January 12-15, 2015; San Francisco, CA; Full Report – Draft

Executive Highlights

In this final report, we have compiled our full coverage from the 33rd Annual JP Morgan Healthcare Conference held at the Westin St. Francis in San Francisco, CA from January 12-15, 2015. It was an exciting, learning-filled, and crowded (upwards of 12,000 total attendees) week, featuring over 500 presentations over four days from both public and private companies.

In diabetes technology, Dexcom’s striking 4Q14 results were a major highlight, as growth exceeded 60% for the seventh straight quarter. We also heard frank commentary from new Insulet CEO Mr. Patrick Sullivan on the need to invest more significantly in sales/marketing, especially as the US business has slowed down in recent quarters. JPM brought a slew pipeline updates as well: (i) Medtronic ambitiously expects a US launch the MiniMed 640G by April 2016 and the MiniMed 670G (hybrid closed-loop) by Aril 2017; (ii) BD estimates FDA clearance of its first-generation insulin infusion set in “late 2015”; and (iii) Roche continues to develop its novel CGM, though commercialization is over 12 months away.

Turning to drugs, Intarcia shared a glimpse of new data from its phase 3 FREEDOM-1 trial for its implantable exenatide mini-pump, ITCA 650. We also heard a staunch defense of Toujeo’s (insulin glargine U300) value proposition from Sanofi’s highly respected head of R&D Dr. Elias Zerhouni. There was no mention of Afrezza in that presentation, though MannKind’s Mr. Al Mann and new CEO Mr. Hakan Edstrom celebrated the drug’s progress and future potential in the company’s own presentation. Lilly’s breakout session featured heaps of focus on diabetes, including commentary on its broad portfolio and two basal insulins (biosimilar insulin glargine and peglispro) on the horizon. AstraZeneca also shared some portfolio optimism, confirming that its saxagliptin/dapagliflozin fixed-dose combination (FDC) has been submitted to regulatory authorities. Takeda highlighted its commitment to re-fill its late-stage diabetes pipeline, while GSK stated that it is not looking to become a major diabetes player beyond its new once-weekly GLP-1 agonist.

In obesity, Arena announced plans to file an NDA in 2Q15 for its once-daily extended-release formulation of Belviq (lorcaserin). Meanwhile, Vivus expressed confidence that Qsymia (phentermine/topiramate) will continue to perform well despite an increasingly crowded market for obesity pharmacotherapy. Orexigen’s presentation characterized the early launch results for Contrave (naltrexone/bupropion) as encouraging and noted that Orexigen is “talking about creating a great new diabetes drug.”

We have gathered together our full coverage of JPM below, along with learnings from the simultaneous Biotech Showcase and OneMedForum. This report contains 41 companies and presentations in total, similar to our JPM 2014 coverage. Presentations are organized into five categories: (i) Diabetes Drugs; (ii) Diabetes Technology; (iii) Obesity; (iv) Health Policy; (v) Keynote Addresses/Panel Discussion. We have highlighted titles in yellow of the company presentations we found most notable.

Detailed Discussion and Commentary

I. Diabetes Drugs

Amgen

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

Amgen CEO Mr. Bob Bradway put the US and EU submission of PCSK9 inhibitor evolocumab at the top of the company’s list of 2014 accomplishments and has included the drug in Amgen’s new product launch cycle in 2015. During the company’s presentation, Mr. Bradway noted that Amgen is well on its way to building a strong team for the launch of the molecule; management noted during the breakout session that regulatory approvals are estimated to occur in late summer to early fall in the US (the PDUFA target date is August 27) and in early 2016 in Europe. As a reminder, the PCSK9 inhibitor race is getting tight as Sanofi/Regeneron recently purchased an FDA priority review voucher for its candidate alirocumab, with an estimated potential approval in 2H15. While Amgen did not make any comments on this competition, the company remains confident in evolocumab and its potential to address the significant unmet need in dyslipidemia (which we agree will be potentially gamechanging for both the cardiovascular disease and diabetes patient populations).

AstraZeneca

Pascal Soriot (CEO, AstraZeneca, London, UK)

AstraZeneca confirmed that its saxagliptin/dapagliflozin fixed-dose combination (FDC) has been submitted to regulatory authorities. This is consistent with guidance from the company’s November Investor Day indicating that “saxa/dapa” would be filed (presumably in both the US and the EU) by the end of 2014, but we had not previously heard official confirmation of a submission. Assuming a standard review cycle, regulatory decisions would likely arrive in late 2015/early 2016. If approved, saxa/dapa would be the first SGLT-2 inhibitor/ DPP-4 inhibitor to reach the European market; Lilly/BI’s empagliflozin/linagliptin FDC should be first in the US with an FDA decision expected as early as next month. We are excited to see these combinations finally close to reaching patients, as they appear to offer unprecedented efficacy for an oral medication (though not the additive or synergistic efficacy that some had predicted, sadly) along with minimal risk of hypoglycemia and the potential for weight loss. We will be most keen to see how the products are priced and whether the companies will offer copay assistance programs comparable to those for the three SGLT-2 inhibitors currently on the market.

• In a “fireside chat” following the presentation, CEO Mr. Pascal Soriot expressed confidence that AZ will weather the storm of increased payer pressure in diabetes and other areas. Mr. Soriot acknowledged that payers have become “more and more demanding” but assured investors that the company has “built that pressure into our plans.” He also noted that the entire market, not just the primary care sector, is being affected by pricing pressure and argued that the key factor is whether companies produce products that are sufficiently differentiated. The competition for formulary contracts certainly is heating up big time in diabetes – see our JPM Day #2 report for more commentary on this issue from Lilly.

Boston Therapeutics

David Platt, PhD (CEO, Manchester, NH)

CEO Dr. David Platt provided a pipeline update on BTI-320, the company’s non-systemic chewable complex polysaccharide-based compound that works to block carbohydrate breakdown in the GI tract. The FDA accepted the company’s Investigational New Drug Application for BTI-320 in December, and a multicenter, phase 2 study – that the company plans to “adapt” to a phase 3 trial (n=360) – is on track to begin in 1Q15. The Joslin Diabetes Center is the lead clinic in the study, whose primary endpoint is the mean change in A1c. Results should be available in “seven to eight months,” and we are curious to see both efficacy and tolerability data – after all, alpha-glucosidase inhibitors work similarly to prevent carbohydrate absorption into the blood but are often associated with bloating, nausea, diarrhea, and flatulence. Dr. Platt, though, was strikingly optimistic in citing anecdotal evidence of blunted postprandial spikes, while stressing that early tolerance data was so impressive that the FDA has allowed the company to market BTI-320 as an over-the-counter food supplement called SUGARDOWN ($59.99 for a 60-tablet bottle). This is, indeed, a unique marketing strategy: to clarify, SUGARDOWN is currently sold as a non-medical supplement, but with the successful completion of a phase 3 study, the company is simply hoping to add “treatment of hyperglycemia” to the label (which would then make it an “FDA-approved medical drug”).

• Notably, Boston Therapeutics’ advisory board boasts Dr. Larry Ellingson, former Executive Director of Diabetes Care at Eli Lilly and Chairman of the Board of the American Diabetes Association. Dr. Ellingson joined the company in mid-2014, and his support certainly lends the technology some credibility. We would also note that Boston Therapeutics has been clear in its intention to partner the drug pending the successful completion of the phase 3 study – Might the association with Dr. Ellingson make Lilly a frontrunner in these discussions?
• BTI-320 is a non-systemic chewable compound that consists of a proprietary complex polysaccharide. The polysaccharide works in the GI system to block carbohydrate-hydrolyzing enzymes from breaking down carbohydrates into glucose for release into the blood. The compound is taken immediately before meals.

ChemoCentryx

Thomas Schall, PhD (President and CEO, ChemoCentryx, Mountain View, CA)

ChemoCentryx’s presentation provided further insight into the company’s plans for its diabetic nephropathy candidate CCX140. The vast majority of the presentation was devoted to the positive topline results from a recent 52-week phase 2 trial of the compound. That study found that treatment with 5 mg CCX140 led to significant reductions in urinary albumin/creatinine ratio (UACR) and an attenuated rate of decline in estimated glomerular filtration rate (eGFR) vs. placebo, both in addition to standard of care. ChemoCentryx President and CEO Dr. Thomas Schall expressed particular excitement about the eGFR results, noting that the improvement appears to be more robust than what is typically seen with currently approved drugs and that measuring eGFR is important in assessing long-term kidney function and provides a basis for phase 3 trial endpoints. ChemoCentryx plans to seek a partner, ideally one with “deep pockets” and “deep expertise in the renal space,” before initiating phase 3 trials; that decision is expected in 2015. Dr. Schall indicated that ChemoCentryx is not looking for a “garden-variety licensing proposition” but hopes to retain control over the compound at least in some geographies. Dr. Schall expressed optimism that a number of qualified companies will be interested given the enormous unmet need in this area – we imagine that several companies in our diabetic nephropathy competitive landscape could be potential candidates.

GSK

David Redfern (Chief Strategy Officer, GSK, Brentford, UK)

During GSK’s breakout session, Chief Strategy Officer Mr. David Redfern explicitly stated that GSK is not looking to become a major diabetes player. Specifically, he cited the company’s lack of diabetes candidates beyond the newly approved once-weekly GLP-1 agonist Tanzeum/Eperzan (albiglutide), lack of a strong R&D presence in diabetes (this was disappointing to hear stated explicitly though not a surprise given all that GSK has gone through with Avandia, only to have it ultimately exonerated), and the degree of competition in diabetes. Back during GSK’s 4Q13 update, management suggested that Tanzeum could be a springboard product to work towards a broader cardiovascular/metabolic franchise, but at least according to Mr. Redfern it appears that type 2 diabetes is no longer a part of the big-picture game plan beyond Tanzeum.

Questions and Answers

Q: Could you provide your thoughts on the Tanzeum launch?

A: It’s early days and only a US launch at the moment. We think we’ve got a good data package, with reasonable positioning ahead of the need to take prandial insulin. We’re not a major diabetes player so we recognize that our aspirations have to take that into account. We’re building coverage and starting to move, but it’s too early to really judge. Ask your question around 3Q15 and we’ll have a more informed answer.

Q: Is the long-term strategy to stay within GLP-1 or to expand more broadly into diabetes?

A: Tanzeum is all we really have in diabetes, so we’re not seeking to become a major diabetes player. We don’t have an enormous amount of R&D behind diabetes. Tanzeum is a product we’ve developed with a comprehensive data package, and we’ll see how we do. We’re realistic and a little bit optimistic. We think we’ve got good positioning and a product with a good tolerability profile in particular, as well as a smaller needle, so we’ll see where we go. We’re not trying to build a whole diabetes franchise – we think that area is competitive enough.

Q: In late 2013, you made changes to your sales practices to stop direct payments to doctors and to implement a new compensation program for sales representatives. Could you discuss whether that may have contributed to some of the softer launches we have seen in respiratory?

A: I think that’s too simplistic. The principles and policies of how we run our sales force are constant across disease areas, and we’ve been successful in oncology and HIV. There are other factors at play in respiratory.

Halozyme

Helen Torley, MB, ChB (President and CEO, Halozyme, San Diego, CA)

Halozyme President and CEO Dr. Helen Torley confirmed that the company still plans to commercialize Hylenex for use with insulin pumps despite the recent decision not to pursue further development without a partner. Dr. Torley explained that the decision to de-prioritize the program was a “question of focus and cost” but that the company still “hopes to monetize the asset” along with a partner. She stressed that the product appears to offer significant value with regard to nocturnal hypoglycemia (based on six-month results from the CONSISTENT-1 trial) and confirmed that Halozyme is actively involved in discussions with the FDA to clarify a regulatory path forward. These comments are consistent with the company’s guidance in a recent Analyst and Investor Meeting as well as its 3Q14 update, and we are pleased to hear further confirmation that Halozyme has not abandoned its efforts in diabetes.

Intarcia

Kurt Graves (CEO, Intarcia, Boston, MA)

In a presentation built around the theme of disruptive innovation, Intarcia CEO Mr. Kurt Graves provided a sneak peek at results from the phase 3 FREEDOM-1 trial for the implantable exenatide mini-pump ITCA 650. Topline results released in October suggested mean A1c improvements of 1.4%-1.7% after 39 weeks from a mean baseline of 8.4% with the 60 mcg/day dose – as a reminder the drop was 3.4% in the FREEDOM-1 HBL (high baseline = 10.8%) non-randomized trial. It appears that the mean change for the overall study population was in the 1.4%-1.5% range, but that in a sub-analysis of patients on metformin (rather than a sulfonylurea) the mean improvement was 1.7%. An exciting aspect of the data was the non-glycemic data: nausea rates were low (~15%) during the first week of treatment and the scheduled dose increase, but at the other time points the incidence of nausea was very low and essentially comparable to placebo. The ITCA 650 group lost an average of 4 kg (~9 lbs) vs. 2 kg (~4 kg) with placebo; Mr. Graves expressed excitement that patients were still losing weight at the end of the trial, although that appeared to be the case for placebo as well as ITCA 650.

• Full FREEDOM-1 data will be presented at ADA. A study vs. Merck’s Januvia (sitagliptin) is estimated to complete in September and Intarcia has aggressive plans to study ITCA 650 vs. a range of oral and injectable drugs. Based on the current timeline, ITCA 650 could be filed in the US and ex-US in early 2016. The FREEDOM-2 and FREEDOM CV outcomes trial are on track and fully enrolled. The rest of the presentation was dedicated to Intarcia’s ambitious plans for ITCA 650 (including raising it to the status of first-line add-on to metformin) and mention of the recent ex-US partnership with Servier. To cap off the half hour, Mr. Graves conducted an impressive demo of the quick and simple insertion and removal procedure, showcasing the investments the company has made in the customer experience.

Immunocore Limited

Eva-Lotta Allan (Chief Business Officer, Immunocore Limited, Oxford, UK)

Oxford-based Immunocore provided an overview of the company’s novel T cell receptor-based drugs in a presentation led by CBO Ms. Eva-Lotta Allan. As background, the company’s drugs specifically target tissues that have been subjected to immune attack (e.g., insulin-producing beta cells). Indeed, a portion of the company’s preclinical work is focused on evaluating the drug’s potential to suppress the immune response responsible for type 1 diabetes. However, according to Ms. Allan, work on this segment is not presently a priority – instead, the company’s 2015 goals are largely focused on moving its lead clinical product, IMCgp100, through phase 2 clinical trials in patients with metastatic melanoma. For now, it seems that type 1 diabetes solutions are a longer-term – though still valuable – component of the company’s portfolio (~2016 and beyond).

Isis

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

Isis CEO Dr. Stanley Crooke discussed the company’s pursuit of targeted therapies and indications for subgroups within the broader type 2 diabetes population. The phase 2 glucagon receptor inhibitor ISIS-GCGRRx is perhaps the most effective glucose lowering agent Dr. Crooke has ever seen, but glucagon as a target can be associated with certain side effects. As a result, Isis sees ISIS-GCGRRx as best suited for later-stage diabetes patients on insulin or who are not at control on multiple oral drugs. Isis hopes that the novel insulin sensitizer ISIS-PTP1BRx could become a safer PPAR agonist with the possibility of weight loss. Therefore, it might be best positioned as an optimal agent for diabetes patients with concomitant obesity. The glucocorticoid receptor inhibitor ISIS-GCCRRx should prove best in patients with glucocorticoid-driven diabetes; one key goal of current studies is to ensure that the drug does not interfere with the hypothalamic-pituitary-adrenal axis, a problem with previous corticoid drugs. There currently is not much precedent for targeted approvals for subgroups within the type 2 diabetes population; Dr. Crooke acknowledged that Isis’ plan involves a bit of risk, but he believes that the right data could persuade regulators to consider targeted approvals.

