. Pricing and reimbursement challenges abound in the BGM market and are likely to only increase going forward with CMS’ competitive bidding and growing pricing pressure from low-cost competitors. Turning to the pipeline, J&J announced that it had submitted the premarket approval (PMA) application for the Animas Vibe insulin pump with integrated Dexcom G4 Platinum CGM to the FDA. In February, the company received clearance for the Bluetooth-enabled OneTouch Verio Sync blood glucose meter. The clearance was not mentioned on the call and no launch details have been provided. This positive, however, was recently tempered by the recall of all OneTouch Verio IQ, OneTouch Verio Pro, and OneTouch Pro+ meters for a software issue. As we understand it, the Verio Sync is not affected by this issue.

During the call, management also discussed the recent US approval of Invokana (canagliflozin), J&J’s SGLT-2 inhibitor and first pharmaceutical diabetes product. Notably, LifeScan and Animas device reps will sell Invokana directly to HCPs with diabetes patients. We’ve also learned a number of other updates on Invokana not discussed during the call. As we understand it, the drug was launched on March 30, an impressive one day after approval. The FDA has posted the label online, and it recommends starting all patients on the lower 100 mg dose and then escalating to 300 mg if adequate glycemic control is not achieved and if the patient has normal renal function or mild renal impairment (eGFR ≥60 ml/min/1.73 m²). The FDA does not recommend Invokana for people with eGFR below 45 ml/min/1.73 m². Additionally, according to ClinicalTrials.gov, CANVAS (Invokana’s CVOT), will now run five years longer than initially planned to allow for up to nine years of patient follow-up. This likely reflects the FDA’s great uncertainty around the CV risk raised during Invokana’s advisory committee meeting (Invokana was associated with elevated LDL cholesterol and a strong CV signal in the first 30 days of CANVAS). We remain curious about what differentiating characteristics may emerge amongst SGLT-2 inhibitors (see details below), and we continue to be very interested in the potential for SGLT-2 inhibitor fixed-dose combinations with other therapies. J&J provided no other updates on its diabetes drug pipeline.

FINANCIALS

• Worldwide Diabetes Care revenue totaled $600 million in 1Q13, down ~10% on both a reported and operational basis from 1Q12. The comparison was moderately challenging, with 1Q12 sales up 5% and 7%, respectively. The steepest sales decline occurred in the US, where revenue fell a striking 20% in the quarter. Internationally, sales were nearly flat as reported and up 1% operationally. However, the YOY comparison was substantially more challenging in the US: in 1Q12, the US saw 13% sales growth, whereas ex-US sales declined 3% as reported and were nearly flat operationally. (More explanatory details below).

Table 1: Worldwide Diabetes Care Revenue in 1Q13

• Worldwide revenue of $600 million represented the lowest quarterly revenue for J&J Diabetes Care since 1Q10. Further, the reported decline of 10% was the fourth straight quarter with negative growth and the steepest quarterly decline the company has sustained since 1Q09.

Table 2: Worldwide Diabetes Care Revenue (4Q11-1Q13)

