JP Morgan 31st Annual Healthcare Conference

January 7-10, 2013; San Francisco, CA Full Report - Draft

Executive Highlights

The 31st annual JP Morgan Healthcare Conference was held in San Francisco from January 7-10, featuring 398 company presentations and attracting over 8,600 registered attendees (plus an entire slew of people in town and not registered). In our JP Morgan full report, supplemented with our coverage of the coinciding Biotech Showcase and OneMedForum, we include discussion on 51 diabetes- and obesity-related presentations and our main takeaways. As a sidebar, we also attended the Boston Biotech East/West CEO conference on Sunday preceding all the other meetings – this is a can’t-miss meeting as far as we’re concerned for next yea as there were scores of interesting panels, breakouts, and discussions – tiny conference but a startlingly high number of thoughtful CEOs were there and unbelievably successful.

Broadly, company presentations suggested increasing strategic focus on diabetes, with multiple companies highlighting diabetes as a key driver of business. Many diabetes-related pipeline announcements occurred during or immediately preceding presentations – Lilly even released topline phase 3 data for its SGLT-2 inhibitor empagliflozin. We hope companies releasing new scientific data is a trend for JP Morgan. In general, we appreciated that many of conferences’ presenters struck a balance between describing business and pipeline strategies in the context of financial growth and in the framework of how they will help patients.

To this end (and reflective of sentiments we’ve heard in many recent diabetes- and obesity-centric conferences), we definitely heard a greater focus on individualizing therapy. On the genetics side, during one of the conferences’ keynote presentations, US Senate Majority Leader Dr. William Frist spoke about the potential of linking genomic records to clinical records to move medicine away from a “one-size-fits all” approach. Further, a packed (seriously SRO) 23andMe company presentation suggested that genetic research may be reaching a point that will enable HCPs to use this data in an actionable way. On the device side, companies are increasingly developing pipelines to allow for greater choices and more customization. In addition to a growing focus on individualization, we left the conference with the impression that 2013 will be a notable year in the diabetes device arena. Major milestones expected in 2013 (e.g., Dexcom’s US launch of the Animas Vibe CGM-integrated pump, FDA approval of Medtronic’s 530 low glucose suspend insulin pump and Enlite CGM) should help drive growth. We also enjoyed rich discussion on SGLT-2 inhibitors and the potential differentiating factors between companies’ candidates, the expansion of telemedicine, how new biosimilars might (or more likely, might not, at least anytime soon) gain share from established insulin players, and what factors could drive further penetration of the GLP-1 category.

Our compendium of the conference can be found immediately below, distilled into seven themes, followed by our full coverage of company presentations.

  • Companies’ focus on diabetes continues to expand. Several diabetes-related announcements took place at or immediately preceding companies’ presentations, including Sanofi’s announcement that it had submitted the once-daily GLP-1 agonist Lyxumia to the FDA, Lilly’s announcement that BI had declined to continue its collaboration on the novel basal insulin candidate, and Lilly’s second announcement of positive topline phase 3 data for its SGLT-2 inhibitor empagliflozin – the release of scientific data during JPM had been virtually unprecedented to us, and reinforces the growing significance of diabetes and obesity. Also of note, this year, 90% of the presenters were CEOs. Companies frequently cited diabetes as a growth driver, highlighting the rapidly increasing number of patients with the disease – we of course view the growing attention to diabetes very favorably, as it reflects the greater public, corporate, and government recognition of diabetes as an incredible public health problem .
  • This year’s JP Morgan conference reminded us that 2013 will be a pivotal year for many device companies, especially Insulet, Dexcom, and Medtronic. In his presentation, Insulet CEO Duane DeSisto stated that shipments of the recently approved second- gen pod are expected to begin in February, with the goal of converting the entire installed base by the end of 3Q13. The pod approval should be a huge catalyst this year, both from a profitability perspective (margins in the mid-60% range, compared to the low-50% range previously) and a growth perspective (20-30% growth is expected in 2013, and we would not be surprised to see higher). Meanwhile, 2013 should bring two important milestones for Dexcom: a pediatric indication for the recently launched G4 Platinum CGM and the US launch of the Animas Vibe CGM-integrated pump (the company’s first pump integration). Dexcom CEO Terry Gregg also emphasized that “patients are driving demand” for the G4 Platinum, a trend that we expect to continue in the coming year (especially as word gets out about the product’s improvements over the previous generations of CGM). Medtronic’s presentation certainly had a much “larger company” feel, though there were more mentions of diabetes than we have heard in eleven JP Morgan meetings. Approval of the MiniMed 530G low glucose suspend insulin pump and Enlite CGM is still expected by May 2013, and it was actually the first product listed on the company’s slide detailing upcoming launches. As a reminder, we learned at the company’s 2012 Analyst Day that when the Veo was launched internationally, it doubled Medtronic’s growth rate in insulin pumps and CGM – should this approval come as expected, the MiniMed 530G will almost certainly provide a big catalyst to the diabetes business following modest growth in 2012 (7% in 1Q12, 3% in 2Q12, and 3% in 3Q12 vs. 2011’s stronger growth of 17%, 14%, and 13%).
  • JP Morgan 2013 included greater discussion of SGLT-2 inhibitors, coinciding with the FDA advisory committee meeting on J&J’s canagliflozin that occurred later that week. We gained particular insight as to what factors might differentiate SGLT-2 inhibitors – during Q&A for Lexicon Pharmaceutical’s presentation, management explained how slight differences in selective SGLT-2 inhibitors’ mechanisms resulted in differentiated safety profiles: J&J’s canagliflozin (proposed brand name Invokana) produces greater urinary glucose excretion (UGE) compared to BMS/AZ’s dapagliflozin (Forxiga), leading to greater efficacy but also a higher rate of genitourinary infections and adverse events, as well as potentially greater cardiovascular concerns. Management reiterated that because their product LX4211 inhibits both SGLT-1 and SGLT-2, it provides comparable efficacy to SGLT-2 inhibitors, an improved safety profile (due to its lower UGE), and potentially more beneficial use in people with renal impairment. During Lilly’s presentation, management highlighted that Lilly had announced positive phase 3 results for its SGLT-2 inhibitor empagliflozin the day before: in four completed phase 3 studies, empagliflozin met the primary endpoint of significantly greater A1c reduction compared to placebo, with a similar rate of adverse events but a higher incidence of genital infections – we hope to gain a clearer understanding of empagliflozin’s safety/efficacy profile when Lilly releases more detailed results in 2013/2014.
  • Obesity companies also had a strong presence –three of the major players in the field (Vivus, Arena, and Orexigen) presented at the conference. These companies echoed each other in depicting the obesity market as segmented and roomy enough for three new obesity drugs (Vivus’ Qsymia [launched], Arena/Eisai’s Belviq [approved, awaiting final DEA scheduling designation], and Orexigen/Takeda’s Contrave [NDA resubmission expected 2H13]) to find their own patient-profile niches. Accordingly, these companies emphasized that the rising tide will lift all boats – efforts by each company to market and gain reimbursement for its own drug will help the market as a whole. We believe that these companies’ presence at the conference (a prestigious distinction to be granted) signifies JP Morgan’s growing confidence in the viability of pharmacotherapy as a treatment for medical obesity, as last year Arena did not present. Another common theme that obesity companies discussed was the issue of reimbursement, and despite the challenges the obesity market still faces, the outlook seemed generally positive. Arena management noted that one-third of insurers have some sort of obesity drug coverage; in December, Vivus secured a spot on Express Scripts’ national formulary; and Takeda management commented during its presentation (albeit) recess that payors are beginning to recognize value in treating obesity.
  • Telemedicine was cited by some of the nation’s largest and most innovative not-for- profit health plans and systems as a key strategy for improving outcomes while reducing costs. Kaiser Permanente, America’s largest not-for-profit health plan (with over nine million members, 17,000 physicians, and $50+ billion in annual revenues) is focusing on expanding and improving electronic visits and virtual care – we were shocked by how many patients are now using this. Kaiser CEO Bernard Tyson characterized this strategy as “an unbelievable winner for our members and delivery system.” Five years ago, Kaiser had no e-visits to physicians. In 2012 it had over 20 million visits (quite impressive considering 40 million face- to-face visits occurred in the same year). Geisinger Health System (which serves 2.6 million people in Northeastern and Central Pennsylvania) is also expanding its tele-health services, including primary care e-visits. However, management did not provide the same level of detail as Kaiser. That said, we were encouraged to hear about the growing focus on telemedicine as we agree that it can increase access to care and help patients get answers to simple questions from medical professionals. However, we feel that health care services must be cautious not to sacrifice care quality for the sake of reducing costs. We are uncertain that Apple’s “FaceTime” (or any other video chatting service) can provide the same level of information to a physician or the same level of comfort to a worried patient when there is a more sensitive or complex medical concern. That said – many diabetes patients don’t even routinely see their doctors and anything to make the process easier is a winner in our book.
  • Several presentations suggested that genetic research might (finally) allow HCPs to harness genetics data when individualizing diabetes and prediabetes therapy. Former US Senate Majority Leader Dr. William Frist emphatically described the possibility of having genomic records linked to clinical records and how it would help society get away from the “one-size-fits all” medicine that has resulted in failed drug response. His reference to Alzheimer’s medications led us to think about a relevant diabetes example: metformin responsiveness has a well-established genetic component. According to Dr. Eric Topol (Scripps, La Jolla, CA), 22% of patients have a genotype that makes them metformin non-responders; however, to date, it has been cost and “hassle” ineffective to genetically screen every patient prior to prescribing metformin. A possible solution is 23andMe’s $99 DNA “spit kit.” The company’s Founder and CEO, Anne Wojcicki, told one of the most densely packed audiences we saw at the conference how the current kit provides a slew of valuable information to personalize medicine, including one’s genetic disposition for drug response and disease risk relative to the rest of the tested population. We think that a similar kit could prove extremely useful upon a diabetes diagnosis to quickly get people to goal and to save them the trouble of struggling with a drug they will never respond to. Additionally, such a test could be used today to increase patient/HCP awareness of people’s genetic predisposition for type 2 diabetes, hopefully empowering people to adopt preventative behaviors while also reducing the disease’s stigma. So what needs to happen to take the power of genetics mainstream? According to Dr. Frist, the biggest barrier to adoption will likely be data storage, since our ability to create data far outpaces our ability to store it. We hope that continued focus on the benefits of genetic screening will prompt further efforts and funding to make it practical and available to everyday HCPs.
  • In coming years, next-generation diabetes technologies will offer greater individualization through tailored devices and more choices. Tandem Diabetes Care made this a focus of its JPM presentation, highlighting its rich pipeline founded on a “one size does not fit all” paradigm. CEO Kim Blickenstaff commented that conversations with patients motivated the company to develop an insulin pump with a larger insulin reservoir – t:flex will hold 500-units (a 200-unit increase over the current t:slim). We also look forward to the commercialization of t:sport, which will cater to Tandem’s most active patients with its smaller size (35-40% smaller than the t:slim) and wireless touchscreen handheld. Further, while the device will be designed with the 300-unit reservoir, it can support the 500-unit t:flex cartridge for patients with greater insulin needs. Dexcom’s myriad partnerships will also give individuals more choice in their care with respect to insulin pump preference. CEO Terry Gregg detailed the company’s CGM-insulin pump integration partnerships, which include Animas, Tandem, and Roche: 1) the Animas Vibe with integrated G4 Platinum is already available in the EU and is pending US approval; 2) Tandem has accelerated its partnership with Dexcom to integrate the G4 Platinum into a Tandem pump (the companies expect to launch the product in 2014); and 3) a Roche insulin pump with CGM integration is slated for a late 2014-2015 launch. Personalization and choice is an important component in consumer electronics’ design, and while diabetes technology still is a far cry from consumer electronics, we believe that efforts by patient-centric companies like Tandem and Dexcom lend to the gradual blurring between the two categories.



Detailed Discussion and Commentary

Opening Remarks

Opening Remarks

Doug Braunstein, JD (Vice Chairman JP Morgan Chase & Co, New York, NY)

Mr. Doug Braunstein opened the 31st JP Morgan Healthcare Conference in front of a crowd of about 600 in the sleek Grand Ballroom of the Westin St. Francis. Mr. Braunstein highlighted the growth of the healthcare sector over these past 31 years: in 1983 US healthcare expenditures totaled $354 billion, and for 2013, he forecasted costs to total $2.8 trillion – an eight-fold increase. This year, 398 companies are presenting at the conference, and over 8,600 attendees registered to attend, a marked increase compared to the <100 attendees at the first iteration of this conference in 1983. Notably, 90% of the presenters are CEOs. Mr. Braunstein set a positive tone for 2013, forecasting that the improvements in the US economy, combined with the $163 billion in cash reserves held by healthcare companies listed in the S&P 500, would translate into an active year for healthcare investment and M&A. We also believe it will translate into many positives for patients.

Public Drug Company Presentations


Bill Chase (EVP Finance and CFO, AbbVie, Chicago, IL)

AbbVie EVP Finance and CFO Bill Chase provided a high-level overview of AbbVie, reviewing the company’s product portfolio, pipeline, and financials. During his presentation, he focused on the opportunity for continued growth with AbbVie’s TNF inhibitor Humira and highlighted the potential of the company’s phase 3 hepatitis C program. Although Mr. Chase did not discuss AbbVie’s chronic kidney disease candidates during his presentation (including Reata’s bardoxolone), a slide detailing the company’s mid-stage pipeline listed atrasentan in phase 2b, noting that results from dose-ranging trials showed improvement in symptoms predictive of renal function, and that presentation of phase 2 data and initiation of phase 3 are expected in 2013. For more information on AbbVie’s chronic kidney disease candidates, please see our Abbott 3Q12 report at: Mr. Chase closed his presentation by emphasizing AbbVie’s strong financial position – the company will have close to $6 billion in annual operating cash flow, and an initial cash balance of approximately $7.2 billion.



Richard Pops (CEO, Alkermes, Dublin, Ireland)

Alkermes CEO Richard Pops reviewed the company’s commercial portfolio and pipeline at JP Morgan today. We had also seen him present at the most valuable and interesting East/West CEO conference. At the latter, he spoke to the massive need to address diabetes and obesity, urging his colleagues in the room (about 150 very senior company executives and investors and others) to focus more attention on the policy implications of the expanding diabetes and obesity threats. While today at JPM, Mr. Pops did not explicitly provide any new updates on diabetes, his presence as a leader in the field is very known, understood, and admired and we hope he continues to educate peers on policy as he is very active in Washington and elsewhere on the healthcare policy and funding side. On the commercial side, as a reminder, Alkermes receives 8% royalties on the first 40 million units of Bydureon sold per year and 5.5% royalties on any additional units sold thereafter. It also has a once-weekly suspension formulation of exenatide and a once-monthly exenatide formulation. BMS/AZ have previously guided that the once- weekly suspension would begin phase 3 testing in 2H12 and the once monthly would begin phase 3 in early 2013. From Mr. Pops’ slides, it appears that these timelines have not been updated. We would find it unfortunate if BMS/AZ has missed at least the first one, and we'll look forward to 4Q12 results to see if the second target is met. As previously estimated, Alkermes expects to file the Bydureon pen device in mid-2013; at this stage, we would be more skeptical about this timeline, although this has been extended once already, so we certainly hope for the sake of patients that this is achieved. For Alkermes’ F2Q13 (calendar 3Q12) financial results, please see our November 6 Closer Look at

Questions and Answers

Q: Could you provide any updates on the timeline for when suspension and once-monthly exenatide would enter phase 3?

A: We leave the timeline updates to our partners. They have not updated their estimates for once monthly.

Q: Can you characterize how BMS/AZ is handling the Bydureon transition?

A: They’re in the midst of wrestling international rights from Lilly, and they’re reconfiguring the whole team in the US. I think they’re just getting going on this thing. I also think the pens will be an important part of the commercial offering as they move into broader primary care. I think they’re proceeding deliberately. They wrote a very big check and I don’t think they’re interested in failing.



Bob Bradway (CEO, Amgen, Thousand Oaks, CA)

Amgen CEO Bob Bradway did not provide any diabetes-specific updates, but did note that the $700 million acquisition of Turkey-based Mustafa Nevzat (a privately-owned pharmaceutical company) had completed. Amgen’s two diabetes candidates, AMG 151 (a phase 2 glucokinase activator) and AMG 876 (a phase 1 fusion protein for type 2 diabetes), received zero mentions or screen-time during the presentation. As a reminder, Amgen presented very positive phase 2 data for AMG 145, a PCSK9 inhibitor, at AHA 2012. Please see our AHA reports at and for more details. Amgen will report F3Q13 financial results on January 23, 2013 and will hold a Business Review Meeting February 7, 2013.

Questions and Answers

Q: Is diabetes still a focus area? It’s been a while since we’ve heard about progress on AMG 151 or 876.

Dr. Sean Harper (VP Research & Development, Amgen): There are certain kinds of interventions that are only focused on glucose control and A1c. Like other companies around the world, we’re seeing that as less attractive. With our commercial footprint, it doesn’t make a lot of sense for us to be developing primary care glucose control medications, in terms of what our research is focused on. Our research is very interested in metabolic disease, and some of the parameters that are often addressed there are glucose control, type 2 diabetes, metabolic syndrome, obesity, and so on. In that spectrum of metabolic disorders, we have quite a bit of interest and activity. We’re interested in the spectrum more of metabolic syndrome than just isolated A1c.



Jack Lief (President and CEO, Arena, San Diego, CA)

Arena CEO Jack Lief reviewed impending commercialization and regulatory milestones for Arena/Eisai’s obesity medication Belviq. Mr. Lief noted that Belviq is currently in the 30-day public comment period following the Drug Enforcement Agency’s (DEA) recommendation for Belviq to be classified as a Schedule IV controlled substance. After the DEA’s final scheduling designation, Eisai will be able to proceed with its US launch. During Q&A, management commented that they expected DEA scheduling to take four to six months, which could push a US launch into 2Q13 (previously, management had guided for a 1Q13 launch). As outlined in Arena’s 3Q12 financial update, commercialization will involve a sales force of ~200 representatives who would initially target 25-30,000 physicians. When asked as to whether a physician would prescribe Belviq or Vivus’ Qsymia first, management commented that for people with diabetes, prediabetes, or expected pregnancy, they believe Belviq would be the drug of choice. Turning to the international stage, Arena is targeting a 2014 South Korea launch through its partnership with South Korean pharmaceutical company Ildong. In Europe, Arena expects a decision from the European Medicines Agency and Swissmedic (Switzerland’s regulatory body) in 1H13. Further, Mr. Lief commented that Eisai is prioritizing regulatory submission in Mexico, Canada, and Brazil and expects to file NDAs in these markets during 2013. Rounding out Mr. Lief’s presentation on Belviq was brief mention of its patent protection (global patent coverage runs until 2023, but is expected to extend through 2026), manufacturing (the 2008 acquisition of Swiss-based GMP facility), and potential therapeutic combinations (phentermine and metformin are under consideration). While not a focus of Mr. Lief’s prepared remarks, reimbursement dominated the discussion during the breakout that followed. Of note, Arena management commented that one-third of insurers have some sort of obesity drug coverage.

  • Mr. Lief also reviewed Arena’s financial agreement with Eisai, which includes a $65 milestone payment following DEA scheduling, 31.5-36.5% of US net sales, and eligibility for ~$1.2 billion in one-time purchase price adjustment payments and $50 million in regulatory and development milestone payments. Further, he remarked that Arena has limited responsibility for expenses (e.g., Arena will pay only 10% of the cost for the cardiovascular outcomes trial).

Questions and Answers

Q: How do you plan to broaden access?

A: One-third of insurers have some sort of obesity drug coverage. Eisai has an extensive group of people who are working on reimbursement for Belviq, as most of you probably know.

We expect DEA scheduling to be around 4-6 months so Eisai is taking advantage of that time to get their sales ready to go. For mega employers, we focus on the benefits of Belviq on their own health care costs, for taking care of their employees’ weight. It’s not just cosmetics, it’s improving the patient’s total metabolic health, which means they (i.e., employers) can spend a little less money on each employee. In our trials we saw patients with diabetes and hypertension taking less of their medication.

For Medicare patients, we have a longer-term approach. Currently we see Medicare cover counseling, and we expect to see that they will do the same with reimbursement. Coverage may also expand through legislation and, if states like Massachusetts, California, or Nevada pass legislation, we may see expansion through that as well.

Q: What will US distribution look like and what will Eisai be responsible for?

A: Distribution will occur through local pharmacies. There is no mail order; it’s traditional distribution methods. Eisai has primary responsibility for commercialization, and the market access and sampling are included in a standard launch.

Q: Where are you in the process for distributing Belviq in Europe?

A: We are working with the United Kingdom to figure out reimbursement, and we have not started with the other countries yet. It has been easier in the UK and we’ll start there first.

Q: Since Eisai is doing the launch, how will Arena track the launch data? Are you going to get the data in real time?

A: When they get data, we’ll get data. We’re working on setting up those channels with Eisai now.

Q: What are the costs of goods (COGs) for producing Belviq?

A: We will manufacture Belviq, and our product has low COGs, traditional COGs.

Q: Can you talk about the side effects profile? What about depression with Belviq?

A: During clinical trials, Belviq was well, well, tolerated. Headache was the only side effect in the Belviq arm that exceeded the placebo arm. Seven percent of patients had headaches in early part of the study and it was transient. This was the most common side effect. We don’t see any depression side effects from Belviq that was higher than the placebo.

Q: Can you give us an update on Arena’s European partners?

A: None that I can share. Clearly Belviq has brought in interest, and we’re looking at this globally. Just as we did in South Korea, we will look for the best company to partner with in the region to market and sell Belviq.

Q: Can you talk about the options for Belviq?

A: We think this is an exciting therapy, we are going through a planning process for phentermine, and we want to run the plan by the FDA from a regulatory and clinical plan point of view. If the FDA buys into the plan, then we will be more specific. We do not want to release information and have the FDA disagree.

Phentermine is low hanging fruit, and it is not the only formulation that we are evaluating. There are other indications for Belviq that we are currently exploring, and there are other indications that we will explore in the future.

Q: Are other dose forms available, or are patches off the table?

A: Belviq is well absorbed. You can measure how much of the drug has been taken just using levels in the blood. There is no need for non-oral routes of administration.

Q: In your opinion, will a physician prescribe Belviq before Qsymia or Qsymia before Belviq?

A: We do not know exactly how that is going to be addressed by physicians. We know that physicians like starting patients out on one drug at a time, then adding or switching from that initial prescription. Our drug is really well tolerated.

What a physician is going to do is match a patient to a drug. Patients who are diabetic, pre-diabetic, or who have a pregnancy potential, they are going to be prescribed Belviq.

Q: One of the major concerns for the drug was a high incidence of patient drop out from the trial. Why do you think Belviq is a better commercial than clinical product? Why not have physicians administer the drug in order to have greater adherence?

A: Third party reimbursers are going to stop the therapy as soon as they feel that the patient no longer needs the drug. During trials, patients did not need to pay for Belviq, while patients will need to pay for the drug (i.e., some form of a co-pay) and when you pay for something, you appreciate the product a little more, at least I do.

Q: Is Eisai marketing other products in the US or their own?

A: They are currently marketing Aricept and their sales were $2 billion. Another product Aciphex is selling at $3 billion dollars. They do have some cancer drugs that they are marketing, but they have said that Belviq will be a first priority for them and their hope is that Belviq will be successful in the long term.

Q: Why was Switzerland chosen as the worldwide manufacturing factory site?

A: We like chocolate. [Laughter from the audience.] We chose Switzerland because: 1) quality is high; 2) in the emerging market, patients put a high premium on a high quality product; 3) we have traditional pharmaceutical tax rates and cost structures; and 4) we acquired the factory at a reasonable cost.

Q: When does your role in distribution end and Eisai’s begin?

A: We take care of production and Eisai takes care of everything else – marketing, sales.


Array BioPharma

Ron Squarer (CEO, Array Biopharma, Boulder, CO)

Array BioPharma’s presentation included only a brief mention of diabetes: when discussing anticipated timelines for 2013, Mr. Squarer noted that a phase 2 trial for Amgen/Array’s glucokinase activator AMG-151 is expected to complete this year. We believe he is referring to a currently recruiting, 28-day phase 2a trial examining multiple doses of AMG-151 in 224 people with type 2 diabetes ( Identifier: NCT01464437). As a reminder, Amgen acquired rights to Array’s GKA program in December 2009 for a $60 million up-front fee. During Q&A, Mr. Squarer remarked that he is unsure whether AMG-151 will be advanced into phase 2b or straight into phase 3. Ms. Squarer also mentioned that Array is developing a GPR119 agonist (ARRY-981), though he provided no details. As background, management had previously forecasted for the start of phase 1 studies in 4Q12; at this time, does not list any studies for the candidate.

Questions and Answers

Q: Could you discuss your relationship with Amgen and your expectations for your glucokinase activator [AMG-151]?

A: The phase 2 trial is nearing completion. We don’t anticipate Amgen discussing a phase 3 study; the data is not there yet. We think it will probably move into a phase 2b study. It is a competitive area. We will know the data at some point, probably next year. Since Amgen controls the disclosure of the data, you would need to talk to them about it.

Q: Could you clarify why you think AMG-151 will be moved into phase 2b development rather than phase 3?

A: We do not actually know what that decision will be. I believe that it makes sense to run a 12-week phase 2b study while enabling a phase 3 trial. But Amgen might decide to go straight into phase 3.



Yoshihiko Hatanaka (CEO, Astellas, Tokyo, Japan)

Astellas CEO Yoshihiko Hatanaka made it clear that Astellas is concentrating on urology, transplantation, and oncology – diabetes complications and kidney diseases were listed, in smaller font, on his slides as categories in which the company hopes, in the future, to be a global leader. When asked why Astellas – despite having an SGLT-2 inhibitor, ipragliflozin, in phase 3 development in Japan – selected diabetes complications and not diabetes for this designation, Mr. Hatanaka described the anti- diabetic field as being very crowded and difficult. He explained that the company’s November decision to discontinue development of ipragliflozin in the US and EU was because they would have been late to the market in these areas (for more details on the drug and this decision see our Astellas F2Q12 report at The candidate had been in phase 2 development in these regions, so it would likely have been behind at least BMS/AZ’s dapagliflozin and J&J’s canagliflozin in the US (where both are under FDA review) and EU (where dapagliflozin has already been approved and canagliflozin is under review), if not also behind Pfizer’s ertugliflozin (phase 3-ready). However, Mr. Hatanaka expressed confidence that ipragliflozin could be a market leader in Japan. He did not mention the company’s decision to also discontinue development of its GPR119 agonist PSN821 (had been phase 2) and PSN842 (had been preclinical) after AstraZeneca announced that it would not exercise its option to acquire the compounds. On the diabetes complications front, the company has two candidates for renal anemia, ASP1517 and YM311 (both phase 2 in Europe and phase 1 in Japan).

Questions and Answers

Q: You listed diabetes complications but not diabetes as an area where you hope to be a global leader. Will you not be pursuing more glucose control medications after ipragliflozin?

A: Diabetes blood sugar control is a very crowded and hard market. That is why we have given up the development work of an SGLT-2 in the US and Europe. We saw our potential order in the market to be late compared to competition. In Japan we might be the first to market and we might have a chance to be a leader within that class.



Simon Lowth (CFO, AstraZeneca, London, UK)

AstraZeneca CFO Simon Lowth highlighted diabetes multiple times as a platform for growth and an exemplary area illustrating the company’s successful strategy in partnership. Mr. Lowth stated that there is “enormous effort” currently behind the new exenatide formulations but did not provide updates on timelines. As a reminder, BMS previously guided that the once-weekly formulation would begin phase 3 testing in 2H12, and during Amylin’s 1Q12 earnings update, management forecasted that the once-monthly formulation would begin phase 3 in 1Q13; however, neither BMS or Alkermes has confirmed whether these timelines have been or will be met. Regarding dapagliflozin’s resubmission in the US, Mr. Lowth reiterated BMS’ sentiment that there is now a “clear path forward” in the FDA review process. During Q&A, Mr. Lowth said, in accordance with what BMS management had expressed the previous day in Q&A, that the Amylin integration was proceeding as planned but that Bydureon’s regulatory or launch status in different countries is very variable and that Bydureon did not have very high visibility in some smaller international markets.

Questions and Answers

Q: How is the integration process with Amylin going?

