Memorandum

J&J 2Q13 – Worldwide Diabetes Care revenue down 13%; US revenue down 23%; indicators that Invokana had a strong first quarter – July 17, 2013

Executive Highlights

  • Worldwide Diabetes Care Revenue totaled $589 million in 2Q13, down 13% and 12% on a reported and operational basis, respectively.
  • Diabetes Care revenue in the US declined 23% from 2Q12, representing the steepest year-over-year sales decline recorded in over eight years.
  • Management cited strong early indicators of Invokana performance as a potential future driver of growth – we are pretty sure this is an understatement based on early patient and provider feedback.

On Tuesday, Johnson and Johnson CEO Alex Gorsky led the company’s 2Q13 financial update. Worldwide Diabetes Care revenue experienced its lowest quarterly revenue since 1Q09 with sales totaling $589 million, down 13% and 12% year-over-year (YOY) on a reported and operational basis, respectively. The comparison was relatively easy given that 2Q12 revenue was down 1% and up 3% YOY on a reported and operational basis, respectively. Discouragingly, 2Q13 marks the fifth consecutive quarter of decline and the 13% decrease is the steepest decline J&J Diabetes Care has experienced since 4Q08. US Diabetes Care revenue totaled just $259 million, which represents the lowest quarterly total in over eight years. The US had a marked YOY decline of 23%. Additionally, the comparison was not particularly challenging, given the 1% YOY decline in 2Q12. Management attributed US Diabetes Care performance to lower prices, competitive pressure, and softness in the retail segment. A near-term sales rebound seems unlikely with Medicare sales accounting for slightly more than 20% of the US business in 2Q13 and CMS' competitively bid payment amounts for diabetes care supplies having gone into effect on July 1. International Diabetes Care revenue totaled $330 million. This was a decline of 2% on a reported basis and was nearly flat on an operational basis. At ADA 2013, J&J provided many updates to the device pipeline: 1) the demo of its new OneTouch Verio Sync BGM garnered significant attention; 2) J&J sales reps remarked that the software problem with the OneTouch Verio IQ meter (that pulled it off the markets) had been fixed and that the company had resumed product manufacturing; and 3) J&J presented a feasibility study of its predictive Hypoglycemia-Hyperglycemia Minimizer (HHM) system, demonstrating the system’s overnight safety.

J&J management seemed especially pleased with the launch of Invokana (canagliflozin), which took place March 30, just one day after approval. Although J&J did not break out sales, other signs point to a promising performance in its first quarter on the market. Invokana’s new to brand (NBRx) share among US endocrinologists surpassed that of the major US DPP-4 inhibitors Januvia (sitagliptin), Tradjenta (linagliptin), and Onglyza (saxagliptin) as of June 28. Management also highlighted the broad insurance coverage Invokana is receiving: 80% of people on commercial plans have access to tier 2 or 3 coverage for the drug. Though not discussed on the call, Invokana appears to be priced roughly at parity, or at a slight premium, to Januvia. Again, management spoke very positively about the synergistic potential of combining Janssen and LifeScan/Animas sales and marketing teams to market both Invokana and J&J’s diabetes devices. With the potential for three SGLT-2 inhibitors (Invokana, BMS/AZ’s Forxiga, and Lilly’s empagliflozin) to be approved in both the US and EU as soon as 1Q14, we see a number of areas in which SGLT-2 inhibitors may differentiate themselves from each other (see below for details). Management provided no updates to the diabetes drug pipeline. An EU decision on Invokana monotherapy could come any day now; the Invokana/metformin IR fixed-dose combination (FDC) remains under regulatory review in both the US and EU, and the Invokana/metformin XR FDC remains in phase 3 in the US (as a reminder, J&J has previously indicated interest in positioning this FDC as a first-line option). We are quite surprised that J&J has yet to express interest in developing a canagliflozin/DPP-4 inhibitor FDC. To our knowledge, the rest of J&J’s pipeline includes an MTP inhibitor (phase 2), an insulin sensitizer (phase 2), and various preclinical candidates with Metabolex or Evotec AG/Harvard (including betatrophin, from Dr. Douglas Melton’s lab).

FINANCIAL UPDATES – DIAGNOSTICS

  • Worldwide Diabetes Care revenue totaled $589 million in 2Q13, down 13% and 12% on a reported and operational basis, respectively, from 2Q12. This was a fairly easy comparison as 2Q12 revenue was down 1% as reported and up 3% operationally. By geographic region, US sales had the most severe decline, falling 23% from 2Q12. International sales remained relatively flat operationally, with a slight decline on a reported basis (down 2%). US and international comparisons were not particularly challenging, with US revenue growing 1% and international revenue declining 3% and increasing 5% on a reported and operational basis, respectively, in 2Q12.