• US revenue of $283 million represented the lowest quarterly US revenue for J&J since 1Q09. Further, the 20% reported decline in the US marked the third consecutive quarter with negative US growth. Prior to 3Q12, the company had not experienced negative US growth since 3Q09. J&J has not experienced a decline so steep since 4Q08. Albeit, the YOY comparison was not in J&J’s favor, as growth in the US was 13% in 1Q12 (just one of only two quarters between 4Q08 and the present that J&J achieved double-digit US growth).
  • Management attributed the 20% decline in the US to the impact of initial stocking in 1Q12 related to new product launches (the Verio IQ was launched globally in 1Q12), lower prices, and competitive pressure. We wonder what growth would have looked like taking out the Verio IQ launch – we would guess much better, though still down overall (for context, Roche was down 4% as reported and 5% operationally in 1Q13).
  • In addition to competition from low-cost competitors, we wonder whether lower-cost strips designed for use with J&J meters will become a contributing factor in the near future. In November, PharmaTech Solutions’ Genstrip test strips for use with J&J’s OneTouch Ultra, OneTouch Ultra 2, and One Touch Ultra Mini received 510(k) clearance. Whether PharmaTech will gain traction among J&J’s patient base, however, has yet to be seen.
  • Additionally, management described a negative impact from the initial implementation of CMS’ competitive bidding program for diabetes care supplies on the overall Medical Devices & Diagnostics segment; we assume this refers to indirect pricing pressure from the January announcement of national competitive bidding program results (read our discussion on the news in our February 14 Closer Look at http://www.closeconcerns.com/knowledgebase/r/993d586e). Looking forward, management vaguely noted that the company would need to “mange through the pricing impacts that pertain to the Medicare part of the business” (competitively bid payment amounts are set to go into effect on July 1).
  • Notably, management said that patients on Medicare represent 20-25% of J&J’s blood glucose monitoring business. As such, we expect J&J (and the broader BGM industry) to experience both direct effects from the program as well as indirect effects, though the degree to which the private payer market is affected is difficult to forecast. Due to this unknown, Roche recently hedged on forecasting future performance of its Diabetes Care business and its Diagnostics business (under which Diabetes Care is housed) during the company’s 4Q12 update. For more detail, see our Roche 1Q13 report at http://www.closeconcerns.com/knowledgebase/r/f5191b53.

Table 3: US Diabetes Care Revenue (4Q11-1Q13)

• International Diabetes Care revenues of $317 million were nearly flat on a reported basis and up 1% on an operational basis from 1Q12. Management commented that strong sales in emerging markets were largely offset by lower sales in many of the developed markets. We note that this is slightly different language than J&J typically uses, and may suggest a more challenging marketplace. In recent financial updates, management had consistently described strong sales in emerging markets, “partially” offset by lower sales in some of the developed markets.

Table 4: International Diabetes Care Sales (4Q11-1Q13)

• Worldwide Diabetes Care revenue fell 7% sequentially from sales of $295 million in 4Q12. The first quarter sequential decline is not out of character for the company: between 2009 and 2013, first quarter sequential performance has fallen between -9% and 0%. First quarter sales are, of course, affected by the seasonality related to patients’ health care insurance plans (e.g., resetting of deductibles).

Table 5: Diabetes Care Sequential Performance (4Q11-1Q13)

• Combined Roche and J&J Diabetes Care revenue totaled $1,179 million, down ~8% from combined 1Q12 revenue. Both companies incurred record low Diabetes Care revenues: J&J’s worldwide total was the lowest quarterly revenue the company has seen in three years and Roche’s total was the lowest quarterly revenue it has seen in over seven years.
  • Both Roche and J&J’s steepest growth decline was seen in the US in 1Q13 (- 20% for J&J, -21% for Roche). By comparison, international performance was flat for both companies. J&J and Roche management noted pricing pressures related to competitors and increasing challenges related to CMS’ competitive bidding program. The latter going forward stands to seriously shape US market dynamics.
  • For greater detail on Roche’s performance, see our 1Q13 report at http://www.closeconcerns.com/knowledgebase/r/f5191b53. We look forward to providing additional comparisons on the Big Four when Abbott reports on April 17 and when Bayer reports on April 25.

Table 6: J&J and Roche 1Q13 Diabetes Care Revenue Comparison

Currency conversion based on average exchange rate from January 1 – March 31 on oanda.com: 1.0752 USD per CHF; different results are possible with different conversion rates. Reported growth is based on CHF currency. Roche reports North American revenue, thus the US revenue includes contribution from Canada.

• To our knowledge, 4Q12 IMS Drug Distribution data places J&J in second position on a worldwide basis in blood glucose monitoring market and third position on a worldwide basis in insulin delivery. We assume these rankings are based on volume and revenue, respectively, as this was the manner in which it was reported last quarter. We assume Roche has retained the number one spot in glucose monitoring (per our learnings last quarter), while Medtronic has the number one spot in insulin delivery.

