January 13-16, 2014; San Francisco, CA Full Report – Draft

Executive Highlights

The 32^nd annual JP Morgan Healthcare Conference, which ran from January 13-16 in San Francisco, featured ~9,200 registered attendees (up from 8,600 last year) in addition to the slew of individuals who came to town but were not registered, along with over 300 presenting companies. This JP Morgan full report, supplemented with our coverage of the simultaneous Biotech Showcase and OneMedForum, includes updates and learnings on 42 diabetes- and obesity-related companies that presented this year, including eight not included in our daily coverage. This report includes 19 diabetes drug companies, 13 diabetes technology companies, six obesity therapy companies, four other healthcare companies/organizations, and one fireside chat on healthcare IT.

Starting on the next page, we outline several big-picture themes we noticed during the week, followed by our detailed company coverage. Any reports that are new or that are expanded from our daily highlights reports are highlighted in blue.

• Companies for which we have expanded our coverage in this report (relative to our day highlights) include: AstraZeneca, BD, Cequr, Valeritas, and 4P Therapeutics,.
• Companies included in this report that we did not cover in our day highlights report include: Alkermes, Baxter, Cleveland Clinic, Covidien, Forest Laboratories, GSK, Merck, and Novartis.
• Companies that did not provide major diabetes or obesity updates, and are therefore not covered in this report, include: Abbott, Allergan, Arena, Astellas, Bayer, Daiichi Sankyo, Express Scripts, Rite-Aid, Roche, Teladoc, and Walgreens.
• Many of the companies that presented at JP Morgan 2014 have since reported their 4Q13 and full-year 2013 financial results. For our coverage of those presentations, see our reports on: Abbott, AbbVie, Amgen, Astellas, AZ, Baxter, BD, Biodel, BMS, Dexcom, Eisai, Gilead, GSK, J&J, Lilly, MannKind, Medtronic, Merck, Novartis, Novo Nordisk, Pfizer, Roche, Sanofi, Takeda, and Transition. For our overview of the past year, and our thoughts on what 2014 has in store, see our 2013 + 2014 reflections piece.

 

Big-Picture Themes

• Continuing a trend we noticed last year, a number of companies seem to be presenting more new data and a great deal of big diabetes updates at JP Morgan. In our view, this indicates how prominent this conference is becoming within the healthcare industry.
  
  • Perhaps the most remarkable new data came from Intarcia, who shared a first look at phase 3 data for its “once-yearly” exenatide mini-pump ITCA-650: in an interim analysis of the high-baseline A1c study, patients experienced an astounding mean A1c reduction of 3.2% at 26 weeks, albeit from the high baseline of 10.9%. Intarcia suggested that no other diabetes therapy had achieved such positive results in a similar study and continued to emphasize the potential disruptive power of its new technology.
  • AZ, newly in sole control of its diabetes portfolio following the acquisition of BMS’ diabetes business, revealed that its long-awaited Bydureon dual-chambered pen is under review in the US and EU — in early March, we learned that the device was approved by the FDA (read our report). We also learned that AZ has major plans in diabetic nephropathy – read our full coverage below for more.
  • Lexicon shared promising phase 2 data on its SGLT-1/2 dual inhibitor LX4211, demonstrating preserved efficacy in patients with renal impairment (due largely to the SGLT-1 inhibitor effect in the gut).
  • On the device front, Medtronic disclosed that the MiniMed 640G will launch in “late F1Q15,” (by July 31, 2014) although that date has since been moved three months out.
  • Dexcom previewed its 4Q13 financial results, disclosing a stunning 61% rise in sales from 4Q12.

Although the primary focus of  JP Morgan Healthcare Conference will undoubtedly always be investment-oriented, it certainly reflects well on the visibility and importance of JPM that such exciting science is starting to be announced at this most important meeting.  

• Presentations at this year’s meeting emphasized how volatile a time it is for diabetes companies. Certainly, payer pressure and formulary decisions contributed to much of that volatility. Express Scripts’ decision to grant major contracts to Lilly and AZ over Novo Nordisk was on many peoples’ minds coming into JPM — Sanofi CEO Chris Viehbacher commented on the news during Sanofi’s breakout session. There were also a number of major corporate transactions during the year. In his opening remarks for the conference, JPM Vice Chairman Mr. Douglas Braunstein characterized 2013 as a year marked by increases in liquidity and investor support for strategic deals and acquisitions. Perhaps none of the past year’s transactions were bigger than AZ’s acquisition of BMS’ diabetes business. During AZ’s presentation, CEO Pascal Soriot expressed enthusiasm about the company’s newfound sole control over its entire diabetes portfolio, and previewed a number of exciting future developments, including progress on a DPP-4/SGLT-2 inhibitor combination. One of the bigger news items of the week was Valeritas’ announcement that it plans to go public (Tandem also recently went public in late 2013). For more thoughts on the events of the past year, as well as what new sort of volatility 2014 might bring, see our reflections on 2013 + 2014.
• Despite it being a challenging year for many companies in diabetes and obesity, we were pleased to see a number of companies double down on their commitment to these disease areas. A few weeks before the conference, Takeda announced the discontinuation of phase 3 trials for the GPR40 agonist TAK-875 due to liver safety concerns (read our report). Yet during the company’s presentation, CEO Yasuchika Hasegawa emphasized that Takeda remains “committed” to diabetes care, and will be working hard to advance new candidates in its diabetes pipeline. Merck was another player that had a somewhat tough year in diabetes, as its blockbuster market-leading DPP-4 inhibitor Januvia (sitagliptin) experienced relatively modest growth in 2013 (up just 1.5% compared to 2012 — see our Merck 4Q13 Report). CEO Kenneth Frazier expressed that one of Merck’s primary goals for 2014 is to re-energize the Januvia franchise in the US, and that diabetes remains one of the company’s four priority therapeutic areas. Arena management continued to adopt a highly optimistic tone about the company’s partnered obesity medication Belviq, stating that the drug could eventually be a blockbuster, despite continued slow growth since its launch. Although the payer environment and competitive landscape in diabetes and obesity will likely continue to get tougher, the massive projected rise in patient populations give these companies good reason to see a future in diabetes and obesity care.
• Due to increased reimbursement pressure, we believe companies may begin to put more emphasis on differentiation. Intarcia’s ITCA-650 (as discussed above) is a prime example of a technology that may have the potential to shift paradigms rather than offering only incremental change – taking almost all patient effort out of a therapy is truly the way to encourage adherence. Lilly management has also focused on differentiation with its GLP-1 agonist, dulaglutide, emphasizing that its similar glycemic efficacy to Victoza coupled with its once-weekly administration and ready-to-use injection device make it a differentiated product in the GLP-1 agonist field. We were also excited to hear a confident update from MannKind on its inhalable ultra-rapid acting insulin Afrezza – another step toward making injectable therapy more user-friendly. It appears that the FDA Advisory Committee meeting for Afrezza may not necessarily focus on approvability but more on what the final label may look like.
• We were excited to learn this year about a number of companies that are entering the diabetes care industry for the first time. Many of these companies, including Immunocore, Cyclacel, Harbor Therapeutics, and 4P Therapeutics, are looking to leverage expertise or proprietary technologies from other disease areas to improve the lives of people with diabetes. For example, Immunocore is looking to modify and apply its T cell receptor-based drug portfolio (currently used in oncology to destroy cancer cells) to protect beta cells from autoimmune attack in early type 1 diabetes. On the type 2 diabetes front, 4P Therapeutics is looking to apply its drug delivery technologies currently in development (including skin poration, coated and erodible microneedles, and passive delivery) to the administration of GLP-1 agonists and GLP-1 agonist/insulin combination therapies. JP Morgan (in combination with its adjunct conferences) is one of the largest meetings we attend that is not solely focused on diabetes or obesity, and we always enjoy the opportunity to examine what is going on in the broader healthcare industry and how new technologies could be leveraged in diabetes care.
  
  • Coming from out of left field: the biggest company to enter diabetes during the week was the tech giant Google. Although the news didn’t break at the meeting, Google almost stole JP Morgan’s thunder (at least for one day) by announcing its exciting new contact lens glucose meter project. For background, the project is being run Google’s super-secret research arm Google[x], which previously worked on Google Glass and the company’s self-driving cars. Google[x]’s proposed contact lens would non-invasively monitor glucose levels from tears. The product will almost certainly face many, many challenges (a fact Google readily acknowledged in its blog post announcing the news); however, we are excited to see the highly regarded company dedicating its extensive resources and innovative culture to bettering the lives of people with diabetes. As Google[x] "Captain of Moonshots" Astro Teller said in a compelling interview in Wired about the division's goal: "It's often easier to make something 10 times better than it is to make it 10 percent better... Because when you're working to make things 10 percent better, you inevitably focus on the existing tools and assumptions." For more details on the program, please read our diaTribe article. We loved most of all how they were looking for help in the diabetes community; we know they have lots of brainpower and resources and hope that all looking to improve BGM will be in touch with them.

 

 

Detailed Discussion and Commentary

I. Diabetes Drug Company Presentations

1. AbbVie

Bill Chase (CFO, AbbVie, Chicago, IL)

AbbVie CFO Mr. Bill Chase reminded attendees that the global phase 3 study of atrasentan for diabetic kidney disease has started. We took note that atrasentan was the second item listed on the slide entitled, “Strongest late stage pipeline in our history.” As a reminder, the compound’s phase 3 SONAR trial began in May 2013 (ClinicalTrials.gov Identifier: NCT01858532 and has a primary completion date in February 2017). In line with AbbVie’s 3Q13 financial results call, Mr. Chase noted that SONAR would serve as the single global registration trial for the compound. A quick slide on partnership and in-licensing activity caught our attention, as Reata’s logo was actually included on the slide but not mentioned. As a reminder, Abbott invested $450 million for rights to Reata’s bardoxolone methyl in most international markets, followed by a later investment of $400 million for a follow-up portfolio. Termination of this phase 3 trial was one of our biggest disappointments from 2012; coverage from the terminated phase 3 study were published in November’s NEJM – see our coverage here.

 

2. Alkermes

Richard Pops (CEO, Alkermes, Dublin, Ireland)

Though CEO Mr. Richard Pops’ presentation largely focused on Alkermes central nervous system-related pipeline he delivered the important update during the breakout that Alkermes/AZ’s dual-chamber pen for Bydureon (eliminating the need for manual reconstitution, which is a bit of a hassle) has been filed in the US and EU. The pen is under a six-month review, and Alkermes expects to hear decisions “very soon.” In the past, BMS/AZ had guided for submission of the dual-chamber pen in 3Q13 and a launch in 2014. Mr. Pops also guided for the once-weekly Bydureon suspension (advanced to phase 3 in 4Q12) being filed in 2015. These formulations excite Mr. Pops since he thinks that the current “somewhat cumbersome” Bydureon formulation gave Novo Nordisk’s Victoza something to “compete with.” During the breakout Mr. Pops also shared his belief that the sale of BMS’s diabetes business to AZ is going to be favorable for Alkermes (who receives royalties on Bydureon sales), because it bring Bydureon marketing under the control of one team. Mr. Pops explained that it was “astonishing” how long it took for decisions to make their way through BMS and AZ’s bureaucracies. Alkermes had an encouraging meeting with AstraZeneca last week, and Mr. Pops pressed, “there is no doubt that [Bydureon] is a core business for them.”  

Questions and Answers

Q: Does the availability of generic oral anti-psychotics hurt the uptake of your long acting injectable forms?

A: As the ACA becomes law and we become a lot more focused on bending the cost curve we think including Bydureon will actually get a more favorable status [with managed care plans] as you think about a patient’s lifetime cost.

Q: What impact do you think BMS’s sales of its diabetes business to AZ will have on the development of Bydureon extensions.

A: I am not saying this to just be self serving, but I think it is going to be favorable. The obstacle to crisp decision making at large companies is bureaucracy. You would be astonished by how long it takes to make decisions when you merge two of these big companies. So the dual chamber pen is now filed. The filing for the one-weekly suspension will likely occur in 2015, and the monthly suspension is in development. We had a meeting with AZ last week, and our sense is that development is moving. The exciting this for us is that it is now one commercial team moving it. There is no doubt that this is a core business for them. Bydureon is the only once-weekly GLP-1, and no other drug has better data than it. One could argue that the cumbersome formulation of Bydureon is what Novo Nordisk could compete with. Diabetes continues to be the disease of our era.

 

3. Amgen

Robert Bradway, MBA (Amgen, Thousand Oaks, CA)

Amgen CEO Bob Bradway did not provide any updates on the phase 1 candidate AMG 876, which (to our knowledge) is Amgen’s only diabetes pipeline product. Regarding evolocumab, Amgen’s phase 3 horse in the PCSK9 inhibitor race, Mr. Bradway stated that data from three pivotal trials are expected by the end of 1Q14. See our Amgen 4Q13 Report for the most recent overview of the results of Amgen’s phase 3 program.

 

4. AstraZeneca

Pascal Soriot, MBA (CEO, AstraZeneca, London, UK)

AZ CEO Pascal Soriot provided several timeline updates on diabetes products in the pipeline. Confirming the earlier announcement by Alkermes CEO Richard Pops, Mr. Soriot announced that the dual-chambered pen for Bydureon, is under regulatory review. A US decision is expected in 2Q14 and an EU decision in 4Q14. On the DPP-4 inhibitor/SGLT-2 inhibitor saxagliptin/dapagliflozin fixed dose combination, AZ expects 2Q14 data presentation with 4Q14 submission in the US. Finally, Xigduo (Forxiga/metformin IR) was approved in 1Q14 in Europe while FDA approval for the Farxiga/metformin XR FDC is expected in 4Q14. On the recent acquisition of BMS, Mr. Soriot is extremely enthusiastic about AZ’s ability to leverage its expertise in primary care and its global presence in emerging markets to make the diabetes business more successful than it was under BMS – Mr. Soriot stated that “it’s a franchise that can be more profitable in our hands than it would be in the hands of someone who doesn’t have a primary care team [BMS]” and focuses more on developed markets.

• Mr. Soriot announced that Bydureon’s dual-chambered pen is, at long last, under regulatory review with a US decision expected in 2Q14 and EU decision in 4Q14. As a reminder, this dual-chambered pen eliminates the need for manual reconstitution. This timeline is consistent with BMS/AZ’s past guidance for submission of the dual-chamber pen in 3Q13 and a launch in 2014. Alkermes CEO Richard Pops also indicated that the once-weekly Bydureon suspension (advanced to phase 3 in 4Q12) is being filed in 2015. Getting these easier forms of administration on the market will be key for Bydureon to continue to compete in the growing GLP-1 agonist market, especially once another once-weekly candidate makes it to the market (Lilly’s dulaglutide could be the first in 2014, and it would not require any reconstitution). During AstraZeneca’s Q&A, when asked about the status of the once-monthly Bydureon product, management stated that it “won’t comment on the exact probability [that it will be successful], but we are doing our best. If your objective is to get a sense for how much it factored into the decision [to acquire BMS’ diabetes business], it was a minor factor.”
• AZ continues its focus on SGLT-2 inhibitor FDCs: On the DPP-4 inhibitor/SGLT-2 inhibitor saxagliptin/dapagliflozin fixed dose combination, AZ expects 2Q14 data presentation with 4Q14 submission in the US. Finally, Xigduo (Forxiga/metformin IR) was approved in 1Q14 in Europe while FDA approval for the Farxiga/metformin XR FDC is expected in 4Q14. 
• AZ also appears to be making significant moves on the chronic kidney disease (CKD)/end-stage renal disease (ESRD) front: it plans to move one candidate for ESRD/CKD (roxadustat [FG-4592]) into phase 3 in 2014 and potentially another candidate for ESRD (AZD1722) into phase 3 in 2015. Roxudustat is a hypoxia-inducible factor (HIF) inhibitor, and AZD1722 is an NHE3 inhibitor. HIF inhibitors, interestingly, are more commonly investigated as a cancer treatment since HIF is a master regulator of tissue response to hypoxia (low oxygen), so we will be interested in learning its effects on chronic kidney disease. NHE3 is the sodium-hydrogen antiporter 3, a protein that is essential for the absorption of sodium in the intestines. By decreasing dietary sodium absorption, an NHE3 inhibitor could thus decrease the amount of sodium in the blood stream that would have to be processed by the kidneys.

 

5. Biocon

Arun Chandavarkar, PhD (COO, Biocon, Bangalore, India)

Biocon’s presentation delved into the company’s insulin portfolio in great depth. Company COO Dr. Arun Chandavarkar emphasized the need for more affordable diabetes pharmacotherapies in the emerging world. According to his slides, the average person in Africa would need to pay over eight days worth of wages for a month-long course of oral antidiabetic medications, compared to the half day of wages the average European would need to pay for the same drugs. Biocon has seen strong sales growth compared to the major insulin manufacturers; its share of the recombinant human insulin market has grown from 4% in 2009 to 11% in 2013 (in markets where Biocon’s product has been available for that timespan). Biocon’s biosimilar insulin glargine is registered in “10+” countries, with plans to expand to a broader range of markets in coming years.