A: I think overall the process is going well. We’re on track for the timetable for integration that we’ve set up. We took up the promotion of Bydureon on the day we expected in the US. We are working through the first wave of initiating promotion in markets like Japan. Markets like Japan are the next, most important markets. That remains on track. We have to understand now where Lilly got to in each market, and it’s been different in each market. We’ve had to pin down the stage in the approval process and where to pick up. In the big ones, we’re on track. In the smaller ones, we didn’t have as much visibility, and we’ve had to map that out, but we haven’t seen any slippage in time expectations. I would say that the US integration process has gone well. Indeed we’ve established a slightly different model in the US where we brought together BMS/AZ colleagues to drive it so collaboration has really picked up there. That’ll have real benefits for Onglyza and other markets as well. It’s been a catalyst to move toward an even stronger working relationship. I think it’s still very early days for the US. It’s going to be something we really need to step back and look at the end of 2013 because the rest of the world is really important in this proposition for us.



Kiran Mazumdar-Shaw (CEO, Biocon, Bangalore, India)

Biocon CEO Kiran Mazumdar-Shaw provided a high-level overview of Biocon, and offered some very valuable IMS estimates on pharma growth and emerging markets. As far as Biocon’s business goes, few updates were shared beyond remarks made in the Biocon F2Q13 financial results call. Big picture, Ms. Mazumdar-Shaw emphasized that emerging markets will be the biggest near-term focus for the company’s biosimilar insulins – this is unsurprising based on what requirements seem to be for entering the US and EU markets, which we believe is unlikely to happen before 2015 although it is probably premature to estimate market entry at this point. Ms. Mazumdar-Shaw characterized expectations in the US and Europe as “modest” to start – presumably, to achieve significant growth down the road, lots of things would have to go right on the regulatory, commercial, reimbursement, and competitive fronts. On the pipeline side, no updates came on global trials for recombinant human insulin and glargine. Biocon’s recombinant human insulin has completed a phase 3 study in the EU (n=250 patients), the company is awaiting 12-month safety (immunogenicity) data, and filing in the EU is expected in later FY 14 (calendar: April 2013-March 2014). Meanwhile, the company is currently in talks with US and EU regulators to hopefully start the global phase 3 study for biosimilar glargine in 2013. Regulatory filing is expected in 2015. Both timelines were consistent with previous estimates. The IN-105 oral insulin program was highlighted in the novel molecules part of the presentation, especially the recent option agreement with BMS. Ms. Mazumdar-Shaw noted that although there was a placebo effect in the India trials, “proof of principle was demonstrated.” Going forward, BMS will help Biocon redesign the phase 2 global trials under an already filed US IND. This program was characterized in Q&A as a “game changer if it works.”

  • According to IMS, 75% of pharma growth from 2011-2016 is expected to come from emerging markets – the slide showed the global pharmaceutical market growing from $955 billion in 2011 to $1.2 trillion in 2016. Notably, generics are expected to grow ten times faster than branded drugs between 2011 and 2016. IMS estimates also suggest that biosimilars will grow fivefold from $1 billion to approximately $5 billion over the same period. Emerging markets are where most of the growth will come from, with Asia providing about 40% of the growth. Our guess is that over time, this percentage may increase even further, since biosimilars in diabetes in the US sound like they may have a long road ahead.
  • Currently, biosimilars account for ~5% of Biocon’s $450 million in sales, expected to grow to 10% of a ~$700 million business in FY15 and 20% of Biocon’s ~$1 billion overall business goal for FY18. Biocon’s biosimilar portfolio includes both insulin and monoclonal antibodies, though Ms. Mazumdar-Shaw emphasized that the business will be “largely insulins.” A major part of this strategy will come through geographical expansion.
  • Following the termination of the Pfizer insulin partnership, Biocon has signed several regional partnerships. These have included regions such as Latin America, Southeast Asia, Russia, and China. Partnership discussions are in progress for the US and Europe, though no details were shared. Ms. Mazumdar-Shaw reminded the audience that Biocon’s Insugen (biosimilar recombinant human insulin) is registered in over 40 countries, while Basalog (biosimilar glargine) is registered in over five countries. Basalog sales are growing in India, though it is unclear what the base is.
  • Biocon is the fastest growing insulin company in India, registering 33% annual growth vis-a-vis a four-year industry average of 15%. Ms. Mazumdar-Shaw noted that the introduction of the Insupen has also augmented growth, and the company expects to garner much greater market share going forward. As a reminder, Insupen is Biocon’s reusable insulin pen for biosimilar glargine (Basalog) and recombinant human insulin (Insugen).
  • We were heartened to hear positive sentiments about diabetes funding in India. As we understand it, to date, patients and their families have been wholly responsible for funding 100% of their diabetes care expenses, which often represents ~20-30% of a family’s income. Ms. Mazumdar-Shaw said, however, that she believes the government will soon begin to cover some expenses for patients; given the size of the population, this could make growth meaningfully higher in India. 
  • For more information, please see our Biocon F2Q13 report at

Questions and Answers

Q: On biosimilars, there has been talk of a potentially higher regulatory bar for chronic drugs. Can you talk about that?

A: I think FDA has to get more comfortable with product quality. Every time you meet with them you get unique signals. But I think they are getting more consistent with the European regulators. The same thing happened with small molecule generics about 25 years ago.

It’s hard to second guess at this stage. We have to go with what is out there. Everyone is trying to meet the biosimilar guidances from the US and EU. I think the EU is farther down the line – the US is very cautious right now. It is going to be about ascertaining the comfort level with safety and efficacy. We will start introducing products in emerging markets. For biosimilars, emerging markets are more receptive. We will also have strong post-marketing surveillance and gather strong pharmacovigilance data. That will beef up a lot of that data that the regulators are looking for.

Q: What is the path forward for recombinant human insulin?

A: We have two programs that we are actively pursuing. For recombinant human insulin, the phase 3 study is completed in Europe. For the second program – biosimilar glargine – we’re entering into a global phase 3 trial shortly. We just completed the phase 1 PK/PD study.

Q: You were guiding for biosimilars to be a $200 million business by 2018. It looks like these could be approved in the 2016 timeframe…

A: Emerging markets have a huge market potential – there is large demand for insulin and insulin analogs. These are places where we are registered and can market. When we enter into in Europe and the US, there will be modest entry-point sales. We expect sales will pick up thereafter.

Q: For the IN-105 oral insulin program, what are the key milestones?

A: We mentioned that surprising placebo response, and that information was very closely looked at by BMS. They are helping us with the phase 2 trial design. We will be designing two or three studies to answer those questions. Then, they have the option to license the compound. If you think about it, IN-105 is a particular game changer if it works. But there will also be significant clinical trial costs if it works.

Q: What is the progress on re-partnering the insulin portfolio post-Pfizer?

A: I cannot give any more information. We will hopefully share that information shortly.

Q: How do you perceive the need for more people taking insulin globally? In emerging markets, the diagnosis rates are so low, and the percentage taking insulin is so low.

A: When you look at what’s happening in emerging markets, governments are spending in key disease areas. In India alone, they have tripled investments in healthcare, and diabetes is a big area of focus. Governments are looking at the distribution of essential drugs, especially making lifesaving drugs like insulin free. They will cover a larger number of patients that are right now not being covered. At a government level, the tender markets for insulin are just exploding. We’re seeing a lot of huge surges.

In developed markets, many of the innovator companies, are moving away from recombinant human insulin into analogs. We still believe this is going to be an important space.

Q: How large was the phase 3 trial for recombinant human insulin?

A: It was about 250 patients, and it has been registered on the European clinical trial website. Regarding glargine, we are discussing with regulators in both the US and Europe. Now that the US guidelines are much clearer, we want to decide how to do a comprehensive global program.

Q: The European guidelines for insulins have just been redone and published. They are notably silent on whether or not you are supposed to submit 12 months of immunogenicity data pre- or post-submission. From the timelines you presented this morning, it seems like you interpreted it as 12 months pre-submission data?

A: Yes.


Bristol-Myers Squibb

Lamberto Andreotti (CEO, Bristol-Myers Squibb, New York, NY)

Mr. Lamberto Andreotti branded 2012 as the “year of transition,” highlighting several milestones for BMS including the EU approval of BMS/AZ’s Forxiga (dapagliflozin), as well as their purchase of Amylin (which “took our diabetes franchise to the next level”). When reviewing BMS’ diabetes portfolio, he noted that BMS and AZ are the only Pharma companies with approved diabetes products across three novel drug classes. As a reminder, BMS/AZ market the Onglyza franchise, as well as Byetta and Bydureon (gained from the Amylin acquisition), and will soon introduce Forxiga to the global market. We think this will be especially important some years out when unique novel compounds have been approved and when the market is competing for patient “share of mind” and trying to develop easy-to- prescribe and easy-to-take fixed dose combinations. Mr. Andreotti remarked that the Amylin integration “is going very well” and reiterated that the BMS/AZ/Amylin sales force has already begun promoting the combined portfolio in the US. He estimated that the transition of international Bydureon and Byetta rights from Lilly to BMS/AZ would occur in mid-2013 – this represents a slight delay from Lilly’s expectation of a 1Q13 transition completion, which was announced during Lilly’s recent 2013 financial guidance. During that meeting, Lilly noted that an estimated $490 million in deferred income remains outstanding.

Questions and Answers

Q: Can you comment how the Amylin acquisition is proceeding?

A: It’s an interesting acquisition because we bought some established elements and some not-so- established elements. We were not going after major synergies. We were active on a lot of G&A structures (general and administration), but our major focus was to use the BMS/AZ organization combined with the Amylin organization to give much stronger support to the combined portfolio. We have trained the Amylin sales force on our products, and at the same time we have trained the AZ and BMS reps on Byetta and Bydureon. It is still too early to say whether this approach has been successful or not. We have some initial, tiny indicators. Miracles do not happen in any industry, but nothing changes in a matter of days. We’re a couple of months now in the market. Outside of the US, we are in the hands of Eli Lilly. We’ve had good interactions with them. We are taking Byetta and Bydureon back from them. The situation there is a bit more complicated because in certain countries, Bydureon has not been launched yet. In others, it was half-launched. So it’ll take a bit more time to talk about the results outside of the US.


Eli Lilly

John Lechleiter, PhD (CEO, Eli Lilly, Indianapolis, IN)

Eli Lilly CEO John Lechleiter characterized Lilly’s four phase 3 diabetes compounds (dulaglutide, empagliflozin, and its two basal insulin candidates) as potentially major contributors to the company’s future. We did not learn any new details on why BI returned rights to the novel basal insulin analog LY2605541 to Lilly, as was announced yesterday, but it seems clear that BI has dropped the program and we would not be surprised if Lilly ultimately did not pursue it (although Lilly did not discuss this possibility). We see the potential problems on the safety front – potential association with liver enzymes, which had been raised at ADA – as an area of uncertainty, which may be related to more limited public commentary on this drug. The fact that BI remains at work on the other basal insulin with Lilly demonstrates, from our view, the company’s strong interest in the area. We assume, for now, that Lilly and BI have different risk profiles as far is this sub-segment goes. Dr. Lechleiter did highlight the positive topline phase 3 results for empagliflozin, which Lilly also announced at JP Morgan (see below for highlights). During Q&A, management stated that empagliflozin could be submitted for regulatory approval as early as the first half of 2013. No other new updates were provided since Lilly’s 2013 Financial Guidance recent update (see our report at Notably, as in many recent investor presentations, Dr. Lechleiter continued to emphasize Lilly’s emphasis on emerging markets and its diabetes business. Dr. Lechleiter is obviously a very revered leader at Lilly as well as throughout industry and it was our pleasure to listen to him. We think he can impact the diabetes and obesity fields even more and hope to see his leadership become even broader and more entrenched.

  • Dr. Lechleiter did not provide new details on why BI decided to terminate its partnership with Lilly on the novel basal insulin analog LY2605541 (PEGylated lispro), as Lilly announced at JPM. During Q&A however, management did note that topline phase 3 data might be publicly released for PEGylated lispro, pending internal review of initial phase 3 data in 3Q-4Q13. As previously stated, Lilly expects internal read-outs of phase 3 data for its novel insulin glargine formulation in 2013, which remains a part of the Lilly/BI alliance. Additionally, Dr. Lechleiter reaffirmed that submission of Lilly’s novel insulin glargine formulation could also occur this year. Lilly had previously said that it would not share results publicly for the PEGylated lispro.
  • During his presentation, Dr. Lechleiter highlighted that yesterday Lilly also announced positive topline results from four completed phase 3 trials of its SGLT-2 inhibitor, empagliflozin. In all four studies, empagliflozin met its primary efficacy endpoint of greater A1c change from baseline compared to placebo – very unfortunately from our view, no actual results were given, though the fact that phase 3 results were announced at JP Morgan reinforces the growing importance (from a high base) of this meeting. Doses of 10 and 25 mg were tested, and safety information was consistent with findings reported from phase 2 results. Consistent with other SGLT-2 inhibitors, genital infections were more common in patients treated with empagliflozin compared to placebo. For more details, please see our report at Dr. Lechleiter reiterated that full data would be released through scientific meetings and publications in 2013 and 2014. We are very eager to better understand patient and HCP views on these infections – is it a hassle or a major concern? What is the lifetime risk for a person taking this class of drug, of these side effects? These are questions that will help us come to better estimates about the commercial potential for this market. 
  • During Q&A, management indicated that empagliflozin could be submitted to regulatory authorities as early as the first half of 2013 (Lilly’s 2013 Financial Guidance call held on January 4 had only specified that it could be submitted sometime in 2013; see our report at Obviously the J&J panel meeting on canagliflozin should have a major impact on how the chances for the class are perceived. [Editors note: since the writing of this piece, the advisory committee on canagliflozin has occurred. See our coverage at:]
  • Additionally, during Q&A, management stated that they believe the company’s novel insulin glargine product could be competitive in emerging markets where biosimilar versions of Lantus already exist. Furthermore, management believes that niches exist in the basal insulin market to allow Lilly to successfully commercialize both a novel insulin glargine and PEGylated lispro at the same time.
  • Dr. Lechleiter reaffirmed that in 2013 for dulaglutide, Lilly expects to disclose phase 3 data and expects a potential regulatory submission. Dr. Lechleiter expressed continued enthusiasm for dulaglutide, referring to the October release of positive topline data from three completed phase 3 studies in dulaglutide’s AWARD clinical trial program demonstrating A1c superiority compared to Byetta at 26 weeks, metformin at 26 weeks, and sitagliptin at 52 weeks (for more details, please see our report at

Questions and Answers

Q: Can you offer some context around how the relationship with BI is changing and why BI returned rights to the novel basal insulin candidate [LY2605541]?

A: We continue to be very excited about the alliance with BI. We began the alliance with four assets – two orals coming from BI [Tradjenta and empagliflozin] and the two basal insulins from Lilly. BI also has the option for a fifth asset, a TGF-beta antibody. That decision will take place at a later stage. BI has decided to terminate the relationship as to the basal insulin analog based on strategic portfolio considerations. The alliance continues to be strong. We like the two orals. We are commercializing Tradjenta today. We expect to file empagliflozin and insulin glargine this year. We continue to remain excited to develop the novel basal insulin analog as a Lilly stand-alone.

Q: How might the efficacy of your SGLT-2 inhibitor, empagliflozin, compare to J&J’s canagliflozin and BMS/AZ’s Forxiga (dapagliflozin)?

A: We have reported that we have positive data from four phase 3 trials for empagliflozin. This data is positive enough to allow potential submission in the first half of 2013. At this point we won’t comment on relative efficacy – we will disclose this data at ADA.

Q: If the profile for your novel basal insulin candidate holds up, it would be pretty compelling. Should we interpret BI’s decision to back out as a negative for the asset?

A: We shouldn’t read it as a negative for the asset. We will have internal readouts from the first phase 3 trials later this year in Q3 and Q4. There’s a potential for topline release once we get results from those trials.

Q: If you end up with both the novel glargine product partnered with BI and a novel basal analog as a Lilly stand-alone product, how would you manage that relationship with one partnered basal and one wholly owned?

A: Even today we have our insulins that are not part of the alliance, as well as dulaglutide, which we are developing as a Lilly standalone, so we see the alliance as giving us a larger commercial footprint and having the ability to maximize all of these products. We’ve always talked about the unique opportunity we see with our novel insulin glargine as well as the unique opportunity we see with the novel basal analog. We see different segments of the basal market. Glargine will compete within the space with other different glargine products. The innovative basal analog for us is a new paradigm. If this product is successful, some benefits would be very significant. It could really deliver in a big way for people with diabetes and for our company.

Q: Can you provide a launch date for the novel insulin glargine?

A: We won’t disclose a launch date for glargine. What we are sharing right now is the 2013 filing date in the US and Europe. As we look at the patents and exclusivity period that Sanofi has, we may go through early 2015, which will be the first opportunity for anyone to enter the market.

Q: Let’s say the novel insulin glargine is approved in 2015 – what happens to the emerging markets? Can you go in and compete against the two non-Lantus insulin glargines that are already there?

A: Absolutely. This will be an important product for emerging markets. Our plans are to file this product on a worldwide basis. Clearly we expect that different jurisdictions will have different patents and exclusivity periods for the innovative product.

Q: Will we see data from your studies prior to the approval?

A: We are not planning at this stage to disclose data. It is a possibility, but we believe we have significant know-how on how we are developing our own insulin glargine product. This is a regulatory pathway that is, at best, ambiguous. We may disclose data at some point in time.

Q: You already said you would not discuss comparative efficacy of empagliflozin with other SGLT-2 inhibitors, but how else might empagliflozin be differentiated from dapagliflozin and canagliflozin?

A: We will have to wait for the data. Some data was released for canagliflozin today for the FDA Advisory Committee meeting that I have not yet had a chance to look closely at. Each of the products will have a full range of strengths and weaknesses. Based on what we’ve seen for empagliflozin today, we believe we have a strong package that we’re preparing for submission.


Forest Laboratories

David Solomon (SVP Corporate Development and Strategic Planning, Forest Laboratories, New York, NY)

After reviewing Forest’s “next nine” products (seven on the market and two under regulatory review), Mr. David Solomon remarked that the glucokinase activator GK1-399 (formerly TTP399) is currently in phase 2. As a reminder, GK1-399 is the lead candidate from Forest’s GKA program, which it licensed from TransTech Pharma in June 2010. It appears to have recently been advanced to phase 2, as a phase 1/2 trial comparing three doses of GK1-399 to placebo completed in September. As a liver-selective glucokinase activator, GK1-399 aims to increase hepatic glucokinase activation (to stimulate hepatic glucose uptake) while avoiding pancreatic glucokinase activation (which stimulates insulin secretion), thereby minimizing the risk of hypoglycemia. Forest is responsible for all development and commercialization costs and will receive global rights to the drug in markets excluding the Middle Eastand North America. For further details on GK1-399, please see our Forest F2Q13 report at

Questions and Answers

Q: You spent a lot of money on the TransTech acquisition to acquire glucokinase activators for type 2 diabetes. Do you have any plans to enter the type 1 diabetes space?

Dr. Francis Perier, Jr. (CFO and SVP of Finance, Forest Laboratories): Type 2 is great because we’ve figured out managed care, there is an unmet need there, and the population of type 2 diabetics is growing. We don’t currently have anything planned for type 1. If the right opportunity presents itself though, we’d be interested.


Gilead Sciences

John Martin, PhD (Chairman and CEO, Gilead Sciences, Foster City, CA)

The Gilead Sciences presentation included overviews of Gilead’s HIV/AIDS, Hepatitis C, and Oncology products and candidates; diabetes was not mentioned. As a reminder, Gilead has a late sodium current inhibitor (ranolazine) in phase 3 development for type 2 diabetes and is currently conducting three phase 3 trials evaluating ranolazine as an add-on to metformin ( Identifier: NCT01555164), as a monotherapy (Identifier: NCT01472185), and as an add-on to the sulfonylurea glimepiride (Identifier: NCT01494987). As background, ranolazine is already marketed as Ranexa for the treatment of chronic angina (chest pain/pressure resulting from a lack of blood and oxygen supply).



Patrick Vallance, MD, PhD (President, Pharmaceutical R&D, GSK, London)

The data package for regulatory filing of GSK’s once-weekly GLP-1 agonist albiglutide is “about to be submitted,” said Dr. Patrick Vallance, President of GSK’s Pharmaceutical R&D. While a slight delay from the timeline put forth during the company’s 3Q12 financial update (when management expected to file with global regulatory agencies “around the end of the year”), regulatory submission in 1Q13 would be in line with previous guidance from the company. Dr. Vallance highlighted GSK’s robust clinical evaluation of the candidate, which included eight pivotal HARMONY phase 3 studies in roughly 6,500 patients total. He noted that since albiglutide is based on the human GLP-1 protein (Byetta and Bydureon are based on the exendin-4 protein, which has a ~53% homology to the native peptide), it has a lower risk of auto-antibody reactions, something we hadn’t heard before; we’re interested for greater explanation on this front, as we assume rigorous auto-antibody testing would be required in any clinical program. To our knowledge, albiglutide consists of two copies of the human GLP-1 peptide fused to albumin and is thus much larger than other GLP-1 agonists, giving it different properties. Additionally, he remarked that albiglutide would be delivered through a “very simple pen device.” We’ll be interested to see how patients receive this device and how it compares to Bydureon’s, as Dr. Vallance views the reconstitution/administration device as a potential differentiator (see Q&A).

  • If approved, albiglutide would likely be the second once-weekly GLP-1 therapy to market; however, it may be closely followed by dulaglutide, which Lilly expects to submit to regulatory authorities in 2013. Other companies looking to enter the once-weekly class include Novo Nordisk (semaglutide; phase 3 to begin in 1H13) and PhaseBio (Glymera; phase 2). For additional background on the GLP-1 class and greater characterization of albiglutide, please seeour GSK 3Q12 report at: For a full discussion of albiglutide’s phase 3 Harmony program, please see our July 11, 2012 Closer Look at

Questions and Answers

Q: What characteristic do you think will differentiate competitors within the growing once- weekly GLP-1 class? And what do you view as the biggest plus with albiglutide?

A: There aren’t many one-weekly GLP-1s out there yet. I think the difference between albiglutide and Bydureon will be the device: the simplicity of use, the needle size, and indeed the data package going along with it. As for others coming down the line, I can’t comment. The biggest factor right now is that albiglutide is a tolerated, easy-to-use once-weekly drug versus a daily drug.


Halozyme Therapeutics

Gregory Frost, PhD (President and CEO, Halozyme Therapeutics, San Diego, CA)

Halozyme CEO Dr. Gregory Frost believes that the commercialization of Hylenex for preadministration in people using insulin pumps will make a “significant contribution to revenue growth by the end of 2014” – this was exciting to hear, and could represent the nearest term ultra-rapid-acting insulin delivery technology to hit the market. One important update on the program was that one of the company’s phase 4 studies testing Hylenex in insulin pumpers would be coming up on “soon.” Additionally, Halozyme will be testing the device that it will be using for preadministration of PH20 – as of the last update, these were infusion sets being developed in collaboration with Unomedical. There was much more discussion on Hylenex, though it was largely a review of the company’s November 3Q12 financial results call. There were no updates on the PH20-insulin coformulation program – Halozyme has a phase 3 formulation ready, but the company doesn’t have any plans to conduct clinical studies in the next two quarters. Said Dr. Frost, “We are really focused on pumps.” News also emerged on the financial side: Halozyme believes it can be cash flow positive as early as 2014. Dr. Frost remarked that the company entered 2013 with $100 million in cash and guided for a $45-$50 million cash burn through the year.

  • Dr. Frost reviewed the necessary steps Halozyme would need to take to make Hylenex “commercial ready” for preadministration in people using insulin pumps: 1) scale up manufacturing capacity; 2) secure delivery device approvals (as we understand it from previous presentations, the Unomedical infusion sets will work with any insulin analog and any non-patch pump, though the company is looking to offer functionality to OmniPod users); and 3) conduct additional studies in in relevant sub-populations (the company’s phase 4 program that is slated to begin this year). Dr. Frost’s update suggested one of these insulin pump studies will be coming up on soon.
  • While details of the phase 4 program were not elaborated on during the day’s presentation, to our knowledge, the program will serve to: 1) confirm that the administration solution is safe and effective; 2) confirm that the directions for use are clear; 3) validate the benefits of Hylenex preadministration for insulin pumpers; and 4) generate additional data that can be used to promote Hylenex. We note that the FDA did not request the phase 4 studies.
  • As a reminder, preadministration indication for Hylenex use in insulin pumps is technically on label today. It falls under the broad indication of “an adjuvant to increase the dispersion and absorption of other injected drugs.”
  • No new updates were given on the company’s plans to advance its coformulation program for PH2o with insulin analogs (Halozyme’s second ultra-rapid-acting insulin program). While the company has a “phase 3 formulation” it does not intend to begin clinical evaluations in the next two quarters; rather, the company will remain focused on Hylenex for preadministration in insulin pumpers.
  • As a reminder, Hylenex is the company’s FDA-approved formulation of the enzyme recombinant human hyaluronidase (PH20), which increases the dispersion and absorption of subcutaneously injected fluids and drugs. Halozyme is pursuing two programs in the diabetes arena: a proprietary preadministration program (an injection of Hylenex is administered prior to inserting an infusion set) and a coformulation program (mixing rapid-acting insulin analogs and PH20) that it plans to partner.
  • For a more in depth discussion of the company’s ultra-rapid-acting insulin programs and detail on other market players with late-stage products, please see our Halozyme 3Q12 report at:

Questions and Answers

Q: Can you give any greater specificity on when are you looking to launch PH20 for the insulin pump indication and whether this would occur before or after completing the phase 4 program?

A: The phase 4 program is continually evolving. You should start looking at this being important for our revenue at the end of 2014. There are elements of getting the fill lines up. We have the device that we’re going to be submitting files on. You’ll see a phase 4 coming up on soon. All of those things are going to come together to make this program meaningful towards the end of 2014.

Q: Any updates on the coformulation program for PH20 with insulin analogs?

A: We have a phase 3 formulation but we don’t have any plans in the next two quarters on doing any clinical studies there. We are really focused on pumps.


Isis Pharmaceuticals

Stanley Crooke, MD, PhD (CEO, Isis Pharmaceuticals, Carlsbad, CA)

In highlighting several of Isis’ later-stage drug candidates, Dr. Stanley Crooke briefly noted the company’s phase 2 apoC-III inhibitor. As a reminder, the company is pursuing a staged development plan for ISIS-APOCIII and is initially planning to develop the drug to treat patients with severely elevated triglyceride levels (>1,000 mg/dl), who are at high risk of CV disease and pancreatitis, followed by other indications in cardiovascular disease and the metabolic syndrome (such as type 2 diabetes). He revealed that two phase 2 studies are slated to complete in 2013 and that a phase 3 study in patients with severe hypertriglyceridemia is expected to being in late 2013 or early 2013, placing a potential regulatory filing within the next five years. The presentation slides indicate that Isis is looking for partnership opportunities for the candidate. Dr. Crooke also noted that three of Isis’ phase 1, type 2 diabetes candidates could advance into phase 2 in 2013 or early 2014: a glucagon receptor antagonist, a glucocorticoid receptor inhibitor, and a PTP-1B inhibitor. No mention was made of Isis’ remaining diabetes candidate, an FGFR4 antagonist (phase 1).

  • Two ongoing phase 2 studies for Isis’ ApoC-III inhibitor (ISIS-APOCIII) are scheduled to complete in 2013. The first evaluates ISIS-APOCIII 100 mg, 200mg, and 300 mg once weekly in roughly 100 patients with severely elevated triglyceride levels (440-2,000 mg/dl), with data expected in mid-2013. The second study is assessing ISIS-APOCIII 300 mg once weekly in roughly 25 type 2 diabetes patients with moderately elevated triglyceride levels (200-500 mg/dl), with data expected in late 2013. During Q&A, Dr. Crooke noted that Isis hopes to observe an increase in insulin sensitivity in the diabetes trial – this would be quite a boon for patients, as current insulin sensitizers (TZDs) are associated with several side effects. The presentation slides reviewed phase 1 data for ISIS-APOCIII in healthy volunteers, which showed that ISIS-APOCIII led to no severe adverse events, clinically significant increases in liver enzymes, or flu-like symptoms, and only a very low incidence of mild injection site reactions.
  • During Q&A, Dr. Crooke noted that Isis’ PTP-1B inhibitor exhibits several improvements over a previous iteration (which was developed until phase 2), including a greater increase in insulin sensitivity, a more robust lowering of LDL levels, and weight loss (which could make it a potential weight loss drug).

Questions and Answers

Q: The European Medicine’s Agency Committee for Medicinal Products for Human Use issued a negative review of Kynamro [ISIS/Genzyme’s cholesterol-lowering drug]; do you believe Kynamro is going to get approved in the US?