DIAGNOSTICS AND DEVICES PIPELINE

• J&J confirmed that it submitted the premarket approval (PMA) application for the Animas Vibe integrated with the Dexcom G4 Platinum CGM to the FDA – this was great to hear for patients and for J&J. We expect approval could come as early as late 2013. Following approval, the Vibe will very likely will be an important revenue source for the company and an important catalyst for Dexcom. This will also represent the first competitor to Medtronic’s CGM-integrated insulin pumps.
  • We believe CGM integration is very high on the list of many current insulin pumpers. It will be interesting to see what impact the Vibe has – will it dramatically expand the CGM market, will it motivate individuals to switch from competing pumps that don’t have CGM, or will it have only have a minimal impact on the field.
  • In our view, an important factor in the launch of the Animas Vibe is the timing of the FDA approval of Medtronic’s MiniMed 530G. Based on the last approval timeline (late spring or summer), we would guess the MiniMed 530G will have approval several months before the Animas Vibe. Of course, the FDA submission process for the MiniMed 530G has been quite challenging, so it’s tough to say when it will be approved. However, it’s likely that Medtronic will be first to market in 2013 with a new pump in the US, which will be an advantage from a market awareness perspective. Additionally, Medtronic will no doubt leverage the extensive hypoglycemia data on the MiniMed 530G. One thing is certain – it will be a very interesting year in the insulin pump space, as Insulet is launching the second-gen pod and Asante is likely bringing the Snap to market.
  • J&J has previously noted that in markets where the Vibe is available, the company has seen 35-50% average sales growth compared to markets where the product has not yet launched (we assume this refers to insulin pump sales only).
  • According to information provided by Dexcom management during the company’s 4Q12 update, the Agency allowed J&J to reference information provided in the G4 Platinum filing. Previously, the companies had expected the submission to be a PMA supplement from Dexcom; however the FDA requested a full PMA.
• In February, J&J received 510(k) clearance for its Bluetooth-enabled OneTouch Verio Sync blood glucose meter following an 11-month review process; the clearancewas not mentioned on the call and no launch details have been provided. This next-generation system is based on the OneTouch Verio strip platform and features wireless Bluetooth compatibility with the iPhone, allowing blood glucose readings taken on the Sync to be sent wirelessly to an iPhone app. The OneTouch Reveal Diabetes Management Application, which also received 510(k) clearance, is the Sync’s accompanying iPhone app. For details on the device, the clearance, and discussion on the industry-wide trend towards more seamless, automatic transfer of blood glucose data, see our February 13 Closer Look at http://www.closeconcerns.com/knowledgebase/r/4f5547c3.
• A feasibility study of J&J’s predictive Hypoglycemia-Hyperglycemia Minimizer System (HHMS) was presented at ATTD 2013. The study explored the effect of the Model Predictive Control (MPC) algorithm’s “aggressiveness factor” on insulin dosing. The aggressiveness factor is a parameter that affects the speed and magnitude of the system’s response to changing blood glucose levels. Twenty individuals were studied in “conservative,” “aggressive,” and “medium” categories over 24 hours of closed-loop control. Results indicated that the medium aggressiveness factor had the best trade-off between safety and therapeutic