 

6. Bristol-Myers Squibb

Lamberto Andreotti (CEO, Bristol-Myers Squibb)

In his opening comments, Mr. Lamberto Andreotti briefly commented on BMS’ strategic rationale for selling its diabetes business to partner AstraZeneca: he said that selling the diabetes business has freed up resources “for promising growth opportunities” like the company’s atrial fibrillation drug Eliquis and hepatitis C programs (with the underlying inference here being that diabetes was a less promising growth opportunity); it has increased BMS’ financial flexibility and has made more money available for other capital allocation priorities; it has simplified the company’s organizational operating model by narrowing focus on specialty care; and finally, Mr. Andreotti remarked that AZ, as a primary care-focused company, is better equipped to optimize the diabetes portfolio for the benefit of patients (and to the benefit of BMS who will continue to receive milestone payments and royalties on assets in the portfolio). Quite bleakly, in our view, Mr. Andreotti stated at one point during his presentation, “I’m convinced that one of our competitive advantages then and now has been to face reality and to change, evolve, and reinvent ourselves while staying true to our [BioPharma] strategic foundation.” We took this to mean that “facing reality” meant that despite having invested $7.0 billion in the Amylin acquisition just a couple of years ago and an ever-growing 26-million patient base of people with diabetes, BMS found the regulatory and reimbursement pressures so constraining that it was better to cut their losses and get out now. We do agree that AZ alone will be able to steward the diabetes portfolio better. We are excited to see AZ take advantage of its sole ownership of the diabetes portfolio and the improved efficiency that eliminating the joint venture could confer.

Questions and Answers

Q: You’ve essentially ripped out a large number of cash cows and transformed into a growth company. That’s an enormous cultural change. What are your challenges going forward?

A: There are two types of cash cows we have lost. There have been the regrettable losses like Plavix, which is not something we organized but we accepted. Then there was the proactive divestiture of a number of mature brands and finally the decision in diabetes. To be honest, diabetes was not going to be a big cash generator for us in the short term, but could have been a cash generator in the long term. The decision to move out of diabetes as I said before was a strategic decision because we believe that we can become a leading company by focusing in other areas. And it also made sense from a financial point of view. AZ is going to pay us upfront and several milestones. One regulatory milestone already happened [the US approval of SGLT-2 inhibitor Farxiga]. And then we will also receive royalties. So we do strategic things and we do them only in a good sense from a financial point of view. I view us as a company that is going to evolve into a different model of operation, and we’re looking to fine tune the different model of operation.

 

7. Forest Laboratories

Brent Saunders, MBA, JD (CEO, Forest Laboratories, New York, NY)

Brent Saunders presented on behalf of Forest Laboratories in his 100^th day as CEO. He did not discuss the company’s liver-specific glucoskinase activator (GKA) GK1-399/TTP399 that is in phase 2 development in collaboration with TransTech.

 

8. GSK

Simon Dingemans (GSK, Brentford, UK)

GSK CFO Mr. Simon Dingemans briefly discussed the company’s efforts in diabetes during his presentation, focusing on the company’s once-weekly GLP-1 agonist candidate Eperzan (albiglutide), which is under review in the US and EU. He emphasized that GSK will have good positioning on the GLP-1 agonist market, due in part to the company’s unique head-to-head data versus insulin (not a comparison that some other GLP-1 agonist manufacturers have highlighted, due to their simultaneous presence on the insulin market). As a reminder, later in January, the company received a positive CHMP opinion for Eperzan (read our report); the FDA PDUFA date for Eperzan is April 15, 2014. As we learned during GSK’s 4Q13 update, the company now plans to commercialize the drug without a partner, as a potential foundation of a broader cardiometabolic franchise. During the breakout session, management commented on the effects of GSK’s new sales and marketing policy, which eliminates sales-target-based compensation for the company’s sales representatives as well as direct compensation to healthcare providers for giving or attending presentations to prescribers. The company has seen a few departures in its sales force, but has also been approached by new representatives interested in working with the new model, and has seen “some doors open” with unspecified organizations and payers.

Questions and Answers

Q: When you adopted your new marketing approach, did you see departures?

A: We saw a few, and always expected that there would be some churn. The new model isn’t for everyone. We also saw a lot of people coming to us, who wanted to work in a different model. We’ve seen some doors open with PBMs and other organizations with our new model, and good quality representatives wanted to be a part of that.

 

9. Halozyme

Helen Torley, MD (CEO, Halozyme Therapeutics, San Diego, CA)

Halozyme CEO Dr. Helen Torley gave her first presentation after replacing Dr. Gregory Frost on January 6. Hylenex preadministration for insulin pumpers was the second program discussed in the presentation – it was terrific to see this visibility, as the company is juggling multiple proprietary and partnered programs. In line with remarks made in the 3Q13 call, results from the 400-patient phase 4 CONSISTENT 1 trial (Hylenex preadministration vs. standard pump therapy) are expected this quarter. Results from the trial will be submitted to a “major medical meeting” in 2014, which we assume is ADA 2014 here in San Francisco (the late breaker deadline is March 24). Halozyme also expects to receive FDA input this quarter (1Q14) on a Hylenex labeling update for insulin pump preadministration – this will of course leverage the CONSISTENT 1 results. On the manufacturing side, Halozyme has an sNDA under review for a high capacity fill and finish line. In Q&A, Dr. Torley made it clear that the company would not commercialize Hylenex for insulin pumpers in 2014 (given the need to update the label); however, the plan is to expand the company’s current Hylenex sales force (mostly focused on hospitals) to commercialize Hylenex. We’re very interested to see commercialization details, particularly pricing. The company has an experienced commercial team (“ex-Lilly, ex-Amylin”) that has apparently done some very thorough segmentation market research.

Questions and Answers

Q: Regarding the pump indication for Hylenex, is that something you could commercialize this year?

A: We don't believe we can commercialize it this year. We are seeking input from the FDA on a path to a labeling update based on the CONSISTENT 1 data. If you look at the current Hylenex labeling, there is nothing specific on the benefits of diabetes. We believe that will limit commercial uptake if our reps cannot engage in the dialogue on the benefits for diabetes.

Q: How are you thinking about the commercialization of Hylenex for insulin pumpers, especially leveraging your experience at Onyx?

A: There are about 400,000 type 1 insulin pumpers in the US. But you have to segment that market. Some pump users are using the pump to reduce the need for injections. Some are using the pump for tighter glycemic control. I see some of our commercial team in the back. We have ex-Lilly and ex-Amylin people, and they’ve done some of the best market research I’ve seen to segment physicians and patients. I’ve spent three hours with the team so far, and I expect to spend a lot more time with them.

Based on the fact that a large segment of patients are looked at by a relatively finite group of endocrinologists, it’s an opportunity that we believe we can access to ourselves. We will expand our current Hylenex sales force, which focuses on the hospital right now. We will talk more about that at upcoming meetings.

Q: How is the PCKSK-9 with Pfizer differentiated from other compounds?

A: We are limited to only say what our partners say. Pfizer has only said they are using and studying the Enhanze technology.

 

10. Immunocore

James Noble (CEO, Immunocore, Oxon, UK)

Immunocore, a private UK-based company, presented on its pipeline of T cell receptor based drugs. Though Immunocore’s main therapeutic focus is oncology (which was also the sole topic of its presentation), the company believes its ability to destroy tumor cells with engineered T cell receptors linked to anti-CDE antibodies can be modified to protect beta cells. More specifically, Immunocore has produced candidates that consist of a T cell receptor moiety that binds to highly specific HLA-peptides found on the cell’s surface (i.e., those that indicate it is a caner cell or a beta cell). The attached anti-CD3 fragment then either directs T cells it comes in contact with to kill the cancer cell, or in the case of type 1 diabetes, prevents the killing of the beta cell. In this way, the company’s type 1 diabetes candidate would form a type of shield around the beta cell. The type 1 diabetes program is still preclinical. A key challenge Immunocore is working on is modifying the anti-CD3 entity they use in oncology to prevent cell death rather than cause it.

 

11. Intarcia

Kurt Graves (Chairman and CEO, Intarcia, Boston, MA)

The highlight of Intarcia’s presentation by CEO Kurt Graves was the early phase 3 results for ITCA-650 (the first phase 3 data disclosed for this candidate). As a reminder, ITCA-650 is a “once-yearly” matchstick-sized, implantable osmotic mini-pump that continuously delivers the GLP-1 agonist exenatide. Mr. Graves boldly described ITCA-650 as a technology that has the potential to be as disruptive in the diabetes industry as the iPhone was in replacing the phone, computer, and music player. The interim phase 3 data that Mr. Graves presented was from the FREEDOM-1HBL trial (an open-label trial of people with a high baseline A1c of >10%). The 25 patients in this 60-person trial who have reached week 26 in the trial by the time the interim analysis was conducted achieved a mean 3.2% A1c reduction after 26 weeks from a 10.9% baseline. Strikingly, 50% achieved A1c reductions ≥3.0% and 22% ≥4.0%. The rate of nausea, 28%, appears similar to Novo Nordisk’s Victoza (liraglutide) and AZ’s Bydureon (once-weekly exenatide), and has been mostly mild to moderate. Mr. Graves noted that if phase 2 nausea results are borne out in phase 3, the nausea rates should subside much more quickly than is seen with other GLP-1 agonists. As would be expected, hypoglycemia was low (three cases of minor hypoglycemia and no cases of major hypoglycemia). Six of the 60 patients have dropped out of the trial, two of which were related to nausea/vomiting. Full results of FREEDOM-1HBL are expected to be disclosed in September 2014, and the other three trials in the registrational program are expected to report in September 2014 through the end of 2015. ITCA-650 offers some very significant advantages over currently available diabetes drugs (the guaranteed adherence and elimination of day-to-day injections have contributed to unprecedented A1c-lowering and weight-lowering efficacy in phase 2), and we think the biggest concern is whether the lack of dosing flexibility in the titration phase may drive some patients away initially who have intolerable nausea (in contrast, daily or once-weekly injectable GLP-1 agonists may offer some respite from nausea if patients find it easier to titrate more slowly than the on-label titration scheme). When full data of FREEDOM-1 and -1HBL are released in September, trial dropouts due to GI side effects will be an important parameter to evaluate.

• The pivotal phase 3 FREEDOM program (“freedom” from injections, from being controlled) consists four trials and 4,000+ patients: FREEDOM-1 is a placebo-controlled trial; FREEDOM-2 is a head-to-head trial against Merck’s Januvia (sitagliptin); FREEDOM-CVO is the cardiovascular outcomes trial; and FREEDOM-1HBL is an open-label trial that enrolled people who were excluded from FREEDOM-1 due to having a baseline A1c >10% (for whom randomization in a placebo-controlled is unethical due to the risk posed to the patient if randomized to the placebo arm). The very impressive interim results presented today were for the FREEDOM-1HBL study. Intarcia began phase 3 studies in March 2013 after it received a $210 million financing in late 2012 – the largest single funding achieved by a private biotech in the past 25 years. FREEDOM-1 and -1HBL are expected to report full results in September 2014; FREEDOM-2 is expected to report in 2015; and FREEDOM-CVO is expected to report at the end of 2015.
• Interim results from ITCA-650’s high baseline A1c trial (FREEDOM-1HBL) show striking A1c reducing efficacy in a population with very poor glycemic control. The overall mean baseline A1c was 10.7% with about 70% of patients having failed multiple oral agents. By the time the interim analysis was conducted, 50 patients had been enrolled for at least 13 weeks; 39 for at least 19 weeks; and 25 for at least 16 weeks. Patients who had been in the trial for at least 13 weeks (mean baseline A1c 10.8%) achieved a 2.5% A1c reduction after 13 weeks on the low 20 mcg/day titration dose; patients who have reached week 19 of the trial (and therefore have transitioned to the full 60 mcg/day dose for six weeks; mean baseline A1c 10.7%) had achieved a 2.9% mean A1c drop; and patients who had reached week 26 of the trial (mean baseline A1c 10.9%) had achieved an unparalleled mean 3.2% A1c reduction. The 26-week data are even more impressive when considering the range of A1c reductions achieved: 50% of patients at week 26 achieved an A1c reduction of 3.0% or greater, and 22% achieved a 4.0% or greater reduction.
  
  • For context, Mr. Graves showed data from two other open-label studies of patients with high baseline A1cs. Patients with a mean baseline A1c of 11.2% who were given Januvia and metformin for 24 weeks achieved a 2.9% A1c reduction after 24 weeks – while it is of course difficult to compare results across trials, this reduction is smaller than that of ITCA-650’s despite the patients’ higher baseline A1c in the Januvia study. In addition, patients in a study of the SGLT-2 inhibitor Invokana (J&J) as monotherapy with a baseline A1c of 10.6% achieved a 2.6% A1c reduction after 26 weeks – also smaller than ITCA-650’s preliminary 26-week result.
• The rate of nausea, 28%, appears similar to Novo Nordisk’s Victoza (liraglutide) and AZ’s Bydureon (once-weekly exenatide), and has been mostly mild to moderate. Mr. Graves noted that if phase 2 nausea results are borne out in phase 3, the nausea rates should subside much more quickly than is seen with other GLP-1 agonists.
• As would be expected, hypoglycemia was low (three cases of minor hypoglycemia and no cases of major hypoglycemia).
• Six of the 60 patients have discontinued the trial. One was lost to follow-up; one due to hyperglycemia, and four due to adverse events (two nausea/vomiting, one diarrhea, and one sudden cardiac death not related to study drug).
• Weight change at 24 weeks, from a baseline BMI of 32 kg/m², was -1.1 kg (-2.4 lb). Mr. Graves noted that people with high baseline A1cs typically have a harder time losing weight due to the reduction in glycosuria caused by bringing glucose back under control. For context, he relayed that patients in trials of DPP-4 inhibitors in a high baseline A1c population typically actually gain weight.
• Mr. Graves likened the impact that ITCA-650 could have on the diabetes industry to the impact that the iPhone has had on the communication and music industries. While most other therapies under investigation for type 2 diabetes offer incremental advances, he envisions ITCA-650 to be a disruptive innovation that will reshape the industry and patient preferences. The disruptive benefits that Intarcia is aiming for are (i) superior efficacy vs. any oral or injectable mechanism; (ii) superior dosing (it would be the only once-yearly diabetes treatment); (iii) superior patient adherence; (iv) superior real-world outcomes to satisfy payers; and (v) attractive in-office financial incentives for doctors who will make $250 for every procedure.  The company plans to position ITCA-650 as the best branded drug to use with metformin (the company is planning head-to-head superiority studies against the leading orals and injectables).
• Intarcia plans to keep US rights to itself and is initiating discussions for ex-US partnerships.
• The introduction to Mr. Graves’ presentation was one of the more creative and dramatic ones we have seen at JPM: he opened with a two-minute video that began, “A Tsunami is coming. It will hit India, China, Europe, North America, and even Africa […]. People are moving into the path of this tsunami called diabetes.” The video provided an alarming statistic about medication adherence: only about one in five people with diabetes adhere to their chronic medications. This suggests that Intarcia’s role in ensuring medication adherence without any patient action with ITCA-650 could be transformational.

 

12. Lexicon

Arthur Sands, MD, PhD (Lexicon, The Woodlands, TX)

Dr. Arthur Sands shared exciting new data on the SGLT-1/SGLT-2 dual inhibitor LX4211. His presentation showcased full results from a phase 2 study of LX4211 in 30 type 2 diabetes patients with moderate or severe renal impairment (eGFR of <60 ml/min/1.73m² and <45 ml/min/1.73m², respectively). After one week, patients on LX4211 saw a 50-60 mg/dl reduction in postprandial glucose compared to baseline. Notably, this difference was preserved in the patient subgroup with severe renal impairment (efficacy is usually reduced in patients with severe renal impairment with selective SGLT-2 inhibitors). Dr. Sands also re-presented promising data from the open-label pioneer phase (n=3) of a phase 2 study investigating LX4211 in type 1 diabetes patients, and stated that data from the larger placebo-controlled expansion phase should be available in March. We heard surprisingly little on the company’s “refocusing” away from discovery-stage research and towards LX4211’s commercialization. Partnerships discussions for LX4211, which have drawn on for well over a year, are still in progress.