J&J

Alex Gorsky, CEO (J&J, New Brunswick, NJ)

J&J management highlighted the recent strong results for Invokana (canagliflozin) and provided little commentary on the device side beyond acknowledging the marketplace challenges. In response to a question about the company’s future plans for its Diabetes Care portfolio, CEO Mr. Alex Gorsky said only that J&J would “continue to participate” in the market despite the challenging reimbursement climate and highlighted the approval of the Animas Vibe as one recent success (per the approval in November, launch was slated for this month). He then quickly pivoted to Invokana’s strong performance in 2014, arguing that J&J’s approach to diabetes is an “integrated” model that combines assets from the company’s pharmaceutical and device divisions. Management expressed confidence that Invokana would continue to perform well in the coming years despite increasing payer pressure in the diabetes drug arena, emphasizing its status as the market-leading SGLT-2 inhibitor and noting the potential for expanded indications (e.g., Invokana is currently being investigated in phase 2 trials for type 1 diabetes, obesity [in combination with phentermine], and nephropathy). J&J has increasingly shifted focus toward Invokana and away from its diabetes devices over the past year – management acknowledged the device portfolio in the company’s 3Q14 update but did not go broadly into organization dynamics; Invokana, by contrast, has taken center stage in the exhibit hall at recent conferences. This is not altogether surprising, considering the vast majority of J&J’s device business is in BGM, where the market has been pummeled due to competitive bidding. Potential near-term LifeScan/Animas catalysts include the Vibe launch this month, as well as the Finesse device acquired from Calibra (launch expected in the next ~16 months).

Lexicon

Lonnel Coats (CEO, Lexicon, The Woodlands, TX)

At long last, Lexicon’s SGLT-1/SGLT-2 dual inhibitor sotagliflozin (LX4211) is entering phase 3, though not in the way that was originally planned. CEO Mr. Lonnel Coats proudly announced that phase 3 has begun for sotagliflozin in type 1 diabetes, although the first patient has not yet been randomized (that will happen some time during 1H15). That program will involve two pivotal studies with 750 patients each along with a ~1,400-patient safety exposure study. The meaty discussion during the breakout session focused as much on sotagliflozin’s complicated development path as its current status. Mr. Coats forthrightly suggested that FDA policy is one of the biggest factors keeping sotagliflozin from achieving its maximum potential because it makes phase 3 – especially CVOTs – cost-prohibitive without a partner; he did, however, theorize that policies may become more favorable in the future. He suggested that partnership discussions were also challenging because of increased competition in diabetes, which caused potential partners to take a step back and wait for challenging pressures and trends to stabilize.

• Big-picture, management remains highly confident in sotagliflozin’s potential in type 1 diabetes, suggesting that peak sales of $1 billion may even be a conservative estimate. Mr. Coats asserted that the drug’s appealing clinical profile should merit and earn some degree of a pricing premium. He also suggested that a sales force of roughly 100-120 should be sufficient to market sotagliflozin for type 1 diabetes. We believe Lexicon’s compound could be a huge boon for type 1 diabetes patients, as much through reduced glycemic variability and less weight gain as through A1c improvements. It could have a major impact on the insulin market, as phase 2 results found a ~26% placebo-adjusted reduction in insulin dose with sotagliflozin in type 1 diabetes alongside improvements in A1c. Especially now that the market has proven receptive to selective SGLT-2 inhibitors, we view a bucketed type 1 and type 2 diabetes partnership to be as compelling as ever, though clearly there’s fear out there on multiple fronts (reimbursement, proving economic system benefits, etc.).

Lilly

John Lechleiter (CEO, Lilly, Indianapolis, IN)

Lilly’s presentation closely mirrored last week’s 2015 guidance call but still touched upon some timely topics. Upbeat CEO Mr. John Lechleiter highlighted the wave of approvals and regulatory submissions in 2014 (on schedule) along with the fact that Lilly is poised to have the broadest portfolio in diabetes, especially with two basal insulins (biosimilar insulin glargine Basaglar/Abasaglar and peglispro) arriving to fill a previous void in Lilly’s diabetes offerings. He also discussed fixed dose combinations, expressing great enthusiasm for the branded DPP-4 / SGLT-2 product in development with BI. Lilly Diabetes President Mr. Enrique Conterno confirmed Lilly’s previously stated plan for biosimilar Basaglar to compete as a branded option – he also said it’s not really a biosimilar. He also reminded attendees at the breakout session that peglispro achieved A1c superiority vs. Sanofi’s Lantus across its phase 3 program. Turning to challenges in diabetes, Mr. Conterno noted that the trend towards single-source formularies is a high-stakes game given that payers do not appear to be willing to switch around contracts once they have gone to single-source, in order to avoid significant patient disruption. That dynamic will make the competition for contracts in the coming years particularly important, and might also provide companies with leverage to counteract payer pressure once they have won an exclusive contract.

MannKind

Al Mann (Executive Chairman, MannKind, Valencia, CA), Hakan Edstrom (CEO, MannKind, Valencia, CA)

In an upbeat and packed presentation, MannKind’s Mr. Al Mann and new CEO Mr. Hakan Edstrom celebrated Afrezza’s progress and future potential, as well as MannKind’s future beyond Afrezza. For reasons unknown, MannKind was relegated to one of the smaller presentation rooms. It quickly became evident that this was a poor choice, as behind the 40 attendees lucky enough to find seats, another 40 to 50 were crammed into the standing-room-only space by the door. Mr. Al Mann received not one, but four hearty rounds of applause in recognition of his storied career and triumph on Afrezza. We noticed former Sanofi CEO Mr. Chris Viehbacher in attendance. Management assured attendees that the turbulence in Sanofi’s leadership and diabetes portfolio have not damaged Sanofi’s commitment to Afrezza. During a meaty breakout discussion, Mr. Edstrom suggested that Afrezza’s high degree of differentiation could allow Sanofi to pursue a reasonably aggressive pricing strategy even amidst the immense pricing pressure elsewhere in the insulin market. MannKind expects Afrezza’s uptake during the first couple of quarters post-launch to be modest due to the need to familiarize and educate physicians (initially focusing on endocrinologists) about Afrezza; the company expects uptake to pick up speed after the initial education phase. Looking beyond Afrezza, an advisory panel investigating new compounds and disease areas (including GLP-1, pain, and respiratory diseases) is wrapping up its work; findings may be discussed at a MannKind’s analyst day in March.    

Midatech

Tim Sparey, PhD (Chief Business Officer, Midatech, Oxfordshire, UK)

Midatech is a small nanomedicine company focused on the development of proprietary drug conjugate and sustained-release delivery platforms with a focus on diabetes, cancer, and neuroscience/ophthalmology. Chief Business Officer Dr. Tim Sparey provided an overview of the company’s lead products, highlighting MidaForm Insulin, a transbuccal insulin that is delivered via a self-dissolving oral postage stamp-sized strip. A phase 2 clinical trial with MidaForm Insulin in type 1 diabetes is due to commence in 1Q15 and upon completion in mid-2015, the company hopes to partner to bring the product to market. Notably, the company is also in the process of developing a transbuccal delivery system for GLP-1 and GLP-1/insulin combination therapy – these programs remain in preclinical testing. Last, the company is working on a sustained release version of the GLP-1 agonist exenatide.

Novartis

Joseph Jimenez (CEO, Novartis, Basel, Switzerland)

While diabetes was not specifically discussed in Novartis’ presentation or the breakout session, Mr. Joseph Jimenez (Novartis, Basel, Switzerland) emphasized that the industry is evolving with a growth in the burden of chronic diseases as well as in the aging population. He pointed out that chronic diseases are expected to increase to over 70% of the disease burden in the next ten years and that healthcare spending will skyrocket as a result. Notably, while discussing the company’s 2014 milestones, Mr. Jimenez did highlight the partnership with Google; however, he did not mention the glucose-sensing contact lens project but rather the goal of developing an accommodating lens for presbyopia and myopia, pushing us to wonder what the bigger focus of the partnership is. In addition, Mr. Jimenez noted that Novartis’ three key businesses will be pharma, eye care, and generics. Specifically, he pointed out that its eye care division will greatly focus on improving vision for the aging population, which we expect to include its anti-VEGF therapy Lucentis [intravitreal ranbizumab] for diabetic macular edema.

• In 2Q14, Novartis broadened the focus of the partnership with Google to include a presbyopia/myopia lens project, which the company has noted as a longer-term goal. As a reminder, the initial Google announcement from January 2014 seemed to center on a glucose-sensing contact lens but Novartis later included a project on an autofocusing lens technology for presbyopia and myopia. There have been no tangible updates since 2Q14, which is when management mentioned that the glucose-sensing lens will likely be more near-term. We hope to hear more about these projects in the company’s 4Q14 call on January 27.
• As background, Novartis’ lack of focus on diabetes overall is not surprising as the company’s two diabetes products (DPP-4 inhibitor Galvus [vidagliptin] and Lucentis for diabetic macular edema) are relatively mature. Please see our 3Q14 report for the latest updates. Regarding the company’s diabetes pipeline, SGLT-1/SLGT-2 dual inhibitor LIK066 appears to remain in phase 2; LEZ763 (an unspecified phase 2 oral once-daily treatment for type 2 diabetes) completed a phase 2 trial last September but has not received any updates from management since 4Q13.

Questions and Answers

Q: Can you provide details on your partnership with Google on the lens?

A: We have thought long and hard about this. If you look at how we structured the deal, Google will be focused more on the research of the lens and our group will be more involved in the development and commercialization. As long as there’s a lot of good communication, we should be able to do it. We’ve been sure to put together a dedicated team and so far, it’s been good.

Omni Bio

Bruce Schneider, PhD (CEO, Omni Bio) and Bruce Forrest, MD (Chief Development Officer, Omni Bio, Fort Collins, CO)

CEO Dr. Bruce Schneider provided an update on the company’s recombinant version of the naturally occurring human protein, alpha-1 antitrypsin (AAT-Fc). As background, the protein is thought to be a mediator of anti-inflammatory and tissue-protective pathways, including those involved in insulin-producing beta cell protection (among many other pathways). Notably, preclinical animal trials and phase 1 studies of the naturally occurring protein have demonstrated that treatment preserves islet cell function and can lead to stability in C-peptide levels – however, the key question remaining for Omni Bio is whether the recombinant version will work similarly. Preclinical studies of AAT-Fc are presently ongoing, though the company will require a financial infusion of $5-6 million to complete development. The company foresees needing an additional ~$5 million (~$10 million total) to take the product through initial human studies (phase 1) and proof of concept trials (phase 2), at which point the company would seek to partner to bring its product to market. As of now, it is difficult to assess the potential of the product, and we are hopeful that preclinical results will be available soon.

Resverlogix

Donald McCaffrey (CEO, Resverlogix, Calgary, Alberta, Canada)

Canadian biotech Resverlogix is looking to bust out on the diabetes scene in a big way, given early evidence of a marked reduction of cardiovascular disease with its BET bromodomain inhibitor RVX-208. CEO Mr. Donald McCaffrey’s presentation at Biotech Showcase focused on the 77% reduction in the incidence of MACE (p=0.01) seen in a post-hoc analysis of diabetes patients in phase 2b. Other smaller clinical trials found MACE reductions on the order of 50%-70%. The findings from these trials are highly intriguing but it is hard to believe that the effect, if it exists, could be that large. Indeed, a cause for caution in interpreting the results is the fact that the 77% statistic was drawn from a post-hoc analysis rather than a prospectively defined endpoint. Although nothing is certain just yet, BET inhibition is an emerging field (related to epigenetics) and some degree of cardiovascular benefit is plausible given that RVX-208 leads to multiple positive effects on lipids, glucose, and inflammation. Over the past year we have been excited to see Resverlogix’s focus swing towards diabetes. RVX-208 will move to a large phase 3 trial called BETonMACE, enrolling a pool of type 2 diabetes patients and with a primary endpoint of a 30% reduction in MACE. Resverlogix may have entered diabetes from left field but based on the clinical results so far, as well as the dire need for any means of cardiovascular risk reduction in diabetes, they strike us as well worth watching.

Sanofi

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

Amidst a turbulent time for Sanofi’s diabetes portfolio, global R&D President Dr. Elias Zerhouni made the case for the new basal insulin Toujeo (insulin glargine U300) and argued that biosimilar insulin will not become a commodity market. Dr. Zerhouni pointed out that, unlike other disease areas, in diabetes there are factors other than the drug molecule itself that are important for patients such as device design and patient support and education programs. As we learned at a recent seminar on new medicines, Sanofi plans to complement Toujeo with an improved pen device (easier injection, larger capacity, smaller pen) as well as an ambitious patient support program involving customized contact via web, phone, and in-person interactions. The support program has exciting potential to really move the needle on the challenging issue of adherence. Thoughts we have heard at conferences on Toujeo’s clinical profile have been mixed, standing in contrast to management’s repeated bold assertion that the improvement from Lantus to Toujeo is comparable to the jump from NPH to Lantus (we question whether this could be true, if only because NPH was such a rough drug to use, and Lantus was such a breakthrough, making a similar jump virtually impossible in our view, no matter how much better Toujeo is). However, the complete package (drug + device + support) could help bolster the differentiation factor vs. Lantus and the coming biosimilars.

• The discussion on pricing pressure that has dominated recent Sanofi Q&A sessions (including its 3Q14 update) emerged again during the breakout session. Ms. Pascale Witz, Executive Vice President of Global Divisions & Strategic Development, pointed out that Lantus’ success over the past few years has allowed challengers to take a more aggressive stance. She suggested that recent company initiatives to improve sales force efficiency are beginning to pay off, sharing that Lantus’ market share has begun to stabilize over the past six weeks (ostensibly following a period of losses to Novo Nordisk’s Levemir [insulin detemir]). Additionally, Ms. Witz forecast that switches from Lantus to Toujeo will be higher than current consensus estimates. The delay of biosimilar insulin glargine in the US due to a Sanofi patent lawsuit as well as the CRL for Novo Nordisk’s Tresiba (insulin degludec) should potentially help Toujeo gain a larger foothold in the US than it otherwise might have. The stakes are high for Sanofi given Lantus’ level of dominance over the current basal insulin market.
• Although management emphasized in the main presentation and the breakout that factors other than the “active compound” are important, like the nature of the pen, titration, etc., we would also point out that the formulary is important as well, in the US – often patients may not want to switch but many won’t be given a choice. We doubt payers will make exceptions for pens, etc.

Questions and Answers

Q: How should we think about the coming biosimilar insulin market in Europe?

A: We know that biosimilars could be launched in June in Europe. Sanofi should be able to retain significant market share. Let me remind you that Lantus’ price is significantly lower in Europe than in the US, so the room for undercutting on price will be less. Unlike other biosimilars, in diabetes there are factors other than the active compound that are important, like the device and titration. People are talking about biosimilar insulins like they will become a commodity business overnight, but that is not what is going to happen.