efficacy. The study also showed that with increasing aggressiveness, larger doses were larger and more frequent, there was a decreased tendency to adhere to basal insulin levels, and there was increased readiness to decrease insulin below basal rates. Clinical results were consistent with simulation expectations. During the company’s results presentation at ATTD, the final slide noted that “appropriate weight is being given to these conclusions with current regulatory guidance in mind.” Neither the study nor HHMS was mentioned on the call. See page 28 of our ATTD 2013 full report for greater detail.
• In late March, J&J announced a voluntary recall of all OneTouch Verio IQ, OneTouch Pro, and OneTouch Pro+ meters. The recall was motivated by a software issue that caused the three meters to react inappropriately to blood glucose values above 1,023 mg/dl. One patient death was associated with use of the OneTouch Verio Pro in Europe; however, J&J has not determined if the meter played a causal role in the death (cardiac arrest due to hyperkalemia). The recall was not mentioned in the call; for greater detail, see our March 27 Closer Look: http://www.closeconcerns.com/knowledgebase/r/fe264e79.
  • The J&J recall motivated Abbott to begin internal testing for this issue in its blood glucose meters. Abbott then announced a voluntary recall of its FreeStyle InsuLinx blood glucose meter on April 15. At blood glucose values above 1,023 mg/dl, the meter displays and stores a value 1,024 mg/dl less than the actual concentration. For an in depth discussion, please see our April 16 Closer Look at http://www.closeconcerns.com/knowledgebase/r/ccb61825.
• J&J's Animas 2020 Insulin Infusion Pump was also recalled this quarter. The recall was initiated on January 3 and applied to pumps manufactured from March 1 to November 30, 2012 and distributed from March 1 to September 30, 2012. A component issue that can prompt a false warning/alarm related to "loss of prime," "occlusion," or "no cartridge detected" motivated the recall. Further, the pumps have a software issue that renders them nonfunctional after December 31, 2015. For more details, see our April 5 Closer Look email at http://www.closeconcerns.com/knowledgebase/r/dd7533cc.
• In our view, this collection of recalls reinforces the need for extensive testing and validation, as well as a strong adverse event reporting system to help manufacturers identify issues as quickly as possible. Of course, recalls will always be possible and will likely always emerge every so often given the complexity of treating diabetes.
• Disappointingly, Calibra Medical was not mentioned on the call or in supplementary material. During J&J’s January Medical Devises & Diagnostics (MD&D) Business Review, management characterized Calibra Medical as a “strategic fit” within the LifeScan and Animas businesses. Clinical studies of the Calibra Finesse are expected to initiate in 2013 (they have not yet been posted to ClincialTrials.gov). As a reminder, the device is FDA approved, but not yet launched. Calibra Medical’s Finesse “patch-pen” is used for bolusing short- acting insulin, is entirely mechanical (on-device buttons), is small (2” long, 1” wide, and 1/4” thick), and is mainly targeted at type 2s. See our J&J 4Q12 and MD&D Business Review report for greater detail on Calibra: http://www.closeconcerns.com/knowledgebase/r/76ad8d3e.
• J&J did not provide any additional pipeline updates and did not include a Medical Devices & Diagnostics pipeline calendar among its supplementary materials, in contrast to previous quarters. The information below reflects updates from press releases, conferences, and today’s earnings call.