 

13. Lilly

John Lechleiter, PhD (President and CEO, Lilly, Indianapolis, IN)

Mr. John Lechleiter reviewed Lilly’s major diabetes assets, citing Lilly’s diabetes business as one of two therapeutic areas that are key areas of growth for Lilly in the near future (the other area being cancer). Lilly’s DPP-4 inhibitor Tradjenta (in partnership with BI) and its insulins are the current anchors of the diabetes business – Mr. Lechleiter disclosed that Tradjenta is now capturing one-third of new patients in the DPP-4 inhibitor monotherapy market amongst US endocrinologists. In addition, he forecasts that the new insulin manufacturing platforms Lilly is currently building will double its insulin manufacturing capacity. As such, Tradjenta and Lilly’s insulins seem poised for continued strong performances. As he has in the past, Mr. Lechleiter emphasized that Lilly may soon have the most comprehensive diabetes portfolio in the industry with the potential launch of an SGLT-2 inhibitor, once-weekly GLP-1 agonist, new basal insulin glargine formulation, and novel basal insulin analog in the next two-to-three years (please see our coverage of Lilly’s 2014 Financial Guidance call for full details on the status of each of Lilly’s pipeline candidates). Lilly management made several strategic comments during the Q&A session following the presentation, including thoughts on product differentiation, utilization of SGLT-2 inhibitors in the US (apparently, US endocrinologists are now starting more patients on SGLT-2 inhibitors [J&J’s Invokana was the only SGLT-2 inhibitor approved in the US until last week when AZ’s Farxiga was approved], than on the entire class of DPP-4 inhibitors), and dulaglutide positioning. We were not clear whether management’s comments referred to SGLT-2 inhibitors’ NBRx share or NRx share, but in either case, it reflects quite a strong performance for SGLT-2 inhibitors and illustrates how the class may be putting some competitive pressure on DPP-4s. With regard to dulaglutide positioning, management aims to show non-inferiority to Novo Nordisk’s Victoza in the AWARD-6 trial (which completed in November) as a key piece of data to secure non-inferior pricing to Victoza. It believes that with non-inferior efficacy, the once-weekly dosing will give it an edge over Victoza (which is a once-daily injection), and the one-step injection device will give it an edge over AZ’s Bydureon (a once-weekly injection that requires an extra manual reconstitution step that dulaglutide will not require).

• Lilly could launch as many as four new diabetes products in the next two to three years given the submission of three new diabetes medicines in 2013 and its phase 3 novel basal insulin analog (peglispro). As a reminder, in 2013 Lilly submitted NDAs for Lilly/BI’s SGLT-2 inhibitor empagliflozin, Lilly’s GLP-1 agonist dulaglutide, and Lilly/BI’s new basal insulin glargine formulation (it also submitted an sNDA for the concentrated U200 insulin lispro).
• Mr. Lechleiter also highlighted Lilly’s approach to advancing early stage (preclinical and early clinical) R&D. Working together with VCs, Lilly funds several “project-focused companies” (PFCs), each focused on one compound. Lilly sees itself as a “fully integrated pharmaceutical network” (FIPNET) rather than simply a “fully-integrated pharmaceutical company” due to the wide range of organizations it works with to promote early-stage research.
  
  • As an example, in 2009 Lilly launched the Open Innovation Drug Discovery Initiative (OIDD), in which Lilly agrees to carry out biologic evaluation for compounds submitted by outside researchers free of charge in return to the first rights to negotiate an agreement. If Lilly does not seek to make an agreement, it gives the owners full rights to use the evaluation as they see fit with no strings attached. From this initiative, Lilly has evaluated 363 opportunities in 34 countries, resulting in 12 collaborations and the recent signing of the first milestone-based agreement.
  • Lilly also recently entered into a public-private partnership with the city of New York as one of three investors that provided a total of $50 million (to be matched by at least another $50 million from VC partners) aimed at financing and developing the next generation of life science companies from New York’s research institutions (including Rockefeller University, Sloan Kettering, Mt. Sinai, and Columbia). The goal of this initiative is to launch 15-20 new ventures by 2020.

 

Questions and Answers

Q: On the P&L side, R&D is having a fairly significant step down this year. Is that a decent absolute spend level to keep in mind over next few years as you work through some very heavy R&D programs. How do you see evolution of P&L from here?

A: Because of increasing payer pressure for differentiation, we are doing more in phase 2 to ensure that we have as high a success rate as possible in phase 3, which will be a key direction for the future.

Q: The DPP-4 market seems to have gone through a real slow-down in 2013. How are you thinking about that? You’ve always done a great job from a share perspective, but what do you think of the market dynamics as a whole? Will there be a return to growth? Where are we heading?

A: It’s difficult to say because the growth driver was basically coming at the expense of TZDs, and that opportunity in the US has gone away. The DPP-4 market continues to be strong outside of the US, by the way. What we would need to change in the US is to make sure that DPP-4s are seen as a substitute for sulfonylureas (SFUs) because there is still very significant utilization of SFUs very early on in diabetes treatment. We have huge opportunities to continue to grow given what we think we can offer relative to other DPP-4s. I think it’s an interesting area to see how things develop. At the same time, when we look at the DPP-4 market, part of that growth may be taken by the SGLT-2 inhibitors. We don’t feel bad about that because we also have an SGLT-2 so we can take that type of opportunity. There are a few things we like about the SGLT-2 uptake, one of those signals is that endocrinologists in the US today start more patients on SGLT-2s than on the entire class of DPP-4 inhibitors combined. People ask, well is that really going to translate into primary care? Well it’s more possible that it will than with an injectable given that it’s an oral medicine. This gives us the chance to participate in what we think will be the two largest oral segments in diabetes by the end of the decade.

Q: Could you provide a bit more commentary on dulaglutide and how you see it competing with the existing payers in the GLP-1 market?

A: We are very excited – we had very good outcomes from the five AWARD trials. Dulaglutide has been studied against exenatide twice daily, against Lantus, against sitagliptin, and against metformin. With the 1.5 mg dose, we have been able to show superiority when it comes to A1c reduction. We think we have a very competitive efficacy profile. We’re also conducting the head-to-head trial against Victoza 1.8 mg. Our expectation is to achieve non-inferiority. We feel that we’re going to be able to disclose the topline data sometime at the end of the first quarter this year. I would say we have a very complete commercial package that we would be able to offer with this product. Clearly dulaglutide, beyond the clinical data, is a once-weekly product and ready to use. We believe that the user experience is going to be excellent. We had a chance to share the device at our annual investment community meeting. We feel that dulaglutide truly brings the best attributes of GLP-1s out there and puts them in one product, and we think this will be a very attractive offering in the GLP-1 space. From our perspective, as we think about the levers to make dulaglutide successful, the number one matter is to get the right price and reimbursement. The AWARD-6 non-inferiority trial is critical to that. Then we need to see dulaglutide be a catalyst for the growth of the class. If our intent were just to think about Victoza, I believe that’d be narrow and too limiting. We’re thinking about the entire injectable space and making dulaglutide a foundational therapy in type 2 diabetes.

Q: You highlight that you have a very broad diabetes portfolio. How do you leverage that breadth? Are there any challenges you face, in terms of challengers who have one major product that is their focus?

A: I think it’s important to clarify that if we look at each of our brands, each one is going to be competitive on its own merits. You can look at Tradjenta, empagliflozin, dulaglutide — they are all attractive products. The portfolio breadth gives us an additional layer of competitiveness. We can provide combinations, such as the combination of linagliptin and empagliflozin, a DPP-4 inhibitor and SGLT-2 inhibitor. We expect to file that combination this year, and think the combination could be significant. Similarly with insulin, there is potential for combinations and mixtures. We also believe that having a complete portfolio changes how we approach the space commercially. It’s not that we don’t seek to build strong brands. We do, but we build them in the context of a portfolio. We can commercialize a portfolio in a more patient-centric way, which we believe will build trust. We have specific strategies for doing this at the provider level. Also with payers, having a diverse portfolio will give us better negotiating and competitive positions in diabetes. I like where we are, and we have a path forward with the portfolio. The first step, though, is to launch all the products successfully.

 

14. MannKind

Al Mann (CEO, MannKind, Valencia, CA)

MannKind CEO Mr. Al Mann provided a confident early morning review of the status of Afrezza, the company’s inhaled ultra-rapid-acting insulin. The drug was resubmitted to the FDA on October 13, 2013, will have an advisory committee on April 1, 2014, and has a PDUFA date two weeks later on April 15. Said Mr. Mann, “We’ve been preparing for it for six to eight weeks. We’ll be all ready for it.” In Q&A, management said the advisory committee was “sort of expected” given the current regulatory environment – we agree, though would note that this was a departure from previous remarks that Afrezza would NOT have an ad comm. An insightful breakout session discussed the status of partnership talks in some detail – there are several parties at the table, and a deal could come either pre- or post-approval. According to management, those interested in a post-approval deal are not concerned about Afrezza’s approvability, but are really waiting to see what the drug’s label ultimately looks like (Mr. Mann believes the label will not be as strong as it could be, due to the limitations of clinical trials). In line with previous comments, the preference is a global partner, though MannKind ideally wants to retain co-promotion rights in the US. A partner will ultimately set pricing and launch timing, though MannKind expects comparable pricing to rapid-acting-insulin analog pens (with perhaps a “single-digit premium”) and launch within six months of approval. Mr. Mann also briefly reviewed the Afrezza phase 3 results in some detail, highlighting the product’s fast PK/PD, weight neutrality, and hypoglycemia advantage in type 1. See below for a truly outstanding Q&A.

• MannKind expects to have a 375 million Afrezza cartridge capacity at launch, enough to support approximately two million patients. At full capacity, the Danbury factory could produce up to 2 billion cartridges, though capital expenditures would be required to support this expanded capacity.
• MannKind has two different cartridge dose sizes for Afrezza in the current FDA filing, though others are in development. Initially, some percentage of patients requiring larger doses will have to take multiple cartridges at each meal. Ultimately, the goal is to have single dose administration at each meal.  Patients would be able to purchase multiple cartridge sizes, though MannKind believes that in most cases this would not be necessary.
• MannKind had cash of $94 million as of September 30, with cash burn of $10-12 million per month as the company ramps to commercialization.  Subsequent to September 30, the company reported several updates that extend the cash runway: MannKind received $45 million in proceeds from the exercise of warrants issued in an October 2012 public offering; an additional $40 million from Deerfield in 4Q13; and CEO Mr. Al Mann increased his available borrowings under by $30 million. MannKind has enough financial resources to get through the April 15 PDUFA date, at which point we suspect a partnership might be announced.
• In Q&A, Mr. Mann discussed his ambition to build a low-cost basal-only insulin pump to complement Afrezza – this would not be a MannKind program (he has started a “group” to look at this), but given his experience at MiniMed, we cannot wait to hear more.
• “Clinical trials don’t show the full benefits of Afrezza.” First, Mr. Mann believes that some patients in the phase 3 trials didn’t lower their fasting glucose levels enough to demonstrate larger reductions in A1c. Said Mr. Mann, “As people get more used to Afrezza and start using it more appropriately, you’re going to see significant improvements in A1c.” Second, some patients may have been accustomed to taking insulin 20-30 minutes before meals. If this was done in the Afrezza arm (out of habit and despite the product’s ultra-fast PK/PD), hypoglycemia would have been overestimated.
• Mr. Mann presented data on the number of insulin users in the US, highlighting that ~500,000 patients convert to insulin annually. The data (a combination of CDC, Roper, and GfK) estimated 6,997,000 insulin-using patients in the US, broken down as follows: type 2 long-acting only (26%), type 2 basal bolus (24%), type 2 premix only (14%), type 2 “other” (not defined; 19%); type 1 MDI (11%); and type 1 pumpers (6%). The slide assumed 22.1 million patients with diabetes in the US, with 57% on orals only, 32% on insulin, 8% on lifestyle, and 3% on orals + GLP-1/GLP-1 only.
  
  • Ambitiously, MannKind believes that Afrezza could target a population of over 20 million patients with diabetes in the US: 4.2 million prandial insulin users, 1.7 million type 2s on basal insulin only, and 15.2 million insulin naïve type 2s who could benefit from using insulin.

Questions and Answers

Q: Why do you think the FDA requested the panel? Or did you expect it all along?

A: We sort of expected it given the current regulatory environment. Also, with the change in EMDAC division, we thought they would probably want one. We started preparing for it six weeks or so ago. We were quite ready for it.

Q: Will it focus on safety?

A: We really don’t know at this time. The message was very generic in regards to the rationale for having the advisory committee. Looking at the FDA guidance, we’re a first in class, ultra-rapid-acting insulin – it makes sense that they would ask for an advisory committee. We had no lead in terms of any type of focus.

I will say that within MannKind, there is a lot of conversation by people close to program who think this is a real advantage for us. The advisory committee will give us a public forum to communicate the benefits of Afrezza.

Q: The timing of the advisory committee is two weeks before the PDUFA date – is that enough time for the FDA to make a decision?

A: We know from our discussions that the FDA’s ambition is to meet the PDUFA date. Two weeks is maybe a little bit on the short side. Usually the FDA doesn’t want to have a long time between the advisory panel and the final decision. We are hoping that April 15 is a valid and realistic date.

Q: What is the status of partnership talks? If no partnership is signed, will you launch alone?

A: As we announced, we are working with Greenhill. We are very busy at this point in time channeling this discussion and working on potential. We don’t know exactly what the advisory committee and PDUFA date will do to those discussions. But they are checkpoints along the way.

Early on, it had been my ambition to launch ourselves. But then we had the CRL and the extension. I invested $350 million more of my own money, in addition to the $575 million I already invested. That sort of stymied me – I don’t have enough personal resources to do an adequate launch myself for the company. So under the circumstances, we are doing a partnership. If I had half a billion to spend, I would do it ourselves.

Q: What partnership deal terms are you looking for? Would you sign a partnership deal before or after approval?

A: We have both groups – partnership deals pre- and post-approval. Some are waiting to see what the label looks like. It’s really driven by the term sheets. The only thing we can say is that we’d like to have an opportunity to co-promote in the US.

For the parties that have gone through our program and have done due diligence, they have a comfort level regarding the approvability of the product. Those who are really waiting are not concerned about approval per se, but want to see the label. The initial label is not as strong as it could be. It will show non-inferiority in A1c. As people get used to using Afrezza, it will be superior. We do see some hypos. I don’t think the hypos are caused by Afrezza. The hypos caused by prandial doses are because people are taking the dose before they sit down to eat. That’s particularly the case in patients with an A1c over 8% who were having hypos – you’re not going to get that with Afrezza. Most of the residual hypos are coming from people either taking Afrezza before they are sitting down to eat or other trial factors (e.g., basal insulin).

Q: You have a very interesting delivery system. What other drug candidates do you have beyond the delivery of Afrezza?

A: Lots of them. There is a pain drug that could be effective in a couple minutes instead of 45-60 minutes. Think of Viagra [jokingly] – you could do that very quickly. [Laughter] One of the advantages is we can stabilize large molecules. The reason Afrezza is so effective and quick is we’ve been able to create a stable formulation of insulin monomers that has never been done before. We can do that for all sorts of drugs. By the way, if you’re not taking the dose three times per day, you can use a single-use disposable inhaler. You just use it and throw it away. It only adds a few pennies to the cost of the drug.

We would like to have an improved basal insulin. I think that the best solution would be a basal pump, and I’ve started a group to develop it. Pump therapy is clearly the best way to deliver basal insulin. I’ve had a lot of experience in pumps, as you know. I started MiniMed, now Medtronic Diabetes. The fascinating thing about it is even though they do a great job in basal, the kinetics of prandial insulin limit pump performance. Pumps are also very expensive – $7 a day. In type 2 diabetes, you’re not going to see insurance companies paying that. I think that can enormously improve to 60-75 cents per day.

Q: In the worst-case scenario where no partner is signed, what would you do?

A: I do believe we will have a partner. We have a number of alternatives. We could go regional – there is lots of regional interest in parts of world. In the US, we could rollout mad start with the high decile physicians or metro areas. That is part of an active contingency plan. But the expectation is we will have a partner. We’ve had a couple groups approach us and say, ‘We will provide the funding for a MannKind-only launch.’ But we aren’t interested in that.

Q: I’ve watched you from the beginning on this one. Isn’t there an easier way to make a billion dollars? [Laughter]

A: In MiniMed, we were initially selling stock at $1.75 a share. When I sold the company to Medtronic in 2001, we got $192 split twice. So we’ll see. I hear someone on the Internet, someone of substance, suggesting MannKind’s stock would be $70 a share at some point. I haven’t seen it, so cannot comment myself.

That’s assuming Al’s goal is to make a billion dollars. He has got a few of those already. He’s trying to do something for diabetes.

My objective is to solve this problem. Afrezza is probably the most significant contribution to solving this. If you combine this with a basal pump, that would be an enormous contribution to the world, and economically feasible as well.

Q: Given your motivation to help the diabetes community, why don’t you price under pens so that more people can use it?

A: No. Keep in mind that we start with insulin, there is processing cost, the cost of the device. The fact that we can do for essentially the same price is quite remarkable. We also require more insulin, since not all of it gets into the lungs. Our objective is a single digit premium but no more. We’ve met with large groups of insurance companies, and for that range, they will quickly reimburse.

 

15. Merck

Kenneth Frazier, JD (Merck, Whitehouse Station, NJ)

Mr. Ken Frazier’s presentation touched upon Merck’s diabetes portfolio, which consists of the blockbuster Januvia (sitagliptin) DPP-4 inhibitor franchise. The company continues to view diabetes as a growth driver, despite Januvia’s slowing performance in 2014 – the franchise was up 1.5% year-over-year for the full year 2013 to a total of $5.8 billion, as we learned during Merck’s 4Q13 earnings call in early February. Mr. Frazier noted that Januvia’s performance in 2013 was strongest outside the US (up 5% on the year), and that OUS sales are responsible for nearly half of overall Januvia franchise revenue. During the breakout session, he remarked that the company’s goal for 2014 is to rejuvenate Januvia’s US growth, and that the company’s main challenge is not market share (which remains high at around 70%), but the slow growth of the entire DPP-4 inhibitor class in the US. He characterized the difficulty in moving patients on metformin monotherapy or sulfonylureas to DPP-4 inhibitors as a “dam in the river.” He expressed uncertainty regarding the effect of the “adverse event issue” (a possible heart failure class effect) seein in studies of other DPP-4 inhibitors. Later in the presentation, Mr. Frazier reviewed the company’s new strategic growth plan, which lists diabetes as one of the company’s four priority therapeutic areas. Since JPM, we learned that Merck is developing a biosimilar insulin glargine along with the Korea-based biosimilar manufacturer Samsung Bioepis (read our report).