Q: Could you help us understand what has been happening with Lantus and its deceleration? Has the expectation for greater pricing pressure changed your thoughts in terms of patient switches from Lantus to Toujeo?

A: Lantus has been doing well for many years. As that happened, it allowed challengers to take a more aggressive stance. We have worked thoroughly with our leadership looking at sales management and the efficiency of our messengers, in areas such as call targeting and physician satisfaction. With that, we have seen in the last six or seven weeks that Lantus’ market share has stabilized. In the US, there has clearly been a dynamic environment in terms of payers. We took that into consideration to make sure we could have a good position to start with for Lantus. We are now in a situation with Lantus where we are competitive and pricing will not be a barrier to access. Between the stabilization of Lantus’ share and the good execution from our sales team, we feel that we are in a good position to start driving switches to Toujeo. We believe the switches will be substantial – higher than what the consensus estimates are presenting. We have conducted segmentation analyses to understand which patients would be more willing, or more in need, of the switch. The first group to look at is the group that is not at goal. Many patients in that group are not at goal because of fear of hypoglycemia. Out of patients who have had a hypoglycemic event, research has shown that 60% adjusted their dose downward. We feel that Toujeo’s improvement in hypoglycemia will help make patients and providers more comfortable. 

A: Look at the need: 60% of patients simply aren’t at goal. The market evolved towards Lantus over the years because it provided the best and most stable means of getting to a well-controlled range. Some molecules in some classes have been excluded from coverage totally for some time, like Victoza, but Lantus has never been excluded. At the end of the day, if you look at patients with later-stage diabetes who are less and less at goal, you see a need to evolve towards the best basal insulin available. Toujeo is as different from Lantus and Lantus was different from NPH. We’re also bullish with LixiLan for its ability to maintain patients at goal for longer because of the weight advantage – we could get 84% of patients to goal instead of 50%. Getting a higher proportion of patients to goal will be the main value driver, regardless of the price being at X, Y, or Z. We need to stop believing in the idea that biosimilars will sweep in and take things over because of cost. There are lots of other things, like support programs or devices, that are extremely important to the diabetes community. 

Q: How important will Toujeo’s labeling be once you get it? How important will the hypoglycemia data be in driving the switch from Lantus, and how confident are you that the data will appear on the label?

A: I don’t want to comment on what the FDA will decide. We’re in discussions with them, but the data is the data.

A: For all chronic diseases, the outcome is not just driven by the medicine, but also by patient engagement. We take an integrated care approach to understand how patients really manage their own disease. This is why with Toujeo we came up with a new pen, with improved design and a shorter and easier injection. We also will implement patient support programs customized to provide a mix of web, telephone, and face-to-face support so that we can help patients during initiation and throughout. Through small steps, this is how you can bring patients to goal faster and gets them to stay on treatment longer. These factors make us confident that Toujeo can provide added value. You can’t just throw a biosimilar in and consider it the same solution.

Q: Could you clarify the timeline for the launch of Toujeo and Afrezza, and how the formulary acceptance for Afrezza may be?

A: Toujeo’s PDUFA date is in February so we’re hoping to get that approved. In Europe the approval date would be a few months later.

A: We’re working towards launching Toujeo in 1Q15 in the US and in 2Q15 in Europe, with European launches varying depending on the specific country. With Afrezza, we’re working towards a launch in 1Q15.

A: For Toujeo, our teams have been working for the past few months with different payers to ensure that price is not a barrier to access. We are working on maximizing access as much as we can. We recognized that Toujeo is going to be a new gold standard insulin and we want to ensure that as many patients as possible have access to this new gold standard.

Q: Have payers expressed any concerns about Afrezza’s long-term safety?

A: Not really. It is clear that we will need to demonstrate the long-term safety. As part of our approval and launch strategy, patients are required to get pulmonary function tests and we exclude patients with COPD, smokers, or others that are at high risk. We will be conducting surveillance post-approval to assess cancer risk. From a scientific viewpoint, the reason I think Afrezza should be fine from a cancer standpoint is that it is much shorter-acting than Exubera and doesn’t stay in the pulmonary epithelium for much time. With Exubera, 5% of the dose stayed in the lung but it is less with Afrezza. That is speculative, however, which is why we are doing the study.

A: With Afrezza, the main difference is ease of use – you keep it for two weeks, it’s disposable, and there is no need for cleanup. It’s a very different value proposition.

Q: Do you have any market data on diabetics who have COPD?

A: COPD is about 10%.

Q: Do you have any updates on the CEO search?

A: That is a question for our chairman so I can’t comment on that. Our chairman is acting as CEO, and we can confirm to you that he is very active and working full-time as our interim CEO.

Takeda

Christophe Weber (President and COO, Takeda, Osaka, Japan)

We were impressed to hear how Takeda is making the most out of a relatively challenging time for its diabetes portfolio and pipeline. For background, Takeda discontinued its phase 3 GPR40 agonist TAK-875 in late 2013 and announced during its F4Q13 (calendar 1Q14) update that it would not continue developing its phase 3 once-weekly DPP-4 inhibitor trelagliptin in the US and EU due to the high cost of development in those geographies (particularly in terms of CVOTs); these two moves effectively emptied Takeda’s phase 3 diabetes pipeline. In a chart forecasting possible upcoming regulatory approvals across Takeda’s four focus disease areas, cardiovascular/ metabolic was the only area to have zero US/EU submissions expected between FY2018-2022. However, President and COO Mr. Christophe Weber shared that early indicators of the US launch of the Orexigen-partnered obesity drug Contrave (naltrexone/bupropion) have been very positive. Even more notably, Takeda is interested in investigating the combination of its current once-daily DPP-4 inhibitor Nesina (alogliptin) with Contrave or an SGLT-2 inhibitor (see more on this from Orexigen’s presentation below). Although he acknowledged that it will take time for Takeda to build new diabetes franchises to the point of phase 3 and approval, Mr. Weber emphasized that Takeda remains committed to diabetes and is conducting early-stage research to rebuild the pipeline.

Questions and Answers

Q: Does the decision to develop trelagliptin in Japan but not the US or EU reflect the possible strategy Takeda may take for future diabetes drugs, if and when they come down the pipeline? Is there any way that trelagliptin might find its way to the market in the US or EU?

A: The decision on trelagliptin was not illustrative of the future, and more illustrative of the past. Our development operation used to be more regional. If you take a weekly DPP-4 inhibitor, the reimbursement challenge is different in Japan, the US, and Europe. Japan is still a market in which you can get a good return on incremental innovation; the situation in the US and Europe is much more difficult. That will change in Japan because of the introduction of new cost control policies. For trelagliptin, we’re looking at how we can leverage the product outside of Japan. We need to identify patients in whom you can demonstrate cost effectiveness and superior efficacy vs. existing therapy. Otherwise, it’s difficult to get reimbursement.

A: Another question is whether an outcomes study would be required in the US – that would alter the economics of filing in the US.

Q: Could you provide your initial thoughts on the Contrave launch?

A: Contrave has just been launched in the US market. It is an anti-obesity drug that we have in partnership with Orexigen. It’s a bit early to say, but the first feedback we have received has been very positive and the first update has been above our expectations. This is an interesting case because we have combined the product with a strong program to help patients with their ability to lose weight. We’re not just providing the product, but a lifestyle effort around the product as well. I think we need to wait about six months to understand the real trajectory – right now there are lots of people trying the drug but we will have to see about their willingness to stay on.

Q: Is Contrave’s Direct Save program on hold?

A: We have a program to support changes to change their lifestyles beyond taking the medication. Recruitment is going well. The Direct Save program helps patients identify what financial support or coverage is available to them. That program is underway.

Q: Do you have plans to test the DPP-4 inhibitor in combination with Contrave?

A: We’re looking at it – rather, we’re thinking about it. We’re thinking about the combination with SGLT-2 inhibitors potentially, and potentially with Contrave as well. There could be some synergistic effects.

Q: In the diabetes franchise, you seem to have de-emphasized the existing DPP-4 inhibitor. Is that correct, and does it reflect any reprioritization?

A: At the moment, in the medium-term, we have less growth potential in diabetes than in GI and oncology. However, we are still committed to diabetes. We have an existing DPP-4 inhibitor, we have a once-weekly DPP-4 inhibitor, and we are doing earlier stage research. At the moment we don’t have a landmark product like we do in other areas. It will take more time to create a competitive franchise in diabetes, but we’re working on it. The geographic situations are very different as well. Nesina, quite frankly, has been struggling in the US. When you arrive fifth in class, it’s not easy. The US market has also changed a lot in the past few years. On the other hand, Nesina has been very successful in Japan. Even though we don’t have a standout franchise on the agenda like we do in GI or oncology, we’re still committed to diabetes. 

Thermalin Diabetes

Richard Berenson (CEO, Thermalin Diabetes, Newton, MA)

Thermalin CEO Mr. Richard Berenson presented on the small company’s portfolio of novel insulin analogs, highlighting four preclinical products in particular: (i) Thermalin’s lead product Fluorolog, a U500 rapid-acting insulin (onset of action: ~30 minutes); (ii) a biphasic (rapid on, slow off), premixed insulin replacement that does not require refrigeration (target is 300+ days at 40 degrees Celsius without loss of potency); (iii) an ultra-rapid-acting insulin (onset of action: ~15 minutes) for use in a closed-loop system, and (iv) a long-lasting basal insulin (~48 hours) that does not require refrigeration. This is the first time we have seen Theramlin at the Showcase, and Mr. Berenson took the opportunity to characterize the immense market opportunity (estimated $75 billion insulin market in 2030 – “only half of that will be biosimilars”) and Thermalin strategy for leveraging this market. The company hopes to move at least one of its preclinical programs into phase 1 trials every year, beginning with its Investigational New Drug Application-enabling safety/toxicology studies of Fluorolog in 2015 – this will depends on the resolution of Series B funding as the company is seeking ~$7 million to complement the ~$6 million raised in 2014. Theramlin’s intention is to partner these drugs upon completion of phase 1 studies (potential following phase 2) and, according to the firm’s website and commentary, “likely partners [include] Eli Lilly, Sanofi, or Novo Nordisk or aspirants like Merck, AZ/BMS, or J&J.”

• Thermalin has established a partnership with Cam Med, a new company developing a soft, flexible patch pump that will use Theramlin’s Flourolog. Few details were provided on Cam Med’s proprietary technology, though our understanding is that the “bandage-like” pump (~ 4 cm x 4 cm x 0.5 cm) is being designed with both type 1 and type 2 patients in mind.
• Moving forward, Thermalin hopes to capitalize on an “exploding” market for insulin in China and India. The company is in “active” conversations with partners in these regions.

Viacyte

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

ViaCyte CEO Dr. Paul Laikind provided an update on the company’s stem cell-derived islet replacement therapy for type 1 diabetes (pancreatic progenitor cells encapsulated in an implanted immune protective device). The first stage of the company’s phase 1/2 in-human clinical trial began in September 2014 (“Cohort 1”; n=~6) and, pending initial evidence of safety, will pave the way for the complete study (“Cohort 2”; n=36) by mid-2015 (ClinicalTrials.gov NCT02239354). The trial’s primary efficacy endpoint will be C-peptide levels at six months with secondary endpoints relating to the change in need for exogenous insulin. The efficacy of the therapy will be assessed once all patients have been treated for at least six months. However, in order to evaluate the duration of effectiveness treatment is expected to continue for at least two years. Dr. Laikind noted that the implants are effective for the lifetime of the mouse model, which is approximately one year but the duration of effect needs to be determined in patients. He does expect to require replacement at some point because the encapsulation prevent the bodies normal housekeeping mechanisms from removing dead or dying cells from the device (“we do expect it to fail eventually”). ViaCyte is the first of the groups working on encapsulated islets to reach the clinic in the US, and Dr. Laikind characterized the plunge as “big step” – the key question, in his mind, is whether the cell protection seen in preclinical grafts in immune knockout animals will translate to allografts in immune competent humans. That said, he noted that there is good evidence for why therapy should be successful, and we would characterize management’s tone as overwhelmingly optimistic. The company appears on track for its goal of a phase 2b/3 study in late 2016/early 2017 and a BLA in late 2019/early 2020.

• ViaCyte’s phase 1/2 study began in September 2014 at one center (University of California San Diego) – to date, three patients have been implanted with the therapy with a fourth expected to be implanted in the near future. ViaCyte has the option to implant up to six patients in this initial stage (we assume that the size will depend on the strength of safety data collected) before progressing to Cohort 2. This second iteration will be conducted at five additional centers (including at least one international site in Canada).
• As a reminder, ViaCyte had quite a string of positive developments over the second half of 2014 – the FDA accepted the company’s Investigational New Drug Application (IND) for VC-01 on August 19, and later that week ViaCyte announced an agreement with Janssen (in exchange for a $20 million payment to ViaCyte to help accelerate clinical development of VC-01, Janssen obtained future rights to evaluate a transaction related to the product). In September, the company was also awarded a $16.6 million Accelerated Development Pathway Award from the California Institute for Regenerative Medicine (CIRM) to accelerate development of VC-01. ViaCyte has received significant funding ($40 million) from the CIRM in the past, and the JDRF has also committed over $13 million in the last decade.
• ViaCyte’s VC-01 product candidate consists of pancreatic progenitor cells (derived from a proprietary human embryonic stem cell line) encapsulated in ViaCyte’s proprietary Encaptra device. When implanted under the skin, the progenitor cells are specifically designed to mature and further differentiate into alpha and beta cells – Dr. Laikind suggested that this diverse differentiation (as opposed to insulin-producing cells alone) theoretically should have a positive effect on glucagon as well, though research to date has only characterized the insulin response.

Questions and Answers

Q: What are you thinking about for your next round of financing?

A: We are talking to some investors right now. We’re hoping to have data later this year that we hope will generate more interest. We’ve actually had some real interest, because of the potential data and potential to cure a disease.

Q: Can you provide some insight into the phase 1/2 clinical trial?

A: We’re hoping to have data by mid-2015. The first stage could incorporate as many as six subjects depending on what the data look like. The FDA is requiring that we stagger the patients by one month which is why its taking time. Once that’s finished by mid-2015, assuming a successful outcome, we’ll start working with Cohort 2.

Q: Can you discuss what the encapsulation looks like? How is it vascularized?

A: It’s pretty well vascularized in our animal model. It forms a fibrotic capsule, but it is a well-vascularized capsule. That is the reason we chose PEC-01 cells. Islet cells are expecting to be vascularized already, but PEC-01 cells are designed to go in and recruit blood vessels. So in animal models, we’re seeing that vascularization as well.

Q: How do you think preclinical data is going translate from animals to humans?

A: It’s a question of what allogeneic protection will look like. We have good evidence to believe it should be effective. It’s a big step going from going from animals to humans, but there’s a good rationale for why it should be successful in humans.

Q: So you don’t call this a bionic pancreas?

A: A bionic pancreas is used to describe a glucose-sensing device, and that’s not what this is. We could call it a “bio-artificial pancreas.”

Q: What is the extraction process like? Is the implant going deep or shallow?

A: They’ve come out fairly easily. We believe that extraction can be done with local anesthetic.

Q: How long do you expect the implantation to work?