Table 1: Worldwide Diabetes Care Revenue in 2Q13

 

2Q13 Revenue in millions

Reported (Operational) Growth from 2Q12

J&J Diabetes Care

$589

-12.5% (-11.8%)

US

$259

-23.1% (-23.1%)

International

$330

-1.8% (-0.5%)

  • Worldwide Diabetes Care revenue of $589 million is the lowest quarterly total since 1Q09. The 13% year-over-year sales (YOY) decline marks the fifth consecutive quarter of reported sales decline for J&J and is the steepest seen since 4Q08. Additionally, the comparison for 4Q08 was significantly more challenging (18% growth in 4Q07 vs. 1% decline in 2Q12). As a reminder, 1Q13 sales also declined steeply (down 10%); however, the comparison was also more challenging than in 2Q13 (1Q12 sales grew 5% as reported).

Table 2: Worldwide Diabetes Care Revenue (1Q12-2Q13)

Worldwide Sales

 

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

Worldwide Revenue (millions)

$670

$673

$629

$644

$600

$589

Reported Growth

(year-over-year)

5.2%

-1.2%

-5.3%

-3.9%

-10.4%

-12.5%

Operational Growth

(year-over-year)

6.6%

2.9%

-1.1 %

-2.6%

-9.8%

-11.8%

  • US Diabetes Care revenue reached $259 million in 2Q13, the lowest quarterly total in over eight years. Further, the YOY sales decline of 23% is the steepest decline recorded since 4Q08 and represents the fourth consecutive quarter of negative US growth. The quarter follows a similarly steep 20% YOY decline in 1Q13; however, the comparison was more far more challenging than in 2Q13 (13% growth vs. 1.2% decline). (For greater detail on J&J’s 1Q13 performance, read our J&J 1Q13 report at http://www.closeconcerns.com/knowledgebase/r/59b616b4.)
    • During Q&A management spoke to the “realities of the market” and noted that J&J is adapting its business model to meet the challenges brought on by competitive bidding. Management reported that Medicare sales accounted for just over 20% of US sales in 2Q13. Given that the payment amounts from the national mail- order competitive bidding program for diabetes care supplies went into effect on July 1 (the first day of 3Q13), we’ll be looking to the 3Q13 financial update to gain a sense of how much sales impact was weathered in advance of the program’s effective date. (For background on the competitive bidding process, read our February Closer Look on the topic at http://www.closeconcerns.com/knowledgebase/r/993d586e.)
    • As always, J&J was the first of the Big Four to report 2Q13 results. Looking at the competitive landscape, Abbott (which reported this morning) fared better in terms of growth than did J&J this quarter, with revenues that were nearly flat. Specifically, Abbott reported global revenues that fell 1% globally, with the US falling just under 7% and international up 4% operationally and 3% as reported. We are curious how the two of the Big Four blood glucose monitoring (BGM) competitors (Roche, and Bayer) will fare in response to intensified pricing pressures. Roche reports July 25, and Bayer reports July 31. We’d be interested to learn how direct the relationship is between the size of each company’s respective Medicare business and their ability to weather CMS’ competitive bidding; on balance, we believe J&J and Abbott have at least slightly less exposure to competitive bidding; as mentioned above, J&J’s Medicare business accounts for just over 20% of US sales. Abbott management has previously remarked that it does not have a high Medicare share and has “one of the lowest shares in in mail order.” (For greater detail on these remarks, see page two of our Abbott 1Q13 report at http://www.closeconcerns.com/knowledgebase/r/6a672438.)
    • J&J recently issued a patient advisory pertaining to Medicare’s payment adjustments for diabetes care supplies, during which it reaffirmed that OneTouch diabetes testing supplies are covered by Medicare and cautioned that suppliers may try to switch patients to unfamiliar testing products. Abbott also has recently aired two television spots with a similar message. These companies’ announcements seem to suggest that suppliers are circumventing CMS’ Anti-Switching provision, which is particularly worrisome for patients. From what we have heard from patients, we alsobelieve the suppliers are circumventing the provision. (As a reminder, the Anti-Switching provision of competitive bidding was finalized in November 2010 and "prohibits contract suppliers from influencing or incentivizing beneficiaries to switch their current glucose monitor and testing supplies brand to another brand.")

Table 3: US Diabetes Care Revenue (1Q12-2Q13)

US Sales

 

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

US Revenue (millions)

$352

$337

$328

$295

$283

$259

Reported/Operational Growth

(year-over-year)

13.2%

1.2%

-3.0%

-10.6%

-19.6%

-23.1%

  • International Diabetes Care sales totaled $330 million, down 2% on a reported basis and nearly flat operationally (0.5% decline) from 2Q12. Management used similar language as last quarter to describe the international performance, noting that strong growth in emerging markets was offset by lower sales in developed markets. As we understand it, China is a key driver of emerging market growth. Further, J&J has seen positive uptake of the OneTouch SelectSimple blood glucose meter in India and recorded double digit growth in 2Q13 in Russia and Mexico.