Questions and Answers

Q: Can you talk about the initial response you may be seeing to your refocused efforts for Januvia?

A: It’s a little early to talk about the future in that market. We see the challenge: a market that grew 20% or more in the two years prior to 2013. The challenge is not a share issue, as we continue to have a share over 70%. But how do we get patients who seem to stay on metformin or sulfonylureas longer than they should to move on to other therapies? It’s like a dam in the river, and we need to find a way to get the blockage taken care of. We have a well trained sales force. We have competition from other DPP-4 inhibitors but we have to focus on growing the market. And with the adverse event issue that came up for three other brands, we will have to see where that goes

 

16. Novartis

Joseph Jimenez, MBA (CEO, Novartis, Basel, Switzerland)

Mr. Joseph Jimenez (Novartis, Basel, Switzerland) did not discuss diabetes during his presentation, nor was he prompted to during the breakout session. This is not particularly surprising, as the company’s two marketed franchises with relevance to diabetes and its complications (the DPP-4 inhibitor Galvus [vildagliptin] and the anti-VEGF therapy Lucentis [intravitreal ranibizumab] for diabetic macular edema) are relatively mature. As of the company’s 3Q13 update, Novartis had two diabetes candidates in phase 2: an SGLT-1/SGLT-2 dual inhibitor LIK066, and an unspecified once-daily oral treatment for type 2 diabetes, LEZ763). For more on Novartis’ recent performance, see our Novartis 4Q13 Highlights Report.

 

17. Sanofi

Chris Viehbacher (CEO, Sanofi, Paris, France)

Sanofi’s presentation, and especially its breakout session, was filled with talk about diabetes. The company’s insulin offerings took center stage — CEO Chris Viehbacher forecast that Lantus (insulin glargine) biosimilars will have a difficult time competing on price, given the sizeable costs involved in their development and manufacture. The presentation highlighted data from Sanofi’s phase 3 program for its new U300 insulin glargine formulation, which has a flatter PK profile and a longer duration of action than Lantus. Management seems to believe that the hypoglycemia benefit seen in some (but not all) of the phase 3 EDITION studies for the U300 glargine does in fact exist, and disclosed that it should be able to include a note about insulin glargine’s proven cardiovascular safety from the ORIGIN trial on the new label. Sanofi’s GLP-1 agonist Lyxumia (lixisenatide) also featured prominently in Sanofi’s presentation. Management disclosed that the product is performing well in Japan (no numbers disclosed), and reiterated its plan for a 2015 resubmission with the FDA after the completion of the ELIXA CVOT. Sanofi is also moving fast on the development of LixiLan, its fixed-ratio combination of Lyxumia and Lantus; it plans to begin phase 3 testing in 1Q14. During the breakout session, Sanofi Global R&D President Dr. Elias Zerhouni expressed his belief that GLP-1 agonist/basal insulin combinations should be the first injectable therapy for most type 2 diabetes patients. Sanofi’s PCSK9 inhibitor for hypercholesterolemia is also on track for submission in 2015.

• During the breakout session, Mr. Viehbacher expressed doubt that biosimilar insulin glargine candidates such as Lilly’s would see much success. He stated that, in his view, “the investment community is more nervous than companies are.” He pointed out that the development of biosimilars still requires substantial investment for clinical testing and manufacturing, limiting the amount that competitors could discount their products. He likened the entry of biosimilar basal insulins to the entry of a fourth-to-market drug into a class. There is little precedent to look towards regarding the entry of biosimilar insulins, but in the hypercompetitive reimbursement environment where drugs within a category are increasingly viewed as interchangeable, we would think that even small discounts may be enough to drive share away from Lantus.
• The presentation showcased phase 3 data on Sanofi’s U300 insulin glargine formulation that highlighted its flatter PK profile and longer duration of action. This profile, Mr. Viehbacher stated, will allow patients and providers to more effectively and safely pursue the optimal insulin dose. Sanofi still intends to submit the U300 insulin glargine in the US and EU in 1H14, consistent with previous guidance. Mr. Viehbacher disclosed that the cardiovascular safety statement on Lantus’ label (derived from the results of the ORIGIN cardiovascular outcomes trial) should be transferrable to the U300 formulation.
  
  • During the breakout session, Sanofi R&D President Dr. Elias Zerhouni hypothesized why the phase 3 EDITION III trial did not show the hypoglycemia benefit that EDITION I and II did. He pointed out that the size of the benefit should be proportional to the insulin dosage used — EDITION I and II enrolled patients who were already on insulin, and thus had relatively high daily insulin needs, while EDITION III enrolled insulin naïve patients who likely needed a lower daily dose. As a result, he suggested, the effect may have been present in EDITION III but too modest to measure. We will be interested to see if pooled phase 3 data confirm the hypoglycemia benefit, as it would be a great differentiating factor for the product against the approaching field of biosimilar insulin glargines.
• Mr. Viehbacher chimed in on the implications of Express Scripts’ diabetes drug formulary decisions, characterizing it as similar to when a company has a drug knocked into tier three by payers. He seemed confident that major shifts in prescriber choice will be driven by the strength of products rather than pricing. Regarding Express Scripts’ specific decision to replace Novo Nordisk’s Victoza (liraglutide) on its formulary with AZ’s Byetta and Bydureon (exenatide), Mr. Viehbacher sees the change as a loss for patients. “It’s pretty clear that Victoza is a better drug than Bydureon,” he stated during the breakout session, “and making someone go from once-a-day to twice-a-day is a potential compliance issue” (referring to Byetta, which is a twice-daily injection). He continued to say that compliance issues could produce major costs elsewhere down the line – a very good point we hope payers would consider.
• Mr. Viehbacher mentioned that Sanofi/Zealand’s GLP-1 agonist Lyxumia (lixisenatide) is performing well in Japan, and confirmed a likely 2015 resubmission in the US. As background, Lyxumia is on the market in Germany, the UK, Spain, Japan, and Mexico. In September 2013, Sanofi made the bold move to withdraw its submission for Lyxumia with the FDA to prevent interim data disclosure from the ELIXA cardiovascular outcomes trials. Today, Mr. Viehbacher reiterated that an FDA resubmission is expected in 2015 after the completion of ELIXA.
• LixiLan (lixisenatide/insulin glargine combination therapy) was highlighted during the presentation. Sanofi completed a phase 2 proof-of-concept study of the fixed-ratio device in 2013. Notably, the company now guides for the initiation of phase 3 testing in 1Q14 (previous estimates had stated 1H14), suggesting that the company is hustling to seize the opportunity of potentially being the first GLP-1 agonist/basal insulin combination on the US market.
  
  • Global R&D President Dr. Elias Zerhouni believes that GLP-1 agonist/basal insulin combinations will become the first injectable used in the type 2 diabetes treatment cascade. We heard similar sentiments from a host of KOLs at a Novo Nordisk-sponsored corporate symposium at this year’s IDF — see page 8 of our IDF 2013 Day #1 Report for the highlights from that panel discussion. Initiating patients on injectables with a combination therapy would be a major paradigm shift in type 2 diabetes care, but it is hard to ignore the merits of the GLP-1 agonist/basal insulin combination, including remarkable fasting and postprandial glucose-lowering and a more even side effect profile.
• Sanofi appears very excited about its cholesterol-lowering PCSK9 inhibitor candidate alirocumab — Mr. Viehbacher forecast that PCSK9 inhibitors will become a “mega-class” due to their unprecedented efficacy, especially in statin-intolerant patients. Data from the drug’s phase 3 program is expected in mid-2014 through 3Q14; regulatory submissions will begin in early 2015 outside the US, with a US submission expected later in 2015.

Questions and Answers

Q: When Lilly launches a biosimilar Lantus in Europe, what kind of discount do you think it would provide?

Mr. Viehbacher: I think we’ll have to wait and see what Lilly does. Nobody really knows what the biosimilar market will do. They haven’t gone anywhere in Europe and don’t exist yet in the US. I personally think that the investment community is more nervous than companies are. There is no good business model in investing a massive amount in clinical development and manufacturing and then selling at low prices. I believe in the rational behavior of people in business. I liken this to a fourth entry into a category.

Q: Does the Express Scripts situation we’ve seen with the shorter acting insulins and Victoza hold any concern regarding competition for single-source formularies?

 A: The Express Scripts situation is an extension of what we saw with third tier coverage. Getting knocked into third tier was equivalent to being excluded. But then we came up with prescription coupon cards and adapted to being in tier three. I think we will wait and see. Personally, for the Victoza decision, although I would prescribe either one of them, it’s pretty clear that Victoza is a better drug than Bydureon, and making someone go from a once-a-day to a twice-a-day is a potential compliance issue. The average diabetes patient costs $12,000 a year. If you reduce compliance, you’ll see major costs elsewhere. PBMs care less about total costs, but others do. When I look at share over the past year, I haven’t seen massive shifts due to any of this because we already have people trying to win on discounting. Changes in share will still come down to what is right for the patient.

Q: Could you provide some additional perspective on what we’ve heard from key opinion leaders regarding the fact that EDITION III data for the U300 glargine was not as robust as in EDITION I and II?

Mr. Viehbacher: The market for insulin and the decision on what insulin gets prescribed is more complex than just hypoglycemia. Hypoglycemic events are vanishingly rare, and hypoglycemia is an element in the back of peoples’ minds but it is not the first, second, or third criteria for the choice of insulin. What is most important is that diabetes is a progressive disease. By the time you are on insulin, you’ve had diabetes for a number of years and have likely failed other therapies. You are also probably progressing to a pretty serious state and are becoming progressively more expensive. People are looking for how to get best level of compliance and control, to avoid the progression and avoid higher costs. That is where U300 comes in. It has a flatter profile, enabling patients to better find the right dose. We have other things going on; that’s why we turned the iPhone into glucose meter, so people understand the glucose dose response. We have to do a better job of getting people to the right dose. You cannot control healthcare costs unless you get type 2 diabetes under control. If you can improve therapies, improve compliance, and improve outcomes, that’s how you win.

Dr. Elias Zerhouni (President of Global R&D, Sanofi, Paris, France): EDITION I and II enrolled patients who were already on insulin at baseline. These patients used more insulin, and so the difference between groups was proportionally greater. In EDITION III, there were insulin naïve patients and therefore lower doses. The direction of the effect was still there, but the effect was smaller. It’s clear to me that you will want to combine insulin and GLP-1 as the first injectable. You will see a change in the paradigm of diabetes management that will position U300 as a significant player.

Q: Could you comment more on emerging markets?

Mr. Viehbacher: The fundamentals are very strong in emerging markets. The China situation led to a temporary depression in the market, but generally these countries are investing significant money into healthcare infrastructure. The economies may slow down, but doesn’t mean that the key growth of the middle class will slow down. We have to be on our toes, because as costs of care rise, governments will occasionally step in and force prices down. I think you have to be more selective than in past. Before, it was just getting feet on the ground. Now it’s no longer a reach and frequency model, but a targeting model. Over a five year timeframe I think growth will be strong, and I don’t think that anyone can afford to not be there.

Q: Can you talk a bit more about the GLP-1 agonist/Lantus combination?

Dr. Zerhouni: So we had started with a fix-flex combination, and then had a fixed-ratio product as a backup. The phase 2 results from the fixed-ratio product are very good in terms of weight and A1c lowering, so we’re launching phase 3 for that strategy, which is easier to launch. The combination really has the right physiological combination, and makes sense. We’re moving into phase 3 in the first quarter of 2014.

 

18. Takeda

Yasuchika Hasegawa (CEO, Takeda, Osaka, Japan)

Takeda’s diabetes portfolio featured prominently in Mr. Yasuchika Hasegawa’s presentation, and was a hot topic during the subsequent breakout session. A few weeks ago, Takeda announced the discontinuation of phase 3 development for its GPR40 agonist TAK-875 (fasiglifam) due to then-undisclosed liver safety concerns. Today, Takeda Chief Scientific and Medical Officer Dr. Tadataka Yamada disclosed that a slight imbalance in liver enzyme levels was observed during early clinical testing, and that a more significant signal emerged in phase 3 that was ultimately deemed to be unacceptable. However, hearteningly, he emphatically stated that Takeda remains “committed” to diabetes care. He mentioned that the company will advance three new candidates for diabetes into clinical testing, and highlighted that Takeda’s diabetes candidates are mechanistically unique (as opposed to follow-ons). Management also spoke enthusiastically about the obesity medication Contrave (naltrexone/bupropion; a partnered product with Orexigen), noting that it plans to take advantage of the patient and provider overlap between obesity and diabetes. Chief Commercial Officer Dr. Frank Morich (Takeda, Osaka, Japan) commented that the company is interested in collaborations and technologies that can improve adherence through positive feedback and other forms of patient motivation, although he did not describe any specific initiatives. Diabetes is one of Takeda’s priority disease areas in China, where Nesina (alogliptin) received approval in mid-2013 and will be co-promoted with Sanofi.  

• During the breakout session, Takeda Chief Scientific and Medical Officer Dr. Tadataka Yamada disclosed additional details on the discontinuation of Takeda’s phase 3 GPR40 agonist TAK-875 (fasiglifam). He stated that a very modest elevation in liver enzymes was seen in early clinical testing — we assume it was not statistically significant at that point, though perhaps due to a small sample size. In phase 3, however, the signal reached a level that Takeda and the data monitoring committee deemed to be unacceptable. Dr. Yamada noted that the discontinuation was not forced by the FDA, but rather was communicated to the FDA by the company. At the time of the company’s initial announcement, we wondered whether the disappointing news (along with the regulatory and reimbursement challenges in the diabetes drug arena) might cause Takeda to reconsider its focus on diabetes.
• However, Dr. Yamada emphasized that the company still definitely sees a future in diabetes — “We’re in the diabetes business,” he stated, “and we’re committed to it. We have a very strong pipeline.” He disclosed that the company plans to advance three diabetes candidates into clinical testing in the coming eight months. He stated that the company’s diabetes pipeline assets are “unique in mechanisms” and are not follow-ons to existing products, a statement that makes us even more excited to learn more about the three new candidates.
• Dr. Yamada also confirmed that Takeda plans to file its once-weekly DPP-4 inhibitor trelagliptin (SYR-472) in Japan in the next few months. Trelagliptin is in phase 2 testing in the US and EU. Merck, manufacturer of the bestselling once-daily DPP-4 inhibitor Januvia (sitagliptin), currently has a once-weekly DPP-4 inhibitor (MK-3102) in phase 3.
• Chief Commercial Officer Dr. Frank Morich (Takeda, Osaka, Japan) commented on some of the adherence challenges for oral type 2 diabetes drugs. He noted that Takeda is collaborating with experts in lifestyle interventions and nutrition, although he did not elaborate on any specific projects. He emphasized the value of results that can provide patients with tangible positive feedback, such as weight loss or A1c reductions, to keep them motivated and improve adherence. When asked about the possible impact of glucose monitoring technology on diabetes drugs, Dr. Morich characterized A1c as more important than day-to-day glucose monitoring for type 2 diabetes, which we see as a somewhat incomplete assertion.
• CEO Mr. Yasuchika Hasegawa stated during the presentation that diabetes is a major focus area for Takeda’s China growth strategy. Nesina received approval from Chinese regulatory agencies in the middle of 2013, and is locally co-promoting the product with Sanofi.

 

Questions and Answers

Q: Could you share your thoughts on TAK-875 and the diabetes franchise?

Dr. Tadataka Yamada (Chief Scientific and Medical Officer, Takeda, Osaka, Japan): It’s never easy to predict human toxicity. We observed a very modest signal in early trials with an elevation of liver enzymes in the treated group compared to placebo. In last few months and days before we made our decision to withdraw the product, we observed some signals that were unacceptable, which led us to work with data monitoring committee and the executive committee that had oversight over the cardiovascular outcomes study to terminate the product. This was not a decision that was forced upon us by FDA, but one that we communicated directly to FDA.

Dr. Frank Morich (Chief Commercial Officer, Takeda, Osaka, Japan): On the commercial side, we are still in the middle of a global launch process for the Nesina family, which is already a very significant product in Japan. We have just launched in the US, and it has been going well there so far. We have s some very unique combinations to offer to the market, which are helping us quite significantly. In Europe, the situation is different because DPP-4 inhibitors are not approved in countries like the Netherlands, and are having problems with reimbursement in countries like Germany. With the Nesina family we are focused on maintaining the existing business in Japan, growing the business in the US, and the picture in Europe and emerging markets is more heterogeneous. In emerging markets, we believe there is a good chance for Nesina because many countries are facing growing diabetes rates.

