2Q13 Diabetes and Obesity Industry Roundup: Revenue up 8%, largely driven by insulins; DPP-4 inhibitor and GLP-1 agonist growth slows - October 14, 2013

Executive Highlights

  • Diabetes industry sales grew to $10.8 billion in 2Q13, up 2% from 2Q12. Excluding the continued negative impact of TZDs, the market grew 8% overall in 2Q13, down from 11% growth in 2Q12. This is the second highest quarterly result in the ten years we have been tracking the industry.
  • Insulins provided a striking 61% of the industry growth in 2Q13, with the remainder contributed by DPP-4 inhibitors (26%), GLP-1 agonists (10%), insulin pumps (1%), and CGM (2%).
  • Industry sales were hampered by a slowdown in DPP-4 inhibitor growth (12% in 2Q13 vs. 24-40% in 2012) and GLP-1 agonist growth (16% in 2Q13 vs. 23-43% in 2012).

Based on results from just under 20 public companies with revenue that we regularly track, diabetes revenue of $10.8 billion across drugs (excluding generics) and devices grew 2% year-over-year (YOY) in 2Q13. Taking TZDs out of the equation, which saw a $604 million (-83%) drop in sales due to the entry of generics, growth in 2Q13 reached a more positive 8% (though still down slightly from the 11% growth observed in 2Q12 and 2012). TZDs have “annualized” their move to generics, and sales have declined substantially, as their 2Q13 sales of $125 million represented only 1% of total diabetes revenue – based on the YOY comparisons to 2012, the major year-over-year declines of TZDs are now over (the class was generic in late summer, 2012). Going forward, the TZD adjustments we have done for the last four quarters won’t be needed.

One of the continuing stories of the year was the slowdown in the growth of DPP-4s and GLP-1s, which came in at 12% and 16% growth, respectively. While still quite positive, these results represent a notable downtick from the ~ 25-40% growth DPP-4s and GLP-1s had in 2012. Of course, with GLP-1 agonist sales at nearly $700 million per quarter and DPP-4 inhibitor sales at over $2 billion per quarter, the high base also affects the future growth trajectory. Insulin injectables grew 12% in 2Q13, making this category the industry’s strongest growth driver (61% share of growth) for the second quarter in a row.

Industry performance (excluding TZDs) was much stronger in the US in 2Q13, with overall sales rising 11% (vs. 6% growth internationally). The US/international gap was largely driven by GLP-1 agonists (22% vs. 6%) and insulins (19% vs. 9%), though DPP-4 growth in the US (14%) also edged out international growth (11%). This quarter also saw the initial sales figures for SGLT-2 inhibitors – BMS/AZ’s Forxiga (dapagliflozin) generated $5 million in revenue in 2Q13, up from $3 million in 1Q13. J&J expressed confidence in Invokana (canagliflozin), although no sales figures were released.

On the device side, blood glucose monitoring continued to decline in 2Q13, dropping 5% for the quarter – the negative growth has now persisted for eight straight quarters. Revenue declined by 14% in the US and was nearly flat in international markets, continuing the pattern from 1Q13. We expect BGM sales to continue to negatively impact growth through 2013, particularly since 3Q13 will be the first full quarter that CMS’ competitive bidding program will be in effect. CGM sales in 2Q13 grew 26% to $70 million, while insulin pump sales grew a modest 2% to $495 million (largely driven by Insulet’s 25% growth).

This report is divided into four sections: 1) overall industry performance; 2) diabetes drugs; 3) diabetes devices; and 4) obesity. Each includes bullets with broad trends and analysis, followed by a table with current and historical sales figures, growth, and market share estimates. Our report concludes with a list of key assumptions. We note that the enclosed data represents our best estimates in some cases, since a number of companies do not disclose information in great detail.

 