A: We’ve agreed with FDA to keep it in for two years. If it’s effective at two years, I don’t think patients will want to take it out. We do expect it to fail eventually, because cells will die in the device and macrophages can’t get in and clear them out. However, I think our team has positioned the product for success as well as anybody could do. We are now working on translating the product candidate to be effective in the patient.

Q: How do you think islet therapy is going to impact glucagon levels?

A: We haven’t directly measured the production of glucagon. However, we think that there will be a positive effect, because PEC-01 cells are differentiating into alpha and beta cells.

II. Diabetes Technology

Abbott

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

In speaking about the medical device business, Abbott CFO Thomas Freyman mentioned the October launch of FreeStyle Libre in the EU, aptly characterizing it as a “breakthrough technology” that both eliminates fingersticks and reads glucose levels discretely through an upper arm sensor. (Read our just-released diaTribe test drive here.) He specifically noted the product’s launch into the “$4 billion blood glucose monitoring market in Europe,” putting a clear emphasis on the goal to replace BGM. The medical device slide showed a picture of the FreeStyle Libre touchscreen reader, among two other non-diabetes devices in Abbott’s business. In responding to a question on “investments in Big Data,” Mr. Freyman mentioned the valuable diabetes information FreeStyle Libre provides to patients (and doctors and nurses!). Overall, the attention to FreeStyle Libre from the upper levels of management is terrific to see and hopefully a clear sign this product will get the needed sales and marketing budget to drive adoption – that, of course, also depends on reimbursement. The other Diabetes Care comment called 2014 a “transition year” in the US business, as a result of CMS’ competitive bidding program. However, Mr. Freyman said the international business continues to grow on the strength of emerging markets.

Bayer

Olivier Brandicourt, MD (Chairman of the Board, Bayer, Leverkusen, Germany)

Bayer management provided a bleak outlook for the company’s Diabetes Care portfolio in the face of enormous pricing pressure. Management declined to respond directly to an audience member who bluntly asked when the company planned to sell the diabetes unit (“or if you’re not going to sell it, what are you going to do with it?”) but acknowledged that the segment has been under “tremendous pressure,” as is the case for the rest of the industry. According to management, Bayer has lost 70% of its reimbursement coverage for Medicare patients in the US and has had to drastically reorganize to compensate for the impact. On a (slightly) more positive note, management suggested that “we’re probably at the bottom” at this point and that sales were unlikely to decline further in the coming quarters. By contrast, management highlighted the strong sales for Eylea (aflibercept) following its approval for diabetic macular edema (DME) and other expanded indications and featured the mineralocorticoid receptor (MR) antagonist finerenone (in phase 2 for diabetic nephropathy) on a list of featured pipeline items that are expected to reach the market by the end of the decade.

BD

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

BD CEO Mr. Vince Forlenza gave a high-level overview of the company’s performance and business strategy – diabetes was largely absent from his prepared remarks, though during the breakout session that followed, Mr. Forlenza commented that the company is expecting FDA clearance of its first-generation insulin infusion set in “late 2015.” This is the most specific guidance we have heard to date and suggests that clearance will come at the back end of the timeline provided at F4Q14 (March-September 2015). Indeed, Mr. Forlenza was unclear on whether the device had yet been filed with the Agency. Development of the infusion set has moved significantly faster than the company guided for in early 2014 – F2Q14 put development at “two to four years,” though this was updated in F3Q14 to 24-36 months. Mr. Forlenza now expects commercialization in 2016, when BD will take the product to market both directly and through partnerships. Notably, Mr. Forlenza did not comment on BD’s new pen needle product, the AutoShield Duo (US launch in August 2014), and we hope more granularity on penetration and expectations emerge over time.

• The majority of Mr. Forlenza’s prepared remarks focused on BD’s $12.2 billion acquisition of CareFusion in October 2014. Though it has not yet been finalized, the deal should close by the end of 1Q15. Mr. Forlenza spoke about the acquisition in broad terms, emphasizing that it would allow the companies to align their highly complementary technologies, improve the quality of patient care, and reduce healthcare costs. The implications for BD’s Diabetes Care business remain unclear as CareFusion does not appear to have products that can contribute directly to the segment – the company specializes in technologies designed to reduce medication errors and prevent healthcare-associated infections. That said, we imagine the additional sales force, growing distribution network, and improved economies of scale can only augment the segment’s outlook.

Dexcom

Kevin Sayer (CEO, Dexcom, San Diego, CA)

Dexcom’s Kevin Sayer gave his first presentation as the company’s CEO following Terry Gregg’s January 5 transition to Executive Chairman. Mr. Sayer was a bit less enthusiastic than Terry Gregg, though he still had plenty of big news to share: Dexcom reported blowout 4Q14 product revenues of $84 million, a striking 64% year-over-year rise and a 24% sequential increase from 3Q14. This now marks seven consecutive quarters of 60%+ YOY growth (see graph below to put the exponential rise into perspective). The strong 4Q14 performance brought full-year 2014 sales to $257 million, a 64% rise from 2013 and smashing the $220-$235 million guidance. Mr. Sayer also revealed that Dexcom’s patient base grew 50% in 2014, meaning it totals roughly 90,000 patients right now (60% pumps/40% MDI). Looking ahead, management expects sales of $340 million-$360 million in 2015, representing growth of 32%-40%; the lower growth rate is of course to be expected given the significantly higher base of sales. To fuel the growth, the sales force will expand ~20-25% this quarter (1Q15), and Dexcom has acquired an additional 90,000 square-foot facility to support expansion. Mr. Sayer also shared several new pipeline details as well: a new screenshot of the Gen 5 user interface (submission still expected this quarter, 1Q15); new Gen 6 accuracy data (MARD 12%, 10-day wear, one startup calibration); news that Dexcom is still in discussions with the FDA to obtain an insulin dosing claim; a picture of a new sensor applicator (single button push insertion) and a new touchscreen receiver with connectivity (as a backup), and news that Glooko is a partner. More details on the pipeline and business are below.

• Dexcom will expand its sales force by ~20-25% this quarter (1Q15). As of the last update, Dexcom had a field sales force of 90 reps, which means the expansion will add ~20 new members to the team. In Q&A, Steve Pacelli highlighted that Medtronic’s force outnumbers Dexcom four or five to one, though the upcoming pump partnerships should help address some of the gap.
• The international business is now responsible for ~13% of sales ($33 million in 2014), more than doubling since 2013. Dexcom has lots of upside on this front, given plans to expand to 10 more countries (not specified). The company has reimbursement studies in Germany and Sweden and hopes to secure Japanese approval in 2015.
• In dialogue with the FDA, Dexcom is still designing the study to support an insulin-dosing claim for the G4 Platinum. Management met with the FDA last fall, and apparently, the Agency looked at the G4AP accuracy data (MARD: 9.0%) and encouraged Dexcom to do a replacement claim study now. Previously, Dexcom had planned to wait until Gen 6 to go for such a claim. We took this as an encouraging sign from the FDA, though the dialogue has been ongoing since at least the 3Q14 call. Management did not give a timeline to begin or complete the study, as the details are still being hammered out (especially the number of required calibrations).
• Mr. Sayer showed never-before-seen screenshots of the Gen 5 mobile platform. A submission is still expected this quarter (1Q15), “assuming all goes well.” The screenshot showed the CGM value in much larger type than on Share, with an arrow wrapped around it to indicate a rising glucose (as opposed to the arrow off to the side). The screen also more prominently used yellow to indicate hyperglycemia, a nice visual indication of how things are going (we assume hypoglycemia will retain red). It’s definitely a noticeable change from the current trend arrow look and we wonder how patients will like it (of course, Dexcom can always update the app – the power of going mobile!). Similar to the way Share works, Mr. Sayer also showed a notification on the iPhone lock screen: Dexcom – ”High glucose alert.” Gen 5 will incorporate the Share platform, meaning patients can still have followers that receive alerts and notifications.
  
  • Once Gen 5 rolls out, Dexcom will be able to run real-time analytics across its installed base. Mr. Sayer shared one example following the launch of Share, where the Dexcom team was able to query blood sugars on Halloween and Thanksgiving (Halloween is much worse!). The hope is to offer patients better tools using this data (e.g., building better algorithms and products), as well as to bring the data to payers and perhaps support better reimbursement.
• In line with Dexcom’s exhibit at CES, Mr. Sayer revealed that the company is “working with Apple on possibly being a developer for the Apple Watch.” As a reminder, a mockup of Gen 5 data going to the Apple Watch was shown in Dexcom’s booth last week in Las Vegas. We believe this represents a major convenience win for patients and would be very well received. As well, Dexcom would gain a lot of credibility for being an official Apple Watch developer. We wonder if Dexcom could even benefit from the Apple marketing machine – like the iBGStar, perhaps Dexcom CGM could be sold in Apple stores!
• Mr. Sayer also showed a picture of a new simplified insertion system, which can be done with one hand – see a picture on twitter here. This has been a criticism of the G4 and previous generation applicators, and it’s great to see Dexcom innovating in this direction. The slide noted more “consistency,” though the system will require a “major manufacturing change.” As a result, we wonder how Dexcom will prioritize it among the other things it can work on. It’s hard to know how much an improved applicator would benefit the business, relative to the manufacturing and cost hassle it would take to roll out. 
• Dexcom is also building a new connected receiver, with a touchscreen and interface similar to the Gen 5 mobile system – see a picture on twitter here. Since Gen 5 will send data directly to the phone, this additional receiver would serve as a secondary backup display for most patients, and perhaps for those who don’t have an iPhone. Mr. Sayer expects the first-gen version to have Wi-Fi connectivity.
• Mr. Sayer showed accuracy data on the Gen 6 sensor in development – a MARD of 12% over 10 days with a single startup calibration. Of course, this is slightly worse accuracy than G4AP (MARD: 9.0% with calibrations per day), but the tradeoff of one single calibration and a longer wear time is unquestionably worth it. Gen 6 will block interfering substances with a new membrane, as well as employ new algorithms to detect more outliers.
• A slide on data management partnerships mentioned Glooko for the first time, alongside existing partners Tidepool and diasend. The addition of Glooko is a logical one and signals yet another encouraging option for patients and providers to choose from. We do wonder if three universal data platforms will remain in the coming years, or if one will emerge as a clear winner. There is clear value in aggregating the disparate data right now, though we also wonder how many “aggregators” are needed...  
• There was little notable commentary on Dexcom’s pump partners. Management mentioned that the Animas Vibe is commercially available in the US right now, Tandem is at the FDA (the hope is a mid-2015 launch, assuming things move on the optimistic end of the expected 12-18 month review), and Insulet/Asante will integrate with the Gen 5 app (and in the case of Insulet, the PDM).
• Mr. Sayer brought a supportive tone to discussing the artificial pancreas. Mr. Sayer noted that Dexcom is the preferred partner in AP programs around the world, and the drive for better accuracy will enable further improvements; however, he made it clear that Dexcom will control distribution of sensors, and only the company’s commercially available systems will be used in trials. We assume this was to address concerns that other companies would start distributing Dexcom sensors to sell with their artificial pancreas systems, should they be commercialized.
  
  • Notably, Dexcom is currently exploring the development of decision support tools based upon artificial pancreas algorithms – we assume these could enable smarter open loop therapy.
• In terms of market expansion, a major priority is moving to pharmacy distribution instead of DME. Mr. Sayer noted that good steps were taken in 2014 to establish a “base”, but the process will likely take two to three years. The vision is that patients would pick up their sensors at a local pharmacy, similar to how drugs and test strips are distributed. The advantages are lower patient co-pays and faster processing for patients new to CGM. In addition to pharmacy distribution, Mr. Sayer discussed other market expansion opportunities:
  
  • “Medicare/Medicaid are coming.” As noted above, Dexcom is undertaking a replacement claim study. There are also two bills in Congress for Medicare to cover CGM, though Mr. Sayer said, “we’re not waiting for bills.” Given the challenges of getting legislation passed, we think this is a prudent strategy. 
  • Clinical and economic evidence: As noted in the 3Q14 call, Dexcom is undertaking the DIaMonD study (ClinicalTrials.gov Identifier: NCT02282397) to quantify the benefits of CGM in a large population of MDI users. “It’s time for us to start spending money on data,” said Mr. Sayer.
  • International expansion: Dexcom hopes to add 10 more countries to its current distribution slate. Reimbursement studies are slated for Sweden and Germany.
  • Prediabetes, type 2, pregnancy, obesity, etc. Mr. Sayer quipped, “We have a technology we haven’t defined the boundaries for.”
• Mr. Sayer showed Dexcom’s Net Promoter Score (NPS) in the dQ&A panel (3Q14), a striking 68% vs. 8% for Medtronic. For context, Amazon has an NPS of 76, and Apple comes in at 71 – in other words, 68 is excellent.
  
  • Dexcom holds a 70% market share in the dQ&A panel’s CGM users vs. 30% for Medtronic. The slide showed trended brand share over time, making it clear (via an arrow labeled “530G Launch”) that Medtronic’s new pump/CGM has not changed Dexcom’s market share over the past year. For more information, contact Richard.Wood@d-qa.com.
• Mr. Sayer concluded with a slide, “Imagine a world where..,” providing a good reminder of Dexcom’s major priorities: “CGM is the first tool prescribed for all newly diagnosed patients; fingersticks are completely eliminated; and meaningful data is freely available to patients, caregivers, and payers.”

Selected Questions and Answers

Mr. Sayer (jokingly): Terry, do you want to ask the first question?

Terry Gregg [from the audience]: $360 million? That’s all? Sandbagger!

Q: Revenues were 12% above consensus in 4Q – extremely strong. What can you tell us about what you saw this quarter?

A: 4Q was a very, very strong quarter for new patient adds. We added more this quarter than in any other quarter. That drove a lot of growth. And the rest was very similar to previous fourth quarters. Patients load up at the end of the year – they bought a lot of sensors and transmitters. We hit everything we thought we’d hit. It was steady volume.

Q: So you’re running two fingerstick replacement trials?

A: We have a couple studies. One study is the DIaMonD study – that’s a trial to really gauge the effectiveness of CGM. We’re taking several hundred MDI patients and putting them on CGM. We’re going to watch them for six months and see what outcomes are. It’s more than 20 centers. They will be compared to a fingerstick cohort. We will track cost data and everything you can think of.

There’s another study that we haven’t run. We are still figuring it out. It’s a fingerstick replacement study. Our device is adjunctive to fingersticks right now. We want to eliminate that. Our regulatory team met with the FDA. They told us, “Your G4 Platinum system with the new algorithm is good enough to do this.” We were originally going to wait until Gen 6. But they told us “No – let’s get this done.”

Q: When did FDA say that?

A: Last fall.

Q: You still haven’t figured it out?

A: No we have not.

Q: So you will get rid of calibration?

A: That’s the tradeoff. That type of claim demands a level of accuracy and consistency all the time. If you get rid of calibrations, you’re making a tradeoff. That’s why this is still under negotiation. We want to make sure we get it right.

Q: On the Vibe launch, you have a big opportunity. We estimate 70-90,000 Animas patients.