Q: Are you planning any changes for drug development in diabetes?

Dr. Yamada: We have one asset in late-stage development, the once-weekly DPP-4 inhibitor trelagliptin, which we are planning on filing for registration in the nest few months in Japan. We have three exciting assets that we will move into the clinic in the next eight months. We’re in the diabetes business, and we’re committed to it. We have a very strong pipeline. It’s a little earlier-stage than we would have hoped with the TAK-875 news, but our assets are unique in mechanism and are not follow-ons to other products.

Dr. Morich: We also expect to launch Contrave later this year in the US. There is definite overlap in the patient and prescriber populations with diabetes, which we plan to exploit.

Q: With respect to the diabetes product line, do you have a strategy for integrating digital tools like glucose monitoring?

Dr. Morich: We are evaluating all sorts of collaborations around the Nesina launch. It’s a marketplace that in the US is significantly changing. With glucose monitoring, in our focus area of type 2 diabetes, we are much more into A1c because of the importance of long-term glycemic control. We have collaborations with people in the lifestyle management and nutrition fields. I think that the market will turn into a continuum going from lifestyle to drugs. One of the things we’re struggling with is compliance. If there is way to give people tangible positive feedback, to help them lose weight or keep their A1c down, to keep them motivated … that, from a public health perspective, is most important thing to achieve. We’re doing everything we can to foster compliance.

Q: In diabetes, are there any unpartnered SGLT-2 inhibitors that you could collaborate with or partner on?

Dr. Morich: That would be dependent on geography. I’m not aware of anything available in the US. The situation in Japan may be different, but I’m not sure there.

Q: How do you estimate the size of the diabetes market in emerging economies?

Dr. Morich: That is hard to do because there are lots of variables, such as speed of market entry. In China and Russia, there are requirements for local clinical trials that must be met. The pricing of competition is also a factor. I would be reluctant to give you a number, but I do believe that despite the loss of TAK-875, we still have an attractive offering for emerging markets. But the regulatory and reimbursement conditions are so volatile in many countries that we have to be patient and wait for opportunities to present themselves.

 

19. Xeris Pharmaceuticals

Douglas Baum (CEO, Xeris Pharmaceuticals, Austin, TX)

Xeris CEO Mr. Douglas Baum discussed the company’s three-pronged liquid glucagon program. Most notably, Xeris completed the phase 2 study of the G-Pen (severe hypoglycemia auto-injector) – results showed bioequivalence to Lilly’s reconstituted glucagon (to be submitted as a late breaker at ADA 2014). Xeris will soon submit a request for an end of phase 2 meeting with the FDA, though the agency has indicated that the phase 3 study would only require 30 healthy volunteers. The phase 3 trial is expected to occur in the third or fourth quarter of 2014, back slightly from the previous 2Q14 estimate. Following an expected NDA submission in the first quarter of 2015, Xeris believes approval and launch of the G-Pen auto-injector could occur in the fourth quarter of 2015. Throughout his talk, Mr. Baum emphasized that all the work for the auto-injector program can be leveraged for the glucagon mini-dose and pump opportunities – indeed, these are moving along nicely. The IND for the mini-dose pen has cleared, and Xeris is initiating a phase 2 trial next month at Baylor (on par with previous estimates). On the pump side, Xeris has applied for an orphan drug application for congenital hyperinsulinism. An IND application for the pump program is expected by December 30 (slightly behind the previous mid-December timeline), and a clinical trial is expected in late 1Q14 at Oregon using the Insulet OmniPod. To date, Xeris has only needed $12 million ($6 million from investors and $5 million from grants); the company is fully funded through phase 2 studies, but is looking to raise another $10-12 million to get to the G-Pen NDA submission. Partnerships discussions with big pharma are ongoing, but management did not share any details. The company may also look to commercialize on its own, given that a small endocrinologist sales force is feasible for commercializing glucagon. Regarding the competitive landscape, Xeris is a bit further along than the closest competitor, Locemia (a phase 2 nasal formulation of glucagon) – see below for a complete summary.

• Though no timing was provided, Xeris has an ultra-fast insulin in the pipeline. Notably, the company’s non-aqueous approach enables a monomeric insulin formulation. Mr. Baum envisioned this ultra fast insulin would be available in a dual-hormone insulin-glucagon pump.
• In addition, Xeris technology would enable a Symlin/insulin co-formulation – this has been a dream of many in artificial pancreas development. The non-aqueous approach allows for co-formulations of drugs at different pH levels. Similar to the insulin program, no timeline was provided.
• Xeris’ presentation included a slide on the glucagon competitive landscape, emphasizing Xeris’ non-aqueous presentation and two-year stability. We had not previously heard Locemia discussed publicly – the nasal formulation approach is certainly an interesting take on glucagon delivery, and we look forward to seeing how this is positioned (i.e., for severe or moderate hypoglycemia?). The below table makes some slight modifications to Xeris’ slide with the most updated timelines and details we are aware of. The slide did not include Enject or PhySci (Marcadia)/Roche.

 

Company	Details	Stage
Xeris	Positive topline phase 2 data. Projected two-year stability at room temperature.	Phase 2 complete
Locemia (AMG Medical)	Nasal formulation. Phase 3 study (n=75) evaluating immunogenicity expected to complete in January 2014.	Phase 3 (ClinicalTrials.gov NCT01959334)
Biodel	Auto-reconstitution pen (EZMix) Liquid glucagon multipacks (Uniject).	Pivotal study in 2H14, NDA submission in 2015 Following EZMix device. See Biodel F4Q13
Latitude	Aqueous glucagon formulation for use in pumps. Six-month stability at room temperature.	Clinical testing to begin in 2014. JDRF partnership announced at ADA 2013.
Arecor	Aqueous formulation requiring refrigeration.	???
Zealand	Glucagon analog.	Preclinical data presented at ADA 2013
Enject	Automated reconstitution device (lyophilized glucagon)	NDA filing by end of 2015.
PhySci (Marcadia)/Roche	Glucagon analogs	To our knowledge, this program has been discontinued.

 

II. Diabetes Device Company Presentations

20. 4P Therapeutics

Steven Damon (President and CEO, 4P Therapeutics, Norcross, GA)

4P Therapeutics president and CEO Mr. Steven Damon presented a company-wide updated at the 2014 Biotech conference, highlighting, significantly, the company’s development of transdermally-delivered GLP-1 agonists and GLP-1 agonist/insulin combinations. Mr. Damon emphasized this technology as a main focus for the company, and also noted that 4P Therapeutics may explore an interstitial blood glucose sensor in the future. This is the first we heard of 4P Therapeutics, a company developing different drug delivery mechanisms such as skin poration, microneedles (both coated and erodible), as well as passive delivery. Mr. Damon emphasized the company's work using Byetta (AZ's exenatide) and Victoza (Novo Nordisk's liraglutide), and he presented positive results from a proof of concept trial with exenatide that showed favorable kinetics; unfortunately, however, Mr. Damon did not release the mechanism of delivery. Injectable GLP-1s are still early in development, however, and clearly there would have to be a great deal of success to get to a product on this front. Although Mr. Damon also acknowledged that the company was looking to develop a blood glucose sensor using the same transdermal technology to reach interstitial fluid for glucose readings, he remarked that the company is only looking to add these "bells and whistles" after it makes headway with the GLP-1 delivery.

• Mr. Damon remarked that there is a "real opportunity" for transdermally-delivered GLP-1s - he noted that many patients with type 2 diabetes are hesitant to take injections, and a transdermal delivery would eliminate the visibility and pain of a needle (at the 2013 Diabetes Technology Meeting we heard that there was virtually no pain associated with microneedle insertion).
• Although 4P Therapeutics is only beginning to develop its products, we already have many questions: What will be the mechanism of delivery (dissolvable needles? Coated needles? Microporation?) How long will the patient wear each device, and how frequently? How fragile will it be? How much will each device be?

 

21. Alere

Ron Zwanziger, MBA (CEO, Alere, Marietta, GA)

Alere CEO Mr. Ron Zwanziger presented on the company’s big-picture approach to the management of chronic conditions such as diabetes. Rather than limiting itself to marketing diagnostic devices, Alere is moving towards a framework in which the results from its devices are collected through health information exchanges and processed by a data interpretation engine, which in turn delivers treatment guidance to providers and helps drive better outcomes. Given the current HCP shortage, growing number of patients with diabetes, and 24/7 nature of diabetes care, we agree that this is where healthcare is going. The system is being rolled out in the UK in collaboration with the UK National Health Service (see our Alere 3Q13 Report or the company press release). Mr. Zwanziger noted that pharmaceutical companies are interested in working with Alere, as the data from its health insurance exchanges could be valuable in connecting drugs with improved outcomes – the hope is the data could ultimately drive improvements in drug sales and pricing. Last, Mr. Zwanziger expressed frustration with CMS (see below for some truly depressing comments) and the general reimbursement environment in the US, but noted that the company’s point-of-care diabetes diagnostic equipment has performed well in emerging markets such as India, China, and Latin America (where diabetes prevalence is on the rise). Diabetes is now responsible for 9% of Alere’s revenue.

Questions and Answers

Q: How will coming years in the US look regarding reimbursement?

A: There has been so much damage to the industry as a whole. We’ve already taken a beating. The way the US system works is sort of peculiar: you take a beating, and then it stays that ways for three to five years, and then you take another beating. Generally, I don’t see any of our products as being excessively exposed.

Q: Can you speak a little more about the changing reimbursement environment in the US?

A: At a recent meeting of the industry association in December, we had the guy from CMS who is in charge of reimbursement in to talk to us – all the CEOs. I said to him: “We would like to know how to negotiate with you to get payment for our products, because we would like to demonstrate better outcomes and use that to negotiate improved payment. How do we go about doing this?” Essentially, his response was “no.” According to this guy, the legislation doesn’t allow his group to use logic. If there is a saving from our product on the drug side, there is nothing he can do about it. The only way the industry is going to move forward is by getting politicians to wake up. Instead of bitching and moaning about the Affordable Care Act, politicians have to actually start dealing with issues, like having different agencies talk to each other so that there is more alignment of incentives. Integrated care is much easier, and that’s what we’re spending more of our time doing. We’re running a program in New Jersey where we linked up a bunch of hospitals and are introducing diagnostic devices in a way that is all about integrated care, and we do get paid. On the other side of the table, in that situation, you have people who are thinking about these issues and with who you can have a real conversation, rather than talking with someone who has $280 billion who just says “no.”

Comment: We’ve been approached by some large organizations like drug companies, who want to know how they can get paid if their drug is not that much better than competing drugs. You can demonstrate better outcomes if you link a drug with our system.

Q: What are the drivers of growth going to be in emerging markets?

A: … The diabetes epidemic is taking hold around the world. Between the cardiometabolic side and the infectious disease side, there will be no end to growth. 

Q: Have you been thinking about expanding your data-based behavioral change system to emerging markets such as China and India?

A: There is enormous relevance in the use of data to improve the management of chronic conditions, particularly cardiometabolic conditions. We are studying how we can utilize the system best, and where.

 

22. Baxter

Robert Hombach, MBA (CFO, Baxter, Deerfield, IL)

Mr. Robert Hombach discussed what has been a fairly active past year for Baxter, due in large part to the acquisition of the Swedish dialysis products manufacturer Gambro. Mr. Hombach characterized the acquisition as beneficial for Baxter and for patients on multiple fronts: the company will now field a broader portfolio that spans both chronic and acute kidney disease, and the integration is expected to yield annual cost synergies of ~$300 million by 2015. Management did, however, acknowledge that Gambro’s business has been relatively flat in recent quarters, but expressed optimism that Baxter’s newfound management of the portfolio should yield better results. Mr. Hombach noted that Baxter is strengthening its position in the home dialysis arena with Vivia, Baxter’s in-home hemodialysis device that received European CE approval in December 2013 (European rollout planned through 2014 and into 2015). During the packed breakout session, management noted that it is unlikely that the Vivia will be filed in the US in 2014, given that company discussions with the FDA are still ongoing. Mr. Hombach emphasized the importance of having waited for the results of a recent Canadian at-home nocturnal hemodialysis trial, stating that a nocturnal indication will be critical for Vivia’s long-term profitability.  For the most recent update on Baxter’s performance, see our Baxter 4Q13 Highlights Report from late January.

Questions and Answers

Q: Could you talk about the US timeline for the at-home hemodialysis?

A: We’ve already done a Canadian trial in order to get a nocturnal indication, which we think is critical for long-term profitability. We are in discussions with the FDA over a trial protocol that will result in a nocturnal indication; we’re still in dialogue, but by the time we finish negotiations and finalize the protocol, it is unlikely to all get done in 2014.

Q: Can you touch upon Gambro, how you feel about the integration plan, and your outlook?

A: It’s been four months, so it’s still early days. However we feel that we have a good line of sight on cost synergies; there are lots of overlaps in operations, from supply chain, to manufacturing, et cetera. Those are very much on track. Because it took longer to close the acquisition than expected, 2013 was not a great year for Gambro. The business has been flat but down slightly. One thesis is that as a global leader in dialysis, we will be better owners of it and be able to accelerate it. We feel good about how it will position us in the short and long term.

 

23. BD

Vincent Forlenza (President and CEO, BD, Franklin Lakes, NJ)

BD CEO Mr. Vincent Forlenza led the company’s JP Morgan update, which concluded with an enlightening Q&A that spoke to the company’s development of insulin infusion sets, CGM, and, surprisingly, potential venture into the patch pump market. First discussing infusion sets, Mr. Forlenza characterized three issues with the current offerings: 1) tube kinking; 2) insulin crystallization (and a subsequent drop in insulin flow rate); and 3) the difficulty of insertion; although he characterized these sets as “slightly over a year away,” BD believes that it can improve on these three issues by applying learnings from its acute care catheter technologies business. Turning to the development of BD’s optically-based CGM (funded by a JDRF-Helmsley Charitable Trust collaboration announced at ADA 2013), Mr. Forlenza remarked that there has been some “very good early data” – the device is accurate, has limited drift over time, reduced calibration, and reduced warm-up time. The company is currently “miniaturizing” the product and collecting more data, with results expected to read out in early 2015 (the study will complete this fall). Notably, Mr. Forlenza spoke about insulin pumps; while BD has “no interest” venturing into the higher-end pump market (i.e., Animas and Medtronic), the company is interested in smaller, patch pumps that specifically target MDI users. Mr. Forlenza highlighted that the company is “investing in technology internally.” We will be interested to see if BD commits to this area, and if so, how it will differentiate itself from Insulet’s OmniPod, Valeritas’ V-Go, CeQur’s PaQ, and others in development.

• Mr. Forlenza remarked that the company is open to partnering with its in-development infusion set (e.g., with existing pump manufacturers), although BD is capable of going to market independently.
• Although Mr. Forlenza acknowledged that the CGM market is becoming increasingly competitive with next-gen products, he believes that BD’s CGM still has a niche. However, we do note that the timing on this product continues to get stretched out (“we’re a few years out”), meaning the competition from Dexcom and Medtronic will be that much more intense once it launches. (As a reminder, JDRF is also funding the development of a combined insulin infusion set/CGM, though this was not discussed.)
• Mr. Forlenza also commented that a trial investigating the accuracy and performance of a subcutaneous glucose sensor completed in April, and the company is “looking forward” to seeing the results when they come out later in the year. This is a non-randomized, three-day, in-clinic trial in clamp evaluation and during the course of 72 hours vs. a commercially available model (ClinicalTrials Identifier: NCT01645696); primary end points include blood glucose (measured against both Medtronic’s iPro and YSI), as well as participants who experienced adverse events.
• Also discussed in the presentation were key drivers of growth in 2013, which included the Ultrafine Nano pen with EasyFlow technology; Mr. Forlenza has highlighted this as a key driver of Diabetes Care sales in the company’s financial calls since the product’s launch in June 2013.
• Mr. Forlenza did not discuss Biodel’s F4Q13 acquisition of exclusive rights to BD’s Uniject device for a liquid stabilized glucagon.

 

24. CeQur

Jim Peterson (CEO, CeQur, Marlborough, MA)

CeQur CEO Mr. Jim Peterson provided a company overview, highlighting the benefits of patch pump therapy for patients with type 2 diabetes. We received a refresher on the company’s previously presented data (ADA 2013) that demonstrated decreased A1c and insulin requirements for patients using the PaQ insulin delivery device. As a reminder, CeQur collected CGM data in this study, something we hope to see a lot more of in the future (particularly in type 2 diabetes trials). Management also compared its PaQ to Valeritas’ V-Go, calling the latter a “first-generation” device and highlighting key differences between the two devices, particularly PaQ’s increased basal rate options, reservoir size, and length of wear. Given the vast opportunity to improve adherence to insulin and glycemic control in type 2 diabetes, we believe there is significant market potential for both companies’ products – we also expect that traditional players will also expand in to the type 2 pump realm. Management appeared optimistic about the future of the pump market for type 2 diabetes, commenting, “This market is ready; the data is there; the products are ready; and the numbers are going to be big.” While not all the products are ready and reimbursement will take time, we definitely agree that better options for taking insulin are a positive for patients and patient families.

