Memorandum

Keystone 2013 Preview (wow); J&J on competitive bidding; La Jolla phase 2 for CKD (new coverage); Oramed phase 2 - oral insulin; ADA full report

Good morning, Closer Look readers - can you believe we're on the cusp of 2Q13 quarterly reporting season? J&J reports its 2Q13 earnings in less than an hour, and we expect to hear management sentiments on the launch of the company's new SGLT-2, Invokana (canagliflozin) as well as its views on the challenging SMBG/diabetes technology arena. This morning's message includes conference updates (our Keystone 2013 Preview and in case you missed it, our ADA 2013 Full Report and themes), diabetes drug updates (our first reporting on La Jolla's CKD candidate and Oramed), and a brief update from J&J on competitive bidding prior to the company's conference call (that you can access here).

Conferences

1. Keystone 2013 Preview - This is a seriously standout meeting. An outstanding speaker line-up will address diabetes technology, CVOTs, and controversial issues in type 1 and type 2 diabetes.

2. ADA 2013 Full Report and our themes as we reflect on Chicago - just in case you missed it last week. For a deep dive on specific topics, see our divided reports below.

Diabetes Technology

3. J&J issues patient advisory related to Medicare's payment adjustment for diabetes supplies (summarybelow)

Diabetes Drugs

4.Phase 2 CKD trial begins dosing for GCS-100 - La Jolla Pharmaceuticals' galectin-3 antagonist

5. Oramed enrolls first patient in phase 2 trial for its oral insulin ORMD-0801 (summary below)

6. Update to Lilly/BI insulin glargine report - correction on biosimilar pathway timeline (summary below)

SUMMARIES

1. This week we'll be in Keystone, Colorado attending Keystone 2013: Practical Ways to Achieve Targets in Diabetes Care - read our preview. Not to exaggerate but I'm not sure I've  ever been as excited by the prospect of a small meeting with incredible thought leaders who will help us think through the dynamics of where we are as a diabetes community on such a number of important (and daunting) fronts. The remarkable list of speakers for this much-loved meeting (see registration here if you can still swing it) is a veritable who's who of diabetes thought leaders: Drs. Jay Skyler, Richard Bergenstal, Desmond Schatz, Robert Ratner, Irl Hirsch, Peter Gottlieb, Satish Garg, Richard Insel, Robert Rizza, Jack Lord, Sir George Alberti, and many more esteemed researchers and clinicians. The meeting will cover a very wide range of topics over four days (Thursday-Sunday), including closed-loop technology, cardiovascular outcomes studies, diabetes care challenges in children and adults, pressing policy issues, international perspectives, complications, primary care physicians, glucose monitoring, and other upcoming trends in diabetes therapy. This is a can't miss meeting for valuable broad reflections on everything big going on in diabetes - let us know if you will be there and what interests you the most from the 2013 preview. We always relish the Keystone meeting as we can start to further unpack ADA learnings - big tip of the hat to the organizers, who have put together what looks to be a very special gathering this year. If you are not signed up to go this year, be sure to put this meeting on your 2014 list.

2. In case you missed it last Thursday, we are excited to bring you our ADA 2013 learnings - click here to read our full report. If you want a quick take, see our Big Picture Themes document here. If you want to dive straight into a topic area, we have divided our full report into ten subject areas plus an expanded exhibit hall report (this now has added diabetes technology and social media coverage):

Diabetes Technology (Artificial Pancreas, CGM, Pumps, SMBG) - click here

Incretin-based therapies (DPP-4s and GLP-1s) - click here

SGLT Inhibitors and Other Oral Therapies (non-incretin) - click here

Novel Drug Development, Basic Science, and Research Funding - click here

Insulin Therapies - click here

Cardiovascular Disease and Other Complications - click here

Healthcare Delivery, Cost-Effectiveness, Lifestyle, Prevention, and Epidemiology - click here

Obesity Pharmacotherapy, Metabolic Surgery, and Other Obesity Topics - click here