Table 4: International Diabetes Care Sales (1Q12-2Q13)

International Sales

 

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

International Revenue

(millions)

$318

$336

$301

$349

$317

$330

Reported Growth

(year-over-year)

-2.5%

-3.4%

-7.7%

2.6%

-0.3%

-1.8%

Operational Growth

(year-over-year)

0.2%

4.6%

0.8%

5.2%

0.9%

-0.5%

  • Worldwide Diabetes Care revenue fell 2% sequentially from 1Q13. This is the only first- to-second quarter sequential decline recorded in over six years. Sequential growth between first quarter and second quarter sales has been between 0.4% and 13% over the past six years. By geographic region, US sales declined 9% sequentially in 2Q13, while international sales grew 4% sequentially.

Table 5: Diabetes Care Sequential Performance (1Q12-2Q13)

Sequential Performance

 

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

Worldwide Sequential Growth

0.0%

0.4%

-6.5%

2.4%

-6.8%

-1.8%

US Sequential Growth

6.7%

-4.3%

-2.7%

-9.9%

-4.2%

-8.5%

International Sequential Growth

-6.5%

5.7%

-10.4%

15.8%

-9.0%

4.1%

  • Management believes that Diabetes Care shares have remained relatively flat in 2Q13, with a slight downtick attributed to pricing changes and the intrusion of store brands. To our knowledge, this means that 1Q13 IMS Drug Distribution data placed LifeScan in the second position in the worldwide competitive market share by revenue and Animas in the third position in the worldwide competitive market share by revenue.