A: I cannot comment on the Animas patient base. They don’t give those numbers. The Vibe launch has been a long time coming. It launched in Europe 2-3 years ago and has done quite well for Animas. We are very excited. We got approval in late Q4, and as of this month, J&J is commercially shipping the pump. They have a nice upgrade program to current Animas pump patients. But the pump market is not growing at a particularly rapid rate. For context, 60% of our installed base is pumpers, and 40% is MDI. There is some overlap between our base and the Vibe upgrades. In aggregate, the Vibe is launching, and Tandem’s optimistic projections are for a mid-year launch. We also have the relationships with Insulet and Asante – you may hear from Asante since it sounds like they are attempting to go public. But if you take the size of the Animas, Tandem, Insulet, and Asante sales forces, that will help us. Where we’ve faced big challenges is Medtronic outnumbers us in the field 4-5 to 1. The collective key messaging will be, “We have a differentiated pump also paired with best in class sensing.” So Dexcom will be in front of providers on a more frequent basis; it will be additive.

Q: What do you think of the type 2 opportunity and FreeStyle Libre?

A: We’re almost 100% focused on type 1. It’s primarily reimbursement driven. We’re seeing some signs of reimbursement in type 2 diabetes, but it’s primarily insulin-using type 2 diabetes. In the US, there are somewhere between 3-5 million type 2 insulin users on top of 1.5 million type 1s. The vast majority of type 2s are seen not by endocrinologists, but primary care internal medicine doctors. We don’t have a sales force to call on that group. We’ve talked publicly about Abbott Libre. It’s an interesting product for the type 2 market. It’s not a direct competitor, since it’s not a true CGM – it’s missing the key component of CGM, which is alerts and alarms for impending hypoglycemia. It may be an interesting product for type 2 – more as a diagnostic tool or a behavior modification tool. There is an enormous market opportunity – where we sit today, there is so much low hanging fruit in type 1.

Q: It feels like you are trying to accomplish too much with Gen 6 – like you are trying to make it the perfect product with better accuracy, factory calibration, etc.

A: The first version of G6 will be not factory calibrated. The dosing study for the G4 Platinum will largely determine that with respect to the calibration scheme. How many we reduce? It’s a tradeoff, and we’re still evaluating that in-house in small studies. For the hardware portion, you saw the picture of the new applicator. We can burn that in with Gen 6 or Gen 4. We will probably wait a little longer and do it with Gen 6. We’ve left options. You can do several filings with the FDA, or put them all in one bucket. Sometimes it’s less risk to do them together. Look at the pediatric filing. We got Gen 4 approved in 177 days. The pediatric indication took us 13 months. So we evaluate each feature as a separate or combined submission. We had two launches unplanned last year. We replaced the G4 transmitter with a 2mm thinner version. We didn’t say a word when we filed it. It’s also lower cost. Patients are very happy. We also launched a new algorithm and let the FDA approve it. “When do we go? Do we wait for Gen 5 or go now?” A lot of our strategy going forward is along those lines. I don’t think it will be factory calibration. But it will be a new sensor, a new algorithm, and new membranes; everything else is optional.

Insulet

Patrick Sullivan (CEO, Insulet)

Insulet’s new CEO Mr. Patrick Sullivan (90 days into the job) emphasized the need to spend much more on sales/marketing (especially to doctors/payers), the huge upside of the drug delivery business, and a goal to make Insulet a $1 billion company by 2019 (qualitatively, 60% diabetes and 40% drug delivery). A very tense Q&A with investors mostly focused on Insulet’s lower-than-expected 4Q14 numbers: revenue of $71-73 million (vs. an expected $76-81 million), with modest ~15% year-over-year growth in the US business (83% of sales) and ~100% YOY growth in the international business (15% of sales). The ~$6 million shortfall was 80% attributed to a delay in the Drug Delivery business (3% of sales), and 20% attributed to US distributors destocking their inventory. It became highly apparent that the US business has not been performing as well as previous earnings calls have implied, since patient-add numbers were apparently reported on a consolidated worldwide basis – the international growth masked domestic weakness following dissatisfaction with the second-gen pod launch. Indeed, 4Q14 was flat year-over-year for patient-adds, and US patient adds were actually down 9% for the full year. On the bright side, patient adds rose sequentially 5-10% quarter-over-quarter over the course of 2014, meaning the trajectory is positive. (Insulet will provide these numbers in quarterly updates going forward.) The company has ~75,000 worldwide customers (up 25% from ~60,000 this time last year), with an estimated ~15% share of the US pump market.

Looking to 2015, the company expects to add an additional 20 sales reps, hire a new Chief Commercial Officer (“reasonably close”), and to spend an additional $15 million on sales/marketing. Mr. Sullivan was optimistic for 20-30% growth in 2H15 once the new commercial team gets up to speed He expressed high confidence in the new team’s ability to execute, as they previously worked with him at Cytyc/Hologic. There were no major new updates on the pipeline front, though Mr. Sullivan did say Insulet needs to occupy a “meaningful position in the artificial pancreas, where the field is going” – we certainly were excited to hear this.

• Mr. Sullivan was fairly critical of Insulet’s previous leadership, citing an overemphasis on patient marketing to the exclusion of HCPs and payers. He expressed major concern, reviewing the company’s go-to market strategy, especially given the lack of compelling data to share with doctors. We know more data is possible to create now that sensors are better (time in zone data is more possible to put together etc.). Mr. Sullivan did acknowledge that the go-to-market strategy was an understandable approach, since the pod was approved in 2005 with established reimbursement in a fee-for-service healthcare system – there was less need to focus on payer marketing.
  
  • “We will focus like a laser beam on the sales organization.” Indeed, the company will add an additional 20 commercial team resources in 2015 (total = 150 field sales reps + managers). The company is “reasonably close” to hiring a new Chief Commercial Officer. Insulet will also undertake more medically focused peer-to-peer marketing efforts, such as dinner events. To date, Insulet has not implemented such outreach, which proved quite successful at Mr. Sullivan’s previous company, Cytyc. Of course, Medtronic is very strong on the physician marketing front, and we think this is smart direction for Insulet to head in. In 2015, the sales force expansion + medical marketing to physicians will add $15 million of incremental spending. Mr. Sullivan does expects ~20% or higher turnover in the sales force organization (he said ~15% is typical).
  • A slide entitled, “retooling for growth,” outlined other components of the near-term strategy: A newly announced commercial sales team (who previously worked with him at Cytyc) will help drive sales and marketing, particularly to managed care. Mr. Sullivan now has four Vice Presidents in the Commercial Team that will report to him directly: Sales; Marketing; Managed Care; and International. These businesses will have revenue broken out and reported publicly. Mr. Sullivan also plans to increase clinical studies and publications, develop an economic model for payers, secure Medicare reimbursement, focus on sales force execution, and develop/implement the product roadmap.
• In Q&A, Mr. Sullivan shared a historical look at the pod business to illuminate the relatively weaker US performance in 2014. He noted that the launch of the second-gen pod (March 2013) was met with a lot of excitement and increased new patient starts. However, issues with increased alarms, occlusions, and quality led to dissatisfaction among both patients and doctors. The launch was also market-wide release (vs. a limited release), which meant significantly constrained capacity and high customer call volumes. These events further contributed to dissatisfaction, and as a result, new patient starts began to decline. These events combined to make 2014 a challenging year in the US. We assume competition from Medtronic and Tandem also contributed to lower-than-expected growth.
• On a positive note, Mr. Sullivan seemed highly pleased with the company’s engineering and manufacturing capabilities, noting the “exquisite product design,” reliable high volume manufacturing (12 million pods per year), and high product quality. He said he “is not concerned about capacity at this point.” Insulet has four manufacturing lines with Flextronics in China and a fifth is in planning.
• Insulet currently has ~75,000 worldwide customers and ~15% of the US insulin pump market. The former was a 25% rise from ~60,000 patients in January 2014. Mr. Sullivan believes there is significant future growth potential, as the company holds less than 4% of the overall US type 1 market (assuming ~27% of type 1s are on pumps). Consistent with previous metrics, 70% of Insulet’s patients are new to pumping, 35% of prescribers are new since the launch of the second-gen pod, ~30% of the customer base is <18 years, and approximately 60% of the customer base is <40 years. Insulet has seen “strong growth” in children <10 years since launch of the second-gen pod; Mr. Sullivan was particularly excited about the OmniPod’s potential in pediatrics.
• “We have very little data to demonstrate the product performs.” We assume this will change over time, as noted. Mr. Sullivan recounted the story of joining Insulet and asking for clinical data, where only one study was presented to him – a 59-patient trial from 2009 (Kane et al., Infusystems) demonstrating an A1c reduction of 0.49%. Said Mr. Sullivan in Q&A, “I’m never going to show that slide to you again. From my perspective, that doesn’t cut it.” Along with the help of the receptionist, Mr. Sullivan personally mined Insulet’s in-house data to better understand the clinical utility of the product. In a population of 1,350 new OmniPod users, he found that A1c declined by 1.1% after getting on the pod, with an average reduction in insulin use of 15 units per day. He made two things clear in his remarks: (i) clear frustration and outrage with the go-to market strategy and the paltry data used to defend the product’s value; and (ii) a staunch desire to invest much more time and resources in proving the clinical value of the OmniPod. Again, given the way healthcare is going, this is absolutely a prudent play, and certainly aligns with Dexcom’s recent remarks on this front.
• The OmniPod is currently available in 11 countries, and there is potential to expand to 22 countries. Current countries include US; Canada (GSK); Austria, Netherlands, Switzerland, UK, Norway, Sweden, Italy, and Germany (Ypsomed); and Israel (Geffen). The 2015 portion of the slide listed France and Finland as potential Ypsomed launches. (In France specifically, Insulet is still waiting for government approval.) Potential future launches with partner Ypsomed could include China, Saudi Arabia, Australia, Poland, Spain, UAE, and Qatar.
  
  • Encouragingly, Mr. Sullivan plans to give specific sales figures for the US, international, Neighborhood Diabetes, and drug delivery businesses, a level of granularity that should help better manage expectations. Under previous CEO Mr. Duane DeSisto and CFO Brian Roberts, this level of specificity was never given.
• Mr. Sullivan outlined four pipeline project areas that will leverage the company’s current technology: the type 2 diabetes project with Lilly (~1.7 million patients), a more modern PDM, CGM integration & AP, and other drug delivery. He did not given any timing on any of the programs, and spent the most time discussing other drug delivery (“one of the areas I am most excited about” and a “tremendous growth opportunity”), the new PDM (touchscreen/modern looking, Bluetooth), and the CGM partnership with Dexcom (integrating the PDM with the Gen 5 mobile system). Though the slide noted the CGM-integrated OmniPod and “AP”, Mr. Sullivan did not address either, which was slightly disappointing. The presentation also did not discuss the LifeScan Verio-integrated PDM, which secured approval in November. Regarding pipeline product timing, the last updates came in the 3Q14 call: U500 OmniPod with Lilly (mid-2015 clinical study); Next-gen PDM (on display at ADA 2015, FDA filing in early 2016); OmniPod with integrated CGM fFirst in-human trial in early/mid-2015); Dexcom integration (following Gen 5 approval and next-gen PDM clearance).
  
  • Mr. Sullivan expressed very significant excitement for Insulet’s opportunities in non-insulin drug delivery (“I love talking about the drug delivery business – it’s a diamond in the rough for us”). He asserted that the OmniPod is the only intelligent delivery system that can offer time dependent dosing, occlusion, alarm sensing, and communication. “The way in which drug delivery will be focused in the future.” Mr. Sullivan cited that 84% of patients use auto-injectors improperly, and there is a 30% discontinuation rate for the arthritis drug etanercept. Future opportunities include diabetes, infertility, oncology, pulmonary arterial hypertension, Parkinson’s, peripheral arterial disease, PTH, and more.
  • We saw a picture of the Amgen Neulasta on-body delivery system, a project that has been in the works for five years. Basically, patients receive an injection of Neulasta in the clinic, at which time an OmniPod is put on with additional medication in it. Twenty-four hours after leaving the office, the OmniPod activates and delivers the drug. The product was designed with Amgen specifically for use with Neulasta; it will be packaged in the Neulasta delivery kit.
• Harkening back to his Cytyc days (growing revenue from $4 million to $750 million in 13 years), Mr. Sullivan suggested that building Insulet will be “easier and less risky” than at Cytyc. He noted that growth at Insulet’s growth will be organic (diabetes plus other drug delivery), whereas Cytyc had to make five acquisitions (two “very successful,” two “lackluster”, and one “a complete miss”).
• Insulet estimates that there are ~1.7 million Americans with type 1 diabetes, with 15,000+ children and 15,000 adults diagnosed annually in the US (80 people per day). Mr. Sullivan cited JDRF’s estimate that 85% of type 1s are adults and 15% are children. The slide noted that type 1 diabetes is on the rise among the young – there was a 23% increase in the prevalence of type 1 in Americans under age 20 between 2001 and 2009. Type 1 diabetes reportedly accounts for $14.9 billion in annual healthcare costs in the US – there was no citation aside from JDRF.org on the slide.
• Insulet expects the pump market to reach ~50% penetration by 2019 in >1.7 million type 1s in the US. The slide noted 27% penetration as of 2012 on a base of 1.5 million patients. Citations were numerous: William Blair, Analyst Reports, IMS, WHO. This strikes us as a pretty aggressive projection for four years from now, though perhaps it is possible given the flurry of products and influx of companies. 

Medtronic

Omar Ishrak (CEO, Medtronic, Minneapolis, MN)

Medtronic CEO Mr. Omar Ishrak gave a four-year timeline of new products, with a diabetes milestone in each one. The launch of the MiniMed 640G (predictive low glucose management) is still slated by April 2015 (FY15) in Europe, on par with the “early calendar year” timeline shared in December (when user evaluations were completed). Notably, the US launch of the MiniMed 640G is expected by April 2016 (FY16), the first US launch timeline we’ve ever heard on the device (the pivotal study began in October). This means a PMA submission should be coming imminently. Additionally, it was highly notable to see timelines on the MiniMed 670G hybrid closed-loop system, also the first we’ve ever heard – launches are expected by April 2017 in the US and April 2018 in the EU. [Note: The slide incorrectly identified the MiniMed 670G as “overnight closed loop”; we have confirmed with Medtronic that it is indeed “hybrid closed loop,” which we assume means a 24-hour system.] Management also shared that the ongoing launch of the MiniMed 530/Enlite in the US is “doing extremely well” and “driving very strong growth.” The slide noted a ~2 points increase in US CGM share since the product has launched. [As we’ve noted in previous earnings, it’s not clear how this is calculated.] Nothing was shared on the new diabetes business units, type 2 diabetes and services & solutions, though the latter is clearly a focus across of all Medtronic.

By April 31, 2015 (FY15)	By April 31, 2016 (FY 16)	By April 31, 2017 (FY 17)	By April 31, 2018 (FY 18)
MiniMed 640G in Europe Predictive Low Glucose Management	MiniMed 640G in US Predictive Low Glucose Management	MiniMed 670G in US Hybrid Closed Loop	MiniMed 670G in Europe Hybrid Closed Loop

NeuroMetrix

Frank McGillin (Senior Vice President, NeuroMetrix, Waltham, MA)

In an engaging and thorough presentation, NeuroMetrix Senior Vice President Mr. Frank McGillin described the company’s expanding reach in the diabetes peripheral neuropathy field. His talk focused on an overview of Quell, the company’s over-the-counter (OTC) wearable device for chronic pain. Quell uses the same transcutaneous electrical nerve stimulation (TENS) technology as the company’s prescription/reimbursed Sensus device (which has sold ~7,000 units to date). As we learned at CES 2015, NeuroMetrix intends to launch the device in 2Q15 at a retail price of $249 plus $29.99 for a one-month supply of electrodes. The device will initially be distributed through two channels: physicians offices (“we think professional recommendation is important”) and NeuroMetrix’s online website. The device pairs with a smartphone app via Bluetooth and will launch with iOS compatibility (Android functionality is in development). Mr. McGillin also highlighted that while Quell currently has an indication for chronic pain management, the company is pursuing a new indication for “balance” in patients with peripheral diabetic neuropathy. NeuroMetrix has completed clinical trials in this population documenting improvements in balance associated with TENS therapy and is hoping to leverage that data into an updated label in the near future.