A: Yes. I am confident because the labeling is nearly final and the REMS is final; basically everything is done. If people would watch the FDA rather than the panel, they would understand that the FDA is positively exposed to Kynamro. We ran into a strange situation in Europe, but the questions were easily resolved, and we are confident that Kynamro will be approved in Europe as well.

The label is going to go well, and Genzyme’s focus is exactly right. Once the drug gets in hands of lipidologists, it will go to patients. The drug will outperform expectations.

Q: Where does your level of confidence come from?

A: It comes from watching the office. The analysts are not aware of the relationship between Genzyme and the Agency. Watching Genzyme and the Agency, I am confident Kynamro will be approved.

Q: How big of an advantage is having Genzyme market the drug for Isis and what are Genzyme’s plans for marketing the drug?

A: Genzyme marketing group is led by Paula Soteropoulos. She is phenomenal and her group is great. We think they are really capable. The focus is exactly right: get the patients diagnosed and get them to the lipidologist where they will be prescribed Kynamro. Genzyme has a long history of marketing good therapies to patient and physician populations like this. I have no idea how great Aegerion will do, but we are confident that Genzyme will do well.

Sanofi is assisting by calling on a large range of physicians to introduce Kynamro and Genzyme can access broader Sanofi resources.

Q: Why will drug-drug interactions not be a problem for Kynamro? Especially since your patient population, patients with cardiovascular problems, are likely to be using other therapies.

A: Kynamro is subcutaneously injected and metabolized entirely differently than other drugs. It has no effect on cytochrome P450 in the liver. Additionally, we have seen that it has no pharmacokinetic or pharmacodynamic interaction with classic cardiovascular therapies, such as warfarin.

Q: Can you update us with the three type 2 diabetes therapies you have in your pipeline. During the presentation you said that they will be going into phase 2 trials in 2013/2014; can you give us a more specific timeline?

A: We had a PTP-1B inhibitor in phase 2 some years ago, and had encouraging data. However, we needed a better drug and found a better PTP-1B inhibitor. The new PTP-1B inhibitor has improvements in insulin sensitivity, lower LDL. A good safe insulin sensitizer is really needed. Our PTP-1B lowers LDL, and we’ve seen that lowers weight as well and may be a potential for an obesity drug. Currently, it is in phase 2 study and there is a metformin add on study; these trials are just getting underway.

The glucagon receptor antagonist (ISIS-GCGR) violates our basic principle of using small molecule therapies. However, we are pursuing its development because our drug does unique things. The drug produced significant increases in GLP-1 without any LDL problems. Phase 2 studies are just beginning for this as well.

The glucocorticoid receptor inhibitor (ISIS-GCCR) takes advantage of antisense technology, and it does not cross the blood brain barrier. It does not involve the HPA axis, and there is no increase in blood pressure, aldosterone, or ACTH. It has the potential to be an anti-obesity drug and we are seeing a rapid potential for Cushing’s disease. This therapy will not start phase 2 trials until the middle of the 2013.

Overall, these therapies will be great licensing opportunities for us in 2014.

Q: What clinical disclosures can we look at for ISIS-APOCIII?

A: We are very positive about the severely elevated triglyceride study for ISIS-APOCIII and will reveal the results in the second half of 2013.


Lexicon Pharmaceuticals

Brian Zambrowicz, PhD (CSO, Lexicon, The Woodlands, TX)

Lexicon Chief Scientific Officer Dr. Brian Zambrowicz gave a compelling talk describing how Lexicon’s SGLT-1/SGLT-2 dual inhibitor could be differentiated from selective SGLT-2 inhibitors. After reviewing the phase 2b data, which Lexicon recently presented at AHA 2012 and discussed during the company’s 3Q12 financial update, Dr. Zambrowicz stated that LX4211 could be differentiated from selective SGLT-2 inhibitors on the basis of efficacy, safety/tolerability, the potential to benefit patients with renal impairment, and potential synergies with DPP-4 inhibitors. On the topic of safety, Dr. Zambrowicz emphasized many times, especially during the Q&A session, that LX4211 has a relatively clean safety profile due to its lower rates of urinary glucose excretion compared to selective SGLT-2 inhibitors. The contribution of SGLT-1 inhibition allows LX4211 to achieve robust glucose lowering and weight loss effects with less urinary glucose excretion. During an illuminating Q&A session, Dr. Zambrowicz stated that while canagliflozin exhibits greater efficacy than dapagliflozin because of its increased urinary glucose excretion, it comes at the price of increased infection and severe adverse events – he suggested that the FDA’s potential cardiovascular concerns with canagliflozin could be related to the high level of urinary glucose excretion. Lexicon now expects a phase 3 initiation for LX4211 around mid-2013, along with results from the ongoing study in patients with renal impairment in mid-2013. Study sites for a study in type 1 diabetes are currently in preparation for the trial.

  • Dr. Zambrowicz estimated that phase 3 trials for Lexicon’s SGLT-1/SGLT-2 dual inhibitor LX4211 would initiate around mid-2013 with an illustration in his slides suggesting that trial initiation could occur mid-year through Q3. This represents a slight delay from the company’s 1H13 estimate provided during its 3Q12 financial update. As previously stated, Lexicon is looking to establish a partnership prior to initiating phase 3 trials for LX4211. Management declined to provide specific details about partnership efforts other than saying they were progressing well. If we were to speculate wildly, based solely on product portfolios and pipelines, Merck seems like a sensible option for partnership. Lexicon has spoken before about the promise for combining LX4211 with a DPP-4 inhibitor due to the synergistic elevation of GLP- 1 produced by this combination (details below). Merck is the only company marketing a DPP-4 inhibitor (Januvia) in the US that does not also have an SGLT-2 inhibitor in its pipeline. During a breakout session on Day #1 of JPM, Merck management also alluded to investigating new Januvia combinations that would preserve its safety and tolerability profile (for details see page 11 of our JPM Day #1 report at
  • Dr. Zambrowicz reviewed key phase 2b data that were released as topline results in June and in full at AHA 2012 in November. He reiterated that at 12 weeks, LX4211 400 mg once daily provided a 0.95% (0.86% placebo-adjusted) A1c reduction, reiterating that this “compares very favorably” with 12-week data for other oral anti-diabetic agents. He also reviewed the weight-loss (2.5 kg [5.5 lbs], or 2.0 kg [4.4 lbs] placebo-adjusted) and systolic blood pressure benefits (~6 mm Hg over placebo) seen with LX4211 400 mg. Additionally, he highlighted that rates of genital infection were low compared to selective SGLT-2 inhibitors (5.1% at the 400 mg dose), and no signal for urinary tract infections or GI adverse events emerged. For our full commentary on these data please see our Lexicon 3Q12 report at and page 2 of our AHA Day #4 report at
  • In what Dr. Zambrowicz characterized as the “crowded” SGLT-2 inhibitor arena, Lexicon believes LX4211 has many substantial opportunities for differentiation. Dr. Zambrowicz stated that LX4211 could be differentiated on the grounds of efficacy, safety/tolerability, potential for benefit in patients with renal impairment, and potential synergies with DPP-4 inhibitors.
    • Efficacy: Lexicon has previously stressed that LX4211 achieved favorable A1c lowering effects when compared to selective SGLT-2 inhibitors in 12-week phase 2b trials. During Q&A, Dr. Zambrowicz stated that weight loss achieved on LX4211 is comparable to canagliflozin and better than dapagliflozin, with a better safety profile than both.
    • Safety: Lexicon attributes LX4211’s low rates of genital infection compared to selective SGLT-2 inhibitors to LX4211’s relatively low level of urinary glucose excretion (~40 g/g glucose/creatinine ratio and ~55 g glucose/24 hours on the 400 mg dose). In the past, management has stated that this is roughly half of what is seen with selective SGLT-2 inhibitors. Because LX4211 acts both through SGLT-1 and SGLT-2 inhibition to decrease blood glucose, less urinary glucose must be excreted to achieve the glucose lowering effects of selective SGLT-2 inhibitors. In a detailed Q&A session, Dr. Zambrowicz noted that he was not necessarily surprised at the FDA’s cardiovascular concerns for canagliflozin (which will be discussed at tomorrow’s Advisory Committee meeting – see our preview at because of severe adverse events related to volume depletion and dehydration that could be attributed to the very high levels of urinary glucose excretion associated with the drug. [Editors note: since the writing of this piece, the advisory committee on canagliflozin has occurred. See our coverage at:]
    • Patients with renal impairment: Dr. Zambrowicz stated that selective SGLT-2 inhibitors may have limited benefit when kidney function is compromised (this has been observed with canagliflozin), but since LX4211 also acts through the SGLT-1 mechanism in the GI tract, patients with renal impairment will not lose the SGLT-1 benefit.
    • Synergies in GLP-1 elevation with DPP-4 inhibitors: LX4211 triggers the release of GLP-1 and PYY through SGLT-1 inhibition. Thus, when combined with a DPP-4 inhibitor, which prolongs endogenous GLP-1 half-life by inhibiting the DPP-4 enzyme that degrades GLP-1, Lexicon proposes to see a synergistic effect on GLP-1 elevation. Dr. Zambrowicz stated that Lexicon is pursuing the possibility of combination with a DPP-4 inhibitor. This will undoubtedly play into considerations for the partner it chooses prior to initiating phase 3 trials for LX4211. Generally, we’re becoming more and more keen on potential for fixed dose combinations – the devil will be in the details, no doubt, but we suspect it won’t stop at dual combinations, but triple combos and more.
  • Lexicon expects results from its ongoing study of LX4211 in patients with renal impairment in mid-2013 ( Identifier: NCT0155008; primary completion date March 2013). Dr. Zambrowicz commented that the study is enrolling well. The study aims to enroll 20 patients with type 2 diabetes and moderate renal impairment. It will compare 400 mg LX4211 vs. placebo over seven days.
  • Dr. Zambrowicz stated that sites for the study in patients with type 1 diabetes were just now “getting up and running” ( Identifier: NCT01742208; primary completion date March 2013). This study is expected to enroll 30 patients with type 1 diabetes and will compare an unspecified dose of LX4211 to placebo over 28 days. In type 1 diabetes, Lexicon hopes that LX4211 could reduce patients’ insulin requirements, thus potentially reducing hypoglycemia and weight gain.

Questions and Answers

Q: Could you give us insight into how partnering talks are going, how many interested parties there are?

Jeffery Wade, JD (CFO, Lexicon): We won’t comment too much here. The goal is to get a partner in place before beginning phase 3 trials. We’re pleased with how it’s going, and we’re making good progress toward our agenda.

Q: Are there any safety signals potential partners have focused on?

A: I don’t think there’s much pushback with the safety. People are particularly intrigued for the opportunity for differentiation in safety, particularly with infections. If you go back and look at phase 3 data for canagliflozin and dapagliflozin, canagliflozin has tremendous urinary glucose excretion and also the highest rate of infections. Canagliflozin had a 17% rate compared to a 9% rate in dapagliflozin. LX4211 has the least amount of glucose excretion, and I think that may contribute to our lower risk of infection. I don’t think the SGLT-1 mechanism has added any safety signal we can see. There are no red flags.

Q: Can you comment on the population that experiences infections?

A: It’s females, mostly yeast infections, just like in canagliflozin and dapagliflozin. They’re not severe and don’t cause people to quit the study. They’re infections that patients are used to treating themselves.

Q: How does weight loss on LX4211 compare to competitors?

A: Of all selective SGLT-2 inhibitors that have gone through phase 2b, clearly the best of those at week 12 is canagliflozin, and that’s because they have the most urine glucose excretion. We’re right there with them as far as weight loss. And we’re doing that with way less urine glucose excretion. We’re not doing it because we’re spilling all that glucose out. The SGLT-1 mechanism is playing a role here. In addition to blocking glucose uptake, the peptide release of GLP-1 and PYY suppress appetite. We did get a satiety signal in our phase 2b study.

Q: What do you think we’ll learn from the FDA [Advisory Committee meeting] tomorrow [on canagliflozin]? What do you think we’ll learn about how the FDA is thinking about the SGLT-2 class? Is there anything you’re specifically looking out for?

A: There’s nothing I’m specifically looking out for. I haven’t had a lot of time to read in as much detail as I’d like from all the briefing documents, but I think the most interesting thing that has popped out looking very different from dapagliflozin was the potential increase in cardiovascular events in the first 30 days of treatment. But I don’t think that surprises me. Again this goes back to the urine glucose excretion. Canagliflozin has better efficacy than dapagliflozin, but I believe they’re paying a heavy price for that. I think you see that in the infection rate and also in severe adverse events related to volume depletion and dehydration. The question is, do you really want to take an elderly patient, maybe with some mild renal impairment and with a history of cardiovascular events, and cause volume depletion? It’s no coincidence, I think, that it’s happening in the first 30 days, because the effect in increased urine volume is transient. LX4211 has much less urine glucose excretion. It’ll be very interesting to see what the panel thinks and how they proceed in their discussions.

Q: Regarding the type 1 diabetes study, could you outline specifically what you’re looking for?

A: It’s 20-30 patients, not very long – seven days [Editor’s note: Dr. Zambrowicz’s slides and the trial’s listing state that the trial will last 28 days]. But the reason for the trial is that we want to figure out how we’ll use LX4211 with insulin. Obviously these patients are either on a pump with insulin or are on basal insulin with mealtime injections. We believe the likelihood for needing to adjust insulin will most likely be prandial because of the profound effect of SGLT-1 inhibition on blood glucose levels after a meal. Really it’s a study that will give us a better feel for how to use LX4211 with insulin and design future studies. We’re primarily looking at modifications in insulin levels and the effects on postprandial glucose during the study.



Alfred Mann (CEO, MannKind, Valencia, CA)

MannKind CEO Alfred Mann showed great continued confidence in his company’s inhaled ultra-rapid- acting insulin candidate, Afrezza. “If I didn’t think this was a great product, I wouldn’t have put $930 million into it myself.” During his prepared remarks, Mr. Mann reviewed the potential market, Afrezza’s efficacy and safety profile, and ongoing clinical trials for US regulatory approval. The company’s two phase 3 trials of Afrezza are still expected to read out in August 2013, which would enable FDA filing in late September/early October. Mr. Mann anticipates that a March/April 2014 PDUFA date would follow. As of JPM, 68% of patients in the type 1 trial have completed the study and 52% of patients in the type 2 trial have completed the study ( Identifiers: NCT01445951 and NCT01451398, respectively). Mr. Mann believes that the FDA “can’t be very concerned about safety issues with Afrezza,” given that the Agency requested that MannKind expand its age inclusion criteria for a post- approval phase 4 trial in pediatrics to four to 18 years of age (versus the 12-19 years of age that the company had proposed). Turning to the international market, once the company “recover[s]” from filing in the US (we assume Mr. Mann was referring to the high cost resulting from the US regulatory delay), MannKind intends to submit Afrezza for approval in the EU. He also added color during the breakout session to ongoing partnership discussions for the commercialization of Afrezza. Mr. Mann remarked that MannKind’s interest in pursuing a partnership with an insulin company is low, with Sanofi being a notable exception. Further, before finalizing any regional partnerships (MannKind has nine potential regional partners), MannKind wants to finish arrangements with a global partner. As we’ve come to expect, he concluded his presentation by reiterating the “blockbuster potential” of Afrezza certainly, there is significant need to get easier-to-use insulin to the market, and we’ll be curious to seehow patients perceive the benefits of this alternative to traditional insulin therapy.

  • “The FDA is not concerned, we’re not concerned,” said Mr. Mann when discussing the small reduction in pulmonary function observed with Afrezza. He elaborated that the reduction is comparable to what one would see over the course of four months of life. Besides a mild, transitory cough with Afrezza inhalation, he remarked, there are “no safety signals, no cancer signal, no cardiovascular signal, no nothing.” Of course, the only predictable outcome in the last few years (especially for MannKind) has been an unpredictable regulatory environment, so it will be interesting to see what happens with Afrezza. We assume Afrezza would have an advisory committee – as a reminder, MannKind expects a six-month Agency review.
  • Mr. Mann believes that compared to traditional insulin therapy, Afrezza leads to less weight gain and less risk of hypoglycemia. He explained that Afrezza lowers prandial highs without exhibiting the late hyperinsulinemia that can lead to hypoglycemia. “The one area where we have not shown superiority is A1c,” which Mr. Mann attributed to the improved hypoglycemia risk profile. For greater detail on Afrezza’s potential benefit profile, please see our MannKind 3Q12 report at:

Questions and Answers

Q: What is the timing of the phase 3 read out?

A: Late August. We want to read out both studies together if we can. The final visit after the four-week washout of the type 1 trial won’t happen until late May and the type 2 trial is a few weeks later in June. We’re saying August, but it’s probably going to be late August.

Q: What are the baseline A1c levels for the study? I understand you were looking for above 7.5%?

A: The FDA wants this to be a big success. They wanted us to show large drops in A1c, so they said to get a baseline as close to 8.5% as you can. The type 1 trial had 8.3%, and of course to do that you need a lot of patients with an A1c of 10% and above. Some were as high as 11%. If these patients don’t have hypoglycemia from glargine, and if you get their fasting levels down to 120 mg/dl or less, these people are going to get good control. Although, even with the monitor some people are not going to be compliant. You’re going to see huge benefits in A1c here.

Q: Is the device adapted to deliver other drugs?

A: We have a lot of things we can deliver with this. But given the cost of the delay of approval, we can’t do many of these on our own so we are doing most of these with partners. We also have improvements to what we’re doing today, but I guess I can’t talk about those. But it is going to be better.

Q: What is the biggest risk to the phase 3 studies?

A: Well nothing is zero, but I can’t imagine any risk at this point. We know this drug. We’ve seen no safety risk. I would think that since we’ve already treated so much of the population that even though we are blinded, I can’t imagine that if there was a huge problem, we wouldn’t know about it by now.

Q: Can you give us some insight into how partnership discussions are going? Are you still prioritizing a worldwide partnership?

A: We have nine potential regional partnerships, but we can’t deal with those at this point. We don’t dare do the big ones unless we have made arrangements with what we call a global partner. Certainly, we want a major partner to cover the developed world.

Q: Would you be looking for a partner with a diabetes or primary care sales force?

A: If they have a presence in metabolic disease areas, certainly we know they have reach in that market segment, but that’s not an absolute requirement.

We’re not really excited about partnering with insulin companies although maybe Sanofi. But Novo Nordisk or Lilly… at Novo Nordisk, insulin is 40% of their product, so why would they want to give attention to our product? But for Sanofi, Apidra hasn’t been successful and degludec is coming and it’s better than Lantus, though still hardly adequate, so I would expect Lantus to be under a lot of pressure.

Q: What are your plans for filing in Europe?

A: We have been in discussions. Our intention is to file almost immediately after we file in the US. Once these trials are done and we recover from the filing in the US, we will file in Europe. Look, if I didn’t think this was a great product, I wouldn’t have put $930 million into it myself.



Ken Frazier (CEO and President, Merck, Whitehouse Station, NJ)

Merck’s (voluntarily) abbreviated ~15 minute presentation and ~45 minute question-and-answer period continued to demonstrate and reinforce the company’s dedication to and strong interest in diabetes. Merck CEO and President, Mr. Kenneth Frazier characterized Januvia and Janumet as “exemplary” of the company’s primary care business and noted that the franchise is helping to negate some of the headwinds the company has been facing (e.g., several large brands going off patent). During Q&A, he expressed confidence that the Januvia franchise will continue to grow, highlighting the opportunity to gain market share from generic sulfonylureas, which currently have ~35% of patient days of therapy – we see Merck’s focus on this opportunity as very positive for patients. Additionally, he emphasized that the franchise still has room to grow in emerging markets. For example, Januvia is currently not reimbursed in China; we can imagine that when it is, the franchise will grow still stronger. In addition to Merck’s current portfolio, diabetes drugs appear to have a very strong presence in the company’s R&D pipeline. Notably, Mr. Frazier highlighted Merck’s phase 3 once-weekly DPP-4 inhibitor, MK-3102, both as an important opportunity to expand the DPP-4 inhibitor franchise and as one of the more important candidates in Merck’s mid-stage pipeline. Finally, when asked what classes might work well in combination with Januvia, Merck’s management noted that they are looking for a candidate that has a good tolerability (and safety) profile to complement Januvia’s. Classes they highlighted included the GPR40 mechanism, which they have in-licensed, and glucose responsive insulin, which they stated would be a “real breakthrough in the whole diabetes field” if successfully developed. Management also remarked that Merck has earlier undisclosed programs in the field. We note that the focus on diabetes today was in line with the spirit of Mr. Frazier’s comments during Goldman Sachs CEOs Unscripted, encouraging us about the company’s future in the field (for more details on Mr. Frazier’s discussion at Goldman Sachs please see our January 3, 2013 Closer Look at

  • Merck initiated phase 3 trials of its once-weekly DPP-4 inhibitor MK-3102 in the fall of 2012. As a reminder, MK-3102’s once-weekly dosing is made possible because it is not metabolized, so it is long-lived in the blood stream (for more information on MK-3102 please see our report from Merck’s November 2011 R&D day at Currently, there are six phase 3 trials studying MK-3102 listed on with the earliest estimated completion date being December 2013 and the latest being April 2015. For details on these trials please see our Merck 3Q12 report at
  • Notably, Mr. Frazier stated that though it is important for DPP-4 inhibitors to not be associated with cardiovascular risk, he does not think they need to cause cardiovascular benefit. Merck’s cardiovascular outcome study for sitagliptin (TECOS) is anon-inferiority trial and has a primary completion date of December 2014 ( Identifier: NCT00790205).
  • As a reminder, Merck acquired Beverly, MA-based SmartCells (and SmartInsulin, the company’s glucose-responsive insulin) in December 2010. During Merck’s November 2011 R&D Day, management mentioned that Merck is merging its SmartInsulin efforts with its GlycoFi capabilities (which give it the ability to incorporate glycosylation changes into a protein during expression in yeast rather than through later chemical modification).
  • GPR40 is an orphan G-protein-coupled receptor (GPCR) expressed in pancreatic islets. Its agonists stimulate insulin secretion in a glucose-dependent manner. It is our understanding that Takeda is the main company currently developing a GPR40 agonist for type 2 diabetes. Its compound, TAK-875, is in phase 3 testing.

Questions and Answers

Q: Getting outcomes data in something like cardiovascular disease is a lot more time consuming and expensive than in specialty areas. Do you think Merck has the right balance at this point in its primary care, so that there are not too many large outcomes studies?

A: […] We believe that we have the right focus. We have a focus on primary care and areas like diabetes, which is a strong growing area. We see DPP-4 inhibition as a growing category within diabetes. […] We are actually striving for balance. I know some companies have made the decision strategically that they want to play in for example specialty only. We think the key to success going forward is two fold. One, focus on where the scientific opportunity is irrespective of if it is primary care or specialty. And two is to see where patient demand is going to be. That leads us into different things like diabetes and cardiovascular disease.

Q: Januvia has been an impressive story. Should we expect growth to slow going forward or are there still a lot of opportunities ahead?

A: I firmly believe that there is a lot of growth ahead of us. We know that there are projections that the class will grow to a very substantial number. We still have a huge amount of opportunity versus generic sulfonylureas, which are about 35% of patient days of therapy. In addition we have markets where we have not fully launched the drug. For example, China is second only to India, in terms of the number of diabetics a country has. While Januvia is available on the private-pay market, we have not gotten reimbursement for the drug in China. So that is a great geographic opportunity, in addition to what I think is the greatest opportunity with sulfonylureas. I would also point out that in our pipeline we have our once-weekly DPP-4 inhibitor, which is going into phase 3 and that we think will provide greater opportunity for our franchises.

Q: How important is CV outcome data to DPP-4 category?

A: We have a cardiovascular outcomes study underway called TECOS that is designed to show non- inferiority. I think that is important for us to show that it is useful in diabetes and certainly causes no harm in terms of cardiovascular outcomes. I do not know that you have to have a big winner, in the sense that you need to show concrete positive outcomes or benefit from the drug. We continue to be committed to that and we think that it is a great drug. It has very positive efficacy associated with it and very nice tolerability.

Q: Could you comment on what excites you in your mid-stage pipeline?

A: A couple of projects are very important to us and are exciting […] MK-3102, our once-weekly DPP-4 inhibitor is an important opportunity for us.

Q: Do you have any thoughts on what would be a good diabetes class to use in combination with a DPP-4 inhibitor like Januvia other than metformin?

A: That is a good question. We are definitely working on that in earlier programs of the pipeline. Januvia happens to be a very clean drug in terms of having minimal side effects and nice efficacy. I think that one is looking to pair a molecule like Januvia with something that has a good safety profile. That is of course something that is difficult to do and we are continuing to work on that. We have announced earlier on that we have done a licensing deal with a GPR40 mechanism, so that is a mechanism that we are pursuing. We have also announced a much earlier but very exciting program in terms of having glucose responsive insulin. If we could come up with an insulin, which would actually respond to glucose to prevent hypoglycemia, that would be a real breakthrough in the whole diabetes field. And we have other undisclosed programs, which are earlier on. It is a difficult thing to do, but it is something that we are very committed to try to do.


Merck KGaA

Matthias Zachert (CFO, Merck KGaA, Darmstadt, Germany) and Stefan Oschmann, PhD (CEO, Merck Serono, Darmstadt, Germany)

In opening the session, Mr. Zachert gave a high-level description of the Merck Group’s business strategy and restructuring efforts. Dr. Oschmann then followed with an update on Merck Serono (the largest of the four Merck Group divisions), mentioning Glucophage (metformin) only in passing when noting the components of Merck Serono’s General Medicine division, which has experienced flat growth in the first nine months of 2012. He remarked that General Medicine sales experienced strong growth in emerging markets offset by a decline in European markets, though there was “some remaining business primarily in the southern European markets.”



Joseph Jimenez (CEO, Novartis, Basel, Switzerland)

Mr. Joseph Jimenez touched briefly on Novartis’ diabetes-related businesses, mentioning Galvus and Lucentis as two of six products that will drive growth in 2013. Mr. Jimenez’s slides indicated that Novartis expects a pivotal study read-out for its phase 3 DGAT1 inhibitor, LCQ908, within the next 12 months (an update since the company reported 3Q12 financial results), with filing expected in the US and Europe in 2014 (consistent with previous estimates). His slides also indicated that approval for a pathological myopia indication for Lucentis is expected within the next 12 months, representing a delay from previous estimates that this approval would occur by the end of 2012. When asked about competition for Lucentis, during the breakout session, management characterized Bayer/Regeneron’s Eylea (aflibercept, another anti-VEGF agent) as less of a threat to Lucentis in Europe than it has posed in the US (see bullet for details). As a reminder, Novartis holds rights to Lucentis ex-US, and Roche/Genentech within the US. Eylea has been eroding Lucentis’ US market share since its FDA approval for wet AMD in late 2011; Eylea received a European approval for the same indication on November 27, 2012. Bayer/Regeneron submitted Eylea for a diabetic macular edema (DME) indication in Europe on December 6, 2012, putting a likely European approval for DME in late 2013. Please see our Novartis 3Q12 report at for details on the competitive landscape for Lucentis and for Galvus’ recent performance. Novartis will report 4Q12 and 2012 full-year financial results on January 23, 2013.

  • Bayer/Regeneron’s Eylea (aflibercept) received a European approval for wet age- related macular degeneration (wAMD) on November 27, 2012. Eylea’s principal benefit over Lucentis is the less-frequent intraocular injection schedule required by its label. Lucentis’ label calls for once-monthly intraocular injections, whereas Eylea’s label allows for injections every two months after the first three months of monthly injections. As stated during Q&A, Novartis believes that this is what has given Eylea an advantage in the US since sales representatives may not promote off-label use of Lucentis on an as-needed basis. In contrast, Novartis believes that European ophthalmologists have been trained to individualize treatment such that they are already prescribing Lucentis on an as-needed basis rather than strictly once- monthly, so Eylea’s label for every-other month administration may not represent a significant benefit. Mr. Jimenez also noted that Eylea’s structure is more similar to that of Avastin and that 20% of the drug escapes the eye into systemic circulation, implying that Eylea may be less safe than Lucentis (we thought this was framed a bit strongly given that no data directly comparing the two exist).

Questions and Answers

Q: Can you characterize your prioritization of primary care in developed markets?

A: We have a history of a very strong primary care business […]. Our business focus is shifting more towards specialty. Before we had been 60:40 primary care to specialty. That ratio will flip, but we will still have an important primary care business.

Q: So you are shifting your focus to specialty products, which are more expensive, in the face of US and European markets’ increasing concern about the price of products. How will you pave the path during development to get recognition on the part of payors, whether they be governmental or private?