• The PaQ and V-Go differ primarily on three features: 1) the number of basal rate options (six for PaQ vs. three for V-Go); 2) the reservoir size (330 units for PaQ vs. 76 units for V-Go); and 3) the length of wear (up to three days for PaQ vs. 24 hours for V-Go). However, given that the V-Go is fully disposable and does not have electronics, the V-Go to PaQ comparison, while interesting, is not apples to apples – nor do we think pump development should focus on moving toward an “ideal” pump. We believe insulin delivery for type 2 diabetes should be about individualization; all products have pros and cons, and each device will appeal to different patients in different stages of type 2 diabetes with different financial resources, dexterity, and comfort with technology.
• The company also highlighted its spot in the Diabetes Forecast’s Top Tech on the Horizon 2014, along with Valerita’s V-Go; we think that this is great recognition of novel insulin delivery devices alongside products like WellDoc’s BlueStar and Abbott’s Flash Glucose Monitoring.

 

25. DexCom

Terry Gregg (CEO, Dexcom, San Diego, CA)

Dexcom CEO Mr. Terry Gregg provided an impassioned update on the company’s business and near-term pipeline. Most notable were the impressive estimated 4Q13 sales figures – $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 were up 52% year-over-year in 4Q12 and 101% year-over-year in 3Q13. The 20% sequential gain from 3Q13 was particularly staggering, given that quarter’s record high sales. Management also disclosed that 60,000 G4 Platinum receivers were sold between October 2012 and December 31, 2013 – that translates to ~54,000 unique patients on the G4. Compelling prescriber data suggested that patients are really driving demand for this product, reinforcing our view that CGM is becoming more mainstream (see details below). On the pipeline side, FDA approval of a pediatric indication for the G4 Platinum is extremely close – the agency has completed its review and deemed the filing approvable. This has taken longer than expected (the hope was by end of 2013), though it will be a terrific catalyst for Dexcom – management explained that only 8-10% of the company’s installed base is patients <18 years old (vs. ~30% under 18 years old in the type 1 population) and the company cannot currently call on 800-1000 pediatric endocrinologists. A timeline slide succinctly summarized the slew of near-term launches in the pipeline: pediatric indication (2014), Animas Vibe (2014), Dexcom Share (2014), Tandem t:slim integration (2014/2015), and smartphone integration (2015). While there was a multi-year absence of new products from Dexcom between Seven Plus and G4 Platinum, it’s excellent to see the company diligently moving ahead on so many fronts.

• Full year 2013 product revenue was $157 million, up 69% from 2012. This performance completely smashed the $130-140 million guidance management stuck to in the 3Q13 call. (As a reminder, management did not raise full-year revenue guidance despite very strong 3Q13 performance – concerns were the launch of Medtronic’s MiniMed 530G/Enlite and a challenging comparison to strong 4Q12 performance. Based on the striking performance in 4Q13, neither seemed to have any impact on the business’ growth trajectory.)
• Management gave 2014 product revenue guidance in the range 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 and the pediatric indication, but no partnership revenue from Animas and Tandem. CEO Mr. Terry Gregg cautioned that with $51 million in sales in 4Q13 and seasonality, the first quarter “will not be as robust.”
• In a rarity, management disclosed that Dexcom sold ~60,000 G4 Platinum receivers between October 2012 and December 31, 2013. Since 10% of these receivers were sold to patients who previously purchased a G4 Platinum receiver, this translates to ~54,000 unique patients on the G4 Platinum to date. We assume that some patients are still on the Seven Plus, so an estimate for Dexcom’s installed base is ~60,000 patients. During this time, Dexcom sold 1.5 million G4 Platinum sensors, translating to approximately two sensors per patient per month. At face value, this would suggest patients are only wearing the seven-day sensor 50% of the time; however, we would guess this has more to do with use of individual sensors for longer than seven days, rather than intermittent use.
• Dexcom has received formal communication from the FDA that the review of the G4 Platinum pediatric indication is complete and the filing has been classified as approvable. The company is simply waiting for the letter from the FDA to arrive. Management used words such as “shortly” and “some time soon.” 
  
  • Management reiterated the business upside to a pediatric indication. Currently 8-10% of Dexcom’s installed base is less than 18 years old, though ~30% of type 1s are under 18 years old. There are currently 800-1,000 pediatric endocrinologists that Dexcom cannot call on right now. Said CEO Mr. Terry Gregg, “We’ve got some upside.”
• At the end of 2013, there were 7,000 unique prescribers of Dexcom starter kits – notably, the sales force only calls on 2,000 prescribers. The takeaway from Mr. Gregg was that “patients are driving demand” of the G4 Platinum. Management has mentioned this trend in the past, though it was terrific to hear some metrics behind it.
• One slide highlighted Drs. Ed Damiano and Steven Russell’s head-to-head study of the Dexcom G4 Platinum and Medtronic Enlite: a MARD of 10.8% (Dexcom) vs. 17.9% (Medtronic). CEO Mr. Terry Gregg also showed data on the companies’ net promoter scores (NPS): 69% (Dexcom) vs. -4% (Medtronic).
• Mr. Gregg briefly discussed the ongoing FDA review of Dexcom Share – a response from the agency is expected in the first half of 2014. As a reminder, the remote monitoring product was submitted in July 2013, and Dexcom responded to FDA questions in late 2013. On the business side, Dexcom plans to sell the Share cradle at a “nominal cost,” as it is “not going to be reimbursed” (consistent with previous remarks). Management reiterated that Dexcom’s goal with Share is to sell more sensors.
  
  • The presentation also included a video on Dexcom Share, marketing that was first shown at Dexcom’s CES exhibit. Visuals emphasized that access to patients’ real time CGM data brings parents, spouses, and caregivers peace of mind. We appreciated the clever taglines: “We’ve all been taught that sharing is the right thing to do” and “to share is to care.”
• A pipeline slide slated the Gen 5 mobile platform for “2015” – talks are still ongoing with the FDA (“literally monthly”) regarding the commercial pathway. Gen 5 will include the same sensor as the G4 Platinum, but with a new algorithm and a new transmitter that sends CGM data direct to a smartphone. Mr. Gregg emphasized that Dexcom Share is an interim step that the FDA is comfortable with (i.e., a secondary display), but Gen 5 is much bigger leap.
• “Yes, we have built factory calibrated sensors that last for 11 days. We can do that on a bench top. But the cost was probably $10,000.” The challenge, said Mr. Gregg, is manufacturing factory-calibrated sensors cost-effectively. That said, he repeatedly emphasized Dexcom’s goal as a company – to eliminate fingersticks. In the 2Q13 call, Dexcom announced reception of a $4 million grant from the Helmsley Charitable Trust to accelerate the development of its Gen 6 sensor. Milestone payments will occur over the “next several years.” We hope to hear more as this exciting program progresses, though the company certainly has its hands full with Share and Gen 5.

Pipeline Product	Timeline
G4 Platinum Pediatric Indication	FDA approval expected very soon. Launch in 2014.
Animas Vibe insulin pump with G4 Platinum CGM integration	PMA filed with the FDA in 1Q13; Animas is currently completing additional testing, with responses to be submitted to the FDA by the end of January 2014.
Dexcom Share [Remote monitoring via docking cradle, Bluetooth, and smartphone app]	PMA supplement filed at end of July 2013; FDA response expected in 1H14. Launch in 2014.
Tandem t:slim insulin pump with G4 Platinum CGM integration	The 3Q13 call suggested an early 2014 filing. Launch in 2014/2015.
G4 Platinum Professional Use Indication	PMA supplement filed in 3Q13.
Updated G4 Platinum algorithm [MARD improvement by two percentage points; remote software update]	On hold until pediatric indication is approved by the FDA. The1Q13 call targeted FDA filing in late 2013/early 2014, with a 2014 launch.
Dexcom/Edwards GlucoClear 2 [Critical care CGM]	CE Marked; Edwards working to understand how the system fits into hospitals’ clinical workflow
Gen 5 system [Mobile platform, new transmitter, new algorithm, improved applicator; G4 Platinum sensor]	2015 Launch
Gen 6 sensor [New sensor]	In 2Q13, received a $4 million development grant from Helmsley Charitable Trust based on milestones over “next several years”; ~2017 launch

 

26. Edwards

Michael Mussallem (CEO, Edwards, Irvine, CA)

Edwards CEO Mr. Michael Mussallem addressed the company’s GlucoClear critical care CGM in the future pipeline section of his presentation. While no timelines or specific growth expectations were given, his enthusiasm for the system was high – phrases such as “breakout potential,” “significant opportunity,” and “upside” were used. In Q&A, Mr. Mussallem made it clear that Edwards is still figuring out how GlucoClear fits into the clinical workflow and practice of medicine, since it is so different from the current standard of episodic blood glucose monitoring. He emphasized that the sensor (in partnership with Dexcom) is “very accurate.” Indeed, “at the extreme end,” Mr. Mussallem said it would drive closed-loop insulin delivery in the hospital. Right now, Edwards is observing use of the GlucoClear in hospitals to better understand how the system should be positioned and commercialized. There was no mention of the product’s status with the FDA – as of Edwards 3Q13, further insight on the US regulatory pathway was expected in 4Q13.

 

27. GlySure

Chris Jones (CEO, GlySure, Oxfordshire, UK)

GlySure CEO Chris Jones provided an update on GlySure’s continuous intravascular glucose sensor for in-hospital ICU use. The GlySure System has just completed its first CE trial (n=34 patients in cardiac intensive care units including 14 people with diabetes and 15 with hypertension), achieving a MARD of 9.4% (meeting the company’s goal of <10%). Mr. Jones stated that the company expects to file a CE submission this month and expects approval in the cardiac ICU population in 2Q14. The CE trial and an ongoing six-center performance trial will form the basis of FDA IDE submission, with FDA trials expected to launch at the end of 2014. Should all go well then the company could file an FDA submission mid-2015 and could launch in the US at the end of 2015. GlySure is pursuing the cardiac population first since it represents the biggest low-hanging fruit: in-hospital CGM in cardiac patients would be supported by CMS; cardiac surgery guidelines require glucose control for 48 hours post surgery; and a recent survey showed that currently two-thirds of clinicians would use a hospital CGM system on all cardiac patients. Finally, Mr. Jones remarked that a hospital CGM is the critical missing link to effectively create an artificial pancreas in the hospital setting – he estimated that all components making up a hospital artificial pancreas could add up to a $10 billion market opportunity.

 

28. Insulet

Duane DeSisto (CEO, Insulet, Bedford, MA)

Insulet CEO Mr. Duane DeSisto and CFO Mr. Brian Roberts discussed the latest on the OmniPod this afternoon, focusing on key customer demographics (70% of OmniPod customers are new to pumping), strong sales growth (30% year-over-year growth that will continue into 2014), and the product’s unique position as the only tubeless insulin pump available. Insulet’s installed base is ~60,000 customers now, representing ~15% of the US insulin pump market – for context, that’s 33% growth from 45,000 customers and ~10% of the market one year ago. Mr. DeSisto emphasized that this year is “all about execution” and driving sales of the new pod, unlike past years that have focused on manufacturing or getting products through the FDA. Management reiterated remarks from the 3Q13 call that Insulet will hire 20 new sales reps – coming off the company’s annual sales meeting last weekend, it sounds like excitement is pretty high. Apparently the sales force is earning much more than it had been a year ago, when it still had only the traditional pod. On the pipeline side, we learned that Insulet is in the process of converting the OmniPod handheld for compatibility with Lilly’s U500 insulin; the goal is to have a submission in by the end of 2014 and to start clinical work next year with Lilly (a valuable update from the 3Q13 call, which said the project was in the “early days”). Regarding the CGM-integrated pod, Insulet and its unnamed private partner have a solution to the sterilization issue. R&D will now focus on the insertion and sensor configuration, followed by animal studies. The hope is to “take a hard look” at starting human studies by the end of 2014. Said management in Q&A, “If I went head to head, it’s not as good as Dexcom. But it’s not crazy off. We’re not trying to replace fingersticks. We want to have a CGM that helps patients stay between the rails. They would set a profile and it would keep them informed.” We look forward to seeing more data, since the value proposition of having one item on the body could help get more patients on CGM. That said, we continue to hope that Insulet and Dexcom will resurrect their integration agreement.

• Management did not release 4Q13 numbers, though mentioned that 2013 sales should fall within the previous revenue guidance of $244-250 for the year (16-18% growth). The core OmniPod business grew 30% year-over-year in 2013, and the international business grew over 100%. Management reminded attendees that outside the US, the OmniPod has done very well despite competing directly against the Medtronic Veo. Importantly, over 20% of new OmniPod shipments have come from newly prescribing doctors.
• “We are gaining market share. We are growing the market. If you are a kid on this product, you are never going on a tubed pump.” Management emphasized the encouraging patient demographics that bode well for the business: 70%+ of OmniPod customers are new to pumping (the same stat shared one year ago) and 35%+ of customers are <18 years (up from 30% one year ago – a clear sign of the new pod). Given that 50%+ of people newly diagnosed with type 1 diabetes are <18 years, there is significant upside to expand the business. Said management, “We are incredibly excited about this pediatric population.” Insulet has seen 100%+ growth in children <10 years and 60%+ growth in patients <18 years. Attrition is quite low at ~8.5% overall (down from 9% previously), and <5% in patients <18 years.
• In 2014, the core OmniPod business is expected t0 grow 30%+ globally, with new patient adds expected to grow 25%+. This is on par with 2013 performance, where the installed based grew 33% to 60,000 patients. Said Mr. DeSisto, “We finally have some predictability in this business.” In line with comments made in the 3Q13 call, Insulet expects to be operating profitable in 2014. No specific revenue guidance was given for 2014, though management “would be disappointed” if total revenue did not exceed $300 million (~21% growth).
  
  • Insulet estimates that 27% of people with type 1 diabetes in the US are on insulin pumps (405,000/1.5 million patients), expected to rise to 50% penetration (900,000 patients/1.8 million patients) by 2018. This assumes 3% compound annual growth for patients and 10% compound annual growth for pumps. These same stats were shared at JPM 2013.
• Management commented that Medtronic “has had trouble” with the launch of the MiniMed 530G based on what it knew about the launch (some through distributor Neighborhood). Since the FDA approved the Minimed 530G as a pump-CGM system, Medtronic cannot sell the components individually. This requires patients to obtain separate prescriptions for the CGM and pump, which must be secured from a provider and covered by a payer. Said Mr. DeSisto, “Where they’ve run into trouble with the launch is in trying to convert their installed base.” We look forward to hearing how the launch is going when Medtronic reports financial results on February 18.
• Mr. DeSisto believes that Animas has “completely retracted” and Tandem has scooped up the business. In Q&A, he highlighted J&J Animas’ reorganization, sales force reductions, and a rumor that the business is up for sale. Certainly, J&J had achallenging 3Q13 (sales down 28% in the US), though we assume the company is still very committed to the insulin delivery business.
• On October 17, Insulet brought on the highly respected Dr. Howard Zisser as the company’s first medical director. Mr. DeSisto explained that Dr. Zisser brings “incredible insight” and a “good patient perspective” for the company’s CGM program and a “next-gen handheld.” In addition, he believes “that over time, the way companies will survive in the new healthcare environment is “driving outcomes.” Dr. Zisser will help with conducting studies to show that the OmniPod can drive better clinical outcomes than MDI and even traditional pumps.
• Insulet has fielded interest in using its patch pump to deliver an obesity drug that has “pretty dramatic side effects” upon injection (we wonder if this is Zafgen’s beloranib or Novo Nordisk’s Victoza). Mr. DeSisto explained the strategic rationale for using the OmniPod to deliver drugs other than insulin: 1) for drugs going off patent, the OmniPod could extend the commercial life by improving efficacy; and 2) to reduce the side effects through basal delivery. Insulet plans to bring on a dedicated business development person to handle the volume of these non-diabetes requests. The company already has an oncology partnership with Amgen (pod only for basal infusion; no handheld required) and a fertility drug partnership with Ferring (a pod and an icon-driven handheld).
• “The manufacturing piece is the single biggest barrier for anyone trying to do this. It takes a long time to get this right.” In line with recent quarterly calls, Mr. DeSisto reiterated the barriers to entering the patch pump field – Insulet is now making 400,000 (!) OmniPods a month, and the company’s goal is to eventually make one million pods a month (and longer term, one million pods a week!). On the IP side, Insulet holds 19 US patents, another key barrier to entry for companies evaluating the field.

Selected Questions and Answers

Q: Touching on the ~40%+ growth in new patients that you had coming out of Q3 – you also indicated that you would end up somewhere in your guidance range for 2013. Did the trend of new patient growth continue into Q4?

A: We feel very comfortable talking about 40% year-on-year growth through 4Q13 for patient starts. So realistically, coming off of all the work of the transition for Q3, I think the momentum we had in the business will continue through Q4. And I think the one thing everyone should keep in mind – as important as the number of new patient starts is, in any given year, 90% of the revenue is coming from re-orders. That’s just how the model works. But new patient adds are a lead indicator of better things to come.