Table 7: J&J Device Pipeline

• J&J is collaborating on two different studies evaluating the clinical efficacy of telehealth systems for diabetes management.
  • DIgital Assisted MONitoring for DiabeteS (DIAMONDS) will assess a telemedicine- and web-based system platform for SMBG data transmission and analysis (ClinicalTrials.gov Identifier: NCT01804803). The phase 3 trial will compare a regular glucometer to a smartphone-connected glucometer (we assume the OneTouch Verio Sync) that enables real-time collection and transmission of measured glucose values to a remote server. The server processes results and delivers feedback to the patient and medical staff. DIAMONDS will assess the primary outcome of change in A1c from baseline at three and six months. The trial was posted on February 25 and is slated for primary completion in March 2013; the trial is not yet recruiting (n=250). The University of Bari is the study’s sponsor and Lilly is the second collaborator. During J&J’s MD&D business review, management remarked, “In the current economic climate, payers are demanding demonstration of the value and impact of glucose monitoring.” See our J&J 4Q12 and MD&D Business Review report for greater detail: http://www.closeconcerns.com/knowledgebase/r/76ad8d3e. Positive results from DIAMONDS could potentially help J&J differentiate its OneTouch Verio Sync meter in this respect.
  • A second randomized clinical trial will compare a behavioral intervention that combines patient education, SMBG, and remote patient monitoring to standard of care. The intervention mandates blood glucose testing before and after meals and activities. Patients will connect their meter to a “Telehealth Unit” (details not provided), which will allow nurse care coordinators and the study team to remotelymonitor data. The study team will send the patient weekly reminders and suggestions via the Telehealth Unit and a study nurse will provide monthly telephonic feedback. The primary outcome is change from baseline A1c after six months; secondary outcomes include 3-month measures of patient empowerment, behavior change, and knowledge. The study is currently enrolling by invitation (n=150) and is slated for primary completion in December 2013. We think it is notable that the study is sponsored by Sutter Health and that GE Healthcare is a co-collaborator with J&J (in addition to the University of California Davis). We would hope that with the backing of these large forces in healthcare, positive results could be more easily leveraged to advocate for increased reimbursement for education and remote HCP time investment.