A: We’re working toward identifying groups of patients that are most likely to respond to treatments and develop health economic data showing huge benefits. Instead of 30% to 40% response rates, we’re looking for 50% to 60% to 80% response rates, so all of a sudden the health economic benefit becomes very clear. The level of unmet medical need will drive whether you get reimbursement. So, incrementally better medicines at a high price will not be a path for the future, but if you can develop treatments for a very special population with a significant medical benefit, I think it’ll continue to be reimbursed.

Q: What are you doing in the face of competition for Lucentis?

A: I showed this morning how Lucentis today is a $1.8 billion drug and growing at 24% a year. Part of that is geographic expansion as we expand into Asian markets, so it’s not just coming out of the US. There are very key differences with Lucentis outside the US compared with Lucentis inside the US. I think what’s most misunderstood is the potential for the anti-VEGF category to grow. We’re seeing new indications like DME [diabetic macular edema], RVO [retinal vein occlusion], pathological myopia and some other small indications. The VEGF category will become quite large. Lucentis’ main competitor will be Bayer/Regeneron’s Eylea. Regeneron did rather well in the US, but you have to remember that in the US market, the Lucentis label has been constraining in that it requires monthly injections. A doctor can still prescribe it at a lower frequency, but the promotion of Lucentis is limited to once-monthly injection. In most countries ex-US, particularly in Europe, ophthalmologists are trained to individualize therapy. Some patients need Lucentis every month, but some only need it every two or even every six months. So in Europe, the big claim that Eylea is every other month will largely fall on deaf years. Eylea is still a good drug, but we believe we have a good business. There are also differences between the molecules. Lucentis is an antibody fragment, whereas Eylea is closer to Avastin. I think the European assessment said that about 20% of the drug is systemic. So it may have some of the same issues of Avastin from an adverse event standpoint. So it remains to be seen what Eylea’s safety profile will be long term. Lucentis has been on the market for many years.

Q: Do you think it will be possible to get a $300-500 million drug in China in the next decade?

A: If you look at what a drug like Lucentis has done, you could argue that would be possible. Diabetes will be a very big category.

Q: What does the reimbursement picture look like in China?

A: It is very variable based on the kind of product. If you take a product like Galvus, this is a product that tends to be priced in a range that most emerging markets can afford. For example, in India Galvus is now number one in the DPP-4 category. In India alone, it could be a $100-million-plus product. Higher priced products like Lucentis get more challenging. In various emerging markets, it varies a lot but we have typically worked with governments or third parties to work out deals that allow the product to get to patients. This may mean free goods, discounts, or rebates to make it possible.

Q: Given the size of those markets and the prevalence of the diseases, it seems like you’d have to give a large number of free goods for any health-economic impact.

A: The size of those markets is so huge, so the demand of units is so large you can potentially make a very good business. Additionally, the cost of goods sold is quite a small number. So it doesn’t take much to be able to get to profitability.



Michael Narachi (President and CEO, Orexigen, La Jolla, CA)

During his presentation, Orexigen President and CEO Michael Narachi reviewed the company’s progress with the Light Study, Contrave’s path to resubmission, and the commercial landscape for obesity pharmacotherapies. Consistent with earlier timelines, Orexigen expects to finish randomizing ~9,000 patients in the Light Study by next week; although Mr. Narachi commented that it is too early to predict when the 87th MACE event required for interim analysis will occur, Orexigen stated that it expects to be able to conduct the interim analysis and resubmit the Contrave NDA in 2H13 if the event rate comes in close to the targeted 1.5% in a company press release. Encouragingly, the FDA’s Center for Drug Evaluation Research (CDER) proposed an expedited resubmission process for Orexigen’s Contrave, which if implemented would allow the company to use the summary report (as opposed to the complete clinical study report) of the interim results as the basis of resubmission, moving up potential approval by as much as two months. Mr. Narachi expressed confidence in Contrave’s commercial prospects, highlighting the drug’s favorable profile (he reviewed market research presented at the company’s Analyst Day in December 2012), Takeda’s resourcing and experience in primary care (and its contractual agreement to heavily promote Contrave in its first few years on the market), the large obesity market, and limited competition. He commented that the whole ball game today is about market growth, since only a small proportion of eligible individuals are currently using obesity medications; Orexigen expects the market could grow threefold to fourfold in the coming years. In addition, Orexigen will soon be initiating the Ignite Study, a method-of-use trial aiming to evaluate the real-world efficacy of Contrave. The study will randomize ~200 participants to Contrave with a telephone based lifestyle modification program versus usual care; Orexigen expects subjects in the Contrave arm will easily achieve an average weight loss of 10-15%. The first patient visit is expected to occur in February and endpoint data is to be available by the end of 2013. No new updates were provided on Empatic or the European regulatory process; for information on these and detailed coverage of Orexigen’s market research, please see our Orexigen Analyst Day report at:

Questions and Answers

Q: As you look at the other two companies preparing for, or in a new launch, is there anything you can use to optimize your own launch?

A: You’ve heard this mantra from us before – this is not a share fight in an existing market. It’s a new market. All three drugs have different mechanisms and will naturally appeal to different segments of the market. With two other new entrants launching, a lot of positive things will happen. They’ll help grow the market and promote education. Both are taking creative, responsible, medical approaches to launch. We’re also going to see specific things that did or didn’t work so well that we may be able to leverage. The launches will be quite different. The drug profiles are quite different. The first two are scheduled, and Contrave won’t be scheduled. That changes the sampling dynamics at launch. The resources of the partnerships are different too. So you’ll see a different launch. The positive is that I’d be telling you a similar story if we launched first and others were following. Would I prefer to be first? Perhaps. But is it bad to be coming to market about a year-and-a-half later? I don’t think it’ll materially change except for loss of time.

Q: Have you started thinking about surprising issues like co-pays already?

A: I don’t think there are any surprises on the reimbursement front. Meridia and Xenical had about 45% coverage. I think the new drugs will get up there. I think we are swimming downhill. The key will be to continue to build coverage. Our launch is going to be fundamentally different than the first two launches. We are going out big right from the get go. You have one shot at a launch. You want to get your sales slope to be as steep as possible in the first couple years, after that it is hard to change it much.

Q: In terms of access or reimbursement, are you or Takeda doing anything to set the stage for Contrave in reference to what Vivus, Arena, and Eisai are doing to strengthen access?

A: Reimbursement doesn’t happen by accident. The biggest thing that drives reimbursement is demand. A lot of managed care organizations won’t review you until you have been on the market for six months because they want to see if demand is there. They’ll find a way to give customers what they want. Driving demand is key part of driving reimbursement. There’s a skill set and infrastructure involved. Large pharma companies have large management teams of one hundred people or more. Takeda has that and more. When I was at Takeda, we drove great coverage and reimbursement for Actos. That’s the kind of strategies and tactics that Takeda is going to use for Contrave.

Q: Does Qsymia being on ESI’s formulary make a difference? Does that help you?

A: Yes, every victory helps. There are a lot of groups working together to increase awareness for obesity in general. There is a lot of alignment amongst a great number of players – not just the three we have been describing today – who are working to get related policies passed, to get the Medicare restriction removed. We are working with a lot of these players too, co-founding projects and so on.

Q: Did you enroll more women and minorities than you expected?

A: We were shooting for about 50/50 split or close to that for gender. In most obesity clinical trials, 75- 80% of the participants are female. So we actually had a larger proportion of males. We needed that because males generally have a higher CV rate. So we’re in the ballpark of where we wanted to be.

Q: Can you speak to the background MACE rate in those two demographics and how that ultimately compares to the overall event rate you expect in women and minorities?

A: It is too early to gauge where we are for the actual event rate. What we’re looking at with our modeling is that when you plug in characteristics of people enrolled today, we’re in ballpark of that 1.5% annual MACE rate we are targeting. It’s about as sophisticated of a model as you can get, but it is still simply a model.

Q: Do you intend to publicly update the event rate?

A: No, we wont be talking about the specific event rates. That would not be appropriate for a trial like this. You have heard the criticism of cardiovascular outcomes studies, particularly from Dr. Nissen, around such information being disclosed and biasing the later results. This is an FDA issue, beyond Orexigen, the FDA is trying to decide how much information from an interim analysis should go on the package insert.

The Data Monitoring Committee will guide us on timing. Whether we publicize the rate will also depend on how different it is from the guidance we have already given. If it is quite different from what we have told you, then an update is more important than if it is similar to what we have said.

Q: Whether the MACE rate comes out 0.8% or 1.5% or 1.99%, we shouldn’t expect to get that number because it might cause bias?

A: One reason academics don’t want to give such early numbers is because people will often misinterpret them. Say the true rate is 1% and you have a 50% of being above or below the true rate. People will interpret 0.8% as protective and 1.2% as a signal but they’re not significantly different. What I’d expect today is that we’ll be within the boundaries and we’ll resubmit.

Q: Do you think this interim data is something you can use with payors to move the dial?

A: We are going to be very careful about disclosing anything that is not absolutely necessary because of the potential for criticism of biasing the final results.

Q: Going forward as other drugs become available, do you have any plans for switch out studies with people who are non-responders on either Belviq or Qsymia onto Contrave?

A: No. There are 98 million patients untreated today, we will focus on those first.

Q: How much do you think an approval of alogliptin would help Contrave, in terms of Takeda’s sales infrastructure in this field?

A: I think we’re in a no lose decision either way. There are a lot of synergies for promoting a diabetes drug and an obesity drug. We know alogliptin and Contrave will reside in the same marketing unit, which is great because it means they will not compete for resources. It is very synergistic to talk about diabetes and obesity. You can imagine that you are holding a medical education event; at one event you can talk about two products, and you’ll get a tailwind from that. If for some reason, however, alogliptin does not get approval, then I think Takeda has even more priority to make Contrave a success because they’ll have lost the opportunity for another product. Overall, I’d like to see it approved, and I think there are good synergies. And I think it’s a good reason why we’ll dominate the obese diabetic patient. Takeda has a great relationship across the board with doctors and associations, that’s how Actos became such a successful drug.

Q: Looking to the future, do you think we’re entering a new paradigm where obesity medications will all have stopping rules?

A: The two most recently approved drugs have that label, which is what we proposed in our advisory committee in 2010. It was already somewhat in the sibutramine label. It’s an endpoint that a patient or physician can easily measure; you don’t need a lab, so I think it makes sense.

Commercially I view it as a continuing rule. It’ll motivate a patient that if they haven’t lost X weight by X time that they will not be able to continue the drug. So I see it as a real motivator. Part of the problem with past launches has been unrealistic expectations for timing on response. I think other things will align to it - payors may align to it – I think everyone will say lets give it a therapeutic trial as per the label, and thatwill motivate success.

Q: Intuitively you’d think payors would love stopping rules?

A: Why pay for drug that doesn’t work, right? Medco put in place more than a dozen genetic screens to find out if you are eligible for therapy. This is even easier.

Q: Can you broadly describe the interest level that is out there for Empatic?

A: Earlier there was skepticism around Empatic because it has an anti-convulsant. With the approval of Qsymia (which also has an anti-convulsant component) interest increased. However, with the disapproval in Europe, interest waned a little again. We will not fund a large phase 3 trial for Empatic independently. People do ask about it, but it is too early to say if that will be a partnered product or not.

Q: Will you be using WeightMate for the Ignite Study?

A: No, it will be a tele-health program. WeightMate is online.

Q: Will these different forums help you decide which way to go for Contrave in the end?

A: Using a pill and a program in a difficult area that requires change in behavior like weight loss is the way to go. Philosophically, if Contrave is introduced along with a program or programs that would be great. Takeda is driver of that decision in North America. Teams are working on how to do that. It makes sense for diabetes drugs as well. But it is a strategic choice of which way you want to go – do you want to have premium programs or off the shelf programs. But what we have done so far is a phase 3 with a human intensive program. The Light Study used Internet based counseling. For this study we haven’t announced the collaborator product but it’s a different program. This demonstrates that there’s different ways to go and that when you add Contrave to these programs you get more success.



Elias Zerhouni, MD (President of Global R&D, Sanofi, Paris, France)

After describing Sanofi’s recent initiatives to strengthen R&D, Dr. Elias Zerhouni gave an overview of upcoming regulatory milestones and noted that Sanofi has submitted the once-daily GLP-1 agonist Lyxumia (lixisenatide) to the FDA, in line with its previous guidance for a December 2012 filing. Sanofi expects both an FDA decision on the file acceptance and a final EU decision on the drug’s approval in 1Q13 (as a reminder, Lyxumia received an positive opinion from the EMA’s CHMP in November 2012). Discussing each therapeutic area, Dr. Zerhouni turned first to diabetes and confirmed that Sanofi hopes to market Lyxumia as a complement to Lantus. Moving to insulin, he noted that the new U300 glargine formulation is currently being investigated in six phase 3 studies, two of which are expected to produce topline results in 2Q13. Dr. Zerhouni highlighted Sanofi’s efforts to improve its insulin delivery in emerging markets, citing specifically the reusable AllStar pen that was recently launched in India.

  • During his diabetes overview, Dr. Zerhouni underscored Lyxumia’s pronounced effect on postprandial glucose and confirmed that a “key thing” for Sanofi will be to combine Lyxumia with Lantus as a strategy to promote the drug’s uptake. He stated that Sanofi’s next step is to develop a Lyxumia/Lantus combination but did not explicitly mention the lixi/Lantus fix-flex device that is slated to begin phase 3 in mid-2013. Sanofi’s pipeline also indicates that it is evaluating a premixed Lyxumia/Lantus combination in phase 1, though we had previously heard that it has been advanced to phase 2.
  • Sanofi continues to develop the new U300 glargine formulation through the phase 3 EDITION program, with six ongoing trials in type 1 and type 2 diabetes. Notably, topline results from two trials are expected in 2Q13: EDITION I and EDITION II both recruited high-dose type 2 insulin users and compare the new glargine formulation to Lantus when used with mealtime insulin or with oral antidiabetic medications, respectively. The phase 3 program also includes EDITION III (comparison with Lantus in insulin-naïve type 2 patients) and EDITION IV (comparison with Lantus in type 1 patients), as well as two recently initiated studies in Japan (JPI and JPII).
  • Dr. Zerhouni highlighted Sanofi’s efforts to improve its insulin delivery in emerging markets, citing specifically India’s reusable AllStar pen that is cheaper than the Lantus pen. During Q&A, he noted that in price-sensitive geographies such as emerging markets, Sanofi is working to gain new patients with human insulin and by providing a fixed-cost “diabetes box” that contains several diabetes products (e.g., insulin, strips for the meter, blood pressure medications). Historically, Sanofi has not invested in human insulin in developed markets and we look forward to seeing if they change their plans on this front.
  • During Q&A, Dr. Zerhouni expressed confidence in continued Lantus penetration despite the launch of Tresiba (Novo Nordisk’s insulin degludec) and the potential introduction of biosimilar glargine. Speaking to biosimilars, he reasoned that given Sanofi, Novo Nordisk, and Lilly’s strength in the insulin market, it will be difficult for a biosimilar manufacturer to produce the quantity of insulin to gain significant market traction. When asked about future competition from degludec, he underscored Lantus’ established safety profile and the fact that physicians and patients are unlikely to switch insulins if the patient already experiences control with his or her current medication. Dr. Zerhouni reiterated that it will be a competition for new patients and that degludec, “without any distinct advantages,” does not share Lantus’ safety profile and does not have as many clinical and epidemiological studies supporting its safety.
  • Dr. Zerhouni labeled Sanofi’s PCSK9 monoclonal antibody SAR236553 the “new pillar for the cardiometabolic franchise,” pointing to the 21 million patients globally that are currently not at goal despite current therapies. Sanofi recently initiated the phase 3 ODYSSEY program, which will enroll roughly 22,000 participants and evaluate SAR236553 75 mg and 150 mg given as a single injection every two weeks.

Questions and Answers

Q: Can you just talk about the insulin market and any pricing pressure you’re seeing?

A: If you look at the insulin market, there is a huge market in emerging markets. One of things we’re doing is asking, ‘What is the right price-volume tradeoff?’ It’s not the case that you can reduce the price and get a higher volume. We do this in a couple ways. In price-sensitive markets, we believe we can gain new patients with human insulin. Sanofi was the first one to start producing human insulin. We have been steadily growing Insuman. We also developed the All Star pen, which is a lower cost pen for Lantus.

There are some interesting pricing models. In Brazil, it’s the case that reducing price wasn’t going to increase uptake. In emerging markets, there is no healthcare insurance. People are faced with managing household monthly budgets. So what we’ve been doing is providing a diabetes box – so in addition to insulin, we provide strips for the meter, we provide hypertension and cholesterol medication, and we put all that in the box as well. We provide that at a fixed cost for patient.

If you stick with your European or American roots, it’s a much more consumer retail approach. In Europe, there is no price movement. All growth has been volume growth. In the US, there has been some price increases as well as volume growth. We see the healthcare market increasingly interested (from the payer side) in reimbursing for outcomes, not just components of healthcare. This is integrated care, beyond-the- pill strategies. That’s why we got into iBGStar. When we start focusing on outcomes, we need some mechanism to track patient progress. Patients today only have episodic contact today with a physician. Then, they go away for three or six months and then you have no idea how they’re doing. The iBGStar is not just another blood glucose meter. It can offer tailored patient education, track the progression of disease, and help a patient get onto the right dose of Lantus. Where we are, with the range of products from GLP-1, to human insulins, to devices, we’re able to produce diabetes solutions. That’s a different way to discuss price with payers around the world.

Q: How do you perceive the threat of biosimilar insulin?

A: One of things that makes insulin different is the quantity that has to be produced. If you look at where the worldwide capacity is, 90% of it is with Sanofi, Novo, and Lilly. These are also oligopolistic markets. In other markets like flu vaccines, you’ve got multiple suppliers and some products are more differentiated – people do find the right point. I don’t think biosimilar insulin is really going to be that disruptive to marketplace. Lilly’s bread and butter business is outside the analog space. Degludec is a late entry into the market, should it get approved. Biosimilar insulin will not be the same as generic medications – we don’t believe that it is substitutable.

Q: How do you see the resilience of Lantus with Tresiba coming?

A: I’ve been launching products for 25 years in this industry. One of biggest things is inertia. Physicians are primarily concerned about patient safety. And they know the safety of Lantus. If a patient is doing well, you won’t have much luck in getting that physician to switch – that’s especially the case if there is some level of explanation required. It’s a battle for new patients. In the US, we have over 80% market share with Lantus. What’s most interesting with Lantus is that there are three major epidemiological studies. And then we have ORIGIN, the most significant outcomes in diabetes since UKPDS. In addition to that, we have millions of patient data points. We have an ironclad profile on safety. When I look at

degludec, they don’t enjoy that same profile. The FDA documents provide us with some opportunities. People have maximum confidence in the safety of our product, and then you have someone coming along without any distinct advantages. As someone with 25 years of sales and marketing experience, I can sell against that.

From a scientific standpoint, we always have the notion to find an alternative to the best molecule. We tried to find a better Lantus. Every time we failed. The issue of cancer was resolved. Due to the evolution driven by research, we may have reached a natural sweet spot from a scientific standpoint.

Q: What will be your M&A strategy in 2013?

A: We generate a lot of cash flow. We spent 20 billion acquiring Genzyme. But we believe it’s good to have a leveraged balance sheet. We don’t want to see net debt drop below 10 billion euros over time. On M&A, we will do what we did before Genzyme – one billion to two billion euros per year in bolt-on acquisitions.

In emerging markets, we are a leader. Two thirds of our emerging market sales are in non-BRIC countries. Everybody is in India and China. There is heavy competition there. However, in Vietnam or Colombia or Nigeria, there is not the same level of competition. Not everybody is there yet. Colombia is probably the most exciting country economically besides Brazil. A number of satellite countries are starting to benefit from the growth of the BRICs. We want to get in these countries like Vietnam and grow our businesses.

Q: Are rapid-acting insulin and basal insulin manufacturing similar? Is it easy to convert from one to another?

A: No. It really requires some know-how. Rapid-acting insulin is a very close copy of normal insulin. It’s fundamentally protein technologies. It’s not easy to convert.



Yasuchika Hasegawa (President and CEO, Takeda, Osaka, Japan)

As announced in mid-November, the PDUFA date for Takeda’s DPP-4 inhibitor alogliptin (marketed as Nesina in Japan) is set for January 25, 2013 (Editor’s note – Nesina got approved by the FDA on February 25.). CEO Yasuchika Hasegawa noted that Nesina currently occupies the number two spot in Japan’s DPP-4 inhibitor market, and the company’s goal is to re-capture the number one spot (we think this is held by Merck’s Januvia but we aren’t sure - we believe Novartis’ Galvus is also very strong in Japan as may be BMS/AZ’s Onglyza). Mr. Hasegawa also stated that Takeda had entered a supply agreement with US dialysis heavy-hitters Fresenius and US Renal for Omontys, Takeda’s once-monthly erythropoietin stimulating agent (ESA) for anemia in patients on dialysis. Takeda remains in negotiations with other dialysis organizations for Omontys agreements. The company’s GPR40 agonist TAK-875 remains in phase 3, with a potential FY2015-16 approval in the US and Europe. Japanese approval for the company’s once weekly DPP-4 inhibitor SYR-472 is still expected in FY2014. For more details, please see our Takeda F2Q12 report at Mr. Hasegawa did not present on Takeda’s partnership with Orexigen for Contrave, but during Q&A management commented on the reimbursement landscape for obesity drugs. While they noted that, for the purposes of financial planning, it would be safest to assume that most payment will come out of patients’ pockets, they believed that it would be “very hard to keep [obesity drugs] off of [insurance companies’] formularies on the basis of them being cosmetic,” which may signify that Takeda thinks the public is becoming more accepting of obesity as a medical condition. For context, Orexigen management previously stated that reimbursement for obesity medications is not as bad as many make it out to be – from 2009-2010, 35-45% of covered lives in the US had coverage (mainly tier 3) for obesity medications, according to a survey of 15 pharmacy directors (Managed Care, November 2010).

Questions and Answers

Q: Can you both prepare for an alogliptin launch in the next year in the US as well as increase operating margin?

A: To be very precise, the PDUFA date is January 25, but we do not expect to launch until late in the year. There will be no fixed costs since we are using our primary care sales force. One of the best ways to dilute costs is to increase sales. So hopefully the ability to launch two products in one year is the best way to use our cost base. In the best-case scenario, we may have to prepare for a third launch in the US with Contrave.

Q: Are you willing to consider rare and orphan diseases?

A: Our approach to R&D is different from some pharma companies. Some companies establish disease areas of focus and then pursue those diseases. We will get into rare diseases, but it would be based on the science and properties of molecules. If the best application of our molecules is a rare disease, then we will pursue that. We pick areas depending on the science of the molecule, not depending on the disease.

Q: What do you think the total market opportunity with Contrave is?

A: I think it’s big. [Pause and laughter.] It’s well known that Orexigen has an outcomes study running and that they’re in negotiations with the FDA. Once we have the outcomes study and we have the final labeling, we’ll know that better. There is, of course, a best-case scenario from which you can extrapolate. There’s also the question of timing and competition. I’m positive that – assuming that a couple of decisions or results go our way – that it’s big. I think Contrave is positioned very well in terms of its efficacy and its safety profile. It has no teratogenic effects. I anticipate this will be a very competitive product in terms of its medical and scientific qualities.

Q: What do you think the copay would be for most patients? How many patients will actually get insurance?

A: For this point in time, to be on the safe side, you have to assume payment will be mostly out of pocket. Even then, in my opinion, it would be still be a considerable market. Payors are having to revisit the obesity market. It might have been considered a frivolous market in the past, a cosmetic issue, but now I think everybody recognizes obesity as a substantive health issue that causes an enormous amount of downstream expenses in healthcare. From the standpoint of government and managed care payors, I think there will be rethinking of that whole environment. My guess is it will be very hard to keep these products off of the formularies on the basis of them being cosmetic.



Leland Wilson (CEO, Vivus, Mountain View, CA)

Vivus CEO Leland Wilson discussed newly released prescription data for Qsymia, the recent addition of Qsymia to Express Script’s national preferred formulary, and the upcoming FDA decision on the REMS modification proposal that would allow Qsymia to be distributed from retail pharmacies. Qsymia scripts show pretty solid growth during the first three months post-launch, with 44% growth in scripts written in the four weeks ending November 23 compared to the previous four weeks and 68% growth in the four weeks ending December 21 compared to the four weeks ending November 23 (see table below). Mr. Wilson noted that this growth took place during a traditionally slow prescribing period (the holidays), suggesting that even better growth take place in the coming months, since February through May are historically months associated with high script rates. Mr. Wilson also provided additional color on Express Scripts’ decision to add Qsymia to its national preferred formulary, remarking that this milestone was nearly as significant as the Qsymia NDA approval. Additionally, Mr. Wilson seems confident that the FDA will approve Vivus’ REMS modification that would allow Qsymia to be distributed at retail pharmacies. We share Mr. Wilson’s optimism for the REMS modification, since the FDA requested Vivus submit it. We view these developments as strong steps in the right direction and believe that Qsymia might be gaining momentum.

  • This morning Vivus released new Qsymia script data (see table below) showing encouraging growth. A cumulative total of 26,700 scripts had been written for Qsymia to date as of December 21, 2012 and a cumulative total of 14,500 unique patients had been prescribed Qsymia. Number of scripts written grew 44% from the four weeks ending November 23, 2012 compared to the four weeks ending October 26, 2012, and scripts grew 68% in the four weeks ended December 21, 2012 compared to the previous four week period. Impressively, Mr. Wilson noted that the holidays usually represent the lowest prescribing period, so the fact that Vivus has seen robust growth for Qsymia prescriptions portends even better growth in the coming months. Qsymia’s prescriber base has increased linearly since its launch in September, totaling 7,652 unique prescribers as of December 21, 2012.


Four weeks ending –


Qsymia Rx’s written


Rx growth from previous four-week period


October 26, 2012






November 23, 2012






December 21, 2012






  • Mr. Wilson remarked that Qsymia’s addition to the Express Scripts (ESI) national preferred formulary was nearly as significant as the Qsymia NDA approval. He stressed multiple times that this was a “very, very big deal” since so many lives (26.3 million) are covered under ESI. Mr. Wilson also believes that ESI’s decision to cover obesity medications demonstrates that it sees the cost benefit of treating obesity as a chronic medical condition and, specifically, the cost benefit of treating obesity with Qsymia.
    • Mr. Wilson highlighted the reasons for why he believes ESI decided to reimburse Qsymia, specifying that the high patient response rate was a major factor in ESI’s decision to reimburse the drug. In addition to the robust ~10-15% weight loss patients achieved and sustained for 56 weeks on the mid- and high doses of Qsymia, 83.5% of patients achieved ≥3% weight loss after 12 weeks, and 89.7% of patients achieved ≥5% weight loss after 28 weeks (the weight loss cut-offs for Qsymia’s stopping rules). Mr. Wilson noted that this means payors waste minimal money on a therapy that is ineffective for individual patients.
    • As a reminder, Express Scripts lists Qsymia as a tier 3 “non-preferred” brand name drug needing prior authorization, with a copay of $50-$60. Physicians will have to attest that the patient has previously failed to lose weight after counseling on diet and exercise and trying a prescription of phentermine at some point in their history. Mr. Wilson remarked that this is a very low hurdle to overcome since most patients seriously interested in medical weight loss would qualify under these criteria. For our initial coverage of ESI adding Qsymia to its national formulary, please see our December 21, 2012 Closer Look at
  • In both his presentation and during Q&A, Mr. Wilson expressed high confidence  that the FDA will approve the REMS modification, allowing Qsymia to be distributed at retail pharmacies. As a reminder, Vivus submitted the REMS modification request in October. The FDA has six months to review the request so its decision should be announced by April.
  • Mr. Wilson also reminded the audience that Vivus has added Walmart to the list of mail-order pharmacies that carry Qsymia, stating that its position as an aggressive price- leader (it has the lowest published price for Qsymia currently) and recognition with patients might help increase patient access to the drug while the company awaits an FDA decision.
  • Mr. Wilson implied that the pieces are falling into place to turn Qsymia into a blockbuster drug. He named reimbursement and a paradigm of obesity medications being used chronically (rather than the previous paradigm of ~45 day short-term use) as the two essential factors for a billion dollar market and highlighted that Qsymia is now covered under a large pharmacy benefit manager (ESI). Additionally he remarked that Qsymia is the only long- term weight management drug available. See page 3 of our September 18, 2012 Closer Look for our analysis of what it might take for Qsymia to gain blockbuster status: We will have to await Vivus’ 4Q12 financial update to better judge how likely this could be. Certainly, ESI’s coverage under its national formulary should help with out-of-pocket costs in the future. Our report on Vivus’ 3Q12 financial results can be found at

Questions and Answers

Leland Wilson (CEO, Vivus, Mountain View, CA), Mike Miller (CMO, Vivus, Mountain View, CA); Timothy Morris (CFO, Vivus, Mountain View, CA)

Q: With the scripts data you released this morning, what percent of those are due to the Get Started!  Program?