FINANCIAL UPDATES – PHARMACEUTICALS

  • While J&J did not break out sales for Invokana, management relayed that it has had strong early results in both primary care and endocrinology, highlighting Invokana's ~15% new to brand (NBRx) share (share of new patient starts and switches) among US endocrinologists in week 13 of the drug's launch (the week ending June 28). J&J remarked that Invokana's NBRx share has surpassed that of the major US DPP-4 inhibitors (Januvia, Tradjenta, and Onglyza) as of June 28, and it appears that NBRx share has declined most for Januvia out of these three since Invokana's launch. We note, however, that NBRx share was compared by date, not time since launch. The NBRx shares for Januvia, Tradjenta, and Onglyza were 12%, 8%, and 5%, respectively, as of June 28. In our past conversations with J&J, management has also noted that over 25,000 patients were taking the drug, and over 4,000 physicians were writing prescriptions as of June 20.
    • Invokana’s sales were reported in the “Other” category of J&J’s “Total Other” Pharmaceutical segment. This segment includes many products, including hormonal contraceptives, Nizoral, Elmiron, Motilium and Invokana and several others. Worldwide revenue for this category totaled $569 million for 2Q13, up from $523 million in 1Q13.
  • Notably, management commented that it hoped to leverage Invokana’s strong future performance to help support growth of other declining products. We feel this comment illustrates the great confidence that J&J must have in Invokana, and we do hope that its performance can help drive forward innovation in the declining Diabetes Care diagnostics segment.
  • Both the 100 mg and 300 mg doses appear to be priced around $9-10/day. For comparison, Januvia is priced at ~$9/day. On the reimbursement front, management stated on the call that over 80% of patients on commercial plans now have access to Invokana through tier 2 or 3 coverage, and management characterized payers' interest as "strong." J&J has a number of prescription assistance programs, including CarePath for patients with commercial coverage, on which eligible commercial patients receive the drug for $5/month.
  • Management spoke very positively about the synergistic potential of combining the Janssen and LifeScan/Animas sales and marketing teams to market Invokana and Diabetes Care products. Invokana is J&J’s first pharmaceutical diabetes product, and during the company’s 1Q13 financial update, management remarked that its Diabetes Care business would partner with its Pharmaceuticals business to sell Invokana directly to HCPs with diabetes patients. Such integration will certainly be an advantage given LifeScan and Animas representatives’ strong understanding of diabetes and people with diabetes.
  • As a reminder, Invokana is the first SGLT-2 inhibitor to the US market and the second globally behind BMS/AZ’s Forxiga (dapagliflozin). A decision on Invokana in the EU in 3Q13 would be consistent with a ~12 month European review process (J&J submitted the drug to the EMA on June 26, 2012).
  • We are curious, moving forward, how companies will differentiate the various SGLT-2 inhibitors since three candidates (Invokana, Forxiga, and Lilly’s empagliflozin) have the potential to reach both the US and European markets as early as 1Q14 (BMS/AZ plan to re-submit Forxiga to the FDA any day now, and it will have a shortened six-month review period, while Lilly/BI submitted empagliflozin to the FDA on March 25, 2013, and the EMA accepted the MAA for empagliflozin on March 26, 2013). Other SGLT-2 inhibitors in development include Astellas/Kotobuki’s ipragliflozin (submitted in Japan), Taisho’s luseogliflozin (submitted in Japan), Chugai’s tofogliflozin (phase 3 in Asia), Pfizer/Merck’s ertugliflozin (phase 3 expected in 2H13), Theracos’ EGT0001442 (phase 2), Lexicon’s SGLT- 1/SGLT-2 dual inhibitor LX4211 (phase 3 initiation was expected in 1H13), and Novartis’ SGLT- 1/SGLT-2 dual inhibitor LIK066 (phase 2).
  • We see a number of areas for potential differentiation amongst SGLT-2 inhibitors (the following discussion focuses mainly on Invokana, Forxiga, and empagliflozin).  
    • Patient and prescriber “hassle” and use in the population with renal impairment. While SGLT-2 inhibitors are certainly easier to prescribe than injectable anti-diabetic agents, they are not quite as prescriber-friendly as a DPP-4 inhibitor, so the product that is most “user-friendly,” so to speak, may gain an important advantage. Metformin is somewhere in the middle from what we can tell; some versions are once daily and some not and prescribers must address two challenges: 1) renal health must be assessed as metformin is off label in some dosages for some patients with kidney complications – so titration can be challenging; and 2) there is a fair amount of nausea and vomiting and diarrhea associated with metformin use for a good percentage of patients. The US label for Invokana recommends starting all patients on the 100 mg dose and escalating to 300 mg if not adequately controlled and if patients have eGFR ≥60 mg/ml/1.73 m2. Patients with eGFR between 45 and 60 ml/min/1.73 m2 are limited to 100 mg/day, and the drug is not recommended for patients with eGFR below 45 ml/min/1.73 m2. For comparison, Forxiga’s dose-selection considerations in its European label seem slightly less complex: the EMA’s product information for Forxiga allows all patients to start on the full 10 mg dose, except for people with liver impairment (in such a case, a 5 mg starting dose is recommended, and this can be increased to 10 mg if 5 mg is well-tolerated). However, the EMA is a bit stricter with regards to Forxiga’s renal impairment threshold: Forxiga is not recommended for use in people with moderate to severe renal impairment (eGFR < 60 ml/min/1.73 m2).
    • Potency. In clinical trials of selective SGLT-2 inhibitors, Invokana 300 mg has produced the greatest urinary glucose excretion, and, in parallel, the greatest A1c reductions out ofSGLT-2 inhibitors that have reported phase 3 results (Invokana, Forxiga, and empagliflozin) – a major caveat here, though, is that no head-to-head trials have been performed of the SGLT-2 inhibitors, and it is impossible to directly compare results of different clinical trials due to differences in trial design, enrollment, etc.
    • Selectivity for SGLT-2 over SGLT-1. Interestingly, Lilly and J&J already position SGLT-2 selectivity differently. Invokana has the lowest selectivity for SGLT-2 (with an SGLT-2/SGLT-1 selectivity ratio of about 200/1) compared to Forxiga (selectivity ratio of~1200) and empagliflozin (selectivity ratio of ~2500). Lilly touts empagliflozin’s high selectivity as a positive, suggesting that it could help prevent gastrointestinal side effects that were once seen with the SGLT-1/SGLT-2 dual inhibitor, phlorizin. On the other hand, Invokana is the only SGLT-2 inhibitor to show effects on postprandial glucose (only at the 300 mg dose), which has been attributed to its ability to transiently inhibit SGLT-1. As a reminder, SGLT-1 is primarily found in the intestine, where it plays a role in dietary glucose absorption; in addition, it accounts for ~10% of renal glucose reabsorption (in the distal renal tubule) while SGLT-2 accounts for the other ~90% (and is generally found more proximal in the renal tubule than SGLT-1). Phase 2 data from Lexicon’s SGLT- 1/SGLT-2 dual inhibitor LX4211 suggest that SGLT-1 inhibition provides additional A1c reductions at 12 weeks beyond the A1c reduction conferred by SGLT-2 inhibition since LX4211 continued to provide further A1c reductions at doses above the dose at which maximal urinary glucose excretion was observed. Also, since SGLT-1 is found to be more distal in the renal tubule than SGLT-2, it has been suggested that under SGLT-2-inhibited conditions, the glucose traversing the renal tubule is “cleaned up” by SGLT-1. In such a case, transient SGLT-1 inhibition would then effectively prevent this “clean up” and ensure more urinary glucose excretion compared to inhibiting SGLT-2 alone.
    • Indications beyond type 2 diabetes. During its Pharmaceutical Business Review in May, J&J suggested that it is interested in exploring type 1 diabetes and obesity indications for Invokana, but management did not further expand on that in yesterday’s call (for our coverage of the Pharmaceutical Business Review, please see http://www.closeconcerns.com/knowledgebase/r/bf5e526f). Lexicon appears to be leading with a type 1 diabetes indication for LX4211, explaining that the candidate may be even more potent than GLP-1 inhibitors for type 1 diabetes since GLP-1 agonists act in an insulin-dependent manner (for details on its most recent phase 2 results for type 1 diabetes see http://www.closeconcerns.com/knowledgebase/r/362da190). Results of pilot studies for dapagliflozin and empagliflozin in type 1 diabetes were both presented at ADA 2013 (see our ADA 2013 SGLT Inhibitor report at http://www.closeconcerns.com/knowledgebase/r/0a7c84d4).