PHARMACEUTICALS PIPELINE

• Management elaborated on the recent US approval of Invokana (canagliflozin), calling it a “core component” of J&J’s diabetes management platform. Invokana is J&J’s first pharmaceutical diabetes product, and notably management remarked that its Diabetes Care business would partner with its Pharmaceuticals business to sell Invokana directly to HCPs with diabetes patients – such integration will certainly be an advantage given LifeScan and Animas representatives’ strong understanding of diabetes and people with diabetes. Management did not discuss any new details on Invokana’s label, pricing, reimbursement, or launch schedule. However, as we understand it, the drug was launched March 30, one day after its approval, and the FDA has published its label online at http://www.accessdata.fda.gov/drugsatfda_docs/label/2013/204042s000lbl.pdf. For our initial report on the launch, see our March 29, 2013 Closer Look at http://www.closeconcerns.com/knowledgebase/r/89751926.
• While not discussed on the call, it appears that Invokana’s cardiovascular outcomes trial, CANVAS, has been extended by five years so that J&J can follow patients for up to nine years. This puts the estimated primary completion date at 2018. The ClinicalTrials.gov listing for CANVAS was updated with this change in February (Identifier: NCT01032629). We wonder whether the FDA has allowed for interim analyses that could allow the trial to finish earlier if cardiovascular safety is satisfactorily demonstrated.
• While also not discussed on the call, Invokana’s label recommends starting all patients on the lower 100 mg/day dose and only increasing the dosage to 300 mg/day for patients with eGFR ≥60 ml/min/1.73 m² who do not achieve adequate glycemic control on the 100 mg/day dose. Patients with eGFR between 45 and 60 ml/min/1.73 m² are limited to 100 mg/day, and the drug is not recommended for patients with eGFR below 45 ml/min/1.73 m². The label states that Invokana should be discontinued if eGFR falls below 45 ml/min/1.73 m² during treatment. The label also notes that Invokana increases LDL cholesterol, but does not provide any clinical implications for this fact; we await results of CANVAS to see if the LDL increase has an impact on hard cardiovascular outcomes.
• We are glad that people with moderate renal impairment, who have very limited pharmaceutical options in diabetes, now have one more option; given the Ad Comm panelists’ rather skeptical tone on using the lower 100 mg dose in people with renal impairment, we were moderately surprised that the FDA made this allowance. Renal safety was the most substantial concern raised at the meeting: for both people with and without renal impairment, eGFR initially declined upon initiating canagliflozin treatment, though thisdecline persisted only for the population with moderate renal impairment (eGFR between 30 and 60 ml/min/1.73 m²). Panelists did not seem convinced that the benefit/risk ratio of the lower dose for patients with renal impairment would be worth it since canagliflozin’s efficacy also declines with declining renal function (the 100 mg dose conferred only a 0.3% placebo-adjusted A1c reduction for the population with moderate renal impairment). On the flip side, J&J argued that people with renal impairment have so many restrictions on medication use already that they are in dire need of more options – in diabetes there is especially a lack of options that do not cause hypoglycemia or weight gain for people with renal impairment. For more details, please see our report on the Ad Comm at http://www.closeconcerns.com/knowledgebase/r/aa7bbddc.
• Having patients with normal renal function start at the lower 100 mg/day dose seems to be a bit more conservative on the FDA’s part, though we understand the inclination to minimize any unnecessary exposure to this brand new drug class (the five-year extension of CANVAS clearly demonstrates the FDA’s uncertainty regarding the CV safety of the drug). In placebo-controlled phase 3 studies, the 300 mg dose consistently conferred an additional 0.08%-0.25% placebo-adjusted A1c reduction over the 100 mg dose, and an additional 0.4%-1.4% placebo-adjusted weight loss compared to the 100 mg dose. This extra step may make Invokana a bit harder for providers to prescribe than DPP-4 inhibitors, which allow patients to start right away on the maximum approved dose for respective patient segments (i.e., full dose for those with normal renal function and lower doses for those with renal impairment with the exception of Tradjenta, which people with renal impairment can take at the full dose).
  • “Prescribing hassle factor” may be an opportunity for differentiation within the SGLT-2 inhibitor class. For comparison, the EMA’s product information for Forxiga allows patients to start on the full 10 mg dose; a 5 mg dose starting dose is recommended for people with liver impairment, and this can be increased to 10 mg if 5 mg is well-tolerated. However, the EMA is a bit stricter with regards to Forxiga’s renal impairment threshold: Forxiga is not recommended for use in people with moderate to severe renal impairment (eGFR < 60 ml/min/1.73 m²).