A: I want to make this clear since there has been some confusion this morning. The Get Started! Program has little effect on creating physician demand for writing the scripts. What it does do is help patients that are price sensitive to fill that script. So demand is created totally separate from this program. That’s not a reason for why there has been an increase in scripts. As we’ve said in the past, we have a walkaway rate of about 30%, which is not terrible. We don’t currently have new data to say that two weeks free has reduced the walkaway rate, but I think it’s probably good in helping patients to pay for the product. The other big consideration is that 90% of scripts written come as a package – two weeks of the titration dose and 30- days of the main dose. So patients are paying in the neighborhood of $230 for those two scripts, which is a little high. So the Get Started! Program has helped them significantly fill their scripts.

Q: In the past, commentary sounded a little discouraging about the 30% walkaway rate. Now you’re feeling that that’s not so disappointing?

A: My history in the marketplace is that a 30% walkaway is not unusual. It’s not good but it’s not unusual. Certainly the two-week program will help.

Q: What will change in June or July when you modify the REMS?

A: What would be different is that a patient would be able to go to the doctor’s office and take a script with them to the local CVS. That pharmacist would then be able to fill it out. The pharmacist requirement is to give the patient the package insert or a patient brochure that warns of the possible teratogenic risks of drug. The physician can also contact the pharmacy they want to use and have them fill it that way. It’ll be very comfortable and common for the patient to be able to go pick up the prescription.

Q: They can’t do that now?

A: Now the process is very cumbersome. A doctor has to fill out a form; that form is either faxed or mailed to a mail-order house; and it has to be absolutely accurate or else it will go back and forth until it is accurate. The patient must give their credit card information over the phone. It’s a pain in the you-know- what as Barbara Troupin said at our FDA Advisory Committee meeting. We knew this going in, and it was a negotiation with the FDA that we accepted to get the approval. Now we’ll hopefully be able to get the expansion, which will put us in a much better position.

Q: Will the FDA’s decision on the REMS expansion rely on any post-market data? If so, what will you provide them with?

A: We submitted the REMS modification request in October. They have from now until April to respond. We do have a six-month REMS assessment due this month, so they’ll get an assessment from us on how the current REMS program has gone so far in advance of their ultimate decision. Regarding what metrics we’ll provide them with, there are many. It’s around how many patients, how many prescribers, and whether all the med guides are being dispensed. We’ll absolutely do fine in that sense. We can say our assessment is supportive of expansion to retail distribution.

Q: On the REMS question, in the letter you referenced what the FDA said about wanting expanded distribution. There were 18 aspects they wanted in their REMs program in addition to birth defect. How do you address the rest?

A: The goal of the REMs remains the same. The components remain the same. The only difference is you can now distribute the drug through retail and mail vs. mail only. We can meet all the requirements that we have in our REMS through the retail channels. So we will have both retail and mail vs. mail only.

Q: In December, what percentage of the scripts reported were GetStarted! scripts?

A: About 50% of those scripts are GetStarted! scripts. The bottom line is that we are interested in stimulating patient trials. The GetStarted! trial helps patients with the $230. The program does not take away demand with physicians who are writing the scripts. That demand is real. That has been a confusion for people this morning.

Q: Does the DEA have any restrictions around DTC?

A: You can advertise a scheduled product, but you will have a lot of language around that in the ad.

Q: Do you have finance for DTC?

A: Down the road, yes. First, we are working to expand to retail, then expand PCP reach, then DTC. Until then we are working to mobilize patients where we know that physicians are ready to receive them so that we get a high ROI.

Q: Was the GetStarted! Program preplanned or implemented in reaction to the market?

A: No, it was planned ahead of time. It takes time to contract with each pharmacy for such an offer.  

Q: At what point do you think that you need more marketing scale for DTC? 

A: We have God’s work that we have to do before we can make any of that happen. We have to make sure that thought leaders are on our side. We have to have substantial reimbursement – ESI is first of big ones we hope to bring on board. We have to get the REMs modification approved. When that happens we’ll  work with a larger pharma company that has excess capacity. People warn us that this strategy has proven not to be very successful, but there’s ways to structure these arrangements so you can get their full interest and it is all about money. If reps get bonuses for selling your drug they are going to do a bang up job with it. It does not work if your product is a me too. I can tell you without question that we have had a  wonderful reception by doctors. This is a new therapy and this is a new market. We think there are companies in the cardiometabolic area that have excess capacity with interest in this, and we’ve had discussions with them. We don’t have anything on horizon at this point. We are working in that area now.

Q: Do you have problems with doctors prescribing the drugs separately?

A: We have not seen that on a national basis. We actually see Qsymia being written in place on phentermine with our called-on doctors. I think we have to continue to do what we’re doing and drive adoption. I think the kind of win like ESI certainly validates that Qsymia brings lots of benefit over the two components. Additionally, the $50-60 co-pay that ESI members have is what those dispensing the generic forms charge typically.

Also, those doctors interested in making a livelihood in treating obese patients will use Qsymia and its brand to bring patients into their office because they are the experts in the area. We have bariatricians who are big writers of generic products working hard to bring patients into the market for Qsymia.

Q: How should we view the addressable market of physicians? I have gotten some feedback from PCPs saying, “I would need this much incentive to take chair time with a rep.”

A: Last year, CMS allowed for reimbursement for time spent on such consults for primary care. That was a big issue. We have supported that and spreading that awareness through reimbursement materials to physicians. Physicians are learning that now. For the most part, the PCPs that we call on two or three   times are now getting adoption. We need to stress how crucial education is. Our 150 reps have done an exquisite job of communicating benefits. Scripts that we are seeing are evidence of that. This is hard work, getting physicians to write in this market. This is not consumer demanded market like it was for fen-phen. The history of weight loss medications is not good. We have to change attitudes. The way we are doing this is through winning physicians one by one.

Q: Could you help with the gross to net calculation?

A: Guidance is that it will be 20% easily.


Zealand Pharma

David Solomon, MD, PhD (President and CEO, Zealand Pharma, Copenhagen, Denmark)

Zealand CEO Dr. David Solomon classified the GLP-1 class as a “true paradigm shift” for the treatment  of diabetes. His presentation reviewed the company’s overall business strategy and partnerships, R&D pipeline, and upcoming milestones for 2013. Zealand expects a final regulatory decision in Europe for lixisenatide (Zealand/Sanofi’s once-daily GLP-1 agonist Lyxumia) “any day now,” following a positive recommendation for approval issued by the European Commission for Human Medicinal Products (CHMP) on November 16, 2012. Additionally, Zealand envisages, in line with Sanofi’s expectations, FDA acceptance of Sanofi’s NDA filing for the drug in the US before the end of 1Q13 (which includes interim safety data from ELIXA, the drug’s cardiovascular outcomes trial). To our knowledge, Sanofi has confirmed late-2012 filing of the drug. It was interesting to hear Dr. Solomon speak to the growing GLP-1 class during the breakout session that followed. He sees increasing competition in the space as an important driver to increase penetration of the class overall. He emphasized that type 2 diabetes is by no means a uniform disease, and that different GLP-1 drugs will be appropriate for different patients (“there is room for a lot of GLP-1s”). While in both the Sanofi partnership for lixisenatide and the Boehringer Ingelheim partnership for ZP2929 (glucagon/GLP-1 dual agonist) all financing is born by the partner company, Dr. Solomon spoke to a potential future change in Zealand’s partnering strategy where the company could co-finance and thereby share part of the risk of development (and thus, increase the value upside and the rewards of success as well). On the early pipeline front, Dr. Solomon did not provide great detail (for patent reasons, he said), but commented that in order for Zealand to grow a durable business, its “proprietary pipeline has to have strategic value greater than the lixisenatide and lixisenatide/Lantus cash flow.” Our curiosity is certainly peaked and we’ll be looking for what new peptide molecules will emerge from Zealand in the diabetes and obesity space.

  • Zealand expects that lixisenatide will be launched in Europe first, then in the US. Dr. Solomon noted that there are four million patients with type 2 diabetes on Lantus, and one million of those are significantly overweight. One million times 365 days times a reasonable pricing of Lyxumia has potential, he said. For greater detail and comparison to other GLP-1s’ first-year sales, see our December 6 Closer Look at:
  • Zealand/Sanofi’s lixisenatide/Lantus fix-flex combination device for type 2 diabetes and Zealand/Boehringer Ingelheim’s ZP2929 (glucagon/GLP-1 dual agonist) for  type 2 diabetes and/or obesity remain on track with timelines given during Zealand’s Capital Markets Update. In line with guidance given also by Sanofi, the Lixisenatide/Lantus fix- flex combination device is expected to be ready for start of phase 3 by mid-2013. Phase 1 completion for ZP2929 is expected within 12 months. 
  • Looking further ahead, Zealand’s early-stage metabolic pipeline includes: 1) a GLP- 1/gastrin dual agonist (ZP3022) for glycemic control and beta cell preservation; 2) novel dual/triple-acting peptide drugs, potentially for glycemic control and CVD/lipids; and 3) orally- acting peptide drugs for glycemic control.
  • For context, if approved, Lyxumia would likely be the fourth GLP-1 agonist on the marketNovo Nordisk’s once-daily Victoza, and BMS/AZ’s twice-daily Byetta and once-weekly Bydureon are already available. Several other once-weekly GLP-1 agonists are also in late stage development, including GSK’s albiglutide (FDA filing in 1Q13), Lilly’s dulaglutide (FDA filing in 2013), and Novo Nordisk’s semaglutide (phase 3 to initiate in 1H13). For greater detail on lixisenatide and the competitive landscape, see our Zealand 3Q12 report at:
  • As in Zealand Capital Market’s Day, Dr. Solomon emphasized the difference between short-acting and long-acting GLP-1 agonists. For discussion on the potential clinical significance of the differing PK profiles, please see our Capital Markets Update (referenced above).

Questions and Answers

Q: Can you speak to your preclinical work in diabetes?

A: For Zealand to grow a continuously durable and truly valuable business, our propriety pipeline has to have strategic value greater than the expected cash flow from sales of lixisenatide and Lixisenatide/Lantus. We believe to have unique competences in peptide drug discovery and a strong position and competences in the diabetes/metabolic field to continue to develop novel peptide diabetes medicines; we have 11 preclinical drug development projects, of which the majority is targeting diabetes/metabolic diseases. For one of these projects as an example; the GLP-1/gastrin dual agonist [ZP3022], the concept is beyond strong glycemic control to see if there is any preservation of beta cells and thus a potential curative effect. We need to look beyond just A1c lowering …I think everyone agrees. I can’t mention a lot of the actual drug candidate names for patent reasons, as you imagine we want to  delay patent filings as long as possible. We do this work early and talk to partners. Our partnerships are strong, but in the future we most likely will address partners differently. We need to have partners where we can use our cash flow to share in the risk so we get a larger part of the value pie. The reward doesn’t have to be cash, it can be geographic rights for example. With a strong focus on future patient needs, we are always thinking about peptide medicines…peptides as agonists, peptides as antagonists. There’s a lot to explore.

Q: What do you think it will take to increase penetration of the GLP-1 class? Will it be targeting patients? Providers? Focusing on reimbursement?

A: It’s already changing. Seventy percent of scripts in the last three months were written by PCPs globally. I think there is growing recognition still that this is a safe and durable class. Increasing competition in the class will also increase penetration. We’ll have Sanofi alongside Novo Nordisk pushing once-daily medications. Credit Suisse forecasted peak GLP-1 sales in 2017/18 at $7 billion dollars. And there will be continued growth of the class through different formulations: weeklys, monthlys, even yearlys. It’s important to understand that not all people with type 2 diabetes are the same, and different GLP-1s will work for different sub-populations. Some might need brute A1c lowering and their need might be Victoza. For other people it will by Lyxumia. It will be like it was with statins; there is room for a lot of GLP-1s.


Public Device Company Presentations


Thomas Freyman (CFO, Abbott, Abbott Park, IL)

Abbott CFO Thomas Freyman provided a broad sweeping overview of the business, highlighting the recent January 1 split of Abbott into two independent publicly traded companies. Most notably, he mentioned that in diabetes, the company is “investing in a next-gen sensing technology that we expect to initially bring to the European market in the next several years.” It was great to hear that the company will stay in CGM, though we were disappointed to hear no mention of the US market– we hope sentiments are changing here in the US, especially since medical device regulation in the EU seems to be trending in a more conservative direction. We’re not clear if Abbott’s next-gen technology refers to the FreeStyle Navigator II (see below for details from EASD 2012), or a newer sensor technology that has not yet been announced. As we understand it, the FreeStyle Navigator II was launched prior to EASD and is now available in Denmark, France, Germany, The Netherlands, Norway, and Sweden. This presentation’s only other mention about diabetes was quite general – Abbott will be advancing its new product pipeline for insulin using patients, driven by the FreeStyle InsuLinx (“Simplifying the glucose testing process”). The slide on diabetes also mentioned margin improvement driven by patient mix and cost reductions, though no detail was provided.

  • At EASD 2012, Dr. Roman Hovorka mentioned that Abbott had launched the FreeStyle Navigator II CGM in Europe; however, it was a very low-key launch, and it was not announced on Abbott’s 3Q12 call or in any press release (Abbott also chose not to have a booth at EASD 2012). The company’s pivotal trial (n=30) showed 98% of readings in the Clark Error Grid A- and B-Zones (83% in A-Zone; 14.7% in B-Zone). Each patient in the trial wore the sensor for three successive five-day wear periods, and FreeStyle Navigator II readings were referenced against FreeStyle Lite strip readings. For comparison, Dexcom’s pivotal study for the G4 Platinum reported 80% of values in the A-Zone (we would note that the Dexcom study was slightly more robust, as it included 72 patients [vs. 30] and used YSI as a reference). For more details on the study and accuracy, please see our Abbott 3Q12 report at

Questions and Answers

Q: Can you speak on what you expect the effect of competitive bidding to be on the US blood glucose monitoring market and strategies by the big blood glucose monitor players, like yourself?

A: A lot of that will depend on how every individual organization is structured in their US versus international split. In ours, only 35% of that is here in the US, so there will be some effect. If you work through mail order, you will be more affected. We expect to see some of the growth out of prospects globally, but it will annualize itself in 2014. We see diabetes business to be a low single digit grower and expect that to happen through the impact of competitive bidding.



David Pyott (CEO, Allergan, Irvine, CA)

As in Allergan’s 3Q12 financial update call, CEO David Pyott commented that Allergan was interested in divesting its obesity intervention business (comprised of LAP-BAND and Orbera intragastric balloon) because it does not meet the company’s desired growth profile. Interest in a potential divesture seemed low in the breakout session that followed, with only one question about the divestment (and that related to potential dilution). We are not too surprised to learn about the plans, given that LAP-BAND has not done so well commercially in recent years; as a reminder, Allergan bought Inamed for over $3.0 billion in 2005; the business had more than just the obesity business, of course. LAP-BAND obesity surgery has not seen nearly as much growth in the last several years – gastric band surgery has been more popular and other alternatives like GI Dynamics continue to grow. While not included in the prepared remarks, Allergan’s Ozurdex (dexamethasone intravitreal implant) program for diabetic macular edema (DME) was listed in the company’s ophthalmics pipeline slide; approval is expected in 2014. We had been curious whether Allergan’s expanded partnership with Molecular Partners (see below) would give Allergan any additional inroads into the DME field, but Mr. Pyott made clear during the breakout that given the Allergan’s Ozurdex investment, the company would not look to develop any of Molecular Partner’s DARPin-based drugs for the treatment of DME, at least in the short term.

  • As a reminder, Allergan expanded its partnership with Molecular Partners in August 2012 to include: 1) an exclusive license agreement for the design, development, and commercialization of MP0260 (dual anti-VEGF-A/PDGF-B DARPin) for the treatment of wet age-related macular degeneration; and 2) an exclusive discovery alliance agreement in which the companies will collaborate to develop DARPin products for the treatment of ophthalmologic diseases.

Questions and Answers

Q: Does your expanded partnership with Molecular Partners give you any additional candidates for the treatment of diabetic macular edema?

A: No. Not initially. As we know for Lucentis and Avastin, once you have AMD you can go back and go after smaller indications. But given that we already have Ozurdex pretty close to clinical development and filing that lessens our interest. If we decide to pursue it, that is probably a decision four-ish years away.

Q: Will the contribution from SkinMedica be enough to offset operating contribution of LAP-BAND?

A: I can steer you to the answer. SkinMedica is just crossing profitability threshold. But in the public domain SkinMedica is half the size of LAP-BAND. You are asking the dilution question. I was clear on the last earnings call. There will be some dilution if we dispose of LAP-BAND/Orbera and we will make it up. I’m sticking to my story of mid-teens earnings per share growth. Good question, but don’t worry, we’ll do it.



Jörg Reinhardt, MD (CEO, Bayer, Leverkusen, Germany)

CEO Dr. Jörg Reinhardt gave a pharma-focused presentation, during which GlucoBay (acarbose; Bayer’s alpha-glucosidase inhibitor) and Eylea (Regeneron/Bayer’s intravitreal aflibercept) were highlighted. According to September 2012 nine-month financial results, GlucoBay ranked ninth in 2012 Bayer pharmaceutical product performance with sales reaching €309 million (~$396 million1), driven  by 14% year-over-year growth in China (for the nine month period). For comparison, Aspirin, which ranked eighth, brought in €347 million (~$445 million2). After reviewing the top ten performers from 2012, Dr. Reinhardt transitioned the discussion to the five most important ongoing and impending pharmaceutical launches. Notably, Eylea (intravitreal aflibercept, sometimes called VEGF Trap-Eye) launched just a few weeks ago in Europe for the treatment of wet age-related macular degeneration (wAMD), having secured EMA approval in November 2012. Eylea is also being developed for a diabetic macular edema (DME) indication. Dr. Reinhardt commented that the three studies constituting Bayer’s DME program, Vista-DME US pivotal trial ( Identifier: NCT01363440), Vivid-DME  EU pivotal trial (NCT: NCT01331681), and the Japan safety trial (NCT01512966), have fully enrolled. As a reminder, Roche gained FDA approval for its competitor anti-VEGF DME candidate, Lucentis (ranibizumab), in August 2012. During the breakout session that followed, Dr. Reinhardt explained that the “potential for prolonged efficacy of Eylea compared to Lucentis, which will result in less frequent need for dosing,” would differentiate Eylea in the US. As a reminder, in the US, Lucentis’ label calls for once-monthly dosing. In Eylea’s ~one year on the US market with a wAMD indication, it has already eaten substantially into Lucentis’ market share, likely due to its less-frequent dosing. Roche does not  have an as-needed dosing on the Lucentis label (US label is for once-monthly treatment), which could potentially also benefit Bayer in the US DME market.

Questions and Answers

Q: Pending phase 3 study completion and FDA approval, what do you expect to be the biggest differentiators for VEGF Trap-Eye from Lucentis in DME?

A: We’ll have to see what the phase 3 results will be. There seems to be potential for prolonged efficacy of Eylea compared to Lucentis, which will result in less frequent need for dosing. Across the world, there are many different treatment paradigms with regard to Lucentis at the moment. In some countries, you give it two to three times per year; in others eight to nine. What works in the US is the mainly prolonged level of efficacy with the perception of slightly better efficacy and slightly lower price.

Q: Yesterday, we heard that the US is not a good example because Roche doesn’t have the flexible dosing on the label, so it is very restricted. You just alluded to that. Which  countries are closest to US where there is limited flexible dosing and where is there flexible dosing? And how does Japan look? [Editor’s note: this question refers to comments made during the Novartis’ break out session when Novartis management stated that US sales reps’ inability to promote Lucentis as anything other than once-monthly gave Eylea a significant advantage in the US. See page 13 of our Day #1 Highlights report for detail:]

A: Japan is restricted. It depends a little bit in Japan whether you are in a hospital setting or a more physician-based setting. I talked to a hospital doctor not long ago. She explained that regardless of the label she would only give Lucentis two to three times per year and would not give it more frequently because of the cost. So even in Japan where people tend to stick to the label, there are exceptions, especially when considering copays. Outside the US, there is more flexibility than there seems to be here. As you know, Avastin use is still illegal and nevertheless it is still supported. So flexibility is part of the game here. You are right that that may limit at least the speed of uptake of Eylea versus Lucentis. The speed in the US for Eylea through Regeneron is outstanding. But it is prudent to assume that this cannot be repeated outside of the US in the first year.

1 Based on currency conversion average of 1.282 for Jan 1 to Sept 30, 2012 on

2 Based on currency conversion average of 1.282 for Jan 1 to Sept 30, 2012 on


Becton Dickinson

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

Diabetes Care continues to be a current driver and future growth opportunity for BD. CEO Vincent Forlenza’s presentation suggested even greater focus on the diabetes space moving forward, which notably includes the company’s foray into the insulin infusion set category – market entrance is slated  for the 2014 fiscal yearWe were excited to hear this rare public update on BD’s ongoing partnership with JDRF to accelerate the speed of insulin infusion. As we understand it, the first-generation BD infusion set will not incorporate BD’s microneedle technology, but the second-generation would, which could represent a marked improvement in insulin infusion comfort and insulin delivery speed. As expected, Mr. Forlenza also spoke to BD’s strength in pen needles, highlighting the company’s Ultra-Fine Nano 4mm product introduced last year. Pen needles are an increasingly important area for BD in Diabetes Care, having grown to represent 42% of Diabetes Care sales in the full 2012 fiscal year. When asked about growing competition in the pen needle field (Mr. Forlenza commented during the breakout session that J&J would be entering the pen needle market later this year), he seemed unfazed: “we have been investing in that space, anticipating competition, and we think we can bring a better product.” Mr. Forlenza also mentioned BD’s ongoing partnership with JDRF to develop BD’s proprietary CGM technology (we note this research collaboration also includes Helmsley Charitable Trust). While no new updates emerged, it was encouraging to hear the partnership highlighted during the prepared remarks.

  • Overall, we appreciated Mr. Forlenza’s characterization of BD’s approach to the diabetes arena (“we are investing continuously in investigating unmet needs”). More broadly, while he certainly spoke to BD’s commitment to delivering value to shareholders, it was most refreshing to hear him emphasize a “commitment to helping people live healthy lives” in the same breath. Disappointedly, dedication to patients has not been a top common thread throughout the conference’s   presentations.
  • Mr. Forlenza highlighted the recently closed acquisition of Carlsbad-based Safety Syringes, Inc., as an example of BD’s company-wide strategy to expand and acquire new products via acquisitions. BD will gain Safety Syringes’ anti-needlestick technology platform, which Mr. Forlenza explained will help enhance BD’s safety offerings for healthcare workers and end users. We are curious to what extent Safety Syringes’ new technologies will be incorporated into BD’s insulin syringe offerings.
  • During Mr. Forlenza’s discussion of the macroeconomic environment facing BD in the full 2013 fiscal year, the medical device tax was a prominent headwind. Mr. Forlenza expects $40-50 million dollars to be repurposed for this tax in FY2013.
  • As a reminder, BD has three clinical trials under its partnership with JDRF to accelerate the speed of insulin infusion and its research collaboration with JDRF and the Helmsley Charitable Trust to accelerate the development of BD’s CGM technologyBrief background on these trials is included below. For greater detail, please see our F4Q12  results  report  at:
    • Insulin Infusion: As of F3Q12, BD had completed a phase 1/2 trial comparing BD’s intradermal catheter set (also called microneedles) to the Medtronic Quick-Set. The intradermal catheter set uses a 34G x 1.5 mm side-ported needle and the Medtronic Quick-Set uses a 6 mm Teflon catheter for subcutaneous insulin delivery. This three-day inpatient study (n=23) assessed the primary outcome measures of insulin levels and time to peak plasma insulin concentration (Tmax) after mealtime boluses ( Identifier: NCT01557907). While we have not heard results of this trial (we hope that details may emerge at ATTD 2013), we assume BD’s forward progress on insulin infusion set development means study results were quite positive.
    • CGM Development: BD has two ongoing studies. First is a phase 2 clinical trial of BD’s glucose-binding protein-based CGM ( Identifier: NCT01469715) and second is a phase 1/2 study of the company’s second-generation glucose-sensing device ( Identifier: NCT01645696). The studies are currently recruiting participants according to; however, the listed primary study completion dates for both trials have already passed (October 2012 and September 2012, respectively). We hope to be apprised of new timelines during upcoming quarterly results conference calls.

Questions and Answers

Q: Could you speak a little on your diabetes business? You articulated, broadly, expanding in some markets that you haven’t been in.

A: Diabetes Care is performing quite well in our portfolio, both from a new product and geographic emerging market perspective. In my talk, I said we would move beyond injection and into infusion. I am talking about launching a new infusion set product line to be used with pumps in 2014. You may recall  that was part of a partnership with JDRF. Both JDRF and BD did research on level on satisfaction of people with diabetes in the infusion space and saw many unmet needs. So you’ll see technological innovation in that space from BD, and we’ll also have partners in that space. In CGM, JDRF did a bake-off of new technologies that they would fund in that space. They selected two proposals for new CGM technology and BD was one of them. This is an internally developed technology, but we’ll also look for external opportunities in that space.

Q: What is the competition like in pen needles? And how do you view the market place from a pricing standpoint?

A: This question in diabetes is referring to J&J bringing in a pen needle to the space and launching later this year. We have been investing in that space, anticipating competition, and we think we can bring a better product. And we have more innovations along the way. We are going to continue to compete. Next, across the entire company we saw a tougher pricing environment in Europe impacting us as they dealt with their fiscal issues.



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

After discussing Covidien’s strategic initiatives, Mr. Almeida briefly mentioned Covidien’s penetration in the bariatric surgery market, noting than an estimated 800,000 procedures in 2012 used the company’s technology. 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.


DaVita HealthCare Partners

Kent Thiry (CEO, DaVita HealthCare Partners, El Segundo, CA)

While dialysis giant DaVita is not strictly a diabetes company, it is increasingly important from our view to keep an eye out for what companies are doing to address one of the most debilitating and expensive diabetes complications – end stage renal disease. DaVita CEO Kent Thiry was candid and heartfelt in his talks with investors, noting that he and the company “care more about what we do for your mom or dad or brother or sister under our care than about your partners who are our shareholders – but we want to deliver for both.” We find it disheartening that the continuously growing demand for dialysis makes it such an attractive investment opportunity (as illustrated by the more than 200 audience members sitting and standing shoulder to shoulder at the presentation) – we hope that treatments for kidney disease are developed and supported that would prevent patients from needing dialysis in the first place. DaVita holds 34% of the national kidney care market and the company generated a whopping $1.8 billion in revenue in 3Q12 alone (see our DaVita 3Q12 report at We learned today that while privately insured patients make up only 10% of DaVita’s patient base, they represent 30-40% of revenue and 110- 115% of profits (the 90% of publicly-insured patients produce a net deficit for DaVita). Mr. Thiry also discussed DaVita’s November acquisition of HealthCare Partners Medical Group (HCP), indicating that HCP’s goal of actually improving health as a means of reducing costs (rather than simply optimizing utilization) fit in well with DaVita’s outlook. Mr. Thiry stated that he hopes DaVita HealthCare Partners will lead the way in consolidating the currently fragmented healthcare market.



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

In one of the day’s more widely awaited presentations, Dexcom CEO Terry Gregg provided an impassioned update on Dexcom’s 4Q12 performance, near-term pipeline, and his vision for where CGM needs to go. Most notably, product revenues in the fourth quarter were $32 million, up a striking 51% from 4Q11 and up 50% sequentially from 3Q12 (and impressively, nearly eclipsing 2010 full year revenue of $40 million). The strong performance was attributed to pent up demand for the G4 Platinum (launched at the end of October) and the typical positive seasonality trend seen in Q4. Full-year product revenue in 2012 was ~$93 million, up 41% from 2011. For 2013, Mr. Gregg gave product revenue guidance of $120-130 million, representing a ~34% increase over 2012 performance. Two important milestones are also expected in 2013: a pediatric indication (expected in 2H13) and the launch of the Animas Vibe CGM-integrated insulin pump in the US (“J&J is highly motivated to get that product through the FDA this year and onto the market”). This Thursday at the Consumer Electronics Show, Mr. Gregg will also discuss Dexcom’s exciting relationship with Qualcomm focused on a remote cloud computing platform – as he described it, it will allow monitoring of patients through secure wireless data through a home gateway system (we assume this is the Qualcomm 2net Hub). Dexcom’s pipeline also looks quite robust for 2014: the never-before-mentioned Dexcom Share remote monitoring product will be introduced, along with a CGM-integrated Tandem pump (confirming remarks in 3Q12 that this was highly likely). See the table below for a complete pipeline. Although not mentioned in the presentation, an 8-K filed this morning announced that President Kevin Sayer has been appointed as Chief Operating Officer (more details below).