Q: People were waiting for the new pod, which disrupted reorder cycles. How will that play into revenue growth in 2014?

A: What we were able to do in 4Q was to renormalize some of those cycles. When we finished 3Q, we had two pods on the shelf. We finished 4Q with a bit of inventory. We had a backlog with Ypsomed and distributors, but got the product back in the hands of the consumers. We have a little catch up here in Q1, and we’ll finish that off.

Reorders drive the business in any given period. If you look at it, we’re always near the midpoint of ranges. In the first half of 2013, it diverged because reorders were disrupted. People were using up old stock. All of that is past now. By the early part of November, we were done with the installed base transition to the second gen pod. That’s all normalized at this point and we’re seeing those normal reorder patterns. But Q1 is always the seasonally challenging quarter.

Q: Can you talk about the competition and the dynamics within the pump market?

A: This is probably the first year that there are three new pumps in the market. If you look at it the way we looked at it, Medtronic came out with the 530G and has had trouble with the launch. The FDA approved that product as a pump-CGM system, so they can’t break it up. Where they’ve run into trouble with the launch is in trying to convert their installed base. We’ve seen this through the Neighborhood Diabetes business. The issue with the installed base was that in order to switch to the 530G, you need a prescription from the doctor. Then you have to go back and get a prescription for the CGM. Some doctors don’t have faith in the average Joe Shmo handling a CGM. If a doctor writes a script for both, and the patient goes to the managed care provider, the managed care provider might say, ‘I’m not paying for that.’ Then it goes back to the patient to pay out of pocket. Medtronic has backed off a little and is now willing to sell the old Paradigm. The initial foray focused on the installed base and not converting MDI patients.

For Tandem, they have this iPhone-type tube pump. I think where they’ve benefited is it seems Animas has completely retracted. They’ve shrunk their sales force and moved everything out of California and New Jersey. All the rumors are that the business may be up for sale at some point, so I think there was a vacuum there and Tandem came in. The decision is pretty simple: tubeless or tube. And when you get into tube you play in that space. So I think it’s been an interesting year. There is a lot of technology out there. We feel pretty good about where we are. Our reduction in pod size has really attracted this pediatric population to us.

What I’d add is in the tubeless side of the market, I don’t think you’ll see another entry in the US for another three-plus years. There’s Valeritas, which is like a wearable pen, and CeQur is out there banging around, but those are more in the wearable pen-type business and not something we would define as a competitor.

Q: On the CGM side, now that sterilization is fixed, what is next?

A: The next phase is insertion, and we have various iterations. A dual insertion with the insulin and sensor like a snakebite. Another version has one out the back and one out the front. Then we have the bi-lumen catheter, which is what I’m most excited about. We have filed IP around that. The question is if insulin pools up, how do you shut off the CGM? That solution is the easiest, most pain free, most economical way to do it. In the next version, we’ll start taking some sensors, putting them in prototype products, testing them on pigs, and evaluating the various iterations. We’re excited to have Dr. Zisser with us, since he’s given us the pros and cons of all these variations. If that goes well, we’ll start building product and trying it on some people. It’s still a long way. People ask, ‘How good is your CGM? If I went head to head, it’s not as good as Dexcom. But it’s not crazy off. We’re not trying to replace fingersticks. We want to have a CGM that helps patient stay between the rails. They would set a profile and it would keep them informed. How accurate does that have to be for that? Dr. Zisser has seen it all from the early Abbott Navigator to the latest and greatest stuff. Stay tuned. The cool part is that we know the sterilization thing can be done. We spent a lot of time on it and went through lots of iterations.

Q: Up until November when you had your call, it didn’t sound like that had been fixed at all right?

A: No, but we’ve now run four batches of sensors since our last earnings call to really shrink it down. We talked to a group that gave us a couple of ideas that we tried. So if you asked me about making a ten-day sensor, I would say we’re miles away. But for four days, what appears to happen is it doesn’t seem to affect the accuracy of the sensor; rather, it just shortens the life of the sensor. But we’re throwing the pod out after 80 hours – or at the most extending it to four days. So we’re in a pretty good spot either way.

Q: Just a question on inventory build in the quarter – it sounds like you’re really where you want to be for manufacturing. But you talked in your Q3 call on building inventory before the Chinese New Year [when factories shut down for two weeks] and for your distributors. How did that play out?

A: In Q3, we built about 1.7 million pods. Here in Q4, we’re averaging a bit over 800,000 pods per month, so about 2.5 million pods during Q4. We’ve had a nearly 50% increase in overall production, which is the benefit of the third line being on for the full third quarter rather than just a few weeks in Q3. That’s in really good shape. It’s allowed us to keep some of the product we produced at the end of December that we could have shipped to an Ypsomed or other distributor partner to have more stock on their shelves, which they want because the orders are there and open. We made the decision to keep that inventory ourselves. When the Chinese New Year happens and factories close down for two weeks, we will have the buffer to put it where demand is highest. It continues to give us some more flexibility. We have not rebounded our inventory levels where we’d love them to be. But over the course of the next couple of quarters those inventory levels should continue to rebound. Our goal is to get to about 2.5 million in Q1 before the shut down and then hopefully pushing out 3 million in Q2.

 

29. LabStyle Innovations Corp

Erez Raphael (CEO, LabStyle Innovations Corp, Caesarea, Israel)

LabStyle Innovations’ CEO Mr. Erez Raphael discussed Dario, the company’s all-in-one, smartphone-based BGM. As a reminder, the Dario system integrates a small meter (plugs into Apple or Android headphone jack), a lancing device, a 25-strip cartridge, and a mobile app (pattern recognition and insights, insulin calculator, peer support, etc.). Dario received a CE Mark in September 2013 (read our report) and is slated for a hard EU launch in 2Q14 (distributors have been signed in the UK, New Zealand, Italy, and Belgium) – the free iOS Dario app was launched on December 12 in the UK, Australia, and New Zealand. Notably, LabStyle Innovations submitted an FDA 510(k) application for the Dario meter on January 7. The milestone slide penciled in FDA clearance and a soft US launch in 2014, though Mr. Raphael cautioned that LabStyle “cannot predict” what the agency will do. We will be particularly interested to see how the FDA views this product, since it does not function as a standalone meter like Sanofi’s iBGStar or LifeScan’s OneTouch VerioSync (i.e., the Dario meter derives its power from the phone’s headphone jack, which presumably turns the phone into a medical device). This is not unprecedented in medical technology (e.g., AliveCor’s ECG monitor), though we are not aware of an FDA approval for such a meter.

• Mr. Raphael provided a live demo of the Dario system – he extracted the small meter from the all-in-one holster and plugged it into an iPhone. Then, he pulled a strip out of the holster and pricked his finger with the integrated lancing device. The test took about five seconds. The app has some personality to it (“Hey Erez”) and a focus on statistics – time-in-range was very prominently displayed, and the app even estimated A1c (requires at least 25 blood glucose results). The latter is now becoming a trend in BGM, which we first saw last year with Sanofi’s MyStar Extra meter.
• Interestingly, Mr. Raphael highlighted that LabStyle sees itself as a software company first and foremost: “It’s not just about the device. It’s about how we are giving the users more motivation and more information in order to make the right decisions and get the disease in balance.” The company has some interesting ambitions with the meter’s accompanying app, including connecting users to each other in a social community – certainly, the recent hire of Diabetes Daily’s Mr. David Edelman as the company’s Director of Product Strategy is a great move in this direction. We’re most excited to see LabStyle’s focus on pattern recognition and actionable insights, since this is so needed in BGM.
• Revenue from strips is expected to be the majority of revenue in the next two years; however, Mr. Raphael expects revenue from the software/data side will be more lucrative in the long term. LabStyle’s proprietary strips cost $0.10 each to make, well under the average price in Western countries of $0.40 per strip (according to Mr. Raphael). Reimbursement in Europe is expected on a country-by-country basis. Revenue from the software platform would include licensing (payers, healthcare professionals) and data monetization. This is a unique business model that has not been traditionally used in BGM.
• Mr. Raphael highlighted a usability study in 240 patients, where 89% claimed they would switch to the Dario overnight. While such studies are often more optimistic than could be expected in the real world (e.g., in the absence of insurance requirements), the data does sound encouraging. To date, LabStyle has received 15,674 customer requests on its website, despite no marketing (though plenty of attention in the diabetes media). Focus groups have been run in Cleveland, San Antonio, London, and Israel.
• The presentation included a competitive analysis with other BGMs and diabetes apps currently in the marketplace. Said Mr. Raphael, “We are the only all-in-one that works with iPhone and Android.” Checkboxes indicated the advantages of the Dario relative to other meters (e.g., Sanofi’s iBGStar, Roche’s Accu-Chek Mobile) and software (WellDoc’s BlueStar, mySugr, Glooko, iBGStar). These slides went by very fast and we did not catch everything, but points of differentiation included the meter itself (free, 0.3 microliter sample, battery, smartphone integration) and the app (insights and pattern recognition, social interaction).
• LabStyle’s software and app will be made available to people with any glucometer – as we understand it, the company’s goal is to make the software the new standard for diabetes management, whether or not they use the Dario device. The iOS app is currently available on the Apple App Store in the United Kingdom, Australia, and New Zealand.
• LabStyle was founded in 2011 and has a current market cap around $50 million. The company has been publicly traded since April 2013 (Ticker: DRIO). Cash on hand is currently $4 million. On the IP side, LabStyle currently has seven applications (five filed). The company is split between Israel and the US – operations and commercial activities are located in the US (Dario is manufactured in Minnesota), while R&D is mainly in Israel.

 

30. Medtronic

Omar Ishrak (CEO, Medtronic, Minneapolis, MN)

 Medtronic’s presentation highlighted diabetes on a single slide summarizing new product launches – most notably, the Minimed 640G is expected to launch in the EU in “late F1Q15” (by July 31, 2014), a three-month delay from the “end of this fiscal year” timeline given in the F2Q14 call (by April 30, 2014). This is still, of course, very soon! That said, this is now the second delay on the MiniMed 640G, as the F1Q14 call called for launch in the “second half of FY14.” We’d assume the US focus on the approval and launch of the MiniMed 530G is playing into these timing delays. On that note, during the breakout session, Mr. Ishrak was quite enthusiastic about the launch of the MiniMed 530G, noting that he is “delighted” with everything he has seen and “the excitement is palpable” is field visits. In a question on expansion of CGM, he mentioned Medtronic’s focus on expanding professional/diagnostic use through new business models (we look forward to learning more on this as we would like professional use of CGM to broaden dramatically since we think so many patients can benefit). While he did not share specifics, he did mention that Medtronic has some “good pilots going”; it was very good to hear him specifically mention type 2 diabetes as this is such a high need group.. A final question on diabetes concerned competitive bidding, though management was fairly evasive and only said it hasn’t had too much impact on the business. See the appendix for the complete Q&A.

Questions and Answers

Q: How is the launch of the MiniMed 530G going?

A: I'm delighted with everything I’ve seen so far. I’ve made several field visits, talked to patients, customers, and the sales force. The excitement is palpable. The product works as advertised. Patients have told me how the threshold suspend feature has kicked in and made a difference. We are generally excited about it and the way it is going. It speaks to what closed loop is doing.

Q: In the past, you’ve talked about expanding continuous glucose monitoring – what’s the status of that?

A: That’s a program that is ongoing, and it’s an important area for us. We’re not talking too much about it. We’ve got two facets of CGM. One is as a support vehicle for closed loop. That’s got its own set of requirement. The other is as a refined diagnostic tool that enables better management of type 2 and type 1 patients and triaging medication. That is an area where we’re trying to create some new business models and partners. We’ve got some good pilots going, but it’s a little early to talk about it. We are excited about that area and we think there is good potential to expand our diabetes franchise into a broader selection of patients.

Q: With competitive bidding in diabetes, are you seeing pressure to keep market share or maintain margin?

A: Competitive bidding has been outside of pumps. We haven’t had too much impact on our business. We’re watching it very carefully to see what happens on the pump side. We will focus on the value of the product and get that out there. As we go forward, we have to see what happens on competitive bidding. Our objective to take cost out and maintain gross margins. But we have no intent on losing share. We’ll figure out what goes on in marketplace and react to it.

Speaking of value-based healthcare, the same story applies to diabetes. There is an enormous opportunity. Creating effective business models there is perfectly in line and something we’re exploring. We don’t want to depend just on pump sales. To start, it’s an overall system, so that differentiates us. But there’s also capacity to provide a whole experience.

Q: Can you talk a little bit more about the move to value-based healthcare and how you’re thinking about it?

A: Moving to a value-based healthcare system is the only thing that can prevent med tech from being commoditized. If you don’t move to a value-based healthcare system, reimbursement will come down. The only thing that can move med tech and foster innovation is a shift to value-based healthcare.

Q: But won’t that represent lower margins?

A: You must look at operating margins, not just gross margins. From our raw experience, we have the Cardiocom business, hospital solutions, and other entities. Those operating margins are equivalent to our overall company margins. We also have a connection with the device and not a generic service provider. There’s an incremental portion and guaranteed share. There is also an opportunity given the amount of wastage in the system. There is money there to be made at high margins. We cannot look at this in the standard med tech lens of gross margins.

 

31. NeuroMetrix

Shai Gozani, MD, PhD (President and CEO, NeuroMetrix, Boston, MA)

NeuroMetrix CEO, Dr. Shai Gozani, provided updates on the company’s progress with its diabetic peripheral neuropathy (DPN)-related products and pipeline. Dr. Gozani provided some compelling statistics on the unmet diagnostic and therapeutic needs in DPN – for example, that painful diabetic neuropathy (PDN) is the leading cause of a reduction in quality of life for people with diabetes (beating out dialysis, stroke, and heart disease). Dr. Gozani announced this morning that the company expects two international launches for its diagnostic device, the DPNCheck, in 1H14: in Japan through its partnership with Omron Healthcare and in Mexico; the company also plans to launch in China in the future with timing TBD. Turning towards the Sensus pain management system, Dr. Gozani announced that NeuroMetrix would be expanding into the OTC retail market with Sensus (to date it has only been sold through the traditional durable medical equipment supplier channel). Dr. Gozani estimated that neuropathic pain could be a $3 billion market due to the lack of adequate pain relief or side effects of current options (mostly pharmaceutical: gabapentin, Pfizer’s Lyrica, Lilly’s Cymbalta, and opiates). He also estimated the annual Sensus market opportunity to be about $300 million. NeuroMetrix hopes to launch a second-generation, thinner and easier to wear Sensus around mid-year and also hopes to receive regulatory approval for the OTC version of the Sensus around mid-year. Finally, Dr. Gozani previewed the company’s 4Q13 financial results: diabetes revenue from DPNCheck and Sensus totaled $570,000, up from $399,000 in 3Q13 and $352,000 in 4Q12.

• For background on NeuroMetrix, the company has two products to address the unmet needs in DPN: the DPNCheck point-of-care diagnostic device (launched in 4Q11 with >200,000 patients having been tested since launch) and the Sensus pain management system (launched in 1Q13 with now >1,000 patients on therapy). Please see our NeuroMetrix 4Q12 report for more details on how the Sensus works and our 3Q13 report for our most recent coverage of the company’s progress.
• Dr. Gozani provided some compelling statistics on DPN and the unmet need in this field. He estimated that about 50% of people with diabetes have DPN. Most are asymptomatic, but nerve damage progresses despite unawareness. About 25-50% have disturbed sleep and/or restless leg syndrome. DPN is also one of the most costly complications in diabetes: a now very old 2003 estimate found that foot ulcers cost $40 billion annually alone. Dr. Gozani also presented a survey indicating that painful diabetic neuropathy (PDN) is the leading cause of a reduction in quality of life for people with diabetes (beating out dialysis, stroke, and heart disease; Zhang et al., Diabetes Care 2012). As such, early detection and efficacious treatment of DPN could significantly improve many patients’ quality of life.

 

Questions and Answers

Q: What is the potential market size for the DPNCheck compared to the Sensus ?

A: We don’t have a good answer for that because unlike the pain market where there’s an established market, the concept of point-of-care nerve testing is an evolving market. It could be a $50-$100 million market, but I don’t’ have good data to point to at this point. The international opportunities we’re looking at in Japan, China, and Mexico look very promising, but at this point I couldn’t give you a good estimate.

 

32. Valeritas

Kristine Peterson (CEO, Valeritas, Bridgewater, NJ)

Valeritas CEO Ms. Kristine Peterson led the company update at this year’s JP Morgan Healthcare Conference, excitingly highlighting Valeritas’ aim to become a publically traded company in the second half of 2014. Since the V-Go’s launch 21 months ago, over five million devices have been produced; since launching, the company has “de-risked manufacturing” and also transitioned to a China-based, high-volume source of supply, both of which are important for expanding access and reducing the cost of the device. The V-Go has also gained reimbursement commercially as well as part of Medicare Part D (over 55% of people have formulary access, and those who don’t receive V-Go through medical exception). This reimbursement is certainly key in this healthcare environment, particularly for patients with type 2 diabetes who have many other co-morbid healthcare expenses. Turning to partnership opportunities, Ms. Peterson remarked that the company is looking to partner both in the US and abroad, although this wouldn’t happen until at least 2015.