  • For comparison with a DPP-4 inhibitor, providers can initiate Januvia at its full dose (100 mg) for people with normal renal function and at 50 mg and 25 mg for people with moderate and severe renal impairment, respectively. All other DPP-4 inhibitors also require dose adjustments for patients with varying degrees of renal impairment, with the exception of Tradjenta, which does not require a dose adjustment.
• We are still curious how companies with SGLT-2 inhibitors will differentiate the drugs from each other as they begin to be approved in the same regions. Invokana’s label recommends taking the drug prior to the first meal of the day – we wonder whether this reflects Invokana’s ability to reduce postprandial blood glucose and whether this will be an important point of differentiation from other selective SGLT-2 inhibitors. As a reminder, while Invokana is classified as a selective SGLT-2 inhibitor, it still transiently inhibits SGLT-1 (at an SGLT-2/SGLT-1 selectivity ratio of about 200/1), which is responsible for intestinal glucose absorption. For comparison, BMS/AZ’s Forxiga (dapagliflozin) and Lilly/BI’s empagliflozin act far more selectively on SGLT-2, with SGLT-2/SGLT-1 selectivity ratios of about 1200 and 2500, respectively, according to Dr. Julio Rosenstock (Dallas Diabetes and Endocrine Center, Dallas, TX) at EiD 2013. Dr. Robert Henry (University of California San Diego, San Diego, CA) presented data at ADA 2012 on Invokana’s postprandial glucose effect; more details can be found on page 6of our ADA 2012n oral therapies report athttp://www.closeconcerns.com/knowledgebase/r/ab891760.
• We’ll be interested in following updates on the development of fixed-dose combination therapies, as this is where we see high potential for the SGLT-2 inhibitor class. As a reminder, J&J has submitted a canagliflozin/immediate release metformin fixed dose combination (FDC) to both the FDA (in December 2012) and the EMA (in March 2013). J&J has a canagliflozin/extended release metformin FDC in phase 3 trials. We wonder whether J&J will pursue a canagliflozin/DPP-4 inhibitor combination like BMS/AZ and Lilly/BI are for dapagliflozin/saxagliptin and empagliflozin/linagliptin, respectively. J&J does not have a proprietary DPP-4 inhibitor, but they could potentially partner with a DPP-4 manufacturer that does not have an SGLT-2 inhibitor in development, such as Merck (Januvia) or Takeda (Nesina).
• If Forxiga’s strong initial performance in Europe is any indication of excitement for the SGLT-2 inhibitor class, we foresee Invokana performing well as the first SGLT-2 inhibitor on the US market. For details on market potential and implications of Invokana’s FDA approval for other SGLT inhibitor therapies, please see our March 29, 2013 Closer Look at http://www.closeconcerns.com/knowledgebase/r/89751926.
• Invokana is the first SGLT-2 inhibitor to the US market and the second globally behind BMS/AZ’s Forxiga (dapagliflozin). J&J expects a decision on canagliflozin in Europe “later this year” – a decision in 3Q13 would be consistent with a ~12 month European review process (J&J submitted canagliflozin to the EMA on June 26, 2012). BMS/AZ expect to re- submit dapagliflozin to the FDA mid-2013 with a shortened six-month review cycle. Lilly and BI recently submitted empagliflozin to the FDA and EMA in March, making 1Q14 approvals possible in both regions. Other SGLT inhibitors in development include Astellas/Kotobuki’s ipragliflozin (phase 3), Chugai’s tofogliflozin (phase 3 in Asia), Pfizer’s ertugliflozin (“phase 3- ready”), Lexicon’s SGLT-1/SGLT-2 dual inhibitor LX4211 (phase 3 initiation was expected in 1H13), and Novartis’ SGLT-1/SGLT-2 dual inhibitor LIK066 (phase 2).
• J&J will host a Pharmaceuticals Business Review on May 23, during which it expects to provide more details on the Invokana launch.
• More broadly, given their mechanism of action, SGLT-2 inhibitors could also have potential for use in patients with type 1 diabetes; if found to be safe and effective in clinical trials and approved by regulatory agencies for type 1 diabetes, SGLT-2 inhibitors would be a welcome addition to the treatment armamentarium for this population that currently has no oral options.
• J&J provided no other new updates on its diabetes drug pipeline. To our knowledge, J&J has an MTP inhibitor last known to be in phase 2 (JNJ-16269110; no active trials on ClinicalTrials.gov), an insulin sensitizer (which we suspect is JNJ-41443532 and was in phase 2 as of May 2011; also no ongoing studies listed on ClinicalTrials.gov), as well as various preclinical candidates developed through J&J’s partnership with Metabolex, created through its own discovery program, or licensed from Evotec AG and Harvard. As a reminder, J&J also entered into a partnership with NGM Biopharmaceuticals earlier this year to develop treatments for type 2 diabetes that mimic the glucoregulatory effects of metabolic surgery.