  • President Kevin Sayer has been appointed as Chief Operating Officer, a notable  move that now puts him in charge of sales, marketing, and other commercial functionsAs President, Mr. Sayer was responsible for Dexcom’s research and development, manufacturing, clinical, regulatory, and finance functions – no small task! He will continue to   lead those groups, along with his new aforementioned commercial responsibilities as COO. Mr. Sayer will continue to report to CEO Terry Gregg. We see the move both as an endorsement of Mr. Sayer’s abilities and a sign of the growing importance of the commercial side of Dexcom’s   business – indeed, as Mr. Gregg noted later in the presentation, patients are now driving demand, meaning Dexcom will need to put even more sales and marketing effort into understanding their customer base.
  • For the upcoming year, Mr. Gregg emphasized that one of Dexcom’s key messages will be encouraging use of CGM as “front-line therapy for all patients with   diabetes.” He particularly highlighted “all patients,” noting that CGM is useful in type 1s, type 2s on insulin, and even type 2s on orals. For the type 1 population, however, he did acknowledge that many KOLs still think “pump first, sensor second.” In the coming years, Dexcom will look to radically shift this paradigm (ironically, a paradigm that CEO Terry Gregg and COO Kevin Sayer started at MiniMed).
  • For the first time with G4, patients are driving demand.” This patient pull represents   an important change from Dexcom’s strategy in the past, which reflected more of a push strategy (i.e., what would be expected with a new technology). To support this assertion, Mr. Gregg quickly flipped through many patient testimonials, stopping at his favorite slide: a quote from a mother stating, “You saved my little girl’s life.”
  • Currently, 90% of Dexcom’s revenue is from the US market, but the company’s global presence will grow in the coming years. Right now, Dexcom is in 22 countries, with 11 additional countries expected in 2013. This represents a major point of difference between Dexcom and Medtronic – according to our model, Dexcom and Medtronic roughly split the US market, while Medtronic has 80%+ market share abroad. For more information, see our 3Q12 industry  roundup  at
  • “Insurance coverage is good, still not great.” Mr. Gregg noted that almost all patients with type 1 diabetes are covered, and a growing number of type 2 patients are covered. In Q&A, one investor asked about Medicare coverage for CGM, and management was frank in noting the challenges. Dexcom has reached out to both Medtronic and ADA, though Mr. Gregg cautioned not to expect anything this year.
  • Wearing a Gen 5 sensor porting to a Sony Ericsson smartphone, Mr. Gregg exclaimed, “The future of mobile health is at our doorsteps” – from a patient perspective, this was really valuable to hear. He emphasized that Dexcom is leading activities with the FDA to look at class III medical devices on mobile platforms. In his pipeline remarks, smartphone technology was estimated in the late 2014-2015 timeframe. Mr. Gregg also reminded the audience that mobile technology is integral to the artificial pancreas project – in particular, he acknowledged the tremendous progress that has been made on the AP, though he also cautioned that there is also a lot yet to be done. The key, he said, is that these are systems that must work in concert.
  • The hypoglycemia reduction benefits of CGM (~50%) can provide more than $50 million of annual savings to one payer. Mr. Greg walked the audience through the math for a US payer with 5 million members. On average, a severe hypoglycemia event costs $17,000. Based on the typical rate of severe hypoglycemia, a payer would expect to pay ~$118 million each year for members experiencing hypoglycemia. The 50% reduction in hypoglycemia seen with CGM thus translates into more than $50 million of annual savings.
  • Dexcom’s pipeline has a steady stream of products coming in the next few years. We believe the company is well positioned to capitalize on a number of fronts and shore up current weaknesses – pediatrics, pump patients that demand CGM integration, cloud-based software (especially for HCPs and clinical trials), and hospital patients.



Dexcom/Edwards GlucoClear 2

1Q13: CE Mark and EU launch; US timeline unclear.

G4 Platinum Pediatric Indication

2H13 (Approval)

Animas Vibe with G4 Platinum CGM integration

2H13 (US launch)

SweetSpot Cloud-based Data Management Platform

As of 3Q12, goal was FDA submission by end of 2012. It’s not clear if this was met.

Qualcomm Remote Cloud Computing Platform

2013-2014  (Launch)

Dexcom Share (remote monitoring)

2014 (Launch)

Tandem pump with G4 Platinum CGM integration

2014 (Launch)

Insulet OmniPod with CGM integration

On hold at the moment, though now that Insulet’s new pod is approved, we look for an update in Insulet’s 4Q12 call.

Gen 5 sensor with smartphone integration Late 2014-2015 (Launch)
Roche insulin pump with CGM integration Late 2014-2015 (Launch)
Gen 6 sensor 2015+

Questions and Answers

Q: In the fourth quarter, you said you had product revenue of $32 million – some of that included pent up demand and upgrade revenue. Have you pulled those pieces out? What did each of them contribute?

A: We really haven’t. Like we said, we had the $1.2 million in reserve and the $399 upgrade program. But we haven’t gotten to that granular level. Looking back historically, in Q4 of last year, we did 21 million. In Q1 of 2012, we did 18 million. That reflects the seasonality. We don’t expect to do $32 million this quarter.

Q: Did you complete your goal of finishing upgrades for people in warranty?

A: We pretty much accomplished that. We have extended the $399 upgrade program for one more month in case some people weren’t able to take advantage.

Q: Is there any difference in ASPs between Gen 3 and Gen 4?

A: There is not much growth in ASPs. Ninety-five to 97% of our patients receive some sort of insurance. We’re not renegotiating contracts at this time. We would have an opportunity to do that over the next several years – both for hardware and sensors. But ASPs will remain the same for now.

We’ve been successful in the last four or five years in increasing our pricing. ASP on hardware is roughly $800-$850. Sensor pricing has also increased dramatically. We would be very cautious about price increases in this environment.

Q: What has been the feedback so far on Gen 4?

A: As a technology company, we strove to increase the accuracy, durability, and reduce the biological interference. Clinically, that means better hypoglycemia detection, greater patient satisfaction, and   greater patient trust of the system. In the pivotal trial, our manufacturing coefficient of variation was 7% - that translates to lower sensor-to-sensor and lot-to-lot variability, which means less out of box failures  and a better experience for patients. Those were the things we kind of expected.

What most surprised us were things like the form factor. The Gen 4 receiver is an old iPod nano. Our team went to Best Buy and said, ‘Yes, our electronics can fit in that.’ But the patient receptivity has been very good. Then there’s the color screen. The biggest attribute has been the switch to a 2.4 Ghz bandwidth. The distance improvement went from five to six feet up to 20-50 feet. We’ve had a lot of patients’ say, ‘Wow, that’s really an attribute that we can use.’ It increases mobility around the house. And in terms of off-label use by parents monitoring their children on the playing field, instead of strapping the receiver to their child, they can monitor their child from the sidelines. We’ve been quite thrilled with the response.

Q: In terms of the endocrinology community, have you seen an uptick in getting practices that were traditionally more Medtronic?

A: There was enough info out there in the diabetology community that Gen 4 was coming and was a lot better. From a scientific standpoint, we did a good job to get that out there. We are highly invested in the world of the artificial pancreas as well. We’re not spending money driving the artificial pancreas, but it’s something that we provide, and many are grant based. Out of that came work came the knowledge base that we’re really good at what we do.

I consider Gen 4 a transformational adoption. We have met the promise of what CGM was supposed to be when it was introduced. We all had great hope and promise back then. But none of us really met what everyone really expected until this product introduction.

Q: How much a limitation is the current lack of a pediatric indication?

A: It’s an opportunity, not a limitation. Certainly, there are parents and physicians that use it off label. But we don’t call on pediatric endocrinologists. If we think that they make up 20-25% of the diabetes population, that’s a huge opportunity to call on those practitioners. That’s one of the major drivers in  2013.

The second major driver will be the introduction of the Animas Vibe combination product here in the US. We’ve seen what they have done with it in the European sector, taking significant market share from the two competitors in the European landscape. J&J is highly motivated to get that product through the FDA this year and onto the market. The other benefit of the pediatric indication is that we will have the added benefits of several hundred J&J reps carrying the combined product to pediatric endocrinologists.

Q: As you look at the sales force, do you have plans to expand?

A: I think we’ll take a hard look at pediatrics and other underserved markets in which we’re not getting there as frequently as we need to. Remember, more than 50% of patients starting on Dexcom use the Internet for training. That reduces the reliance on clinical education – you don’t need a one to one ratio, and can then contact more physicians. In the last quarter, we saw a number of scripts from physicians we do not call on. We’re not sure if it’s driven by patient demand, or other peer-to-peer interactions. But we need to be able to service those.

We need to talk about the role of CGM as front-line therapy. That’s the Dexcom message in 2013. In 2012, we were pounding the pavement, shaming physicians into avoiding hypoglycemia – ‘Stop killing people.’   It was about raising awareness. This year, our message is, ‘Put them on CGM first.’ They will learn more in a week with CGM than in weeks and months with traditional diabetes education. Whether it’s titration, behavior medication, or just the additional glucose information. They are better able to react with CGM. The technology is here, it is accurate, and it is reliable. Start using it as you should. That’s the message.

Q: What do you need for reimbursement in the Medicare population?

A: We have done nothing other than talks. We’ve reached out to Medtronic and ADA. No matter who does it, both companies will get the same benefit. Originally when CMS made the coverage decision, they said it hadn’t been studied in an age appropriate population – they wanted a large clinical trial. No one wanted   to do a large clinical trial. Given the tremendous information about CGM, we feel there is no difference between a 60-year-old and a 65-year-old. These trials are multimillion trials. We have asked ADA to step  in and broker that relationship with CMS, and come up with a conclusion that makes sense for participants.

We met with Bob Ratner, the medical director for ADA. In his previous discussions with CMS, they did not care about diabetes patients. But now, there is this baby boomer group – they are healthy, living, vibrant, and going to become a CMS or Medicare issue. Don’t expect anything this year – this takes time. However, I do believe that morally, companies must address that market. We’ve got 64-year-olds that have been on the product for five years, and they will now lose coverage as they turn 65. They are not happy and they are very vocal.

Q: In the 2013 guidance, did you consider the pediatric label?

A: We built the guidance on the base business. There might be some benefit, and we’re hoping for second- half-year approval. But we don’t expect anything skyrocketing because of the pediatric indication.

Q: How big is that hurdle in terms of moving CGM onto the front lines? What is it a function of? Is it that the prescribing base doesn’t want to experiment? Is it blocking and tackling and just growing the message?

A: It’s a multi-prong attack, but it is a tremendous hurdle. If we don’t take first steps, we will never get there. I’ve been talking to the professional societies: JDRF, ADA, EASD, and IDF. Those are the areas in which I have relationships, and I will try to capitalize on those. We also have good support from KOLs.   But even when we call on them, it’s always pump first, sensor second. We’ve got to change that. From our days at MiniMed, Kevin and I are victims of great success driving that message of pump first. We must  now live with the consequences of doing a good job. Changing that paradigm will be a multi-year effort. But, no one disputes the logic when you sit him or her down as a practitioner. The other benefit to a pediatric indication is that we will be able to capture them early, upon diagnosis. We’ll get that loyalty and that benefit.

Q: Was there a change in the typical split in Q4 due to the launch – you’ve said 70-75% for consumables and hardware?

A: We haven’t disclosed it, and we’ll leave it there. We’ll give more color on the call.

Q: Can you talk about the in-hospital space? Medtronic got approval for their Sentrino in- hospital CGM in the EU in December. How are you thinking about the space, both in terms of the Edwards partnership and your own subcutaneous sensor?

A: With Edwards, it’s been all positive. We’ve completed our work on the second-gen sensors. Edwards hopes to get the CE Mark and launch the product this quarter in Europe. FDA has not been perfectly clear on in-hospital CGM from an accuracy perspective. However, our sensor is so accurate that I’m confident  in any standard that FDA sets – if we cannot make it, no one else will.

We’re also interested in the hospital outside the critical care setting. For that, we’re talking about our Gen 6 sensor. It needs interferent blocking for common drugs. It’s at least a couple years away.

Q: What about a sensor and insulin pump infusion set coming into the same site?

A: I don’t know the answer. We’re doing work in Europe at the University of Graz with Martin Ellmerer. They are testing two systems: a biolumen catheter and a sensor and catheter down the same channel. But to get to commercialization, we’re talking about $100 million and a five-year effort. If I had $100 million, I wouldn’t spend it there. And I don’t have $100 million. We want a 10-day sensor for durability. But insulin infusion is only three days. That’s going the wrong direction. It costs us just as much to make a three-day sensor as a ten-day sensor.

Q: What about patch pumps combined with CGM in the same set?

A: Who’s going to buy that, and will it drop adoption? When we left MiniMed in 2002, there was 20% penetration of pumps in type 1s. It’s at maybe 28% today. Pump growth in the US is flat. Everybody is going to start fighting for the installed base. We could be a pump company – we know how to do that. [Laughter] But we don’t want to do that. We have three real pump partnerships and one maybe partnership. We’ll let them fight those wars. Our market is $12 billion of glucose monitoring. Not the $2 billion insulin pump market.

Q: Who are you most worried about in the next five years?

A: I would say Abbott. The Navigator was a good sensor. They’ve continued to fund it in a minimal way. There are research projects still going with version 2.0. I fear them the most. The things they needed were just money – not technology. Then there’s Medtronic with the Enlite. It’s been published – Enlite is not as good as Gen 4. I don’t worry about them as much as I once did, but they are a viable competitor. Once you get to the three of us, it’s a cliff. For the next gen, you must have deep pockets. BD continues to work on their fluorescent sensor. They have enough money to see that through. But the early data still does not show that much durability.

You need $100 to $150 million to get to a commercial product. And that’s before you a build sales force. We’re a class III medical device. There’s an economic burden and you need a system in place. We did a very exhaustive clinical trial and set the standard very high. Some have said, ‘Why did you agree with the FDA to do that?’ We knew our product would perform. For companies shooting for a 16% MARD, we’re at 13%. Our next gen is at 10% and below. So it’s those three – us, Medtronic and Abbott are the big dogs.

Ms. Kelly Close (Close Concerns, San Francisco, CA): Thank you. You really let patients aspire to be normal all the time. What can you say about the role of CGM in important clinical trials? How can we use time in zone to supplement the value of A1c? Could that be used to evaluate new therapies?

A: You get your choice. With our new G4 Platinum Studio software, you can keep it as simple as staying in between the lines. You can go all the way to full blown software and all the data analytics you could want – time in target, modal day, and thermographic representation. But not everybody wants to do that. So we created a reference that allows patients and physicians to quickly interpret the data. In our next stage, we will have a cloud-computing platform with data analytics. But we have to be careful that we do not prescribe medicine.

Since we launched the new product, the response from pharma companies has been pretty outstanding. As we talk about our Qualcomm Life relationship, patients will be able to upload data seamlessly without having to come to the clinic. We’ll see CGM in clinical studies much more frequently than ever before.



Michael Mussallem (CEO, Edwards, Irvine CA)

CEO Michael Mussallem characterized Edwards as a very “focused” company: “we are heart valves and critical care technologies.” To illustrate the significant potential (and need) to improve the critical care environment, Mr. Mussallem noted that the US spends $85 billion on five million critical care   admissions and that a critical care patient costs five times more than a non-critical care patient. Part of Edwards’ effort in this space includes GlucoClear2, the company’s second-generation critical care  glucose monitoring system being developed through a partnership with Dexcom. Mr. Mussallem  outlined several milestones on this front that he expects Edwards to achieve over the course of 2013: 1) complete product development; 2) demonstrate ICU accuracy; 3) gain CE mark; and 4) define a US approval pathway. Mr. Mussallem expects CE Mark “over the next several weeks,” a slight delay from the 2H12 clearance forecasted in recent financial results calls. We will look forward to updates on the company’s US approval process – as of Dexcom’s 3Q12 call, discussions with FDA were expected in   2013. Dexcom management commented that the companies are still waiting on FDA to weigh in on the acceptable approval criteria in terms of system performance. For the most recent Agency perspective on this issue, please see our report from the June 2012 FDA In-Hospital Glucose Sensor panel at Said management during Q&A, “it is not  clear what the path is in the US.”

Questions and Answers

Q: Has FDA’s perspective on hospital CGM, and the Agency’s decision not to issue formal guidelines, affected timelines for GlucoClear in the US? What do you think will be the most important metric to assess for GlucoClear in your approach to the US regulatory space?

A: The short answer is that it is not clear what the path is in the US. We think that the FDA would like to see a solution in the US, but they haven’t been forthcoming and we have to force that issue. However, our first priority is to demonstrate the sensor’s accuracy and that it fits nicely into the workflow. We think we can demonstrate this in the EU and 2013 is our opportunity to do that. We will prove that in 2013 and simultaneously have conversations with the FDA. The big news will be what we can learn and validate in 2013.



Duane DeSisto (CEO, Insulet, Bedford, MA)

Insulet CEO Duane DeSisto provided one of the highlight presentations of the conference, full of valuable pipeline updates and perspective on the pump and CGM arenas. First and foremost, the second-gen OmniPod will begin shipping to US customers in February, with a goal of converting the installed base by the end of 3Q13. Many investors seem concerned about how this will go; we would point out it’s a one-time series of events that management is working on; some patients will wind up with pods they can’t use (because they want to start the new pods!) and while we imagine logistics will be a challenge, we don’t think this could be a gating item to success – it’s just a lot to get right over the next several months! Manufacturing appears to be up and running at a strong volume, which is of course key as the company transitions to the new pod. Notably, Insulet appears to be less focused on working with Dexcom on CGM integration, and has been at work with an unnamed company on a sensor that could  be integrated into a single site with the OmniPod patch pump. Notably, it has achieved a 10% MARD in pigs, and clinical trials are expected to start in 2014Still, this product is two to three years away, and we hope that work starts again on the Dexcom partnership. We had thought this might start up again after the second-gen pod approved, but it appears the companies’ business and technology visions are not perfectly aligned at this point. We hope this changes, but we can definitely understand that the focus at present is to get the new pod out. We were encouraged to hear Insulet’s new focus on type 2 patients that are highly insulin resistant, which will occur through use of ultra-concentrated insulin in an OmniPod. A deal is expected with a major pharma company in the next few weeks, and Insulet management estimates the potential market size is an impressive 1.5-2 million patients (doubling the current potential market size of mostly type 1s and a few type 2s). Management also reviewed some of the key achievements in 2012, which included 40% year-over-year growth and cash flow positive in September (and likely in 4Q12). The pod approval should be a huge catalyst this year, both from a profitability perspective (margins in the mid-60% range, compared to the low-50% range previously) and a growth perspective (20-30% growth is expected in 2013, and we would not be surprised to see higher).

  • The second-gen OmniPod will start shipping to US customers in February, with a goal of converting the entire installed base by the end of 3Q13. Currently, Insulet has   the capacity to produce 600,000 second-gen pods per month, a notable 20% increase over the current manufacturing capacity for the first-gen pod (500,000 pods per month). By the end of 2013, Insulet expects to be able to produce nearly one million pods per month – that’s enough to support 80,000 customers, representing a 78% increase over the current base of 45,000. Said Mr. DeSisto about the new pod, “It’s a dramatic step forward in form factor and profitability.”
  • On CGM integration Insulet appears not to be working actively with Dexcom, but instead, has been at work with an unnamed company to build a CGM sensor directly into the OmniPod patch. This means that the sensor and pod would be on the same patch on the body, though it was not clear if this would be integrated into a single cannula or two separate skin punctures. This point about a single site was echoed again and again by Mr. DeSisto (“It’s simple – people want one thing on the body”). The move away from Dexcom – as Mr. DeSisto put it – is partially because Dexcom’s goal is have CGM go to a smartphone. In Mr. DeSisto’s words, why would Insulet spend time working on a partnership if the goal is to get the data on a smartphone? We would hope there would be different opportunities for different patients – we  can also imagine plenty of patients who want the CGM data on the PDM! We also wonder if the business economics of an integration agreement were just increasingly challenging for the two companies to reach. Nevertheless, given that the new CGM product is two to three years away, we are somewhat disappointed from a patient perspective that Insulet will not have a CGM partner in the interim. That said, with the G4 as such a strong product, we also believe plenty of Dexcom users will be happy to continue to wear both devices.
    • On the new CGM, Insulet has been working with a company that “has been around in blood glucose monitoring” and has been working on a CGM for the last eight years. We would speculate it may be Bayer, but cannot be sure. Insulet is not building the sensor, but may license the technology in the future as we understand it
    • Based on studies in pigs over the last two years, the glucose oxidase sensor has achieved a 10.5% MARD, with stabilization after approximately one hour using a single fingerstick calibration. The major difference from current CGMs is the use of a “stamp-type circuit.” Mr. DeSisto noted that it has been tested against the Abbott Navigator, Dexcom G4 Platinum, and Medtronic products, and it is apparently comparable in accuracy. Since the sensor would be integrated into the OmniPod, its life would be limited to 80 hours (the labeled stability of insulin in a pump). The feasibility of this approach is of course highly dependent on the early accuracy of the sensor – since most sensors are the least accurate on day one, it will be interesting to see how this new sensor performs over a short 80-hour life.
    • The early data has convinced the companies to start a clinical trial by the end of 2014, as we understand it. Mr. DeSisto cautioned that this project is still at least two to three years away. However, in Q&A he noted that with the proper execution, a CGM sensor built into the OmniPod patch pump could become standard of care.
    • Insulet ultimately hopes to have safety and predictive algorithms built into the CGM-integrated PDM. Such a product would keep patients out of trouble, but it would not dose insulin. Rather, it might have different colored lights (green, yellow, red) to alert patients to trouble. Insulet has signed options with closed-loop sites to license both safety and predictive algorithms (no further specifics provided). Said Mr. DeSisto, “Our goal is bring algorithms through sensor technology that help patients spend less and less time thinking about this disease.” From a regulatory perspective, this is certainly a safer bet than more advanced system that might dose insulin. Of course, it also still leaves more work on patients to dose insulin and respond to alerts – this is not a major concern at this stage. However, given what Medtronic has gone through to get the MiniMed 530G submitted to FDA (let alone approved), there is certainly something to be said for taking an informed-open-loop approach.
  • Insulet has been working with a “couple of pharma companies” on putting concentrated insulin in the OmniPod for highly insulin resistant type 2 patients. In a one-year study in ten patients with type 2 diabetes, Insulet and the partner company saw an impressive clinical benefit with such an approach. The reason why, according to Mr. DeSisto, is the OmniPod is easy to use and makes it easy to comply. The slide described the product as a “simple multi-day basal, bolus pump.”
    • Insulet hopes to sign a deal in the next few weeks to further pursue the type 2 marketThe companies would subsequently undertake a 150-patient study and “really go after it.”
    • Insulet estimates that the potential market size for highly insulin resistant pumpers is 1.5-2 million patients in the US. Said Mr. DeSisto, “We have the ability to double our market” (i.e., the current market is ~1.5 million patients with type 1 diabetes plus a small percentage of type 2s).
    • Referring to “wearable pens,” Mr. DeSisto was frank: “We don’t want to get in that space.” He cited the challenging reimbursement climate, noting, “I’m not sure that’s a good place to be right now.”
  • Mr. DeSisto briefly mentioned the benefits of the integrated LifeScan PDM (“a  better solution for our customers”), noting the company’s goal to get it submitted to the FDA before the end of the year. This sounds like a slight delay from the Insulet 2Q12 financial update, when management forecasted the new LifeScan PDM would be available in   2013 though given the whims of FDA, it makes sense not to try to forecast in too much detail what FDA is expected to do. Mr. DeSisto specifically cited two advantages to the LifeScan partnership: 1) J&J is typically tier one on pharmacy benefit plans – this is especially helpful for their Neighborhood distribution business; and 2) J&J is enabling easier download capabilities (we immediately thought of the OneTouch VerioSync, which has wireless Bluetooth functionality and is pending FDA clearance). We wonder if the LifeScan integrated PDM would also include such wireless data uploading functionality.
  • Insulet has about 45,000 customers, translating to a 10%+ share of pump users in the US. Notably, more than 70% of OmniPod’s new patients are new to insulin pumping – it’s impressive to see Insulet continuing to grow the pump market to patients that have never tried pumps before. Mr. DeSisto further shared that 60% of Insulet’s customers are under 40 years old, and 30% of customers are under 18 years old. Given their “active lifestyles,” he explained, “They don’t want to be encumbered by tubing and all the traditional stuff that goes with other pumps. They are never going to go to a product that requires cutting holes in pants. Women are not going to be strapping this thing to their brassiere.”
  • By 2018, Insulet believes that as many as 50% of people with type 1 diabetes in the US are expected to be on insulin pumps, up from 25-30% currently. The expected compound annual growth rate (CAGR) is 3%. “It’s better therapy,” said Mr. DeSisto. We would certainly agree about physiological insulin delivery.
  • Insulet had several notable financial milestones in 2012: approximately 40% year-over- year revenue growth (even with some potential gating due to the pending new pod approval), and in all likelihood, operating cash flow breakeven for the fourth quarter; notably, cash flow was positive in September for the first time. In 2013, the new pod will also improve gross margins, from the low 50% range in the US with the current gen to the mid-60s by end of year. Insulet expects to continue to grow 20-30% in 2013.
  • All in, our product is $3,000 per year. If you keep a patient one day less in the hospital, you pay for the product.” Mr. DeSisto emphasized that healthcare is going to become increasingly outcomes driven, and Insulet’s ease of use and simplicity will put them “at the forefront of driving outcomes.” We certainly agree that easier products promote better adherence, and we look forward to seeing any data on this front. Certainly, some payers might balk at the ongoing cost of pump therapy, but we hope a more holistic look – such as that advocated by Mr. DeSisto – would reveal significant cost savings to the healthcare system in the long term.

Questions and Answers

Q: You gave a range of 20-30% growth for next year – that’s a broad range. Is that for company-wide sales growth of 20-30%?

A: Yes, that’s total Insulet revenue. We’ll fine-tune that here. We see no reason for the business to slow down. We’ve just got to get through the first quarter, when patients might be withholding reorders until the February launch. Once we get through that, in the back half of the year, we’ll swap out the installed base and see 60%+ margins. The fourth quarter should look like a nice uptick.

Q: Part of that is also 1Q seasonality, right?

A: Q1 is always the worst. Patients have new insurance benefits and they have to go through the whole process. The only thing is the first reorder cycle in February. Patients may say, ‘I’ll wait and place my   order in March or February.’ Most people have 30-60 days worth of products. Eventually they run out, they cannot hold off forever. If any of you know diabetes patients, running out of supplies is their fear. We see people bringing their inventory down knowing full well the next product is coming.

Q: How do you see gross margins ramping for the year?

A: First, in 4Q12, while we were producing the new pod inefficiently, it was as good as the current pod. We expect gross margins to be flat for the first six months, then an uptick in 3Q13 depending on how many convert. Most of the margin will come all the way through in 4Q13, so we expect to exit 2013 with a 60%- plus gross margin profile.

Q: Is that gross margin for the company?

A: That’s US OmniPod gross margin.

Q: On the manufacturing front, now that the product is approved, where are you with the two lines?

A: In the month of December, we made a couple hundred thousand second-gen pods and shipped them internationally. We have two lines capable of producing 600,000 new pods per month. Our current volume is 500,000 pods per month, so we’re already at a 20% uptick. We will start shipping new patients in February. We want to have a solid month of running it at capacity. But once you switch the lines on, you’re not coming back. We feel pretty good overall with where we’re at.

Given our track record with the FDA, we couldn’t just start producing pods ahead of time. We basically had a bunch of PDMs, and we had to add two or three confirmation screens. Luckily we could still use them and just had to reprogram them.

Q: You’ve done so much work getting the first line optimized, and it seems like you’ve achieved that, targeting $10-12 per pod. Is there any risk in bringing up the second line that it will not be as seamless?

A: There is always risk. We announced our approval December 14 and in the back half of December, we developed 200,000 Eros pods. Our level of production today with Eros is at the level of our current product. That said, you deal with the supply chain every single day. Ultimately, where we’re tracking progress, we’re in great shape. Our timing is as follows: the national sales meeting is next week, we’ll convert doctors in the back half of January, and we’ll convert the patient base in late February, early March.