PIPELINE UPDATES – DIAGNOSTICS

  • Management positioned Calibra Medical’s bolus-only insulin delivery device as a potential future driver of growth. During management’s discussion about the synergistic potential of combining the Janssen and LifeScan/Animas sales and marketing teams to market Invokana and Diabetes Care products (see below), they described a compounding effect of adding Calibra’s device to the mix. A launch timeline has not yet been disclosed; however, as we understand it, J&J will commence additional clinical studies of the device this year as the company prepares for launch. As a reminder, Calibra’s Finesse is a bolus-only wearable pump targeted at patients with type 2 diabetes. (For more information on the device and the Calibra acquisition, see our J&J 4Q12 report at http://www.closeconcerns.com/knowledgebase/r/76ad8d3e.)
  • The iPhone/iPod/iPad-compatible OneTouch Verio Sync Blood Glucose Meter (BGM) was demoed for the first time at ADA 2013; however, sales reps could not provide granularity on a US launch target beyond a “coming soon” timeline. As a reminder, the OneTouch Verio Sync wirelessly sends blood glucose data via Bluetooth to the OneTouch Reveal Diabetes Management Application. To read more about the OneTouch Verio Sync meter display at ADA 2013, see page 422 of our full report: http://www.closeconcerns.com/knowledgebase/r/94f937d8.
  • J&J has corrected the software problem affecting the OneTouch Verio IQ and has resumed product manufacturing, according to sales reps at the LifeScan/Animas ADA exhibit booth. Reps expected to have the new meters in their hands “fairly soon” and as we understand it, the company is aiming to have the recalled products replaced by the end of the year. Specifically, J&J resumed product manufacturing of the OneTouch Verio Pro+ and OneTouch Verio IQ meters in late April and resumed manufacturing of the OneTouch Verio Pro meter in May. The recalled meters were not discussed on the call.
    • As a reminder, in late March J&J recalled its OneTouch Verio IQ, OneTouch Verio Pro, and OneTouch Verio Pro+ meters due to a software issue that caused the three meters to react inappropriately to blood glucose values above 1,023 mg/dl. See our March 27 Closer Look at http://www.closeconcerns.com/knowledgebase/r/fe264e79 for greater detail.
  • Also at ADA, J&J presented results from a 24-hour overnight study of the company’s hypoglycemia-hyperglycemia minimizer (HHM) system (n=20 type 1 pumpers); the system is comprised of a Dexcom Seven Plus CGM, OneTouch Ping insulin pump, and an MPC controller with a safety module. Overnight statistics (9 pm- 7 am) for the system were strong: a mean YSI glucose of 129 mg/dl (135 mg/dl on CGM), with a low standard deviation of 32 mg/dl (28 mg/dl on CGM). The median percentage of time in range (70-180 mg/dl) overnight was 91% (measured by YSI), with a median of 0% of the time spent >180 mg/dl (n=9 patients), 0% of the time spent <70 mg/dl (n=5), and 0% of the time spent <55 mg/dl (n=3). Overall, the study demonstrated good feasibility of the HHM in the overnight period, certainly a positive first step – in the future, we hope to see studies that test the system in more challenging conditions (meals, incorrect boluses, and exercise).
    • In the week leading up to ADA, J&J received an Investigational Device Exemption (IDE) for the next feasibility study of its HHM system. We look forward to learning whether the system will incorporate Dexcom’s G4 Platinum CGM as opposed to the Seven Plus.
    • For full details on the study presented at ADA, see page 38 of our full report: http://www.closeconcerns.com/knowledgebase/r/94f937d8.
  • Management did not discussed the Animas Vibe with integrated Dexcom G4 Platinum CGM during the call. As a reminder, J&J submitted the application for premarket approval (PMA) in 1Q13 paving the way for approval as early as late 2013. For more detail on the PMA submission and the possible implications of a US Animas Vibe launch, see page five of our J&J 1Q13 report at http://www.closeconcerns.com/knowledgebase/r/59b616b4.
  • J&J did not provide any additional pipeline updates and did not include a Medical Devices & Diagnostics pipeline calendar among its supplementary material for 2Q13. This marks the second quarter in which the pipeline was not provided, which was very disappointing. The information below is our summation of J&J’s future products, derived from press releases, conferences, and the 2Q13 call.

Table 7: J&J Device Pipeline

Pipeline Product

Timeline

Change from 1Q13

Notes

OneTouch Verio Sync

“Coming soon”

Demoed in the

Allows wireless communication between a Verio meter and an iPhone app.

Blood Glucose Meter

 

exhibition hall at ADA

 
   

2013

 

OneTouch

Planned US

No

We are not clear on what advancements this might have,

Verio Blood Glucose

and EU submissions

information given on the

though based on the nomenclature we believe the strips will be the same as those used for current Verio products.