• Mr. McGillin also touched briefly on the company’s DPNCheck point-of-care test for diabetic peripheral neuropathy, confirming that the companies intend to pursue a launch in China in 2015. As a reminder, NeuroMetrix launched DPNCheck in Japan in 3Q14 in partnership with Omron Healthcare. 

Perrigo

Joseph Papa (CEO, Perrigo, Allegan, MI)

Perrigo CEO Mr. Joseph Papa remarked on the company’s hopes to expand its Diabetes Care business via M&A. Though his commentary was brief, Mr. Papa noted that the company is “still interested in diabetes” and sees opportunities for growth – this has been a common refrain at Perrigo financial updates for some time now (F1Q15; F4Q14). As background, Perrigo has previously expanded its Diabetes Care business via M&A – the company acquired CanAm Care in early January 2012 for $35 million. In Q&A, Mr. Papa insisted that the Diabetes Care business is “growing,” though represents only a small portion of the company’s Consumer Healthcare segment (the 2014 Analyst Day slide deck (slide 43) from February 2014, which highlighted that Diabetes Care made up 3% of the Consumer Healthcare segment). Our sense is the Diabetes Care remains very much on the map at Perrigo, despite its small share.

• The main focus of the presentation was Perrigo’s November 2014 acquisition of Omega Pharma, a leading over-the-counter company based in Europe, for €3.6 billion ($4.5 billion). Omega owns a “leading" weight management brand – XLS Medical – that will now be under Perrigo leadership. Mr. Papa did not comment on the implications for Perrigo’s Diabetes Care business, though it is possible that the acquisition could serve as a gateway to the obesity arena.

Questions and Answers

Q: Can you provide any color on what proportion of the Consumer Healthcare business is Diabetes Care?

A: It’s growing. It’s a small portion. But it’s growing.

Roche

Alan Hippe (CFO, Roche, Basel, Switzerland)

Speaking to a standing room-only audience, Roche CFO Dr. Alan Hippe and COO Mr. Roland Diggelmann provided a series of pipeline updates during the company’s Breakout Session, sharing striking optimism on the Diabetes Care business; Dr. Hippe also alluded to the segment’s strong 3Q14 performance – as a reminder, that was versus a very easy 3Q13 comparison. As expected, management was guarded in discussing the US BGM market – “the environment is still, how do you say, challenging” – but acknowledged the business is moving in the right direction. Given that it is well past one year after the implementation of competitive bidding, it is not surprising to hear about less intense weakness in the US – more telling is the change in tone from management (e.g., “good fundamentals”) who has largely been neutral to slightly negative (e.g., “continued pricing pressures”) on BGM for the past ~18 months. Of course, good fundamentals could reflect only that many more patients are moving into the market but that the market remains challenging in virtually all other aspects. On the pipeline front, Mr. Diggelmann expressed cautious optimism that the Accu-Chek Insight (next gen insulin pump and BGM remote) remains on track for an FDA submission in 2015; as a reminder, the Insight launched in the EU in January 2014. Mr. Diggelmann also acknowledged that the company’s novel CGM is moving forward (“we feel we are in the race”) and while hesitant to provide a strict timeline, confirmed that commercialization is more than 12 months away. Notably, Roche plans to file the device in the EU before bringing it stateside (~18 months later), so we assume US commercialization would not occur before late-2017 at the earliest.

• Prompted to discuss Roche’s pathway to an artificial pancreas system, Mr. Diggelmann commented on the need to develop CGM as a stepping-stone (“very important”), while suggesting that the choice of whether to pursue a “Medtronic-like” step-by-step path vs. an alternative (e.g., straight to closed-loop) remains a topic of internal discussion. Mr. Diggelmann did acknowledge that Medtronic is the sole commercial model and that that path is “probably easier.” That said, he was quick to emphasize that no internal consensus has been reached.

Questions and Answers

Q: Can you comment on diagnostics, specifically with respect to diabetes?

A: First of all, Diabetes Care is an important part of our business. I don’t want to be too proactive, but you’ve seen the momentum. We’re headed in the right direction. We’re separating the business, because it’s the only business segment that deals with the end consumer. I think it was a good decision. As you know, I’m a big fan of the business. The environment is still, how to say, challenging, though it’s becoming a bit more predictable. We are still feeling the impact of competitive bidding in the US, but we are seeing growth in other regions.

Q: Can you comment on the novel CGM technology in development and the timeline you are looking at?

A: The timeline really depends on how work progresses this year. We feel we are in the race when you look at the other companies working on CGM. We’re unclear on the exact timeline, but I can say we’ll file in the EU first because it’s easier. The US will be around 18 months after that.

Q: Can you speak more specifically about the BGM environment? Both positives and negatives?

A: The challenges really depend on how reimbursement cuts play out. The key question is how much of the private market will follow. We’ve had a good eight to nine months in comparison with our competitors. We’re feeling less exposed. The market is more predictable. Patient numbers are going to increase – So overall, I’d say that the fundamentals are good.

Q: What is the timeline looking like for an FDA submission of the Accu-Chek Insight? Is a 2015 submission still viable?

A: Yes. Hopefully, it will come to the US in 2015.

Q: Can you talk about progress with your artificial pancreas system? How important is CGM development? Are you going to take Medtronics step-by-step approach?

A: Obviously, CGM is very important to us. In terms of the pathway, we still have to figure it out. Medtronic is the incumbent, so that’s what we’ve seen. That path is probably easier, but we don’t know.  

III. Obesity

Arena

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

Arena CEO Mr. Jack Lief provided more details on Eisai’s new marketing initiatives for Belviq (lorcaserin) (regarding the sales force and savings cards) and also highlighted a more concrete timeline for the drug’s once-daily extended-release formulation. During the breakout session, management elaborated on the changes in Eisai’s marketing for Belviq, explaining that the sales force will be reduced from 600 reps to 450 reps (reversing the recent expansion in 2Q14) to solely focus on active prescribers of anti-obesity medications (rather than the previous focus on both active prescribers and non-prescribers). These resources will then be utilized more toward direct response television (DRTV) campaigns, as management explained that more of Belviq’s growth has been driven by patient awareness rather than by the targeting of providers. Notably, while not much detail was disclosed, Arena stated that Eisai will also adjust the savings card offered to uninsured patients to help reduce out-of-pocket payments – this is something we are especially excited to hear as we have heard concerns about the high costs of branded obesity medications (see our coverage of Obesity Week and Cleveland Clinic Obesity Summit). We expect to learn more details later this week from Eisai as reported by Arena’s recent press release. In addition, Mr. Lief highlighted during the company presentation that the results of Belviq’s once-daily extended release formulation studies will be announced in 1Q15 (this is slightly earlier than the company’s estimate of early 2Q15 as reported in 1Q14) and that Arena plans to file an NDA in 2Q15. We are additionally enthusiastic about this new formulation as it could improve patient adherence, although we do wonder how the pricing would be changed.

Orexigen

Mike Narachi (CEO, Orexigen, La Jolla, CA)

Orexigen CEO Mr. Mike Narachi highlighted that early launch results for its/Takeda’s anti-obesity drug Contrave (naltrexone/bupropion) have been encouraging and noted that Orexigen is “talking about creating a great new diabetes drug.” Providing some more granularity since the company’s 3Q14 update, Mr. Narachi noted that Contrave is having early success in both targeted groups of frequent and infrequent prescribers of obesity medications and that sales reps are experiencing long call times with providers. In addition, he emphasized the increasing awareness surrounding the importance of weight loss in the prediabetes and type 2 diabetes patient populations and devoted significant attention to Orexigen’s goals of pursuing a diabetes indication and fixed-dose combination with a diabetes drug. During the breakout session, management noted that it will be a “tactical decision” on which diabetes project will come first but that selling the Contrave brand to the diabetes population is a “big opportunity” for Orexigen that is “front and center in its partnering process.” We are excited to hear such enthusiasm coming from Orexigen as we believe that an all-encompassing treatment for both diabetes and obesity will be a game changer for the overlapping patient population between the two diseases – especially since the label of Novo Nordisk’s recently approved Saxenda (liraglutide 3.0 mg) has tried to separate the two different indications.

Vivus

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

In a presentation focused almost entirely on Qsymia, CEO Mr. Seth Fischer highlighted new clinical data for the drug (such as a September Diabetes Care study showing improvements in glycemic control and cardiometabolic parameters in patients with type 2 diabetes) and discussed Vivus’ plans for continued patient and provider engagement in 2015. During the breakout session, Mr. Fischer suggested that the launch of Orexigen/Takeda’s Contrave (naltrexone/bupropion) has benefited Vivus to some degree by creating more “noise” around obesity pharmacotherapy – the company has apparently seen “non-target physicians suddenly start writing Qsymia” in recent months. Given the addition of two new options – Contrave and Novo Nordisk’s Saxenda (liraglutide 3.0 mg) – to the obesity pharmacotherapy market, Mr. Fischer predicted that 2015 will be an “instructional year” that indicates how great the potential for growth is in the area. The field certainly appears to be moving toward greater acceptance of obesity pharmacotherapy as a viable treatment option – we were very keen to see the latest Endocrine Society Clinical Practice Guideline offer specific recommendations for clinicians in this area.

• Vivus believes that Qsymia is “priced right for the value we provide” and does not anticipate reductions in the near future. In response to a question about whether Arena/Eisai’s new marketing initiatives (which include an adjustment to the savings program to reduce out-of-pocket payments for Belviq [lorcaserin]) would affect Vivus’ thinking on price, Mr. Fischer said the company is confident in Qsymia’s profile and does not believe any price reduction is warranted. When pressed, he did acknowledge that if lower prices eventually appeared to be driving rapid uptake of other anti-obesity agents, Vivus would be forced to consider such a move. While the dynamics of this newly expanded market remain unclear, we suspect that the existence of more treatment options and the general trend toward increased payer pressure across the healthcare system could potentially lead to the sort of “race to the bottom” on price that appears to be emerging for some diabetes drug classes.
• In Vivus’ view, the FDA’s August hearing on CVOT interim data disclosure did not provide sufficient clarity on how companies can disclose interim data without compromising the integrity of an ongoing trial. It was nice to hear candor on this front – we completely agree though know that at least some manufacturers don’t want to say this publicly. Mr. Fischer also noted that the FDA’s requirement of a second CVOT for Contrave following its approval had given Vivus “great pause” regarding the possibility of using interim data from Qsymia’s AQCLAIM CVOT to support European approval – this is extremely unsettling, we agree. We strongly agree that there is a clear need for more explicit FDA guidance on how interim data should or should not be disclosed – the current uncertainty has already led to consequences including Sanofi’s withdrawal of its NDA for Lyxumia (lixisenatide) as well as the setback for Contrave.
• In terms of future trials, Vivus is currently focused solely on getting its CVOT off the ground, but management left open the door for potential expanded indications for Qsymia, including in type 2 diabetes. From our view, although that would be fantastic for patients, we would perhaps rather just see it put in a fixed dose combination with an SGLT-2 or DPP-4 inhibitor (we would say “or both” depending on the formulation challenges – we are very interested in reader views on this and if you have some, please be in touch at info@closeconcerns.com). Mr. Fischer also noted that Vivus hopes to use the CVOT as a “value-added platform” that can produce data to support a future expanded label. It is not yet clear whether Vivus would seek a partner before pursuing such indications; as of now, the company believes a partnership agreement would be desirable but perhaps not absolutely necessary. We would love to see a CVOT show cardio-protection and assume this would be a very long trial indeed.

Questions and Answers

Q: When you talked about the number of prescribers, is there a core group of power users? What’s the breakdown there?

A: Right now in the anti-obesity agent market, the number of doctors that write at any volume is only about ~18,000. It’s hard to quantify because the market is developing with the newcomers, but there’s a top tier that writes 200-300 scripts a year, then there’s a rapid fall.

Q: Is your emphasis on the top tier or are you trying to capture some of the lower tier?

A: With a deployment of 150, we know how many we can reach. There’s the top tier of anti-obesity writers and then in the mid-tier there’s more volume but they haven’t taken it up much. If we see a doctor light up who hasn’t been a writer, we’ll redeploy our force and start calling on them. We know through our data that if doctors are using competitive agents and become aware of Qsymia, they’re often impressed by the data and willing to write.

Q: Do you know what the typical duration of therapy is?

A: About 4.5-5 months. We know there are some that we haven’t seen that are longer, but it’s hard to track because in some managed care organizations, new prescriptions will get reported even though it’s really chronic use. Most chronic agents only see five to six months of what looks like chronic use, so it’s hard to keep track.

Q: Do you have somewhat better visibility because of the REMS?

A: Yes. Our data shows four and a half to five months duration on average.

Q: When you’re driving volume, is the emphasis on getting prescribers to write more scripts or is there an opportunity with the duration to keep patients on drug?

A: Yes, since we have that knowledge and communication because of the REMS, when we see a patient stop therapy or get close to the end of a coupon, we can reach out through email to talk about continuing therapy.

Q: Can you measure whether that’s working?

A: Yes, we can see how many clicked and opened and how many got the script.

Q: Do you have data on the reasons they’re dropping off?

A: We don’t know why they stop, just when.

Q: Will you be making a push on direct-to-consumer advertising?

A: We’re looking at market development programs. We’re building a digital community around prescribers who can talk about the results they’re getting and trying to link them with KOLs. We’re also building patient communities with patient advocates.

Q: Arena/Eisai talked about pulling down their sales force for Belviq and increasing commercials, which probably helps you guys. Ultimately there will be a net price decrease. How do those factors influence you?

A: My belief is that if a patient is achieving efficacy, they will stay on therapy. A patient that is motivated will stay on the therapy. There are lots of tradeoffs for the patient – they look at how much they’re spending a month on vitamins, exercise programs, Weight Watchers. A net reduction in price is not something we’re motivated to do. The data shows that Qsymia can cause a major difference in comorbidities, and we think we’re priced right for the value we provide to the community. When I arrived, I looked at the program we had and I didn’t think we should do that for obesity. We want to encourage patients to get on therapy and stay on; we think there could be great use pre- and post-surgically too. There won’t be any price reductions.

Q: Would you consider it if you saw a big shift?

A: Yes, if it started driving rapid uptake, we’d have to consider it. But our key target physicians, even with the expanded force for Belviq and the early Contrave launch, the doctors that believe in this drug are not waning. Now we have to gain more believers.

Q: In getting patients to stay on therapy longer, what’s the goal?

A: We deal with a lot of confusion in the market about phentermine. It’s only indicated for acute use, so doctors are surprised that they can use Qsymia chronically; that means they need to get better educated. We don’t track much beyond 8-9 months. We know in this market that patients take a drug holiday, usually around big holidays – that’s why there’s a dip in the market between Thanksgiving and Christmas and then a resurgence in the market in January. We’ll continue to track it. We don’t know what’s the right number.