Q: On the $85 million you just raised – you’ve had the sales force for 3.5 years, the direct- to-consumer sales force put in place last March, you have international distribution, and you have manufacturing. Why issue new equity to raise cash?

A: If you take a look at the $85 million and how we pay that out, we started going down the list. Hiring about 10 sales people will cost $1.5 million right there. And we went on. Could we have gotten by without raising more money? Yes. But we think we have momentum, and we have various opportunities, both in type 2 diabetes and in other drugs. I don’t want to stop the business because I’ve got to go run out and raise money.

When we look at the next six to eight months, we’re moving patients from one generation to the next. There comes the need for the new handheld. The last thing we wanted to do was slow down the transition. From a working capital perspective, we were cash poor. If we let that become an issue, shame on us. We’ve taken care of that and gotten it solved – we want to be opportunistic as things come along. I’ve spoken to many of you across the last two or three months. The liquidity question was hanging out there in the periphery. Within a day, the stock fully absorbed it. It has gone up 60 or 70 cents.

Lots of people were interested in company. Part of this – and we could have done $40 million or $50 million – is that $85 million seemed the right number to get new names in the book. We thought it through. I have all the scars from four years ago. Part of this is to take that off that table and make it all about execution.

Q: Would you use the new capital for a development program for sensor technology?

A: There might be some money put into that program. Right now we’ll start integrating sensor technology into our product and treat the sensor as a component, no different than the reservoir. We’re not going to spend the capital foolishly. We finally got to a quarter where we were operating cash flow positive, so were taking that seriously and will spend money judiciously, but we think the opportunity is going to be there.

Q: Yesterday at Dexcom, they mentioned the Artificial Pancreas Consortium. What might that accomplish?

A: There are 12 AP sites around the world. Eight of them are using our product. We have access to all that technology. No one in this room will live long enough to see a closed-loop artificial pancreas. No one is going to live that long. It’s the same FDA, and that’s not changing any time soon. Every person is different. You have to figure out some algorithm that works for you individually. You need faster acting insulin. You need new electromechanical devices. You need sensor technology that works – the first time it stops working, you’re in trouble. Let’s assume we can get all that right. But I just ate a pound of pasta because  I’m running the Boston Marathon. How are you going to create a device that can deal with that?

What we want is a product that can let patients know what’s going on. Green means it’s good. Yellow, using some predictive algorithms, says you may go off the tracks. And red means you’ve got a problem. We are not going to practice medicine. I do not believe that you can create a device that will do that. You can’t practice medicine with algorithms and sensors that are 90% accurate.

The key point is that diabetes patients want to spend as little time thinking about diabetes in a given day. We gain more and more knowledge in research, and it allows products to become better. But we won’t turn it all over to a computer. Our form factor means we’re the only patch pump that can leverage sensor technology into the pod. You can effectively give someone a handheld with very basic predictive type algorithms. Give that patient a device that is simple, easy to use, with real time information, in a cost effective manner.

It we look back at why insulin pump adoption is so low, it’s because the products are too complex. They impeded people’s lifestyles – priming, air bubbles, tubing. Seventy-five percent of our customers are brand new to pumping. On the pie chart, which showed 1.5 million patients with type 1 diabetes, pumps used to be at 20-25%; now, they’re at 25-30%. Companies like Insulet created a simple, easy to use product. Our goal is bring algorithms through sensor technology that help patients spend less and less time thinking about this disease.

Q: How much do you think it would cost end to end to do this CGM inside project?

A: The sensor technology exists. We haven’t put a budget on it. Between the clinical work and submission, it’s a couple years, but its not $30 million dollars. We have prototype products. We’ve been through it all  in pigs and we think we understand how to do it. The clinical step is the big step. With Medtronic and Dexcom, we’ll follow in their path, and that will create a PMA for us. That would have to be a separate manufacturing line, in a separate building [due to the different sterilization procedures required]. But the opportunity is intriguing for us. We’re not there yet, but we’ve now seen after a year of testing that we can Ethylene Oxide (EtO) sterilize the product and we’ve seen enough pure data – the MARD is 10.5%. We have to do more, but we basically have created prototype products. By end of next year, we want to test   the sensors on people. And then we’ll see how we can get this approved.

Q: Is there anything unique about this sensor? Could you do the same thing with a Dexcom, Medtronic, or Abbott sensor?

A: The unique part is the EtO sterilization. Glucose sensors are gamma sterilized. For glucose oxidase sensors, the enzymes don’t react well to heat and humidity, which is how we sterilize our OmniPods. It  has the same fundamental glucose oxidase technology. However, it has a stamp-type circuit as opposed to what currently exists. We found a space where we can sterilize the product – the sterility cycle is one day today, maybe it would be two days for this product. For those products, we probably could have arrived at a sterilization cycle that works. But with this one, we are working closely with the company.

The second piece is getting the sensor up and working. With our insertion mechanism, it appears – and  it’s a small sample size – that within an hour, the sensor is stabilized. It only lasts 80 hours, so you cannot wait 10 hours for it to start working. And we did it with one fingerstick. We have lots of work to do. Dexcom wants to put their sensor on the iPhone. Why should I spend time to stick it in a handheld? The real answer – if we execute this – is that it will become standard of care. Our track record with the FDA  has been less than spectacular. We have changed the entire team. When you get a new guy, you have an opportunity to build a new bridge. We will meet with the reviewer in January and lay out our entire portfolio of products.

Q: In the case that this single product doesn’t work, are there parallel paths?

A: If Dexcom and other companies are successful in offloading these, that’s the best solution for any patient. No questions, Dexcom’s product is better than anything that’s out there. That’s a great solution for our customers – go buy their sensor. Look, we’re kicking the hell out of Medtronic, and they’ve had CGM. I’m really not worried about it.



Omar Ishrak (CEO, Medtronic, Minneapolis, MN)

To a standing-room-only audience, Medtronic CEO Omar Ishrak presented his vision for the upcoming years, focusing on near-term product launches, globalization, and portfolio synergies. Both continuous glucose monitoring and insulin pumps were characterized as “high growth platforms” and represented two of the ten product categories listed – much more visibility and attention on diabetes than in the   past. VERY notably, diabetes was noted as one of three businesses around which Medtronic is   organizing the customer, and very highly regarded Medtronic Diabetes head Katie Szyman now reports directly to CEO Ishrak. That is fantastic from our view – more visibility for diabetes – and we know that her former boss Chris O’Connell, who led diabetes expertly in the past, will still weigh in and offer valuable insights (he’s one of the most collaborative leaders we’ve seen in diabetes and we’re glad his influence will remain in the sector though he’s also busy running the rest of non-cardio Medtronic). This move also speaks very favorably of Szyman’s leadership at Medtronic – now, two of the top three candidates for CEO will have run diabetes, and we’re very glad about that, given the visibility and focus and attention we hope very much will continue on diabetes moving forward.

Mr. Ishrak did not break out expected growth for each business (as Medtronic has often done in the past, though typically at its annual Analyst Day), though the ten combined businesses are expected to grow double digits in FY 14 (May 2013-April 2014). This obviously leaves a lot of leeway for each business. Notably, in a subsequent slide detailing “meaningful” upcoming product launches (January 2013-April 2014), the MiniMed 530G system (US) was the first product listed – as a reminder, this product is currently under review at FDA, and as of Medtronic’s last earnings call, approval is expected by May 2013. We would consider it a major victory for Medtronic if the FDA approves it in this timeline. Mr. Ishrak concluded the presentation with a very interesting discussion on organizing the business around specific customer groups. Diabetes was one of three groups mentioned, and based on remarks in Q&A, it sounds like this will be split off from Restorative Therapies (the implications of this were not made   clear). To further address the diabetes market, Medtronic plans to leverage its closed-loop leadership  and installed base (no detail provided). Mr. Ishrak also noted that diabetes is one of the areas in which acquisitions will be examined, though we believe this will be done cautiously – he emphasized that such moves would have to fill in gaps in the diabetes business and meet the company’s strict thresholds for dilution and return to shareholders. We imagine patch pumps could be a fruitful area, as perhaps could even other CGM businesses.

  • Mr. Ishrak said that Medtronic is #1 in insulin pumps and #1 in CGM; it is difficult to know exactly how this is calculated for Medtronic since it breaks out only growth rates and not baseline revenue. We have recently estimated Medtronic has a 91%/9% pump/CGM split based on information presented by Dexcom management during the company’s 2Q12 call and an unlabeled bar graph presented at Medtronic’s 2012 Analyst Day. As we understand it, about $1,000 per pump sold is attributed to Medtronic’s CGM revenue (hardware), even though not every patient necessarily uses the CGM capabilities of their pump.
  • Mr. Ishrak said that as healthcare moves from fee-for-service to pay for value, Medtronic will shift its focus to care continuum solutions that address disease managementThis expands on the current approach, which instead tends to focus on single product/therapy solutions. Mr. Ishrak emphasized the critical importance of providing financial benefit to physicians, administrators, payers, and patients. We will be interested to see how this translates to the diabetes business – certainly, products like the MiniMed 530G and mySentry remote pump/CGM monitor seem to be trending in that direction. It will also be interesting to see how their products for type 2 patients and hospital products progress.
  • Mr. Ishrak focused, as most leaders do, on emerging markets for part of his talk. Specifically, he said that in China, Medtronic’s immediate focus will be on five key disease areas, including diabetes. No additional detail on the diabetes strategy in China was provided. We have seen Medtronic’s “consumer” store for diabetes in China, which is fascinating. Ultimately, Medtronic expects China will be a $2 billion overall business for the company by FY18; we imagine diabetes will be a meaningful part of this. Notably, we understand that Medtronic also has a less expensive pump for the Chinese market that has sold well.

Questions and Answers

Q: You talked about structuring the organization around three customer groups – can you expand on that?

A: […] Finally, we have a separate group that we’ve formed that used to be part of Restorative Therapies – diabetes. Since it’s so different, and the customers are the patients themselves and payers – with a focus  on disease management – we’ve split that out. [Editor’s Note: It was not clear in the presentation or remarks what the implications of this “split” are, whether that means an organizational structure change,  a change in accounting, etc.]

Q: In diabetes supplies, we’re hearing about competitive bidding and mail order. Can you talk about the impact of that?

A: We see that as something that’s continuously come up as a subject. However, we have enough differentiated technology in diabetes that when we talk to people who are making these decisions – and demonstrate the uniqueness of the technology, it’s not commoditized at all.

Competitive bidding will mainly affect the test strip parts of the industry. It’s associated with Medicare.  Our pump business is not Medicare driven – it’s about 80% commercial payers. So this is not affecting our business, even though it affects the overall industry.

Q: Can you talk about your M&A strategy?

A: For M&A, our team has the three focus groups to look at. It’s not that we won’t go outside the three groups, but within them, how do we shore those up? What are the gaps? […] In diabetes, it may be some kind of integrated offering – looking at the installed base in a different way. Or it may be addressing the value segment to go after emerging markets. In looking at the three groups, we will go after economic value and globalization. Is the market attractive, can we win in it, and can we add value? And then it has to meet the return thresholds and dilution thresholds.



Joseph Papa (CEO, Perrigo, Allegan, MI)

While CEO Joseph Papa described the growing incidence of diabetes as “unfortunate,” Mr. Papa also emphasized the resulting business potential in this area – he estimated that the diabetes care market   was $4.5 billion. To this end, his slide deck labeled “Perrigo Diabetes Care” as a “win – win – win.” His remarks on Perrigo’s investment in diabetes were made in the context of the overall company’s business- wide strategy to expand via acquisitions. As a reminder, Perrigo acquired CanAm Care in early   January 2012 (announced at JPM 2012), giving Perrigo Dex4 hypoglycemia products (tabs, liquids, and gels), insulin delivery syringes and pen needles, wound care, and compression stockings. The    acquisition broadened Perrigo Diabetes Care, which had previously consisted of its blood glucose  monitor business (launched in 2011 via an exclusive agreement with AgaMatrix). During the breakout session that followed, Mr. Papa explained that Perrigo’s current diabetes care offerings are a platform that the company intends to build from. On the blood glucose monitoring side, he did not appear worried about competitive bidding, and in fact, noted that Perrigo can offer strips to cash-pay customers at nearly the same price as third party copays. He also discussed the three trends driving Perrigo business: 1) movement of products from national brands to store brands; 2) movement of products from prescription status to over-the-counter status; and 3) new products. The trend towards store brand products has already emerged in the diabetes category, where store brands grew 14% and national brands fell by 2% (leading to 4% category growth overall), according to Perrigo’s 52-week category update slide.

  • Mr. Papa believes that Perrigo’s focus on the cash-pay market will exclude it from the competitive bidding process for blood glucose monitoring. While Perrigo may not actively participate in competitive bidding, we would have been interested for greater color on whether Mr. Papa expects the cash-pay market to be subject to pricing pressures related to competitive bidding results. Further, we are curious whether the expansion of insurance coverage with the Affordable Care Act will make the cash-pay market a harder space to compete in, independent of competitive bidding.

Questions and Answers

Q: Can you speak on your diabetes business and how your customers are dealing with the competitive bidding aspect?

A: The incidence of diabetes is unfortunately continuing to grow very quickly. We said that we need to be in that area because it is important to retailers and the quality of healthcare. Because of the incidence of the disease, it’s going to be an important part of what the retailer is going to do. We feel good about where we are today. We offer blood glucose monitors as a store brand private label, and we can offer strips for cash-pay at almost the same price as third party copays. We know there are significant copays and we think we are offering strips based on the economics of it. From a cash-pay stance, we can be at about the same price as copays. We’re focused on cash-pay, we are not yet into third party plans where you have to go out and do competitive bidding. But blood glucose monitors are not the only part of the diabetes category, so we went out and got tablets, needles, and syringes. We have the broadest category offerings, and that is what we are trying to build. We view this as a platform that we can then add to.

Q: I have a follow up to the diabetes question. Since you’ve acquired the diabetes assets, what growth trajectory have you seen so far?

A: As to diabetes, more and more of the products in diabetes are moving from national to store brands, so we are comfortable. With diabetes, we tried to create a platform that we can continue to bring more products into. My personal view is that – not this year, but maybe five or eight years from now – there will be a section in many large retailers that is specific for diabetes. We’ve got a lot more to do in diabetes, we need to bring more products in, but as I said before, there clearly is more movement from national to   store brands.



Alan Hippe, PhD (CFO, Roche, Basel, Switzerland)

Roche CFO Dr. Alan Hippe gave a high-level overview of the company’s performance and business strategy – diabetes was absent from Dr. Hippe’s prepared remarks. During the breakout session that followed, Dr. Hippe commented that Roche has “enjoyed” Lucentis (ranibizumab) development thus far and is currently not pursuing a partner. As background, Roche/Genentech hold rights to Lucentis in the US and Novartis ex-US. In August 2012 the FDA approved the 0.3 mg dose of Lucentis for diabetic macular edema (it had previously been approved for wet age-related macular degeneration and retinal vein occlusion). Dr. Hippe also spoke briefly on the company’s phase 3 aleglitazar (dual PPAR-α/Υ agonist) program, but no new updates were provided. As a reminder, Roche is developing aleglitazar as a cardiovascular risk reduction drug for people with type 2 diabetes. For a greater detail on Lucentis  and aleglitazar (including management’s previous comments about the potential to submit aleglitazar for a general diabetes indication), please see our Roche 3Q12 report at:

Questions and Answers

Q: Can you speak a little on how AleGlucose and AleCardio [phase 3 trials for aleglitazar] are progressing and what you would need to see in these programs to pursue a glycemic control indication for aleglitazar?

A: Aleglitazar is in phase 3. We have fully recruited the trial in high-risk patients, and it’s a cardio trial, so we look at heart endpoints. We have a placebo and aleglitazar group. We will simply measure if we have more or less events – a very hard endpoint, not an A1c diabetes endpoint. This study should read out in 2015. [Editors note: we believe this response refers to AleCardio; Identifier: NCT01042769.]

Q: Turning to Lucentis, would you look for a partner?

A: For the time being, we have enjoyed how Lucentis development has played out. We now have a diabetic macular edema indication. We will see how everything will play out, but right now we are not having those discussions.


Private Device Company Presentations

Tandem Diabetes Care

Kim Blickenstaff (CEO, Tandem Diabetes Care, San Diego, CA)

Tandem CEO Kim Blickenstaff returned to JPM this year to discuss “New Options in Continuous Insulin Infusion Therapy,” highlighting a slew of new platform expansions off the company’s t:slim insulin pump. Notably, Mr. Blickenstaff reviewed Tandem’s pipeline, which now includes 1) a 500-unit  reservoir insulin pump, called the t:flex; 2) a discreet pump that is 35-40% smaller than the t:slim and will have a wireless controller (i.e., no need to take out the pump out to use it); 3) an expanded partnership with Dexcom to integrate the G4 Platinum into the t:slim (announced this morning); 4) a dual-chambered pump in partnership with JDRF (also announced this morning); and 5) the web-based t:connect software (as of the last update at AADE 2012, it had just been submitted for FDA 510(k) clearance). No timelines were given on the aforementioned products, though Mr. Blickenstaff concluded with a graphic depicting how much each line extension could increase pump penetration in type 1s and type 2s – the slide showed the cumulative portfolio taking pump penetration to nearly 60% in type 1s and over 40% in type 2s. We believe this is ambitious considering the current base (28% penetration in type 1s (400,000 pumpers), 4% in type 2s on MDI (50,000 pumpers), according to Mr. Blickenstaff), though Tandem’s innovative approach is certainly not to be discounted.

  • Highlighting that “one size does not fit all,” Mr. Blickenstaff explained that Tandem has developed pipeline products based off the t:slim to address different segments of the market. The products are noted below – no timelines were disclosed, though we imagine all are at least one year or more away from market launch.
    • t:sensor – an expanded integration agreement with Dexcom to integrate the G4 Platinum sensor. Mr. Blickenstaff showed a picture of what the device would look like, noting, “Our touchscreen has the best display format. Dexcom has the best CGM.” As a reminder, this substantially accelerates the original Tandem-Dexcom CGM integration agreement, which was previously for the Gen 5 sensor (2014-2015 timeframe). We look forward to hearing a more concrete timeline on Dexcom’s 4Q12 earnings call when this could be submitted to FDA – we expect the PMA supplement could be filed as soon as this year, though Dexcom will also have supplements for the Animas Vibe product, as well as the pediatric indication. If only one PMA supplement can be filed at one time, then it may be some time before Tandem and Dexcom can file for approval. Tandem sent out an email today noting that the company “will develop an upgrade program for t:slim customers to use the latest technology.”
    • t:flex – a 500-unit reservoir pump. According to Mr. Blickenstaff, the desire for a larger reservoir size came up in many customer conversations when building the t:slim. The picture of the t:flex displayed a pump identical to the t:slim, with a thicker cartridge that slides into the body of the t:slim. Based on our estimates, it looked about double the size of the current cartridge (i.e., instead of one five-stick pack of gum, it was two). Insulet’s presentation earlier in the day also highlighted this market opportunity – CEO Duane DeSisto noted that the potential market size for pumps for highly insulin resistant patients is about 1.5-2 million patients.
    • t:sport – 35-40% smaller than the t:slim and controlled with a wireless touchscreen handheld. It will still have the t:slim’s 300-unit reservoir, though it will also flexibly integrate with the 500-unit t:flex cartridge (we’re not sure how many  patients would switch between a 300- and 500-unit reservoir, though it is nice to let patients choose, and to have the option to switch). Mr. Blickenstaff characterized the t:sport pump as ideal for those who are active (“a fitness pump”) or those who want more discretion. Aside from the tubing difference, we thought it was somewhat similar in value proposition to OmniPod (simplicity, discretion, ideal for an active lifestyle – albeit the presence of tubing is obviously a key difference). We wonder how the eventual size of the t:sport will compare to the second-generation OmniPod.
    • t:dual – a dual chambered infusion pump in partnership with JDRF. The presence of two reservoirs means the form factor will be similar to today’s traditional pumps (e.g., Medtronic Paradigm, Animas OneTouch Ping). The picture showed two infusion sets coming out of a thicker version of the t:slim pump. The agreement’s goal is a “fully automated artificial pancreas system using therapies in conjunction with insulin.” JDRF will support Tandem in performance-based milestone funding over the next two years to complete the development, testing, and manufacturing of the pump. We were glad to see the focus beyond just glucagon, since amylin and GLP-1 have also shown some promise in early AP trials, and these don’t have glucagon’s stability challenges in solution. Certainly, we have seen many AP researchers switching to the t:slim in recent months, and the stamp of JDRF on this partnership certainly adds to the company growing closed- loop credibility. Additionally, this makes Tandem (to our knowledge) the only company  that has publicly announced development of a dual-chambered pump. As a reminder, Dr. Ed Damiano’s upcoming outpatient study will use two Tandem pumps (one dosing insulin, one dosing glucagon) and an iPhone controller. For more information, see our coverage of his presentation from DTM 2012 at Our DTM 2012 report also includes that latest update on glucagon from Xeris.



Kristine Peterson (CEO, Valeritas, Bridgewater, NJ)

We are considering an IPO in the future and that’s why we’re here, to get you familiar with the product itself,” said Valeritas CEO Kristine Peterson, “…it’s an exciting time.” Ms. Peterson’s early morning presentation on the company’s flagship V-Go insulin delivery device (a simple, disposable basal-bolus device for patients with type 2 diabetes) certainly suggested as much. This was a fantastic presentation as we learned a great deal, Ms. Peterson disclosed significantly more about the business than has been presented in the past. On the commercial side, Valeritas is in the process of expanding its sales force to reach 75 reps in 2Q13 (up from 46 reps at the end of 2012) in order to market V-Go on a national scale. Turning to reimbursement, the company forecasted 70% commercial access (of which over 50% will be preferred access) in 2013, having just signed a new major Pharmacy Benefit Manager (PBM) contract for tier two coverage; additional detail not provided. Further, Valeritas continues to expand its manufacturing capacity via contract manufacturing organizations in China. While some investors appeared curious for detail on the potential market for V-Go in Europe and any ex-US commercialization plans (the device is also CE Marked), we believe the US focus makes sense since there are certainly more than enough practices to address in the US where type 2 patients do not have  optimal glucose control and the infrastructure investment stateside is already established. There continues to be significant need to expand and improve insulin delivery options for patients with type 2 diabetes – prandial delivery options in particular – and the clinical results certainly shows that V-Go offers a valuable alternative to other insulin therapies and can elevate patient care, largely because of the adherence advantages and reducing patient barriers to moving on to multiple injections to cover their prandial needs.

  • Valeritas believes users would be willing to pay an additional $30-$50 per month  for the V-Go device. Diving into the reimbursement details for tier two and tier three coverage, Ms. Peterson explained that for tier two insulin pen coverage, individuals pay an average copay of $60 per month (e.g., $25 for Lantus, $25 for Humalog or Novalog, $10 for pen needles). Typically, tier two coverage of V-Go entails a $50 per month copay (e.g., $25 for insulin, $25 for V-Go) and tier three coverage has a $75 copay (e.g., $25 for insulin, $50 for V-Go). Ms. Peterson noted that, while V-Go is manufactured and regulated like a device, from a sales and reimbursement standpoint, it more closely follows a drug model. We also believe patients, once on V-Go, see an enormous benefit; unlike many type 1 diabetes models, Valeritas has the advantage that patients often begin therapy with V-Go when their A1cs are quite elevated, enabling a very clear difference to be demonstrated.
  • Valeritas is targeting type 2 patients currently on insulin not at glycemic goal. In the US, there are 3.8 million such patients (a $6 billion market potential), according to Valeritas. Ms. Peterson estimated that of the 28 million who have type 1 and 2 diabetes (a $45 billion market potential), 6.5 million are on insulin therapy (a $10 billion market potential), and of those, 5.7 million have type 2 diabetes (a $9 billion market potential). Valeritas targets the subset of insulin-using patients with type 2 diabetes who are not at goal; since type 2 diabetes is a progressive disease, we believe they could also target patients earlier in disease progression.
  • Over seventy percent of insulin-using patients with type 2 diabetes on intensive therapy never inject insulin outside the home, Ms. Peterson said. She emphasized that the stigma associated with having type 2 diabetes is an important contributor to this statistic; we believe the simplicity and discretion of the V-Go device can help overcome this. We believe this stigma needs to be addressed on a social level as well – having diabetes should certainly not be a barrier to treating diabetes, although it is challenging to know how to best impact this.
  • For background, Valeritas secured FDA clearance for the device in December 2010 for use with Humalog and in March 2011 for use with Novolog. The device was CE Marked for use with both insulins in July 2011. For greater detail on the US and EU patch-pump competitive landscape, please see our November 29, 2012 Closer Look at:


Other Private Company Presentations


Anne Wojcicki (Founder and CEO, 23andMe, Mountain View, CA)

In the most crowded presentations we attended today (standing room only in a very large Elizabethan room!), Ms. Anne Wojcicki energetically relayed how 23andMe could harness consumers’ enthusiasm to contribute to science in order to accelerate clinical research. 23andMe sells a $99 DNA spit kit whose two-to-three week analysis reveals a slew of valuable information in today’s world that is moving toward more personalized medicine. Specifically, it gives consumer’s genetic disposition for carrier status, drug response, and disease risk relative to the rest of the population tested. We are particularly excited about 23andme’s prospects in diabetes. First, in diabetes patients, metformin responsiveness has a well-established genetic component – 22% of patients do not respond to it who have a certain genetic makeup profile - but to date it has not been cost effective (and way too much hassle) to genetically   screen every patient prior to prescribing metformin. The bottom line? Patients who will never respond  to metformin have not known this and have been effectively forced to take a medicine to which they will never respond. We imagine that patients who do not respond well to metformin will likely become quickly discouraged if they do not understand why they fail upon their first attempt at controlling the disease. Second, and more importantly since this could affect every patient living with pre-diabetes, we imagine that awareness of one’s genetic predisposition for type 2 diabetes, in addition to empowering patients to adopt preventative behaviors, is also likely to take some of the stigma of the disease away. These factors could contribute positively toward patient adherence if patients are able to relate more positively and proactively with their disease. Ms. Wojcicki’s dream is to enable researchers to conduct “real-time research” in a database replete with the throngs of consumers who are willing to provide information about themselves in the interest of better managing their health and contribute to scientific advancements for their health and for the sake of their children’s health. 23andMe is aiming for one million customers this year, which would establish a very large database to study relatively common conditions like diabetes. There was no Q&A from the privately-owned company, but that didn’t stop investors from crowding into the company’s presentation, and flocking to Ms. Wojcicki after her talk – we would be surprised if her compelling presentation didn’t garner her a large number of potential future investors. That said, as we understand it, the company raised a private D round several week ago; we believe the company said there was just one investor, someone with meaningful private health.

  • 23andMe supplements its database of genetic information with surveys when more information about how consumers’ genotypes relate to their medical histories. The initial 10- question survey administered upon registration has a more than 80% response rate, which Ms. Wojcicki suggested was an illustration of how eager consumers are to contribute to scientific advancements.


IMS Health

Ari Bousbib (Chairman and CEO, IMS Health, Danbury, CT)

IMS Health CEO Ari Bousbib did not make any diabetes-specific mentions, but the sheer amount of patient data that IMS has at its disposal is staggering: they track more than 39 billion health transactions per year, and now have more than 17.5 peta-bytes of data on 200 million anonymized patient health records. IMS manages over 80% of pharmaceutical sales in the U.S., giving them access to granular data about costs, outcomes, and the issues that arise in between.


Non-Profit Company Presentations

Geisinger Health System

Glenn Steele, MD, PhD (President and CEO, Geisinger Health System, Danville, PA) Kevin Brennan CPA (Executive VP, Finance and CFO, Geisinger Health System, Danville, PA)

Geisinger Health System President and CEO, Dr. Glen Steele, and Executive VP, Finance and CFO, Mr. Kevin Brennan detailed the organization’s structure and strategies for increasing value and lowering costs as the Affordable Care Act continues to be implemented. For background, Geisinger serves 2.6 million people in Northeastern and Central Pennsylvania and has an insurance branch in addition to its hospitals and clinics. Geisinger did not speak on the management of chronic diseases specifically, but   did describe their efforts to redefine the roles of the physician, physician’s assistant, and registered  nurse to reduce costs while meeting demand – notably, it stated that there has been some societal and regulatory push back on this front but that it continues to pursue this strategy, viewing it to be a key for “value re-engineering”. Other creative strategies management briefly mentioned were expanding tele- health, including the use of primary care e-visits; successfully increasing patient engagement (in an experiment [n≈10,000]) by providing patients access to their physician’s notes from their visits; embedding financial incentives for quality care in physicians’ salaries; and implementing an advanced medical home, ProvenHealth Navigator, whose medical expenses are significantly lower than standard models. We commend Geisinger for focusing on the health and wellness of its 20,000 employees; the company has a wellness program available to its employees that has resulted in many losing weight   and on January 1, 2012 the company prohibited the hiring of smokers.