System

in 2013+

product in

 

(Version 3)

 

2Q13

 

Animas Vibe Insulin Pump with integrated

Pending FDA approval (PMA

No information given on the

We expect that approval could come sometime in late 2013.

Dexcom G4 Platinum CGM

submitted in 1Q13)

product in 2Q13

 

OneTouch Ping Verio Insulin

Planned US submission in

No information

We suspect this will resemble the current OneTouch Ping insulin pump and meter remote but replace the handheld

Pump with Meter Remote

2013+

given on the product in

with a Verio meter. As we understand it, this product will not have Dexcom G4 Platinum integration – we wonder if

   

2Q13

the company will decide to pursue this if launch of the Vibe is very successful.

Next Generation Glucose

Planned US and EU submission in

No information given on the

We assume this is a new line of strips beyond the current Verio platform.

Testing Platform

2013+

product in 2Q13

 

Next Generation

Planned Japan

No information

This could be the same as the above entry, though we cannot be sure since they were listed separately on previous

OneTouch UltraVue Verio

submission in 2013+

given on the product in

quarters’ pipeline slide.

Platform

 

2Q13

 

Hypoglycemia-

-

J&J recently

The system pairs an insulin pump, a continuous glucose

Hyperglycemia Mitigation

 

presented a study at ADA

monitor, and a model predictive control algorithm. Historically, the CGM has been the Dexcom Seven Plus; we

System

 

2013 (see above)

assume Animas will switch over to the G4 Platinum.

Metabolics (surgical care product)

Planned submission in 2013+; region not detailed

No information given on the product in 2Q13

The product is unspecified, but we assume that this device will be designed to capture the benefits of gastric bypass surgery with a less-invasive procedure. We are very eager to learn more about this.

  • J&J is collaborating on two different studies evaluating the clinical efficacy of telehealth systems for diabetes management.
    • DIgital Assisted MONitoring for DiabeteS (DIAMONDS) will assess a telemedicine- and web-based system platform for SMBG data transmission and analysis (ClinicalTrials.gov Identifier: NCT01804803). The phase 3 trial will compare a regular glucometer to a smartphone-connected glucometer (we assume the OneTouch Verio Sync) that enables real-time collection and transmission of measured glucose values to a remote server. The server processes results and delivers feedback to the patient and medical staff. DIAMONDS will assess the primary outcome of change in A1c from baseline at three and six months. The trial was posted on February 25 and is slated for primary completion in March 2014; the trial is not yet recruiting (n=250). The University of Bari is the study’s sponsor and Lilly is the second collaborator. The trial has not been updated on ClinicalTrials.gov since the 1Q13 call. See page eight of our J&J 1Q13 report at http://www.closeconcerns.com/knowledgebase/r/59b616b4 for more details.
    • A second randomized clinical trial will compare a behavioral intervention that combines patient education, SMBG, and remote patient monitoring to standard of care (ClinicalTrials.gov Identifier: NCT01715649). Patients will connect their meter to a “Telehealth Unit” (details not provided), which will allow nurse care coordinators and the study team to remotely monitor data. The study team will send the patient weekly reminders and suggestions via the Telehealth Unit and a study nurse will provide monthly telephonic feedback. The primary outcome is change from baseline A1c after six months; secondary outcomes include three-month measures of patient empowerment, behavior change, and knowledge. The study is currently enrolling by invitation (n=150) and is slated for primary completion in December 2013. The trial has not been updated on ClinicalTrials.gov since October 2012. See page eight of our J&J 1Q13 report at http://www.closeconcerns.com/knowledgebase/r/59b616b4 for more details.

