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The Next Wave of Blockbuster Diabetes Drugs

New diabetes drugs offer blockbuster potential for drug companies.

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Outlook for the Diabetes Market
Diabetes is emerging as one of the most serious global health burdens of the 21st century. The number of people affected by diabetes worldwide is expected to grow from 246 million today to 380 million by 2025 according to the International Diabetes Federation.

The disease stems primarily from the growing prevalence of Type II diabetes due to an increasingly obese and sedentary global population. As a result, we project the diabetes market, excluding insulin, will grow to over $55 billion by 2019 based on a 5%-plus compound annual growth rate despite the genericization of the thiazolidinediones class.

This lucrative market has attracted new interest from drug firms, giving rise to an influx of new diabetes therapies. The emerging new diabetes drugs offer drug companies an opportunity to replace key blockbuster drugs losing patent protection over the next few years. As these new diabetes drugs potentially develop into blockbusters, we expect the valuations of drug companies will improve.

U.S. Market Forecast for Non-Insulin Diabetes Treatments
Metformin, sulfonylureas, and TZDs largely control the prescription market share of non-insulin diabetes treatments. We expect both sulfonylureas and TZDs will lose market share to newer drugs and project annual prescription declines of 2% and 10%, respectively, over the next 10 years. We expect the Avandia cardiovascular concerns will weigh on the entire TZD class, driving our projected rapid declines in prescription volume. By 2013, all branded TZDs will have lost patent protection, which will also reduce the promotional voice behind the class. We expect metformin to largely maintain its market share and its status as a first-line therapy. In the figures below we depict the current U.S. prescription share breakdown of non-insulin diabetes treatments and our projections for 2019 prescription shares. In the figures, metformin combination therapies are classified separately from stand-alone metformin (e.g., Janumet is classified as a DPP-4 inhibitor).

From a share of dollars perspective, higher prices for branded drugs skew market share values. As a result, we expect the newer classes of drugs to control the lion's share of total U.S. non-insulin diabetes sales by 2019. We believe the DPP-4 inhibitors will benefit from a first-mover advantage against potential oral competitors in the SGLT-2 inhibitor class as well as more convenient dosing versus the injectable GLP-1 analogs. We think this will push the DPP-4 class to the top spot, with a market share of 35% by 2019. Also, we expect the improved dosing profile of GLP-1 analogs over the next few years will drive the class to a 13% share of the market by 2019. We anticipate the SGLT-2 inhibitors will gain 8% of the market by 2019 as new drugs in this class emerge over the next decade. We project the majority of these gains to come at the expense of sulfonylureas and TZDs. In particular, the patent losses in the TZD class will greatly shrink its size due to pricing compression following generic competition.

Potential Blockbuster SGLT-2 Inhibitors
Marketed diabetes drugs can confer limited efficacy along with adverse side effects, and demand exists for new diabetes drugs according to Edward Chao of Nature Reviews. The major drug classes for diabetes have poor side effect profiles and often don't get patients to the correct level of glycemic control. While DPP-4 inhibitors offer a cleaner side-effect profile, these drugs haven't been tested over a long period of time and tend to offer limited reductions in HbA1c levels (the primary gauge of efficacy). This opens the door to a new therapeutic diabetes option called SGLT-2 inhibitors.

 

SGLT-2 Inhibitors: A Novel and Complementary Mechanism of Action
SGLT-2 inhibitors offer a new mechanism of action in treating diabetes. While metformin acts on the liver to inhibit glucose production, TZDs bind throughout the body to reduce insulin resistance, and sulfonylureas, GLP-1 analogs, and DPP-4 inhibitors all act on the pancreas, SGLT-2 inhibitors target the kidneys by inhibiting the re-absorption of glucose back into the body. As a result, more glucose exits the body through urine, and blood sugar levels decrease as analyzed by Cyrus DeSouza of Nature Reviews. From an efficacy standpoint, SGLT-2 inhibitors appear less potent than metformin, sulfonylureas, and TZDs, similar to GLP-1 analogs, and more powerful than DPP-4 inhibitors. If the slightly stronger efficacy and weight loss associated with SGLT-2s is maintained in late-stage clinical trials, this drug class could emerge as superior to DPP-4 inhibitors. Since SGLT-2 inhibitors work differently than currently approved diabetes drugs, we expect the drug class will be used in combination with other treatments to get patients to optimal glycemic control. Working independently of the insulin system, SGLT-2 inhibitors could also be used in difficult-to-treat patients.

One potential headwind for the class is getting physicians more comfortable with patients having higher amounts of glucose in their urine, consistent with the SGLT-2 inhibitors' mechanism of action; historically, high glucose in the urine was an indicator of poor diabetes control. However, we think a strong safety and efficacy profile--and efforts to educate physicians on this novel class of drugs--should be enough to overcome this hurdle. A key to success for the SGLT-2 inhibitor class is its side-effect profile. The class appears very clean, with the exception of urinary and genital infections. Since the class works by increasing the excretion of glucose out of the body, increased levels of sugar in the urine create a breeding ground for bacteria. While the rates of infections have been high, most have been treatable with over-the-counter medicines. We believe that this minor side effect will only have a modest impact on usage and that the relatively clean side effect profile, weight loss potential, and oral dosing should position the drug class as a strong candidate for second-line treatment following metformin, at the expense of sulfonylureas.

Little Differentiation Among Phase III SGLT-2 Inhibitor Drugs
Within the SGLT-2 inhibitor class, about 10 compounds are in development.  Bristol-Myers Squibb (BMY) and partner  AstraZeneca (AZN) are furthest along with dapagliflozin. We expect the drug will reach the market in late 2011 or early 2012, well ahead of most of the other competing SGLT-2 inhibitors.  Johnson & Johnson's (JNJ) canagliflozin could represent the second launch in the SGLT-2 inhibitor class. Currently, canagliflozin is in early Phase III studies, which should enroll more than 10,000 patients. Depending on how much cardiovascular data the regulatory agencies request, we believe the drug could reach the market as early as late 2013. While we don't see much differentiation between these leading SGLT-2 inhibitors, the first-mover advantage for Merck's Januvia over Bristol-Myers'/AstraZenzeca's Onglyza in the DPP-4 class could bode well for dapagliflozin. Additionally, Astellas' ASP-1941 will likely reach the market after dapagliflozin and canagliflozin, as the drug is only in Phase III trials in Japan (Phase II in the U.S. and EU).

Market Projection for SGLT-2 Inhibitor Class
We estimate the probability of approval for dapagliflozin and canagliflozin at 65% and 50%, respectively. We believe the strong efficacy and largely clean side effect profile should bode well for the drugs. However, our assumptions are balanced by the FDA's increasingly risk-sensitive stance toward new diabetes drugs. In particular, while cardiovascular risk doesn't seem to be an issue with SGLT-2 inhibitors, the FDA may not be convinced without a very robust data set. Based on our projections, we believe SGLT-2 inhibitors represent a key group of new drugs that offer drug companies new blockbusters to help offset the major upcoming patent losses. As these new drugs reach the market, we expect the outlook along with the valuations of the drug companies will improve.

Lauren Migliore also contributed to this article.

For more of our analysis on the diabetes market and the companies poised to launch new drugs, please see the link below.

Get further analysis, including our take on several important trends in the health-care market, at Morningstar Healthcare Observer.

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Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.