Type 1 Diabetes Therapies (Cure Related) - click here

Treatment Algorithms and Strategies - click here

Exhibit Hall Report (including Social Media coverage) - click here

3. On July 1, J&J issued a patient advisory pertaining to Medicare's payment adjustment for diabetes supplies - read the press release. In the announcement, J&J reaffirmed that OneTouch diabetes testing supplies are covered by Medicare and cautioned that suppliers may try to switch patients to unfamiliar testing products. The switching is a very negative practice for patients and we were heartened by the efforts to get the warning out, even as we feel the move by CMS is extremely short-sighted given the risks for patients to stop testing, and for customer service, quality control, and innovation to decline at companies whose products are effectively no longer supported by CMS. Abbott also has recently aired two television spots concerning the move by CMS (see our July 3 Closer Look email for detail). We look for management sentiment on this from J&J and Abbott, who will discuss their 2Q13 financial results today and tomorrow (Roche reports on July 25 and Bayer reports on August 31); the bulk of the impact will really start to be felt in 3Q13 but we do not expect strong quarters in BGM. The 2Q12 and 3Q12 industry results for BMG were declines of about 4% and 11%, respectively, making the next two quarterly comparisons less challenging; the 1Q13 aggregate result for BGM was down about 6%, as described in our recent 1Q13 Industry Roundup. We hope to gain additional insight on the outlook of the BGM industry in the new era of competitive bidding; for more background on Medicare's competitive bidding, read our most recent Closer Look on this topic. While we are not surprised CMS pricing for Medicare-reimbursed strips has declined, we share the view that this was an overly-drastic cut that is affecting numerous patients and providers negatively. The irony is profound, since this is also supposed to be the era of early, optimal care for patients in order to try to prevent costly complications that are preventable; that  care will be challenging if patients do not have access to strips or if there are quality issues associated with the strips. We are reminded again of a sad quote from a PCP at the ACP internal medicine meeting that took place in June in SF: "I used to be a doctor, but I'm now a typist" (referencing many administrative demands on his time). We are interested in how CMS and FDA interact and what the word in Washington will be as the impacts of competitive bidding in BGM emerge; FDA Commissioner Dr. Margaret Hamburg recently expressed concern about the global supply chain (with regard to drugs and devices) and we wonder where this challenge will land given manufacturing of this essential tool going forward.

4. La Jolla Pharmaceuticals announced last week that it began dosing for a phase 2 trial of GCS-100, a galectin-3 antagonist, for chronic kidney disease - see our report here. As background, galectin-3 is upregulated in response to injury and has been associated with an increase in fibrogenesis. This can contribute to organ failure as in chronic kidney disease (CKD) - this is our first company report on La Jolla and we are quite interested to follow this therapy given the major unmet patient needs. The phase 2 trial that has just begun (ClinicalTrials.gov Identifier: NCT01843790) will have a primary endpoint of change in estimated glomerular filtration rate (eGFR) from baseline to eight weeks on placebo or once-weekly intravenous GCS-100. During the phase 1 CKD trial, a single dose provided a statistically significant reduction in serum galectin-3. In phase 1, GCS-100 was administered once-weekly as a ten-minute injection - we are curious how the company envisions the ultimate administration method. We imagine that patients, providers, and payers would still be willing to accept fairly cumbersome delivery options given the significant need for disease modifying treatments for CKD. Our report has more background on the compound and more details on the phase 1 and 2 trials.

5. Oramed announced last week that the small phase 2a trial for its oral insulin ORMD-0801 has began enrolling - read the press release here. This comes less than two months after Oramed announced that the FDA had approved its Investigational New Drug application for the trial. According to the ClinicalTrials.gov posting, the study will assess the safety and tolerability of two ORMD-0801 doses (unspecified) in 30 type 2 patients. The study will be conducted at the Orange County Research Center in Tustin, California, and has a estimated primary completion date of August 2013 - pretty fast. As a reminder, the FDA previously asked Oramed to conduct an inpatient substudy (up to one week in duration) before performing this originally planned, larger phase 2 trial. We most recently heard data on ORMD-0801 from a poster at ADA 2013 (poster1054-P): interim results from a small (n=10) study in healthy individuals showed that both ORMD-0801 16 mg (one capsule) and ORMD0-0801 "8+8" (two 8 mg capsules) provided greater reductions in glucose AUC compared to ORMD-0801 8 mg (one capsule). As background,ORMD-0801 uses an enteric coating to protect the insulin polypeptide as it transits the gut. Other companies developing oral insulins include Novo Nordisk, Biocon, Diabetology, and Diasome - see our review of the oral insulin arena for additional details. We are skeptical about the prospects for near-term success in this arena given the major technical challenges and the long time during which the company has already been at work although we acknowledge the major opportunity, given the many people with uncontrolled diabetes globally who could benefit from insulin in other applications. We look forward to press releases discussing actual results (in addition to this one highlighting the initial patient enrollment).

6. We have updated our report on Lilly/BI's submission of its insulin glargine product to the EMA. In our updated report, we provide a correction on the EMA's biosimilar review process. In our previous version, sent on July 10, we stated that the biosimilar pathway in Europe included the potential for expedited review, and we alert readers this is not actually the case. We have amended the report to reflect that the EMA review process for biosimilars is no shorter than that for standard new marketing authorization applications (a roughly 12-month cycle). The biosimilar pathway in Europe does, however, allow for a slightly smaller applicaiton package than MAAs since biosimilars may reference data from an already-marketed product in Europe. We have also updated the report to include news confirming that Lilly/BI plan on submitting LY2963016 to the FDA later this year - whether they will also follow the biosimilar pathway in the US is still unclear, though the companies have sought guidance from the FDA on this topic. We look forward to following this area closely.

Good day for now - we will be back next with J&J's 2Q13 results and our AADE 2013 preview (AADE is August 1-4 in Philly).

very best, Kelly

Kelly L. Close

president

Close Concerns

T. 415 241 9500

M. 415 518 5336

kelly.close@closeconcerns.com

www.closeconcerns.com

www.diatribe.org

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