PIPELINE UPDATES – PHARMACEUTICALS

  • Management did not provide any updates on Invokana's progress with the European regulatory agencies. Since J&J submitted it to the EMA in June 2012, a European decision could be made any day now with a standard ~12-month review cycle.
  • The Invokana/metformin XR fixed dose combination (FDC) remains in phase 3 in the US. During J&J’s Pharmaceutical Business Review in May, the company indicated that it aims to position this combination as a first-line option. We imagine that the combination would need to show substantial benefit over metformin for payers to get behind this. We do see this as a smart move on J&J’s part – Invokana alone presumably would not offer great enough benefit over metformin alone, and the FDC could be just as easy to take for most patients as metformin alone.
    • It is currently being investigated in one phase 3 trial that began in June 2013 and has an estimated primary completion date of December 2014 (ClinicalTrials.gov Identifier NCT01809327), suggesting that the earliest it could beapproved would be mid-early 2016. The trial is currently enrolling and has a target enrollment of 1,180 treatment-naïve patients with type 2 diabetes and inadequate glycemic control (A1c ≥7%). The trial has five arms – canagliflozin 100 mg, canagliflozin 300 mg, canagliflozin 100 mg + metformin XR, canagliflozin 300 mg + metformin XR, and metformin XR. In the canagliflozin + metformin arms, the two medicines will be administered as separately tablets rather than as a single pill, and the metformin dose will be titrated over nine weeks: 500 mg in week one, two 500 mg tablets through week 3, three 500 mg tablets through week six, and four 500 mg tablets through week nine (all administered with the evening meal). We are curious whether this suggests that J&J will develop four metformin dose options for each dose of canagliflozin (for a total of eight dose combination options) to allow for such a titration scheme in real life.
    • As a reminder, the Invokana/metformin IR FDC was submitted to the FDA in December 2012 and to the EMA in March 2013; following standard 12-month review cycles, a decision could become available in December 2013 in the US and March 2014 in the EU.
    • Lilly is also developing an empagliflozin/metformin FDC (timeline unspecified). While dapagliflozin has been studied as an add-on to metformin, BMS/AZ have not explicitly announced intentions to develop a dapagliflozin/metformin FDC, but we would be surprised if they did not.
  • We are quite surprised that J&J has yet to express interest in developing a canagliflozin/DPP-4 inhibitor FDC. However, this could be seen as being in line with the company’s ambitions to position the drug early in the treatment paradigm (given its intention to position the canagliflozin/metformin XR FDC as a first line option). BMS/AZ and Lilly/BI are both pursuing DPP-4 inhibitor combinations (dapagliflozin/saxagliptin and empagliflozin/linagliptin, respectively). J&J does not have a proprietary DPP-4 inhibitor, but they could potentially partner with a DPP-4 manufacturer that does not have an SGLT-2 inhibitor in development, such as Takeda (Nesina [alogliptin]), as Pfizer and Merck recently did to combine the “phase 3-ready” ertugliflozin and Januvia (sitagliptin).
  • Management did not provide any updates the on potential for Invokana for type 1 diabetes or obesity. As a reminder, during the May Pharmaceuticals Business Review, J&J expressed interest in exploring these two arenas for Invokana. No clinical trials are yet underway. If found to be safe and effective in clinical trials and approved by regulatory agencies for type 1 diabetes, SGLT-2 inhibitors would be a welcome addition to the treatment armamentarium for the type 1 diabetes population, which currently has no oral options. The mechanism would theoretically address two major areas of need in type 1 diabetes: hypoglycemia and adherence. We are curious about how effective SGLT-2 inhibitors could be for a general obesity indication since the mechanism would suggest less weight loss in people without hyperglycemia than in people with hyperglycemia. In diabetes, SGLT-2 inhibitors tend to confer a weight loss of roughly 2-3 kg (~4.4-6.6 lbs), which is at least the right direction for people with diabetes whose treatment alternatives may cause weight gain, but may not reach the clinically meaningful benchmark of~5%.
  • During the Pharmaceutical Business Review in May, J&J relayed that it also has studies underway to better understand the effect of SGLT-2 inhibition on beta cell function and insulin sensitivity; the intra-class pharmacological differences between various SGLT-2 inhibitors; and the effects on ambulatory blood pressure.
  • Management did not provide updates pertaining to Invokana’s cardiovascular outcomes trial (CVOT) CANVAS. The trial remains ongoing with an estimated primary completion date of June 2018. This allows for up to nine years of patient follow up. Since CANVAS was the first CVOT to begin for an SGLT-2 inhibitor, it will be able to provide the longest-term safety data on the class, which should prove to be very valuable. Earlier this year, J&J changed the primary completion date from 2013 to 2018 on ClinicalTrials.gov (Identifier: NCT01032629), which caused some amount of confusion. The original protocol for CANVAS had always intended for it to complete in 2018. However, J&J had originally anticipated that the study could be used to demonstrate either CV protection or CV safety. The interim analysis that took place in 2012 had originally been slated to be a blind analysis whereby an independent data safety monitoring board would look at the hazard ratio and then advise the company whether to continue through 2018 as a CV safety trial (powered to show non-inferiority) or a CV protection trial (powered to show superiority). In the latter case, the trial would have then randomized an additional 14,000 patients. However, because the FDA called for an advisory committee meeting, the data were unblinded to the company, so it can no longer turn CANVAS into a trial powered to detect superiority and is continuing as a CV safety trial.
  • J&J provided no additional updates to its diabetes pipeline. To our knowledge, J&J has an MTP inhibitor last known to be in phase 2 (JNJ-16269110; no active trials on ClinicalTrials.gov), an insulin sensitizer (which we suspect is JNJ-41443532 and was in phase 2 as of May 2011; also no ongoing studies listed on ClinicalTrials.gov), as well as various preclinical candidates developed through J&J’s partnership with Metabolex, created through its own discovery program, or licensed from Evotec AG and Harvard (including Dr. Douglas Melton’s potentially ground-breaking betatrophin for type 1 diabetes). As a reminder, J&J also entered into a partnership with NGM Biopharmaceuticals earlier this year to develop treatments for type 2 diabetes that mimic the glucoregulatory effects of metabolic surgery, and J&J has the option to acquire Vascular Pharma’s VPI-2690B pending completion of phase 2 (no trials have begun yet). VPI-2690B is a monoclonal antibody against the αVβ3 receptor that inhibits IGF-1 mediated smooth muscle cell proliferation stimulated by hyperglycemia, which could mitigate the effects of prolonged hyperglycemia in the kidney.
    • In mid-June, NGM entered into a partnership with AZ’s biologic arm, MedImmune, to discover, develop, and commercialize type 2 diabetes and obesity treatments from NGM’s enteroendocrine cell program (which aims to identify secreted peptide hormones potentially related to the metabolic effects of bariatric surgery). NGM’s partnerships with AZ and J&J appear highly similar, and we are as yet unclear how the J&J partnership will be affected.
  • For greater detail on J&J’s Pharmaceutical Business Review in May, please seehttp://close.cx/JJPharma1.