QUESTIONS AND ANSWERS

Q: Could you help with outlook on the diabetes blood glucose monitoring business with the Medicare cuts starting in July 2013? I assume the US growth will probably get worse before it gets better. If you could help with some metrics to understand how to forecast that business, given what is going on there, that would be great. And maybe also a little on your strategy to address these issues.

A: I know you have been following the recent legislation. It provides a pretty dramatic reduction in pricing for diabetes test strips. Of course that legislation pertains to the Medicare portion of the business. I think roughly the Medicare portion of the business for us is in the 20% to 25% range. So it is obviously not the entire business. In terms of the strategy going forward, of course we just described earlier that we were pleased to have filed a new application for a new continuous glucose monitoring system with Dexcom technology. It is important that we continue to innovate where we have the ability to provide patients and healthcare professionals with the tools to better manage diabetes care. I think that will always be an important part of what we continue to do, although we'll have to manage through the pricing impacts that pertain to the Medicare portion of our business as I just noted.

Q: Can you comment on the resources you are putting behind the Invokana launch? I know we’ll talk about this in a month or so at the Pharma meeting, but where do you see this class in the broader spectrum of diabetes care?

A: Let me defer the comment on the broader implications until May 23 when we have our experts there who have much more knowledge about that market. We’re obviously very pleased to have this proved. It’s the first in its class, and the indication is broad. The adverse event profile is very manageable. We believe it’s an important addition to the armamentarium of care for diabetes patients. I’ll let Joaquin Duato and others talk about what impact it will have in the marketplace. I would say that overall the Pharma business is doing really well. We’re very pleased with that. Launches have done incredibly well despite the fact that we’ve seen a lot of competition in various classes […]. We have really focused our efforts on clinically differentiating our products, and I say that about Invokana as well. I think our scientific teams led by Paul Stoffels and Bill Hait have done a great job of selecting the right clinical profile for the marketplace. Coupled with the commercial excellence led by Joaquin Duato and his team, we feel very good about our progress in the pharmaceutical marketplace

Q: On managed Medicaid, how far back does that accrual go? And why was this in Q1? You didn’t highlight it in the fourth quarter call.

A: The Affordable Care Act was instituted in March of 2010 and only recently in the first quarter did we receive sufficient information from the various states to true up the estimate we had made leading from the time that legislation was passed until now. So hopefully that answers your question.

Q: Could you help with outlook on the diabetes blood glucose monitoring business with the Medicare cuts starting in July 2013? I assume the US growth will probably get worse before it gets better. If you could help with some metrics to understand how to forecast that business, given what is going on there, that would be great. And maybe also a little on your strategy to address these issues.

A: I know you have been following the recent legislation. It provides a pretty dramatic reduction in pricing for diabetes test strips. Of course that legislation pertains to the Medicare portion of the business. I think roughly the Medicare portion of the business for us is in the 20% to 25% range. So it is obviously not the entire business. In terms of the strategy going forward, of course we just described earlier that we were pleased to have filed a new application for a new continuous glucose monitoring system with Dexcom technology. It is important that we continue to innovate where we have the ability to provide patients and healthcare professionals with the tools to better manage diabetes care. I think that will always be an important part of what we continue to do, although we'll have to manage through the pricing impacts that pertain to the Medicare portion of our business as I just noted.

Q: Can you comment on the resources you are putting behind the Invokana launch? I know we’ll talk about this in a month or so at the Pharma meeting, but where do you see this class in the broader spectrum of diabetes care?

A: Let me defer the comment on the broader implications until May 23 when we have our experts there who have much more knowledge about that market. We’re obviously very pleased to have this proved. It’s the first in its class, and the indication is broad. The adverse event profile is very manageable. We believe it’s an important addition to the armamentarium of care for diabetes patients. I’ll let Joaquin Duato and others talk about what impact it will have in the marketplace. I would say that overall the Pharma business is doing really well. We’re very pleased with that. Launches have done incredibly well despite the fact that we’ve seen a lot of competition in various classes […]. We have really focused our efforts on clinically differentiating our products, and I say that about Invokana as well. I think our scientific teams led by Paul Stoffels and Bill Hait have done a great job of selecting the right clinical profile for the marketplace. Coupled with the commercial excellence led by Joaquin Duato and his team, we feel very good about our progress in the pharmaceutical marketplace

Close Concerns Questions:

1) Did the FDA specify to J&J why it is recommending all patients to start at the 100 mg dose of canagliflozin rather than allowing people with normal renal function to start at 300 mg?

2) How will J&J address the hassle with additional genitourinary side effects in its marketing for Invokana? Will it track, over time, the “lifetime” risk of the genitourinary side effects?

3) When does J&J have plans to initiate trials of Invokana in patients with type 1 diabetes?

4) Does the canagliflozin/metformin FDC have to go through full FDA and European review cycles?

5) Is J&J planning to investigate any other FDCs with canagliflozin, e.g., with a DPP-4 inhibitor?

6) How is Invokana priced? Is it more expensive than current second-line options, namely DPP-4 inhibitors?

7) How enthusiastic are payers to cover Invokana?

8) If other SGLT-2 inhibitors make it to the US market (e.g., dapagliflozin and empagliflozin), how will J&J differentiate canagliflozin? If canagliflozin is approved in Europe, how will J&J aim to differentiate it from dapagliflozin, which is already approved?

-- by Jessica Dong, Kira Maker, Adam Brown, and Kelly Close