1. Overall Industry Performance

  • Diabetes revenue across drugs and devices totaled $10.8 billion in 2Q13, representing 2% growth from 2Q12. Excluding TZDs and generics, 2Q13 growth was 8%, down slightly from 11% growth in 2Q12 and 2012. TZD sales dropped $604 million (-83%) between 2Q12 and 2Q13, the largest YOY decline in sales seen to date. TZDs will continue to weigh down overall industry growth a bit for the next two quarters, though the move to generics has now been “annualized”.
  • One of the biggest stories of the quarter was the slowdown in DPP-4 and GLP-1 growth. DPP-4 growth came in at 12% in 2Q13, a notable downtick from 40% growth in 2Q12 and 31% growth for 2012. GLP-1 agonist growth was 16%, also down from 42% growth in 2Q12 and 34% growth for 2012 overall. We believe this stems from a variety of factors, including austerity moves overseas, more challenging access in the US, fatigue due to pancreatitis rumors (that were shown to have no basis) and of course, lower growth due to the higher baseline. All this said – the DPP-4 inhibitor result of $2.2 billion in sales is still the top result (tied with 4Q12) for the category ever.  
  • A major bright spot of the quarter was insulin, where we saw continued strong growth at 12%, up from 6% growth in 2Q12 and 10.5% growth for 2012. This performance made the category the industry’s strongest growth driver (61% share of growth) in 2Q13. We note that growth to date for the year is 12.5%, up from 10.5% in 2012. Insulin grew a striking 19% in the US in 2Q13.
  • On the device side, blood glucose monitoring continued to decline in 2Q13, dropping 5% for the quarter (in line with 2012’s overall 5% decline in sales). Sales were down a striking 14% in the US, compared to 0.1% growth internationally. J&J had a particularly challenging quarter in the US (-27%), though Abbott (-6%) and Roche (-8%) were not immune to challenges either. Bayer, by contrast, grew 11% (vs an easy comparison).
  • Industry performance (excluding TZDs) was much stronger in the US in 2Q13, with overall sales rising 11% (vs. 6% growth internationally). The US/international gap was largely driven by GLP-1 agonists (22% vs. 6%) and insulins (19% vs. 9%). DPP-4 inhibitors grew 14% in the US and 11% internationally, the first time since 2008 that DPP-4s grew faster in the US than internationally. TZD revenue declined to a greater degree in the US (from $452 million in 2Q12 to $53 million in 2Q13; down 88%) than in international markets (from $276 million in 2Q12 to $72 million in 2Q13; down 74%).

Table 1: Total drug and device revenue and growth

 

2011

1Q12

2Q12

3Q12

4Q12

2012

1Q13

2Q13

Total Drugs and Devices Revenue (billions; non-generics)

$40.4

$10.0

$10.6

$10.1

$11.0

$42.0

$10.2

$10.8

Total Growth (year-over-year)

Growth Excluding TZDs (year-over-year)

14%

6%

4%

-0.4%

4%

4%

2%

2%

19%

14%

11%

6%

11%

11%

9%

8%

Insulin Injectables

$16.7

$4.3

$4.5

$4.5

$5.0

$18.5

$4.9

$5.1

Insulin Injectables growth

13%

12%

6%

6%

13%

11%

13%

12%

GLP-1 Agonists

$1.8

$0.5

$0.6

$0.6

$0.7

$2.4

$0.7

$0.7

GLP-1 Agonists growth

106%

43%

42%

29%

23%

34%

28%

16%

DPP-4 inhibitors

$6.0

$1.8

$2.0

$1.9

$2.2

$7.8

$1.9

$2.2

DPP-4 inhibitors growth

53%

39%

40%

24%

25%

31%

10%

12%

Insulin Pumps

$1.90

$0.50

$0.48

$0.49

$0.51

$1.99

$0.51

$0.49

Insulin Pumps growth

10%

4%

2%

2%

4%

4%

3%

2%

Blood Glucose Monitoring (Big Four)

$7.97

$1.82

$1.96

$1.77

$2.01

$7.57

$1.71

$1.87

Blood Glucose Monitoring growth (Big Four)