QUESTIONS AND ANSWERS

Q: Just wanted to touch on the diabetes business a little bit. You mentioned some of the impact from competitive bidding. Can you talk a little bit about your commitment to that business going forward and how we think about the business now in the context of competitive bidding? And, if you could remind us the impact of competitive bidding to the business? How much of the business is exposed to Medicare?

A: Overall, I would say is that at J&J and our diabetes companies, we still feel we are very uniquely positioned for strong leadership and success in the category based on a great track record that we’ve had in technology innovation scale and brand equity. If you just look at diabetes, of course, it’s one of the largest and most significant issues in healthcare today. I think there are around 370 million people with diabetes today, projected to go to 500 million by 2020. The need is very great, and it’s a very difficult area to control. What I would say is that with the recent launch of Invokana, our sales and marketing efforts are broadly targeting both endocrinologists and primary care physicians, who treat the vast majority of type 2 diabetes patients. Both Janssen and LifeScan/Animas are partnering to accomplish this objective. It’s the first time where LifeScan/Animas has been involved in promoting an oral therapeutic agent of any kind that really helps extend their reach, and it strengthens their commercial and clinical relevance beyond just glucose monitoring and insulin delivery among those healthcare professionals. When you compound that with the Calibra acquisition that we recently did, which is the wearable insulin patch technology, we feel that that is going to be a very good opportunity for patients, making it easier for them. They are currently on basal-only insulin therapy, and they need an easy way to administer mealtime dosing option; it certainly provides that. While we look at all that, we also acknowledge the realities of the market, and with the competitive bidding process, the 72% reduction in pricing that we are experiencing in the United States, we are having to adapt our business model to meet that challenge. Again, we think diabetes is a very important space with a lot of unmet medical need. We think we have a number of offerings across our MD&D, Pharmaceutical, and Consumer segments that can address them. But clearly, we will adapt to those changing dynamics as events unfold and as we predict they will unfold in the coming years. Medicare sales are at about just over 20% of the US business.

Q: Can you give us a bit more of an update on the MD&D Diabetes Care businesses? Where have you been progressing to in terms of market share versus your key competitors? What do you think, outside of reimbursement changes, the underlying growth rate is here for expectations going forward?

A: We believe we’ve been relatively flat in share this last quarter. We think that there may have been a slight downtick based upon some of the pricing changes that are being made and particularly the intrusion of store brands and other offerings. Obviously, it’s something that we’re watching very closely. I might add that the overall market is declining there. So, overall market trends are negative in diabetes test strips. Market volumes are declining overall.

Q: In terms of the emerging markets outlook, especially as it relates to MD&D, how confident are you that the current growth trends in the market can continue as we look forward over the next couple of years? It’s really a question of gauging confidence in light of some of the things that have gone on in these economies and your confidence in the ability of these markets, specifically in medical devices, to continue to grow at the nice pace we have seen over the last year or so.

A: I think there are a couple of forces and dynamics that will be impacting it. First of all, you’ve got the significant increase in middle class populations in those countries. For example, in China, I think most of the recent statistics would suggest you have about 150 million people in that middle class. That can go as high as 500 million and close to 800 million people over the next 10 years. What we also know is that as people move up the economic ladder is that they generally consume more healthcare. So we think the urbanization trend, the trend towards an increasing middle class does offer a significant growth opportunity. Of course offsetting that will be pressure put on the governments on how they are going to control overall healthcare spending. If you look at the healthcare spending levels in places like Brazil, Russia, India and China, it is very low single digits. We think that it’s an opportunity for them to invest in their society, even have a more stable society as well as a more productive society. And so we think that the growth opportunities there will continue. We recognize that it’s going to take perhaps a different portfolio of products that are really targeted towards specific disease states and the unmet medical need for those markets. It will take, at times, different commercial approaches. But overall, we do think that emerging markets will be a major source of growth for the next several years.

--by Hannah Martin, Jessica Dong, Ewuradjoa Gadzanku, Kira Maker, and Kelly Close