Kaiser Permanente

Bernard J. Tyson, MBA (CEO, Kaiser Permanente, Oakland, CA)

Kaiser CEO Bernard Tyson gave a passionate presentation overviewing the structure and strategy of America’s largest not-for-profit health plan (over nine million members, 17,000 physicians, $50+ billion in annual revenues). He began noting that healthcare in the US is poised for a transformation, mainly because “trillions are being spent on a fee-for-service system” that has “perverse incentives,” is “geared around episodic care,” “incents illness versus prevention,” and where “more care=more profit.” Yikes. Encouragingly, Mr. Tyson believes healthcare reform is a move in the right direction – although there have been critics, he reminded the audience that there were also critics of Medicare, which is now working for millions of Americans.” We were most interested to hear Kaiser’s focus on electronic visits and virtual care, which has been “an unbelievable winner for our members and delivery system.” Indeed, five years ago, Kaiser had no e-visits to physicians, compared to over 20 million visits (!) last year - quite impressive considering there were 40 million face-to-face visits in 2012. Mr. Tyson expects 25-30 million e-visits over the next couple of years. We had hoped to hear more about Kaiser’s efforts in diabetes, though there was just one brief mention – the organization sees that ~20% of the population incurs ~80% of the costs, and this is “often for chronic conditions like diabetes.” As a result, Kaiser takes a proactive approach to ensure that these members live healthy and productive lives.


Public Healthcare Company Presentations


Ron Zwanziger (CEO, Alere, Waltham, MA)

Alere’s presentation included only a passing mention of diabetes, when Mr. Zwanziger noted that 2012 marked Alere’s first full year back in the diabetes arena and that the company intends to increase its involvement in the field. As a reminder, Alere re-entered the diabetes arena in November 2011 with the acquisitions of Axis- Shield (which touts a portfolio that includes A1c testing) and Arriva Medical (a diabetes testing supplies provider). Furthermore, in early August Alere announced a partnership with WellDoc and AT&T to provide the WellDoc Diabetes Manager to Alere customers.

Questions and Answers

Q: Could you describe the potential of microdiagnostics?

A: It has taken us a long time to get into microdiagnositics. However, we have found two technologies. They are the only two such technologies and we are very positive about them. I am not saying that other people can’t do it. They will be a true point of care test – for things like A1c and pregnancy – that anyone can whip out and use. We are extremely sensitive to the price issues surrounding such tests [Editor’s note: we believe that Mr. Zwanziger may be referring to Axis Shield’s Afinion A1c test].


CVS Caremark

Larry Merlo (CEO and President, CVS Caremark, Woonsocket, RI)

CVS Caremark CEO and President Larry Merlo described the company’s strong presence on the market as both a pharmacy and a pharmacy benefit management (PBM). Notably, Mr. Merlo described one of the company’s key strategies moving forward as “unlocking adherence” and listed diabetes as one of the conditions CVS is focusing these efforts on. According to Mr. Merlo, CVS currently has a higher adherence rate for anti-diabetic medications than many of its competitors (we are curious how he obtained these numbers); CVS’ average medication possession ratio (the percentage of time a patient has access to a medication) for anti-diabetic medications is 80, while its top three competitors (not identified) together have an average ratio of 70. One of CVS Caremark’s strategies for increasing adherence is its Pharmacy Advisor program. This program began in 2011 and promotes interactions between pharmacists and people with chronic conditions (particularly diabetes) both in person and over the phone with the hope of closing gaps in care. We note that a study published in Health Affairs found that it increased adherence to diabetes medications by 2.1% and increased physicians’ diabetes drug initiation rates by 38%. Additionally the program was found to be cost-effective, with about a $3 return for each dollar spent (Brennan, Health Affairs, 2012). The other objective Mr. Merlo identified was “transforming primary care.” He described how CVS wants there to be 1,500+ MinuteClinics in 35+ states by 2017, and for it to become a national primary care provider that helps meet the shortage of PCPs. When describing these clinics, Mr. Merlo noted that they provide chronic disease management services. In addition CVS is looking to expand its use of telemedicine. We think that these strategies   could effectively help close the PCP shortage while also reducing medical costs; the devil is in the details, however, as the pharmacists really do need to be working pretty nonstop with patients to make these sorts of initiatives have a positive ROI. .

  • CVS Caremark has large market shares in both the pharmacy and the pharmacy benefit management (PBM) arenas. CVS has over 7,400 retail locations, a 21% share of the total US Rx market, and serves ~5 million customers every day. The CVS Caremark PBM has a~26% share of the PBM market with more than 63 million members. Between CVS’s pharmacies and PBM it provides or purchases 990 million prescriptions annually – about 25% greater than its largest pharmacy competitor (Walgreens) and about 50% more than its largest PBM competitor (Express Scripts).


Express Scripts

Jeff Hall (Executive VP and CFO, Express Scripts, Cool Valley, MO)

The clear take-away message of Express Scripts Executive VP and CFO, Jeff Hall’s presentation was    that better health outcomes are an inevitable result of consumer and healthcare company cost  reductions. He described how a bad healthcare decision is costly whether its the wrong medicine being used, an expensive pharmacy dispensing it, or poor adherence; there is over $408 billion in wasted pharmacy-related spending each year. What is the solution to these maladies? According to Express Scripts, it is to increase the number of prescriptions fulfilled via home delivery. Currently, 40% of prescriptions are delivered to patients’ homes, but Mr. Hall said the goal of 75% is well within reach. He presented a 2010 study in the Journal of Medical Economics, demonstrating that when a group of people with diabetes received mail-order medications they had adherence rates 20% higher than a group who did not, and they had lower overall medical costs. Mr. Hall also forecast some relief in the specialty drug segment, as patents expiring by 2020 could loosen up the $77 billion that Express Scripts spends in that area today.

Questions and Answers

Q: Home delivery of drugs represents a huge opportunity to improve adherence rates and outcome for your company, as the diabetes study you highlighted showed. Do you think that diabetes is a special case for this trend or could that result be generalized?

A: I don’t think it’s special for diabetes. Adherence is higher in general because of automatic refills, and better delivery of the prescription. You obviously can’t take drug if you don’t have drug. We also have a program to call your doctor and refill the prescription when it’s almost out. We also have the potential to call on patients and find out why they’re not taking their medicines. We can see across all channels, and so we can use our behavioral economics approach to try to nudge patients in the right direction. For instance, we have the potential to advise them with an authority figure. For older patients, we’ve found that a note from their doctor that says that in my experience, people with your condition who don’t take their medicine end up in the hospital really helps.



Ben Leedle (CEO, Healthways, Franklin, TN)

Healthways CEO Ben Leedle discussed the company’s approach to population health management, drawing on the simple principle that healthier people cost less and perform better. Mr. Leedle emphasized the need to address root causes of illness rather than only addressing the effects – this concept led the company to focus on holistically improving wellbeing. Mr. Leedle stressed that once the onset of chronic disease occurs, a person will never have the same cost profile that he had prior to the disease onset, no matter how well the disease is managed. This certainly has implications in diabetes, and we hope that many more health providers can begin to adopt the same proactive, prevention- focused attitude.


Asia Track

Advinus Therapeutics

Rashmi Barbhaiya, MD (CEO, Advinus Therapeutics, Pune, India)

In a very lightly attended presentation on the 32nd floor (very inspiring view!) of the Westin St. Francis, Advinus CEO Dr. Rashmi Barbhaiya discussed the Indian company’s efforts in diabetes in depth. GKM- 001, Advinus’ liver-selective glucokinase activator (no hypoglycemia) is expected to complete phase 2a in 2013. By 2015, the compound is expected to be ready for outlicensing. Dr. Barbhaiya had some very interesting remarks on the drug, including its potential for once-weekly dosing, combination with other therapies, and even the potential for use in type 1 diabetes. Advinus also has an unspecified “partnered program for type 2 diabetes,” with phase 2 expected to finish in 2013. In earlier development, the company has a GPR-40/GPR-120 dual agonist for type 2 diabetes. Dr. Barbhaiya also highlighted the October 3, 2012 announcement that Advinus and Takeda had initiated a three-year drug discovery collaboration. The partnership will focus on novel targets for major therapeutic areas, including metabolic diseases. Under the terms, Advinus will receive guaranteed research funding of $36 million, $9 million in milestones leading to candidate selection, and the eligibly for future milestone payments of up to $45 million per product, plus royalties on product sales worldwide. Said D. Barbhaiya again and again, “Takeda has changed things,” most importantly by wiping out all of the company’s outstanding bonds. It indeed sounded like a true partnership, and we look forward to hearing what therapies might arise from it.

  • Advinus expects that its glucokinase activator (GKM-001) will have glucose lowering capabilities that are better than standard of care injectables, but without hypoglycemiaDr. Barbhaiya mentioned that not a single case of hypoglycemia has been seen in any patient on the drug. This is encouraging to hear and we look forward to seeing the phase 2 data, hopefully sometime in 2013.
    • In addition to robust efficacy and no hypoglycemia, Dr. Barbhaiya highlighted other intriguing advantages of GKM-001: 1) additive and synergistic effects with metformin and DPP4s; weight loss; 3) reduced insulin requirements in type 1 diabetes; 4) once-a-day dosing with potential for once-a-week dosing; and 5) a beta cell sparing mode of action that may delay type 2 diabetes.
    • Advinus believes GKM-001 will be ready for outlicensing around 2015. Given the companies’ existing relationship, we would guess that Takeda would be a logical partner. Advinus has developed the compound quite quickly, taking only 12 months to go from first synthesis to candidate selection, seven months to complete IND track studies, three months for a single dose escalation study, and six months for multiple dose studies.
    • We last covered GKM-001 in December 2011, when 14-day proof-of-concept study results (n=60) were announced. At the time, detail was sparse, and the press release only noted that there was “effective glucose lowering across all doses tested without any incidence of hypoglycemia or other clinically relevant adverse events.” Phase 1 results were announced in August 2010, also light on data. For more information, see our  reports  at, https://closeconc..., and



Keynote Address

Bob Woodward (The Washington Post, Washington, DC)

Famed author and reporter Bob Woodward delivered a rousing Keynote Address about the political climate in Washington, with the overarching theme being that so much is hidden behind the scenes that   it is often difficult to understand implications of current events as they are unfolding. Prior to his   speech, Mr. Woodward’s poll of the audience revealed that most audience members voted for Mitt Romney in the 2012 election, and most did not think President Obama’s healthcare plan made sense. Mr. Woodward criticized President Obama’s leadership ability and criticized the isolation and “toxicity” between parties in Congress. He called for President Obama to define “the next stage of good” for the nation to fix today’s unsettled financial issues that he says represent the “greatest threat to the country’s future.” As an example of a past president who made a self-sacrificing decision for the good of the country, as well as an example for how it is difficult to really know what goes on behind the scenes in Washington in real-time, he recounted how Americans believed President Gerald Ford’s pardon of President Nixon’s Watergate scandal to be an act of political corruption. But years later President Ford revealed that he had rejected striking a deal with President Nixon’s Chief of Staff and pardoned Nixon  for the sake of national interest, so that the nation, in the midst of the Cold War and difficult economic times, would not have to deal with years of follow-up trials. Ultimately, Mr. Woodward believes this act cost President Ford the re-election against President Carter, but that he knew that is what had to be   done for the country’s best interests.


Luncheon Keynote

Jamie Dimon (CEO, JP Morgan, New York City, NY)

In front of a packed grand ballroom, Eric Stein (Head of Investment Banking Coverage for North America, JPM) queried JP Morgan’s CEO, Jamie Dimon, about a breadth of topics, including healthcare policy and the US economy. While Mr. Dimon’s presentation was filled with controversial tidbits, the interruptions from applause and laughter suggested he was speaking to a very welcoming audience. Mr. Dimon seemed hesitant to back the current Affordable Care Act (“we took a very complex system  and made it more complex”); however, he commented that it had been “high time” to bring universal healthcare to Americans and urged the administration to make sure the changes don’t go south. He advocated for “rational medicine” in the US: outside the US, he said, if you get lung cancer from smoking, you don’t get surgery – “we have to get tougher here.” Mr. Dimon also described his own company’s healthcare policies. Of note, he commented that JPM pays 100% of preventative medicine costsWhile this healthcare policy comes with higher deductibles than some employees desire, he said he likes to remind these individuals that this policy could very well save their life. Turning to the economy, Mr. Dimon believes that the American economy is in “great shape,” and that “the wet blanket is policy right now. When we get policy right, it will take off.” Indeed, Mr. Dimon seemed to place fault on the government throughout the keynote discussion. It was not surprising then, that the interview concluded with a politically infused game of word association. “Obama,” said Mr. Stein. “President,” replied Mr. Dimon. “Biden,” said Mr. Stein. “Good, good guy. Nice teeth,” answered Mr. Dimon.


The Grand Inflection to the "New Medicine" Is Here - Don't Be Left Behind

William H. Frist, MD (Professor of Surgery, Vanderbilt University, Nashville, TN; Partner, Cressey & Co)

The charismatic former US Senate Majority Leader Dr. William Frist gave an outstanding keynote on New Medicine,” a trend that he believes will radically change medical practice over the next five years. In his view, the focus will shift towards personalizing and individualizing medicine, thereby eliminating waste, limiting adverse side effects, and maximizing outcomes. His talk was framed around three key areas: genetics, stem cells, and technology. He showed the promise each area has, with a particular emphasis on personalized medicine by linking an individual’s genomic record to their clinical record  (e.g., since you have this gene, you will be a Plavix non-responder). In Dr. Frist’s view, this approach   will get away from the “one-size-fits all” medicine and drug discovery that has often resulted in failed drugs (e.g., Alzheimer’s). This was extremely positive for 23andme, of course, and we kept thinking of   the company throughout his presentation. Interestingly, Dr. Frist believes the biggest barrier to   adoption will be data storage, since our ability to create data is far outpacing our ability to store it. Dr. Frist was highly enthusiastic about the “magic” of stem cells, and he did an excellent job discussing the science behind them. We especially appreciated his review of the recent Nobel Prize given to scientists that turned skin cells into heart cells (iPS; via use of master genes). To hammer the “magic” home, he showed the beating heart cells in a video, exclaiming, “Those used to be skin cells!” The entire room seemed to issue a collective “wow” (this rarely happens at an investor conference). Dr. Frist concluded with a review of the next big driver for the health sector and healthcare delivery change: the consumer (especially one armed with information). Pulling out his iPhone, he demoed the cool AliveCor app, launched just two days ago. It uses two electrodes built into the back of an iPhone case to take a live ECG reading from a user’s fingertips, which is then displayed onscreen (Dr. Frist was not too happy with his heart rate of 124 bpm), instantaneously sent to the cloud, and accessible by his doctor. We cannot wait for CGM data to do the same thing…

  • We cannot just be a good doctor or good hospital anymore – we must link health services to behavior.” Dr. Frist described how length of life is determined by a constellation of factors: 40% personal behavior, 30% genetics, 15% social circumstances, 5% environmental exposure, and only 10% health services. Based on this data, he believes there is much to be gained from linking health services (the traditional area of focus) to behavior.
  • Engaged consumers will drive healthcare system change. In the coming years, Dr. Frist believes individuals will have more meaningful information (at the right time and place) to make decisions about their own health. He expects this will include personal knowledge of one’s genetic makeup, predisposition to disease, and drug interactions. Quoting Dr. Eric Topol, Dr. Frist called it the “democratization of healthcare.” Unfortunately, the current system has a ways to go – of those who had a medical test in the last two years, an astonishing 27% weren’t informed of the results or had to call the office repeatedly to obtain them. “Consumers won’t tolerate that,” said Dr. Frist.
  • To show how “policy matters,” Dr. Frist highlighted three very influential government moves from recent memory:
    • The Human Genome Project (1990-2003), which mapped the human genome, cost $3 billion over 13 years. It was completed under budget and more than two years ahead of schedule. Notably, it has fueled the discovery of more than 1,800 disease genes, more  than 2,000 genetic tests for human conditions, and led to more than 350 biotech-based products. For every dollar in federal spending on the Human Genome Project, $141 were created!
    • The Bush Stem Cell Policy (2001), barring the NIH from funding research on embryonic stem cells. Dr. Frist cautioned that he wasn’t exactly supporting it, but it did help avoid the moral issue around stem cells (about half of Americans object to embryonic stem cells) and led researchers to prioritize other approaches that have turned out successful (i.e., the aforementioned reprogramming of skin cells using master genes; these also have the major advantage of being one’s own cells).
    • President Obama’s HITECH Act (2009), which recently provided $30 billion to address the barriers to health information technology adoption. He called this an “important presidential initiative,” though was not quite as positive on it as the other two policies. Dr. Frist made it sound like the Act would lay important groundwork, though he did not provide specifics.


Biotech Showcase

Echo Therapeutics

Patrick Mooney (CEO, Echo Therapeutics, Philadelphia, PA)

CEO Dr. Patrick Mooney gave a broad overview of the company’s proprietary Symphony tCGM technology (a non-invasive, transdermal continuous glucose monitor), the potential hospital CGM market, and upcoming milestones for the company. While Echo is developing Symphony for the hospital market as opposed to the diabetes market, a strategic decision driven by the relative competition in each space, Dr. Mooney envisioned that future iterative changes could take Symphony from the hospital to   the consumer. To this end, he commented that while the diabetes market is “too overwhelming” for Echo to target in the short-term, should a partner approach Echo that was interested in developing   Symphony for the consumer space, he would pursue it. Turning to regulatory timelines, the company expects to file for CE Mark in mid-2013, a slight delay from the early 2013 forecast given in Echo’s 3Q12 results update. Assuming a 90-day review, a 4Q13 EU launch is possible. FDA filing is expected in late 2013/early 2014, which could mean approval in the US in 2H14. On the financial front, Dr. Mooney believes the company will reach cash flow break even in 2H15 following a successful US launch.

  • Dr. Mooney outlined future trial and regulatory milestones. Echo expects to: 1)  complete the CE Mark trial (n= 20-30) in late 1Q13 or early 2Q13; 2) file for CE Mark in mid-2013 (assuming a 90-day review, Dr. Mooney predicted clearance in time for a 4Q13 EU launch); 3) commence the US pivotal trial after CE Mark filing (n=150; 5-7 sites); 4) file a PMA with the FDA in late 2013/early 2014 (which Dr. Mooney believes will translate to 2H14 approval).

Questions and Answers

Q: Is there a lag time with your system?

A: We have a lag time of five to ten minutes.

Q: How much money is invested in cash in the company?

A: Since I became CEO in 2007, it’s in the ballpark of $35 million. That’s gone to product development.

Q: What is your time to profitability?

A: We won’t become profitable next year. Cash flow break even will come in 2015 with US launch. Those are the types of statements that can get you in trouble. We need the economics of scale to get to break even and that’s 2H15.



Paul Laikind, PhD (CEO and President, ViaCyte, San Diego, CA)

The privately backed ViaCyte is poised to begin a two-year phase 1/2 trial (n≈40) in 2014 of its beta cell progenitor (VC-01) and encapsulation device (Encaptra) for the treatment of type 1 and type 2 diabetes. The company recently held a successful Pre-IND meeting with the FDA. Their goal is clear: an insulin- independent treatment of diabetes. For background, the company developed VC-01, a stem cell-based treatment that introduces encapsulated beta cell precursors that then develop pancreatic functionality once subcutaneously implanted in a patient. The treatment will be deployed in the proprietary encapsulation device, Encaptra. Dr. Paul Laikind detailed preclinical data from VC-01 (details below) and described the company’s IP and financial status. ViaCyte boasts a patent portfolio completely spanning their biological pathway. On the financial front, the company is fresh off receiving $3 million in funding from both the JDRF and the California Institute for Regenerative Medicine (CIRM) over the past several months. In total, to date CIRM and JDRF have contributed approximately $30 million to ViaCyte with an additional $16.1 million approved. Dr. Laikind explained that, a crucial aspect of ViaCyte’s technology and know-how is the methodology for differentiating from the stem cell starting point to the pancreatic precursor cells (PEC-01). “What is most difficult here is doing this repeatedly in a regulatory compliant manner. And we’ve done that.” As the company enters the phase of clinical testing the cost of doing business is accelerating, notwithstanding the generous contributions of CIRM and  JDRF the company requires additional capital resources. Therefore, the company is currently seeking   to raise $20 million in additional capital to support the program.

  • Dr. Laikind explained that PEC-01 is a renewable cell source and the stem cell line that is the starting point for the product was originally derived from a single embryo ethically obtained with proper donor consents from in vitro clinics. All told, the stem cells are capable of rapid expansion, growing from 10 million to several billion in two weeks.
  • According to Dr. Laikind, in layman’s terms, Encaptra devices could be considered akin to a teabag; it houses the precursor cells as they further differentiate into beta and other endocrine cells, allows for the secretion of the necessary hormones like insulin and amylin, but is designed to prevent direct contact between the graft cells and the host cells thus blunting the immune response that would be normal for an allogeneic transplant (the transplant of cells from the same species but a different individual) . The Encaptra devices have a semipermeable membrane surrounded by a thin webbing that provides structural integrity; in animal trials, the vascularization on that webbing was a critical sign that subcutaneous deployment of the device in humans is feasible.
  • Dr. Laikind explained that in mice trials, once VC-01 developed to beta cells (after about 20 weeks), the glucose levels in the treated mice normalized quickly   whenever the mice’s glucose levels were artificially spiked (a glucose challenge experiment) with no evidence of hypoglycemic overshoot. The attainment of normal glucose levels persisted even after the mice’s pancreatic functionality had been completely eliminated. Moreover, the mouse trials involved the a device that produced approximately 30 times greater the for the mice relative to what is planned in humans. “In terms of size, it would amount to putting a dinner plate on the back of a human,” Dr. Laikind explained. Despite this, the mice exhibited no hypoglycemic episodes.

Questions and Answers

Q: Have you considered how long Encaptra devices will be implanted for?

A: We have. In our trials we’ve used immune incompetent mice. The problem is that these mice have a limited life-span of about one year.  This limits our ability to evaluate the longevity of our product in the animal models. We currently plan continue treatment of patients for up to two years. We also plan that in addition to a implantation of a device or devices for efficacy testing, to include several mouse size “sentinel” devices that could be removed periodically. The idea is that we can evaluate these sentinels for vascularization and differentiation progress while the trial continues uninterrupted. This and other measures will provide insight to the progress of the treatment but the short answer to your question is that we just don’t know yet what the duration of the product might be.

Q: What does the competitive landscape for your company look like?

A: For starters, Geron is divesting its stem cell business. We recently prevailed in a couple of patent disputes with them and don’t expect to see much in the way of direct competition from their assets. The other company working in our space is BetaLogics. And as far as we know, from everything we’ve seen in presentations and that sort of thing, BetaLogics is lagging behind us. Moreover, we believe that our extensive patent portfolio will present a barrier to direct competitors. Of note, the venture arm of J&J, the company that owns and controls BetaLogics, is the biggest stakeholder in our company as well.

Q: How long will it be before you know whether it will be worth proceeding to a phase 3 trial?

A: Thanks to the sentinels, we will have a strong indication of whether or not it’s working mechanistically relatively quickly — just as soon as we can start removing them to check for vascularization and differentiation  progress.

Q: How many patients will this first trial involve?

A: Right now we plan for three patients for the first cohort, six for the second, and 30 for the third.

However, the final protocol will be filed with the IND and these numbers could change. Q: Do you know where the trials will be held?

A: We’re in discussion with a number of clinics, but we have not made a final decision yet. But since the first cohort will be just three patients, it would be safe to say that it would be held in one location.

Q: And what would your timeline look like if the early results of this first clinical trial were promising?

A: Well, even with early results, we plan to continue treatment of patients for up to two years. So if everything goes smoothly, the phase 1/2 trial would end in late 2016, and further registration trials could come after that.



DARA Biosciences

David J. Drutz, MD, (CEO and CMO, DARA Biosciences, Raleigh, North Carolina)

Dr. David Drutz described DARA Biosciences as an oncology supportive care specialist. As a reminder, the company has decided to focus on oncology and is therefore looking to out-license its phase 1, dual delta/gamma PPAR agonist, DB959. For more details on this candidate and why DARA is exiting the diabetes field please read our December 13, 2012 Closer Look at



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

In an engaging and detailed presentation, NeuroMetrix President and CEO Dr. Shai Gozani described  the company’s expanding reach in the diabetes peripheral neuropathy (DPN) field. NeuroMetrix’s first product in this market, the DPNCheck helped fill the need for an accurate diagnostic test for DPN, which has a very long latent period. Notably, there is still no competitive product against the DPNCheck according to NeuroMetrix. NeuroMetrix uses the razor blade model for selling the DPNCheck; the device itself sells for ~$1,000 and each replaceable biosensor sell for ~$20 (one sensor is used per patient, with gross margins >70% for the sensors). By the end of 4Q12, the company sold ~940 devices since it began shipments in 4Q11 – just shy of the company’s goal to sell 1000 by the end of 2012. NeuroMetrix’s second DPN product, the Sensus pain management, began its first shipments last Monday. Management   offered new details on reimbursement for Sensus: Medicare will pay the DME supplier ~$400 for the device and ~$1-2 per day for the replaceable electrodes depending upon how they are prescribed.  Though some of this revenue is realized by the supplier, NeuroMetrix still has a 40% margin for the patient’s first year of treatment (including the device) and a subsequent margin of 70%. Dr. Gozani estimated that the market opportunity for the Sensus is $150-200 million annually. Currently, NeuroMetrix has ~15 sales reps and Dr. Gozani has ambitious plans to grow this force: he wants to have 100 reps by 2Q13 and >250 reps by the end of the year. Finally, we were encouraged to see that NeuroMetrix’s young diabetes business is growing healthily; in 2011 the company made less than $100,000 in diabetes, in 2012 management believes they made ~$1.5 million in diabetes, and they forecasted that they will make $3-4 million in the field in 2013. We commend NeuroMetrix for its efforts to both soothe the pain of those who have painful DPN with the Sensus and to help prevent the progression of DPN via early detection with the DPNCheck. We also think they’ve established a smart business model, as increased DPN detection should also translate into increased demand for treatment.

  • For background, Dr. Gozani presented compelling data from a survey of diabetes patients showing that painful DPN (which about 25% of people with diabetes have) reduced quality of life more than dialysis, stroke, or heart disease. Many of these people unfortunately do not respond to or do not tolerate drugs and need an alternative like the Sensus.
  • NeuroMetrix is currently conducting a full launch of the Sensus. During the company's 3Q12 financial update, management had announced the intention to first conduct a controlled launch the in 50-100 by the end of 2012 with a full launch in 1Q13. However, when we spoke to management, they stated that their confidence in the product led them to go straight into a full launch.
  • For background, the Sensus is designed to provide a 60-minute treatment to the patientPeople often feel their pain subside after within 15 minutes of beginning the session and the effects can last for an hour after the session finishes. Additionally, people can use the Sensus as often as they need. The Sensus also sounds convenient in that a single charge can sustain the device for 2-4 weeks. The device is made to be worn discreetly on the calf underneath clothing, which suggests that it would more or less have to be continuously turned on to provide  continuous pain management.
  • Management highlighted the efficiency of NeuroMetrix’s focus on payors/providers handling capitated Medicare Advantage patients for the DPNCheck. These HCPs receive a fixed fee-per-member from Medicare regardless of services rendered and can increase their reimbursement by detecting DPN in patients. According to NeuroMetrix, there are about 13 million lives covered by Medicare Advantage; insurance companies offering such a plan include Aetna, Humana, UnitedHealth, and Kaiser.
  • In a conversation we had with management they identified Japan as one of the most important ex-US countries for brand expansion. NeuroMetrix reminded us that the key is for a country to both have a large diabetic population and decent purchasing power. Other countries they highlighted included Germany, China and India (large diabetic populations but not strong purchasing power), and Australia (strong purchasing power but a relatively small diabetic population).
  • A survey of managed care patients found that diabetic neuropathy (DPN), which ~50% of people with diabetes have, is the leading cause of reduction in quality of life among the surveyed patients. DPN comprised three of the top ten greatest reducers of   quality of life related to diabetes, and amputation and painful neuropathy were described as the two most severe reducers of quality of life related to diabetes.



-- by Adam Brown, Hannah Deming, Jessica Dong, Kira Maker, Nina Ran, Vincent Wu, Amro El-Adle, Margaret Nguyen, and Kelly Close