Q: Do you have data to bring to doctors to convince them to encourage patients to stay on therapy?

A: We message that often, that they shouldn’t think of patients getting to goal. The benefit and the curse of Qsymia is that people lose the majority of weight in the first 180 days and come off therapy. They don’t come back to where they were before therapy, but there is some rebound and then they go back on. We want to encourage people – at the physician level – to stay on therapy.

Q: 38% of your scripts are covered by a third party. Are the rest cash-paying patients? Are there patients who don’t take you up on the copay assistance?

A: There are plenty of calls into that group we’ve set up to help them navigate. When we launched we wanted a program at the physician office. Actually, the dialogue with the third party was happening with the physician office and costing them time. They appreciate that we put it at the patient level and help them decide. Some find that with their initial outreach they can’t get coverage but they’ve gone back and reached out and gotten the copay down. It’s an important service to provide. And yes, there are certain patients who will pay full price without the discount.

Q: Outside of the new entrants, where does Vivus see opportunities to improve coverage?

A: Large insurers haven’t decided to cover these agents yet. We did see a shift in 4Q14 where even accounts that had dismissed us in 2013 came back and said let’s have a discussion. First they’re deciding whether to cover the category. CVS Caremark was aggressive from the start, but others are deciding whether to cover. We heard they were fearful it would be purely a lifestyle drug, but now through REMS data we’ve shown that the patients we studied in the trials are exactly the patients taking the drug. Doctors are discerning about prescribing. The person just losing weight for their prom is not the patient we want.

Q: What have you seen with the Contrave launch?

A: There’s been rapid uptake. If you look at the launch align curves between their launch and our retail launch in July 2013, we’re pretty much on the same trajectory. Then theirs got interrupted because of Thanksgiving, so we’re going to see what their rebound is. I was hopeful they wouldn’t see the same drop that the rest of us would see because they were still in the launch phase, but it was pretty much the same. It has done one thing we hoped it would do and that is create noise for the category. We’ve seen non-target physicians suddenly start writing Qsymia and we haven’t even called them. When doctors try the therapy for the first time, that works to our advantage, but we need to have a rep there.

Q: What are your expectations for the growth of the category?

A: 2015 will be an instructional year because with Novo Nordisk and Contrave getting involved, you have 2,000 reps making noise and hundreds of national account managers. This year will be instructional for growth. That noise is important. Washington is an important part of the story. I’m optimistic that the new surgeon general who said obesity is a real problem will take a more aggressive approach than in the past. The CMS issue is still a major issue – we’re basically a carve-out of Part D. Insurers say, if the federal government doesn’t cover it, why should I?

Q: How close are you to finalizing the outcomes study?

A: It’s a long process to align European and FDA interests, set up CRO arrangements, and have countries going through the regulatory process to get the trial kicked off in sites across the world. There’s also major hesitation and ambiguity around trial integrity. In August there was an FDA meeting about this, and at the end of the year Contrave came out with an approval but it had an adverse impact on the study; they had to do another CVOT. That has given us great pause because the FDA is not interested in our interim data; they’re interested in the endpoint of the trial, which is non-inferiority at 600 events. Anything we do for the interim relative to approvals elsewhere or label enhancements could jeopardize the integrity of the trial. There’s been lots of discussion to assure us that before we start investing heavily, we’ve got clear agreements to protect Vivus’ interest. We’re having an ongoing dialogue that will wrap up soon. August 11 was instructional but not helpful in terms of how to not compromise the trial. The hearing said a lot, but it wasn’t clear as to how do you not compromise it. We want to get more clarity.

Q: The data surrounding stopping the transition to diabetes is compelling. Is there an emphasis on that? Will there be a partner involved in making the shift to a diabetes indication?

A: We have a number of program ideas and we’re trying to make sure we properly value them. Type 2 diabetes is potentially one of them, but there are several others. First we want to get the CVOT ready to go, then discuss other potential trials. Would it be great to have a partner involved? Absolutely. Is it absolutely necessary? We’re not sure. It is important to have support. Part of the effort for the CVOT is using the trial as a value-added platform for additional pivotal data that could support label efforts elsewhere. Diabetes prevention is the holy grail in drug development. It takes huge studies with a long duration, so a CVOT is the ideal platform to capture that. But for any value beyond publication, you need to do it in a regulatory sufficient manner.

IV. Health Policy

Aetna

Mark Bertolini (CEO, Aetna, Hartford, CT)

Yesterday, charismatic Aetna CEO Mr. Mark Bertolini shared a confident update on the company’s strategy in a post-ACA world – “It didn’t kill us; it has only made us stronger.” Indeed, Aetna beat investor expectations and raised guidance in every quarter of 2014. He started his presentation with a strong statement on “the Aetna way,” as the company increased its minimum wage yesterday morning to an impressive $16 an hour; the move will affect 5,700 employees, some markedly so. Speaking broadly, Mr. Bertolini asserted that insurance is no longer about balancing risk pools (managing incidence and utilization); it’s about accepting the incidence and managing severity. He further explained that Aetna must evolve from: (i) an insurance company --> health care company; (ii) an employee as the end user --> an individual as the end user with personalized healthcare needs; (iii) managing risk --> managing health. This is outstanding news for patients, in our view, since it suggests more of a personalized health partnership with Aetna – for too long, patient-payer relationships have been antagonistic, something we hope changes in the coming years. Mr. Bertolini placed a particular emphasis on the value of consumer empowerment to buy plans that fit their needs (a theme carried throughout JPM) – he imagines a future world where consumers will receive a subsidy from either their employer or government to buy their own healthcare on an exchange. Mr. Bertolini believes that by 2018 Aetna can hit $80 billion in revenue (up from $57-58 billion now), driven by public/private exchanges, dual eligibles, Medicare Advantage, and Medicaid. By 2018, Aetna expects value-based contracts to be 50% of its provider relationships.

• Aetna’s strategy going forward will focus on three distinct segments: (i) consumers (private and public exchanges); (ii) providers/hospitals through the Healthagen brand (accountable care solutions and population health management); and employers/government.
• Mr. Bertolini called bswift “a key component of the vision.” bswift’s software and services streamline HR and benefits administration. Consumers can shop/buy/enroll for medical products, non-regulated products, and wellness programs. For institutions, bswift offers eligibility, billing, enrollment, reporting, data management, and HR/payroll integration. Combined with the Healthagen business unit, bswift helps Aetna invest “in capabilities for the move to defined contribution.
• Aetna has outperformed competitors United, Anthem, Humana, and Cigna from 2010-2014, with returns 2.7 times the S&P 500. The company has seen remarkable shifts in its insurance portfolio over that time period: a major increase in government insurance (22% of its portfolio in 2010 to 38% now) and a major decrease in large group insurance (44% to 32%).

Geisinger

Glenn Steele, MD (President and CEO, Geisinger Health System, Danville, PA)

Geisinger CEO Dr. Glenn Steele highlighted results from a recent study suggesting that a team-based, holistic healthcare delivery model can significantly reduce complication rates in patients with type 2 diabetes. The observational study, sponsored by Geisinger and published in the American Journal of Managed Care in June, examined the effectiveness of a team-based model aimed at more consistently implementing the ADA’s standards of care for patients with type 2 diabetes in a primary care setting. A key part of the program was the creation of more holistic incentives for physicians, whose performance was evaluated solely based on an “all-or-none” bundled measure of patient outcomes. After three years, the 4,095 Geisinger patients enrolled in the program had significantly lower rates of MI (hazard ratio = 0.77), stroke (HR = 0.79), and retinopathy (HR = 0.81) compared to matched controls from other clinics in the region. Dr. Steele described these results as “one of the most exciting things we’ve been able to show,” and while Geisinger has not yet completed an analysis of the program’s economic consequences, he estimated that the savings could total millions of dollars over just a few years. We have been hearing more and more about the potential of such integrated healthcare delivery models to deliver more efficient and effective care and we look forward to seeing more analyses in this vein. We believe this study offers an excellent example of the potential of “real-world pilots (insurance claims databases in this case) to support valuable research at a relatively low cost – see our AHA days #3-4 report for more.

Kaiser Permanente

Kathy Lancaster (EVP & CFO, Kaiser Permanente, Oakland, CA), Tom Meier (SVP & Treasurer, Kaiser Permanente, Oakland, CA), Arthur Southam (EVP of Health Plan Operations, Kaiser Permanente, Oakland, CA)

Ms. Kathy Lancaster, Mr. Tom Meier, and Mr. Arthur Southam (Kaiser Permanente, Oakland, CA) gave an impressive presentation that provided an overview of Kaiser Permanente’s model and strategy, covering its 9.5 million members, 17,000 physicians, and 175,000 employees. The speakers emphasized that the industry is undergoing fundamental change with care transformation, the Affordable Care Act (ACA), and an aging population among others. Most notably, Kaiser Permanente highlighted that a critical strategy moving forward involves bringing integrated clinical information systems (the organization now uses a common electronic health record [EHR] system) and making a significant virtual care footprint. The speakers emphasized that making use of mobility and EHRs are key and that in order to deliver better care, Kaiser Permanente is investing in over one hundred pilots in telemedicine as well as in better understanding behavioral health. Ms. Lancaster concluded by asserting that quality will ultimately drive affordability and Kaiser Permanente’s dedication to care transformation and sustainable growth will help achieve this progress.

V. Keynote Addresses/Panel Discussions

Luncheon Keynote

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

Addressing a packed ballroom that then led to a packed overflow room, Mr. Jamie Dimon was interviewed by Mr. Carlos Hernandez (JP Morgan, New York City, NY) in a luncheon keynote. The keynote was almost exclusively focused on topics other than healthcare as a relatively positive Mr. Dimon enlightened the crowd with his thoughts on the global economy, interest rates, and energy and oil. Regarding healthcare, he notably did not express significant confidence in the Affordable Care Act’s impact, claiming that he “doesn’t know the effect of Obamacare” but that he very much believes that it is a critical time to “provide healthcare to all of our citizens” (which was followed by large rounds of applause). While Mr. Dimon did not seem particularly optimistic about healthcare reform, he emphasized that innovation in companies have much of the potential to drive down cost in our healthcare system and its “terrible cost control.” Mr. Dimon also humbly opened up to the audience about his personal journey with throat cancer over the past year, noting that healthcare very much “takes a village” and expressing his immense gratitude for the talented and diverse team that provided his care.

Luncheon Keynote

Ezekiel Emanuel, MD, PhD (University of Pennsylvania, Philadelphia, PA)

In a packed luncheon keynote address, healthcare reform expert Dr. Ezekiel Emanuel (University of Pennsylvania, Philadelphia, PA) discussed the Affordable Care Act’s (ACA) impacts on care delivery and provided his thoughts on how we can deliver higher-quality care in “big heavy diseases” such as diabetes. An energized Dr. Emanuel opened the keynote by remarking that we have already seen shifts in care delivery inspired by the ACA, commenting that payment structure change inevitably leads to care delivery change. In his eyes, the move away from the fee-for-service system has pushed the field to keep “high-cost users” (such as those with chronic illnesses) out of the hospital and to thus focus more on prevention. In addition, Dr. Emanuel highlighted standardizing care as the challenge we must overcome in the “big heavy diseases” (which he described as diabetes and cancer among others). He notably expressed optimism about these diseases’ guidelines and emphasized that we need to instead work on standardizing the practices to make the patient’s care more “automated and seamless.” This transformation in care, according to Dr. Emanuel, will naturally make care more high-quality and cost-effective.

• Dr. Emanuel also commented that he does not foresee the government regulating drug prices nor does he have confidence in a “value-based” system of drug pricing. He noted that we currently “do not have a pricing scheme that makes sense” and that it is important to differentiate specialty drugs that are very effective from those that are not as effective but very expensive. However from his perspective, the government stepping in to regulate price is not a solution to the system and is “not the American way;” instead, we must develop a “different social compact” among payers, the public, and industry. In addition, when discussing a “value-based” system of drug pricing, Dr. Emanuel expressed concern and skepticism, stating that such a system will likely lead to price increases in drugs for small populations as we move towards personalized medicine. As we have heard so much positive support behind personalized medicine (even from Dr. Francis Collins at this meeting), this is a surprisingly insightful criticism that we believe should be taken into account. Dr. Emanuel also did note that he didn’t think the same drug could be priced differently for different indications; we are interested to ask him about Novo Nordisk’s Saxenda vs. Victoza.

Fireside Chat

Francis Collins, MD, PhD (Director, NIH, Bethesda, MD)

In a “fireside chat,” Dr. Francis Collins (Director, NIH, Bethesda, MD) discussed how the NIH can collaborate with the private sector, highlighting the Accelerating Medicines Partnership (AMP) and NIH’s initiatives to “repurpose” drugs. In commenting on how the pharmaceutical industry “is not exactly rolling,” Dr. Collins first highlighted AMP as an opportunity to work together with the private sector that has so far been “meeting or exceeding expectations.” This partnership is a collaboration between the NIH, biopharmaceutical companies, and nonprofit organizations that focuses on the three disease areas of type 2 diabetes, Alzheimer’s disease, and rheumatoid arthritis. According to Dr. Collins, all of the data within this partnership has been open-access, with industry willing to participate as all research is considered pre-competitive. In addition, Dr. Collins called NIH’s initiatives to “repurpose” drugs an “unprecedented way to work with the private sector” that can be offered to companies. This work aims to reduce the cost and time required to approve drugs as “failed” drugs who don’t make it through its initial pipeline can be applied to other disease areas. We are excited to see the NIH coordinating such efforts as we agree that a broader information dissemination on what candidates have been researched for what conditions can cut down on many wasted resources within the drug development process.

• Dr. Collins also referred to his recently published JAMA editorial on the “exceptional opportunities in medical science,” which include the potential of precision medicine as well as a shout-out to stem cell research in type 1 diabetes. While Dr. Collins mostly focuses on cancer with regards to precision medicine, he commented (both in his editorial and keynote address) that personalized medicine combined with mobile health technology can lead to better prevention and management of chronic diseases. Additionally, his editorial highlighted NIH’s support of stem cell research and pointed to the findings of Dr. Doug Melton’s team (which developed an approach to differentiate stem cells into functional beta cells) as a major advance in type 1 diabetes treatment.
• Notably, Dr. Collins stressed the NIH’s lack of resources, highlighting that its budget has lost almost 25% of its purchasing power over the last decade. In both his keynote address and editorial, he lamented the “throwing away of good science” due to this financial stress. Dr. Collins emphasized that such a position puts the US at risk of “losing our most important resource of the next generation’s talent” and referred to another recently published JAMA editorial that shows the US being outpaced by increasingly more countries in biomedical research. We could not agree more that research hubs like the NIH desperately need more funding and we encourage patients, providers, and industry to all push for such movement.