• Ms. Peterson also reminded the audience of the company’s business strategy, manufacturing and regulating V-Go as a device but commercializing V-Go as a hybrid device-pharma product; 90% of the device volume goes to wholesalers, which then sell to retail pharmacies, just as a drug would. Additionally, patients can gain access to the V-Go through Medicare Part D, typically used for drug reimbursement.
• The V-Go launched regionally in the US in April 2012, expanding the sales region near the beginning of 1Q13 and again around mid-year 2013. In 4Q13, 13,777 prescriptions were written for the V-Go, representing growth of 19% month-over-month and 877% year-over-year. (For context, Tandem went public on November 3, 2013 having sold 3,200 pumps as of June 30).

 

III. Obesity Drug and Device Company Presentations

33. Apollo Endosurgery

Dennis McWilliams (CEO, Apollo Endosurgery, Austin, TX)

Apollo Endosurgery, a private company, expounded upon its purchase of Allergan’s obesity intervention business for $110 million. As background, purchased portfolio included the Lap-Band (which has 97% of the gastric banding market) and the Orbera intragastric balloon system (which has more than 80% share of the balloon market). Apollo Endosurgery CEO Mr. Dennis McWilliams stated that Apollo plans to have the product filed in the US this quarter, and that the FDA has “made significant progress on easing restrictions” for less invasive options to treat obesity. Turning to the Lap-Band, Mr. McWilliams believes that its sales have largely bottomed out, and that Apollo’s team, being solely focused on bariatric surgery, will more successfully promote the product. Mr. McWilliams noted that only 0.2% of eligible patients elect to undergo the procedure and that the number of surgeries performed each year has plateaued (we note that the last time point on the graph he presented was 2011). Mr. McWilliams thinks that while Roux-en-Y gastric bypass (RYGB) is the “gold standard” in bariatric surgery, many patients are seeking less invasive and less dangerous option. Mr. McWilliams believes that the Lap-Band can meet this need, though our sense is that the gastric sleeve (which is more efficacious that the Lap-Band) is drawing much of this market.

 

34. Arena

Jack Lief, PhD (CEO, Arena, San Diego, CA)

CEO Jack Lief voiced his belief that Belviq (lorcaserin) could become a blockbuster drug in the US. This is not the first time Arena/Eisai have made very bullish forecasts for Belviq. During Eisai's F4Q12 call in May, CEO Mr. Haruo Naito stated his personal belief that Belviq could reach $200 million in revenue during the fiscal year 2013 (ending March 31, 2014). However, in 3Q13 Belviq posted revenue of $5.4 million and since its launch in June 2013 it had raised $9.5 million. Thus, on Eisai’s F2Q13 call, Mr. Lonnel Coats (Eisai President of the Americas Region) remarked, "I think we all can agree that that's not going to happen." Mr. Coats however underscored that despite Belviq’s slower than expected uptake he remained “extremely bullish.” Indeed, with about 111 million people meeting the criteria to be prescribed Belviq’s, it is possible that the drug could one day reach blockbuster status by only a small percentage of those people taking it. During Arena’s JP Morgan presentation, Mr. Lief outlined the three obstacles Eisai is looking to overcome in order to ensure Belviq reaches its potential: (i) poor physician education on obesity and awareness of pharmacotherapy options; (ii) mediocre reimbursement with ~40% of commercial lives (i.e., people on a private plan in the US) covered; and (iii) low patient education and awareness on the available approaches to treat obesity.

 

35. Covidien

Joe Almeida (Chairman, President, and CEO, Covidien, Dublin, Ireland)

Mr. Joe Almeida described Covidien’s high-level strategy for 2014, including its focus on expanding in emerging markets. Indeed, the morning of Mr. Almeida’s presentation Covidien announced in a press release that it was acquiring businesses in Brazil and China. The business in China Changzhou Kangdi Medical Stapler develops and manufactures stapler products for open surgery (which Mr. Almeida noted is more frequently performed in Chinese hospitals serving middle-class patients). Covidien did not speak to whether Kangdi might develop staplers for bariatric surgery, nor did it expound upon its broader bariatric surgery portfolio. As background, Covidien is a global healthcare products company that manufactures and distributes a wide array of medical devices, supplies, and pharmaceutical products, including tools used in bariatric surgery procedures. Specifically, Covidien introduced its Tri-Staple technology platform in 2Q10, which includes the Endo GIA stapling system used in bariatric surgery.

 

36. Orexigen

Mike Narachi, MBA (President and CEO, Orexigen, La Jolla, CA)

Orexigen CEO Mike Narachi underscored throughout his presentation and subsequent breakout that Orexigen is very confident that the FDA will approve Contrave (PDUFA dates is June 10, 2014) and that the subsequent launch by Takeda will be “differentiated” from that of Vivus’ Qsymia and Arena/Eisai’s Belviq. (It appears the Mr. Narachi successfully convinced attendees to be similarly optimistic as Orexigen stock was up ~9% shortly after the session.) We were most excited to hear that Orexigen is considering a diabetes/obesity fixed-dose combination of Contrave and a DPP-4 inhibitor (we assume it will be Takeda’s Nesina [alogliptin]). Orexigen has completed the needed preclinical formulation studies, and is ready for human equivalence studies. Mr. Narachi noted that such a fixed-dose combination would likely have a “really short” clinical development pathway. Additionally, Orexigen and Takeda are discussing the potential of a diabetes indication for Contrave. At this stage, both are potential lifecycle opportunities, and there is no ongoing clinical work on either opportunity.

• Orexigen has received no indication that the FDA will call an advisory committee meeting for Contrave. Mr Nrachi did not address the potential public disclosure of interim CVOT results if a meeting were held. As a result, we left the session with the impression that the results could be publicly announced if an advisory meeting is held, which could compromise the full trial results’ robustness. Mr. Narachi noted that in order to meet Contrave’s PDUFA date of June 10, 2014 the FDA would need to announce an Advisory Committee meeting in the next couple months. Mr. Narachi remarked, “I do not see what they would need advice on;” however, we find the FDA is often unpredictable on such things. Though the scenarios vary some from company to company, we note that the Advisory Committee meetings were held for the resubmission of both Vivus’s Qsymia(phentermine/topiramate) and Arena’s Belviq (lorcaserin), and the FDA has scheduled an advisory meeting for MannKind’s Afrezzaresubmission. For context, Sanofi decided to withdraw its NDA for lixisenatide from the US because of the potential risk to ELIXA integrity should the FDA have disclosed interim results in a public forum such as an Advisory Committee meeting. Given that Orexigen is a smaller company than Sanofi and does not have any products on the market, we understand its decision to submit with the interim data and hope that the FDA is sensitive to the negative impact public disclosure of these results could have.
• In COR-Diabetes (n=505 overweight and obese people with type 2 diabetes), people randomized to Contrave experienced an average A1c reduction of 0.6% from a baseline of 8.0%. For comparison, the placebo arm had an average A1c drop of 0.1%. Mr. Narachi highlighted that Contrave’s A1c drop is comparable to that associated with a DPP-4 inhibitor and that Contrave had the added benefit of 5.0% weight loss (compared to 1.8% on the placebo). We think it will be particularly interesting to see the A1c drop associated with a fixed-dose combination of Contrave and a DPP-4 inhibitor.
• For some additional color, Mr. Narachi stated that Orexigen is temporarily returning to Contrave’s earlier name NB32 so as to ensure discussion is not mistaken for pre-approval promotion.

 

37. Vivus

Seth Fischer (CEO, Vivus, Mountain View, CA)

Vivus's confidence-inspiring new CEO Seth Fischer announced 4Q13 script metrics for Qsymia (phentermine/topiramate). In 4Q13, 124,000 Qsymia scripts were written, up 14% from 3Q13. Since Qsymia’s launch in 3Q12, ~35,000 providers have prescribed Qsymia. Of these, ~6,000 prescribed Qsymia for the first time in 4Q13. Unfortunately, Vivus was just under its previous goal of having 50% of commercial lives covered for Qsymia by the end of 2013, although it finished the year with a still very strong ~43% of commercial lives covered. An encouraging note, however, was that CaremarkPCS subsequently added Qsymia to its Performance Drug List and 2014 Prescribing Guide. The new CEO Mr. Fischer seems to have a very good handle on the business and we look forward to hearing more about the company's leadership momentum.

	4Q13	3Q13	2Q13	1Q13	4Q12
Prescriptions	124,000	109,000	81,000	58,962	29,900
Growth From Prior Quarter	14%	35%	37%	97%	--

 

 

38. Zafgen

Thomas Hughes, MD (CEO, Zafgen, Cambridge, MA)

Zafgen CEO Dr. Thomas Hughes suggested that the Zafgen’s phase 2 beloranib (an injectable MetAP2 inhibitor) could be one of the most potent agents in development for any disease and a “serious alternative” to Lap Band. For context, in a 12-weeks study mean weight losses of 5.3%, 6.7%, and 10.6% were seen with beloranib 0.6, 1.2, and 2.4 mg, respectively, compared to 0.3% loss with placebo (per-protocol analysis); the main tolerability issue was transient sleep latency during the first month of use (time to sleep increased by 45 minutes). Zafgen has previously stated that it hopes beloranib will confer 20% weight loss. Additionally, Zafgen’s pipeline included two notable preclinical additions: an as of yet unnamed second generation MetAP2 inhibitor for general obesity (Zafgen is positioning beloranib for “severe obesity”) and ZGN-839 (also a MetAP2 inhibitor) for nonalcoholic steatohepatitis (NASH) and type 2 diabetes. In a rodent model of NASH, ZGN-839 lowered glucose and cholesterol levels while conferring ~5-10% weight loss after 10 days of treatment.

 

 

IV. Other Healthcare Company/Organization Presentations

39. Aetna

Mark Bertolini, MBA (CEO, Aetna, Hartford, CT)

Aetna CEO Mr. Mark Bertolini shared his vision for the future role of insurance companies ­– helping health systems manage the financial risk associated with pay-for-performance (by creating co-branded health plan) and empowering patients to make the well-informed decisions about the care they receive (Mr. Bertolini painted a similar picture at the Cleveland Clinic’s Medical Innovation Summit). Mr. Bertolini proudly told attendees that KLAS Research (a healthcare IT research firm) ranked Aetna as the most “transformational” payer when compared to Cigna, Humana, and UnitedHealth. Aetna was also characterized as forward thinking by Vivus CEO Mr. Seth Fischer, due in part to the payer’s decision to conduct a pilot program to test the benefits (i.e., potential improvement in health outcomes, productivity, and medical costs) of Vivus’ Qsymia (phentermine/topiramate) and Arena/Eisai’s Belviq (lorcaserin). The pilot will be open to self-insured plan sponsors, and Aetna expects results by the end of 2014. We hope that Aetna will opt to publicize these results so that other payers (and the government) can consider the information when making coverage decisions. Overall, Aetna’s business strategies appear to be working – it brought in an expected total of $47 billion in 2013 and aims to have revenue exceeding $100 billion in 2020. We will have more on this and Vivus’ very strong presentation today with new CEO Fischer in our company-wide report.

 

40. Cleveland Clinic

Steven Glass, CPA (CFO, Cleveland Clinic, Cleveland, OH)

Mr. Steven Glass opened his presentation on the Cleveland Clinic by explaining that the healthcare system conducts 5.1 million visits and ~157,000 admissions a year at its 11 hospitals and 18 family health centers. The Cleveland Clinic employs 44,000 caregivers, including over 3,000 physicians and scientists (1,000 of which are community physicians). Mr. Glass noted that the Cleveland Clinic is organized differently than most academic centers in the US. Instead of being structured around medicine and surgery specialties, the Cleveland Clinic is comprised of “institutes” that are based on disease categories commonly seen. For example, cardiologists, thoracic surgeons, and vascular surgeons are co-located in the heart institute, thereby easing communication between the treatment team and increasing the value of care provided to patients. The Cleveland Clinic has three ongoing strategic initiatives: 1) cost repositioning so that the Cleveland Clinic can provide more affordable care to “everyone [it] wants to treat,” 2) growth through affiliations (including acquisitions and partnerships), and 3) value-based care.

• One method the Cleveland Clinic is using to provide value-based care is that it has teams developing standardized “paths” for the delivery of care for commonly treated diseases. The paths are to ensure that the Cleveland Clinic provides consistent, evidence-based, high quality, and efficient care to every patient it treats for a given disease.
• Throughout Mr. Glass’ presentation he returned to the idea of the Cleveland Clinic’s culture of innovation being a key strength of the organization. At the Cleveland Clinic’s Medical Innovation Summit in 2013, we were particularly impressed by the Clinic’s focus on improving the health of its employees through a series of environmental interventions (e.g., healthier cafeteria offerings), free wellness program offerings (e.g., Weight Watchers), and financial incentives (e.g., insurance premium subsidies).

 

41. CVS Caremark

Larry Merlo (CEO, CVS, Woonsocket, RI)

CVS Caremark CEO Mr. Larry Merlo highlighted the company’s efforts to increase medication adherence and attract people with diabetes (the only patient population he spoke of in detail). Mr. Merlo explained that CVS is running a number of pilot programs on ways to help people with diabetes, and that one enables CVS to alert providers if a person with diabetes who is a candidate for a concomitant medication (e.g., a statin or ACE inhibitor) is not currently on one. Of course such a program benefits CVS by likely increasing the number of medications a person purchases through CVS, and we think that it could serve as an aid for busy PCPs. Furthermore, CVS is “laser focused” on improving patient adherence; CVS estimates that poor patient adherence costs the US nearly $30 billion a year in avoidable medical costs. With the aim of improving adherence, CVS conducted about 79 million live clinical interventions (it was unclear what form these events took).

 

42. Humana

Bruce Broussard, MBA (CEO, Humana, Louisville, KY)

Humana’s presentation helped elucidate the impact that the Affordable Care Act is having on the quality of care given to people with diabetes. CEO Bruce Broussard repeatedly remarked that Humana’s Medicare Advantage membership and revenue grew in 2013 despite reimbursement cuts by CMS (details below). Notably, Mr. Broussard largely attributed this success to the maturation of Humana’s chronic care efforts since the ACA’s implementation. While Humana has been strained by CMS’ cuts, he believes that the members’ improved health due to these chronic care programs have produced enough savings in healthcare expenditures to offset the CMS cuts. Mr. Broussard did not detail what these clinical programs entailed, but painted a picture of how Humana is evolving toward an integrated care model. In this system, Humana is hoping to positively impact members’ health through the wellness programs it offers, the pharmacy it maintains, and the primary care and preventative services to which it steers patients. Overall, it sounded to us like the aforementioned rate cuts by CMS have pressed plans to improve the value of the care they provide, though they may also have strained companies like Humana. However, Mr. Broussard warned that while Humana has been able to adjust to previous cuts without consolidating its plans extensively (~5,000 people lost coverage in 2013), the ~6% cuts proposed by CMS for 2015 might force Humana to reduce its offerings, a distressing revelation.

• For background, before the ACA, CMS paid Medicare Advantage plans $1.14 to cover a person for every $1 they would pay to fund the same person through the traditional Medicare program.  The ACA laid out reimbursement cuts to Medicare Advantage plans in an attempt to achieve parity. Mr. Broussard stated that Medicare Advantage rates are now at ~104% of the traditional Medicare program’s rate. For more details on these cuts, as well as how they might impact people with diabetes please see our full report on the 5^th Annual National Forum on the Business of Medicare Advantage and Compliance.

 

V. Other Presentations

43. Fireside Chat with Jacob Reider

Jacob Reider, MD (CMO, Office of the National Coordinator for Health IT, Department of Health and Human Services, Washington, DC)

Dr. Jacob Reider warned electronic health record-loathing HCPs that one-day not using EHRs could become a “form of malpractice.” Dr. Reider frankly acknowledged that “the usability of these products is not where it needs to be.” However, Dr. Reider is optimistic that “the systems are getting better and are increasingly reflecting the needs of the provider.” He pressed that no HCP can remember all of the drug-drug interactions and treatment guidelines the way an EHR can, and that EHRs can help physicians reach better diagnoses and treatment plans through decision-support programs. More specifically, Dr. Reider described ONC’s efforts to recognize throughout the US the “religion of the Blue Button” – that a patient would be able to push a single button on a secure website in order to download all of their health record and share it with his/her HCPs as desired. (Such a capability is currently available to beneficiaries of the Departments of Defense [i.e., Medicare and Medicaid], Health and Human Services, and Veterans Affairs.) Additionally, Dr. Reider sees progress being made on guidelines being more rapidly integrated into EHRs’ decision-support functions for HCPs, increasing their usefulness.

• For background, HCPs can receive considerable rewards (up to ~$60,000 for a single provider over several years) from the federal government for “meaningful use” of EHRs certified by the Office of the National Coordinator for Health IT (ONC).

 

--by Adam Brown, Hannah Deming, Jessica Dong, Casey Drubin, Jennifer Lu, Hannah Martin, Aarti Rao, Jenny Tan, Manu Venkat, and Kelly Close