Panel Discussion: Technology Led Disruption in Healthcare

Bryan Roberts (Partner, Venrock), Dan Burton (CEO, Health Catalyst), Sean Duffy (Co-founder and CEO, Omada), Adam Jackson (Co-founder and CEO, Doctor on Demand), Nat Turner (Flatiron), Jeff (CEO, Doximity)

This standing-room-only (three deep!) panel on digital health featured a wide-ranging discussion that touched on the problems each company seeks to solve, business models, consumer engagement, and even predictions for 2015. Broadly, all panelists spoke to the need to save the system money, to design excellent consumer experiences, and the benefits of selling to employers/enterprises. Comments also underscored a recurring theme – it’s never been harder to be a practicing doctor – this is a major negative force in our view and one for which the implications aren’t yet obvious. Our favorite quotes are highlighted below.

• “It’s an incredibly difficult thing to get outcomes in this space. For getting people in, it has to feel incredibly interesting and sexy and a neat program. It needs to look beautiful. We market in a very consumer way. The head of our consumer marketing team used to lead global brand at IDEO.” – Omada Health CEO Sean Duffy
• [On the $100 million deal with Allina Health] “It’s the first and biggest example of the concept of shared risk and shared accountability being extended to the technology partner. In this case with Allina, we have a ten-year relationship; there are lots of economics that are tied to our ability to use technology as a means to outcomes improvement. We’ve got to put our money where our mouth is. It feels overdue in healthcare. We need more of that accountability to be extended to the technology partner.” – Health Catalyst CEO Dan Burton
• “We view the biggest opportunity for impact in enterprise. It became very clear. It takes a whole lot of work to help people make changes that are clinically meaningful. A whole lot of work brings a price point that consumers cannot cover. For us, it was a no-brainer. The diabetes stats are absolutely terrifying. We had to sell to enterprise to reach them.” – Omada Health CEO Sean Duffy
• “If we can be successful, healthcare as an industry will be smaller. The big problem we try to help solve is waste. There is anywhere from $700 billion to $1 trillion per year in waste.” – Health Catalyst CEO Dan Burton
• “Direct to patient is a really hard way to scale a business. A lot of business are B2C, but we found that in B2P (business to patient), patients didn’t really care about engaging. We navigated to nodes, where patients are aggregated – capturing 10,000 patients in one sweep. We highly prefer enterprise just because how hard it is to gain scale otherwise.” – Flatiron CEO Nat Turner
• “Oncologists basically don’t communicate. They didn’t know how many breast cancer patients they had. There was no clinical utility in the types of tools the centers had.” – Flatiron CEO Nat Turner
• “Employers and plans now see telemedicine as a cost-saver.” – DoctorOnDemand CEO Adam Jackson
• “Most clinicians believe that they follow the best practice evidence guidelines 90%+ of the time, if you survey them. But when you look at the data, systematically it’s a lot lower than that – in the 30-40% range. The data presents challenges in the way a clinician will respond. How do you deliver bad news? How do you work clinicians through their natural desire to get defensive? To not believe the data?” – Health Catalyst CEO Dan Burton

Predictions for 2015:

• Sean Duffy: “I think this will be an enormous year for telemedicine. I think there will be an interesting shift. The world of telemedicine will slowly evolve into outcomes delivered remotely. Fundamentally, that’s what it’s about. We’re hearing a lot of conversation about that.”
• Dan Burton: “I have a hope. I hope we see a trend towards more shared risk, and more shared accountability, it’s scary, but it’s really healthy for our industry.”
• Adam Jackson: “Systems, large and small, start treating patients like consumers. For our local hospital system [in SF], the stuff is from 1998. It’s such a bear to deal with.”
• Jeff Tangney: “I hope this is the year we start to see national licensing. Why should a cardiologist in NY take a different exam for NJ? It hurts telemedicine. I hope we see things start to gain traction. I hope it starts on a state by state basis.”
• Nat Turner: “For some of the high end specialties, some hospitals might throw up their hands and say, “These guys are generating high cost per patient, with high overhead. The upkeep for that kind of group in the hospital might be really burdensome. We might see a reversal of the trend [where private practices moved into hospitals].”

Workshop and Panel Discussion: Type 1 Diabetes – Novel Therapies, Devices, and Diagnostics on the Horizon

During a captivating morning JDRF workshop at the Biotech Showcase on type 1 diabetes therapies, Thermalin’s Mr. Richard Berenson provided a pragmatic take on oral and glucose responsive insulins. He suggested that glucose responsive insulin is unlikely to completely take over the market even if a reasonably safe and effective compound is produced because of difficulties in dosing. He pointed out that smart insulin depends on a depot that only acts when glucose levels are high. If a patient exercises or eats fewer carbohydrates than expected, it will leave a larger depot of insulin on board that will need to be factored into subsequent dosing (we’re not sure how this differs from regular “insulin on board”). Despite the challenges, Mr. Berenson still strongly believes in “smart” insulin’s potential and Thermalin is investigating the possibility. Dosing is also a challenge for oral insulin, given the variability in patients’ microbiome, diet, and other factors that impact absorption. On the whole, Mr. Berenson’s points did not temper our enthusiasm for these two potentially transformational types of insulin, but they did provide the room with a better understanding of the extent of the challenge. Panelists also expressed optimism that payers would be willing to pay for innovation and prevention in type 1 diabetes therapies – read our complete transcript of the discussion below for more. 

• At the same workshop, Viacyte CEO Dr. Paul Laikind shared that the company is talking with the FDA about potentially initiating a new VC-01 trial in patients with hypoglycemia unawareness. This patient group has long been considered a promising target group for cell-based therapies so the move is not altogether surprising. With the FDA’s pervasive focus on orphan indications and small populations with large unmet need, focusing early on severely hypoglycemia-unaware patients may help Viacyte construct a more favorable benefit/risk profile to present to the agency for VC-01’s first approvals.

Questions and Answers

Dr. Richard Insel (JDRF, New York, NY): One challenge we all face is reimbursement and finding support for innovation. What are your thoughts on reimbursement?

Dr. Werner Cautreels (Selecta Biosciences, Watertown, MA): Prevention is always better than treatment in terms of societal and financial aspects. The hope with our therapy would be to give everyone some sort of type 1 diabetes vaccine, but that is way out there. We have been working with beta cell homogenates and the dendritic cells can pick out the signal that they need to induce tolerance to. If we can target a use like preventing the rejection of transplant therapies, that would be a no-brainer in terms of reimbursement and price would be a secondary question. Prevention is decades away, but perhaps we can get there.

Dr. Insel: Will we be willing to pay a premium for prevention eventually?

Dr. Cautreels: I think so. We’re working more in emerging markets, which have historically been behind in healthcare, but today they are changing their mind and realize that prevention is an investment rather than a cost. I hope we can catch up to that way of thinking.

Dr. Paul Laikind (Viacyte, San Diego, CA): Reimbursement is something that, in industry, you have to think about early on. In our case it will depend on how the product performs. If it performs the way we hope it will as a functional cure for the disease, there is a compelling argument for reimbursement given the impact of poorly controlled diabetes on outcomes and lifespan.

Dr. Insel: It would also be a replacement for the expensive transplantation of cadaveric islets.

Dr. Laikind: Yes, but those transplants are not done often. The value is most pronounced in populations with higher unmet need, like type 1 diabetes patients with a higher degree of hypoglycemia unawareness. We are talking with the FDA about initiating a trial in patients with hypoglycemia unawareness. 

Mr. Richard Berenson (Thermalin Diabetes, Newton, MA): Before starting Thermalin I talked with payers. What’s happening to insulin now is that commercial insulins are going off-patent. With biogenerics you can expect average prices to come down. The question is whether new proprietary insulins will receive a premium. The answer I got from the payers was that tight glycemic control makes such a different in the disease long-term that if you can show tighter control, they would be willing to pay a premium. Finding ways to provide patients with better control while we wait for our dreams for artificial and bio-artificial pancreases to come true is critical to overall healthcare.

Q: What are the prospects for oral insulin and non-invasive glucose monitoring?

Mr. Berenson: There are several big challenges with any non-subcutaneous delivery of insulin. With oral insulin, the challenge is in getting the dose right. When you take a protein and ingest it, it will be digested. Strategies to address this have been two-fold: you encapsulate the drug so that it makes it farther into the GI tract, and you also use a much higher dose. The challenge is variability, in the microbiome, sickness, and other factors that can impact absorption. The result is that it is difficult to get the dose right if you take insulin orally. The benefit of oral insulin is that it would go straight through the intestine into the portal circulation and to the liver, which is more physiologic. However, this is more of a benefit for mealtime insulin and is somewhat less important for basal insulin. Oral insulin is a challenging space.

Mr. Howard Look (Tidepool, Palo Alto, CA): Glucose monitoring technology is not my area of expertise, but non-invasive monitoring is something that patients want. There are interesting ongoing studies on using CGM to make insulin dosing decisions. There has been work on optical methods for non-invasive glucose monitoring but none have yet made it out of the lab. Google got press last year for its glucose sensing contact lens project. I sure hope it works – there is not much data on it but I’m guessing that it will not be accurate enough to dose insulin, though I hope they could get there. What I can talk about is interoperability of data, which is what I am working on. There is very little device interoperability now, but things are changing. We’re building an open platform that will normalize data coming off different devices. This is critical to achieving a closed loop system, because if you have devices that can’t talk to each other they can’t be integrated. Device interoperability, when it happens, will enable ecosystems like iPhone and Android, which will change everything.

Dr. Insel: Another type of insulin is the concept of glucose responsive insulin. What is the potential for that?

Mr. Berenson: With glucose responsive insulin, you inject it to form a depot, either under the skin or in a circulating depot. Normal insulin releases in a predictable format with a pharmacokinetic curve that goes up then comes down over the course of two to four hours, but with glucose responsive insulin the insulin remains in the depot while glucose levels are low. If glucose is high, the insulin will be released at a faster rate. The idea is to avoid hypoglycemia if you don’t eat as big a meal as you expected or if you exercise. It is a good way to have a mini temporary artificial pancreas that has some adjustability of release. Merck has a product that is being developed from work initially done by SmartCells, putting a moiety on insulin that is glucose mimetic and binds to lectins under the skin. The insulin peels off when glucose levels are high. I believe glucose responsive insulin will be an important contribution to overall therapy but won’t take over the market. The reason is that dosing glucose responsive insulin is challenging. With normal insulin you dose based on current glucose levels and the number of carbs you plan on eating. With glucose responsive insulin you’ve created a depot, so if you ingest fewer carbs than expected you’ll have a larger depot on board. When it comes time to introduce the next depot, you don’t know how much is on board unless you include previously consumed carbs into the calculation – it’s a complicated dosing scheme. There is great potential for reducing hypoglycemia, but dosing is challenging. Thermalin has a program looking at strategies for glucose responsive insulin. We think it is an important segment, and we have ongoing efforts to try and identify ways to achieve it.

Dr. Insel: What will the therapy landscape look like ten years from now?

Mr. Look: I’m most excited about the artificial pancreas. My hope for my daughter and everyone with type 1 diabetes is that we reduce the burden of managing the disease. It has been said that patients make 300 decisions per day when managing their diabetes. We already have closed loop technology today, but in ten years I hope everyone has the chance to be on it.

Dr. Laikind: I would agree with you but change it to bio-artificial pancreas, which is what we’re working on.

Dr. Joseph Hedrick (Janssen, Raritan, NJ): Until we reach the full diabetes interception solution, we should look for things that could have a significant impact on delaying insulin dependence. It could be simple things like nutriceuticals that give beta cells a bit more life and keep them around longer. A critical component is developing biomarkers, imaging, and developing a deeper understanding of the interception space so that we can apply these new therapies and know who to treat.

Dr. Cautreels: I think the solution will be to bring all these things together.

Mr. Berenson: My two takeaways are: first, patients are different, and we will need to customize solutions to patients. In ten years, I hope we have a diversity of more sophisticated therapies for different people. Second, the pancreas is a pretty smart organ when functioning well. Whatever therapy we use will need to have bio-intelligence or artificial intelligence that is able to make smart decisions about when to dose or not dose insulin.

Dr. Richard Insel (JDRF, New York, NY): Could the Viacyte solution work for type 2 diabetes?

Dr. Laikind: Conceivably yes, but type 1 diabetes and type 2 diabetes are very different. Our therapy probably would not work for early type 2 diabetes because those patients are hypersecreting insulin, but once the beta cells burn out then possibly yes.

Mr. Berenson: I’m going to disagree slightly with that remark. In type 2 diabetes, there is increased pressure on the pancreas. People think that earlier introduction of insulin could reduce the burden on the pancreas and help it last longer. Transplanted biological pancreases could slow the progression of the disease, as could the early introduction of insulin.

Dr. Laikind: That’s a good point – it shows the power of collaboration between all of us.

Dr. Joseph Hedrick (Janssen, Raritan, NJ): We should keep in mind that in the progression of type 1 diabetes before the insulin dependent phase, there can be a long period where patients have dysglycemia, elevated A1cs, and increasing metabolic pressure on their beta cells that may not be dissimilar from the situation with type 2 diabetes. I envision a scenario in which you could successfully address the immune angle, but because you no longer have sufficient beta cell mass you end up at insulin dependence anyways. The Viacyte solution could be the solution for the disease interception space.

Q: When beta cells are being attacked does the production of insulin undergo a total meltdown or are there stages of the pathology?

Dr. Hedrick: In type 1 diabetes, nobody has shown that autoantibodies have a pathological role in the disease. They are there, but they don’t drive the disease. As you accumulate more autoantibodies your risk of developing the disease goes up.

Dr. Insel: There is a window of opportunity between the onset of the autoimmune process and the beginning of insulin dependence, varying from a few months to over a decade.

Q: Is the type 1 diabetes community worried about pancreatic cancer with new therapies?

Dr. Insel: There is an increased risk of pancreatic cancer in diabetes. We try to learn the effects of expanding beta cell mass, as there is work on regenerating beta cells. Those interventions need to be paired with immune tolerance strategies. Interestingly, some type 1 diabetes patients have residual beta cell capacity a long ways after diagnosis.

Mr. Berenson: Insulin is a growth hormone, which is one reason why you see increased cancer rates in those on insulin because they’re chronically hyperinsulinemic. We’re working on insulin that is less mitogenic even than regular human insulin.

Workshop: Apps as Drugs

Steve Dickman (CEO, CBT Advisors, Cambridge, MA), David Benshoof Klein (CEO, Click Therapeutics, New York, NY), Eric Elenko (Partner, PureTech Ventures, Boston, MA), Alec Mian (CEO, Curelator, Inc., Cambridge, MA), Julie Papanek (Principal, Canaan Partners, Westport, CT)

A panel discussion on the emergence of mobile Apps as Drugs highlighted Welldoc’s BlueStar as a “canary in the coal mine” for how payers are going to view medical mobile technology in coming years. Ms. Julie Papanek (Canaan Partners, Westport, CT) acknowledged that Welldoc has established relevance via solid clinical data – a factor seen as critical in achieving app penetration among the panelists – but noted that it is still having some trouble reaching formularies. We would point out that BlueStar initially launched with impressive reimbursement similar to other prescription products from payers such as Ford, Rite Aid, and Dexcom. That said, Ms. Papanek’s implication seemed to be that FDA approval has not provided BlueStar with a “golden ticket” and that obstacles remains “despite” solid clinical data. Discouragingly, we continue to hear that payer understanding of the value of mobile technology remains low in spite of growing receptivity in the healthcare community. How Welldoc – and other companies looking to enter the digital health space – bridge this gap will be key moving forward.

-- by Melissa An, Adam Brown, Varun Iyengar, Emily Regier, Manu Venkat, and Kelly Close