6%

-2%

-4%

-11%

-3%

-5%

-6%

-5%

Continuous Glucose Monitoring

$0.18

$0.05

$0.06

$0.06

$0.07

$0.23

$0.07

$0.07

Continuous Glucose Monitoring growth

49%

44%

32%

21%

26%

30%

27%

26%

Others*

$1.30

$0.33

$0.34

$0.32

$0.31

$1.29

$0.30

$0.32

Others* growth

8%

8%

5%

-6%

-8%

-0.4%

-8%

-7%

  • The bulk of the quarter’s gains came from insulin injectables, which provided a striking 61% share of growth in 2Q13. This represents the largest share of growth attributable to any single drug category in the last year. While insulin’s growth of 12% was solid, its unusually high contribution to the industry’s share of growth is partially attributable to the slowdown in DPP-4s and GLP-1s – indeed, the downtick in DPP-4s share of growth (-28%) and GLP-1s share of growth (-7%) from 2Q12 to 2Q13 was almost perfectly made up for by insulin (+36%). Insulin pumps (1%) and CGM (2%) provided the balance of the quarter’s growth. These segments’ positive growth performance was outweighed by the continued negative performance in TZDs (2Q13 sales down 83%), BGM (-5%), and others (-7%).
    • Over the past year, there has been a slowdown in incretins’ share of growth in the industry, from 56%-71% 1H12 to 48% in 4Q12 and 36% in 1Q13 and 2Q13. Some of this is due to the increased base and some likely due to media surrounding pancreatitis/pancreatic cancer – there has been shown to be no basis to these worries, but the commercial impact on the classes has been significant in our view. We look forward to following how SGLT-2s will play a role in industry growth – one might expect the class to slowly take share away from GLP-1 agonists and insulin (i.e., another oral therapy option that delays injectables), though only time will tell how this plays out.

Table 2: Total drug and device share of industry growth

 

2011

1Q12

2Q12

3Q12

4Q12

2012

1Q13

2Q13

GLP-1 agonists share of growth

16%

14%

17%

17%

11%

14%

16%

10%

DPP-4 Inhibitors share of growth

37%

43%

54%

47%

37%

42%

20%

26%

Insulin Injectables share of growth

33%

39%

25%

34%

49%

41%

61%

61%

Total Drugs share of growth

86%

94%

96%

97%

97%

97%

97%

97%

Insulin pumps share of growth

3%

2%

2%

1%

3%

2%

3%

1%

Blood Glucose Monitoring share of growth

9%

0%

0%

0%

0%

0%

0%

0%

Continuous Glucose Monitoring share of growth

1%

1%

1%

1%

1%

1%

2%

2%

Total Devices share of growth

13%

3%

3%

2%

4%

3%

4%

3%

Others

2%

2%

2%

0%

0%

0%

0%

0%

Total**

100%

100%

100%

100%

100%

100%

100%

100%

*Others include BD, Neighborhood Diabetes, Allergan, and dermagraft revenue

** Numbers may not sum to 100% due to rounding.

 

2. Diabetes Drugs

DPP-4 Inhibitors

  • The continued slowdown in DPP-4 inhibitor growth was a major theme of 2Q13. Overall, DPP-4 inhibitor market growth of 12% in 2Q13 was strikingly lower than the 40% growth seen in 2Q12, 24% growth in 3Q12, and 25% growth in 4Q12. This slowdown is a continuation of the 10% growth we observed in 1Q13, which was the second real quarterly slowdown seen in this sphere; a slow to about 25% was seen in the last half of 2012, which followed approximately 40% growth in the first half of 2012. It will be interesting to see what happens in 3Q12, since the DPP-4 inhibitor comparisons do become “easier” at that point (~25% growth vs. 40% the previous two quarters). The trend was driven by a decline in both US and international growth. Companies have primarily attributed this slowdown to higher market saturation, pioglitazone’s (Takeda’s Actos) genericization, the slowdown of patient switches from sulfonylureas, and the introduction of another oral alternative, SGLT-2 inhibitors. Concerns regarding incretins and pancreatic disease also likely contributed to the slowdown in 1Q13 and 2Q13 though this is challenging to quantify. While some may expect the impact of that issue to decline in coming quarters, as high profile organizations including the ADA and EASD have issued statements recommending against a change in prescription behavior for incretin therapies based on current evidence, we think some of the damage was done with the New York Times headline “A Lone Voice Raises Alarms on Lucrative Diabetes Drugs” on May 30, 2013.
  • The DPP-4 inhibitor market continues to be dominated by Merck’s Januvia franchise, which held 70% of the worldwide market and 82% of the US market in 2Q13. However, Merck’s global and US shares declined from 75% and 86% global and US market share, respectively, in 2Q12. At the same time, Lilly, Novartis, and BMS/AZ have made small inroads in the past year. Lilly/BI’s Tradjenta increased its global share of the DPP-4 inhibitor market from 0.7% in 2Q12 to 2.5% in 2Q13 (this figure is does not count BI’s unreported share of Tradjenta revenue). Lilly also announced during its recent investor update that Tradjenta’s new-to-brand share in the US exceeded that of BMS/AZ’s Onglyza (saxagliptin) and is approaching that of sitagliptin among endocrinologists – this could portend future gains for Tradjenta from its relatively small base in the US. Novartis’ Galvus rose from 20% of the ex-US market in 2Q12 to 24% in 2Q13. BMS/AZ’s Onglyza franchise increased in terms of global market share from 9% in 2Q12 to 11% in 2Q13. Takeda saw its share of international DPP-4 revenue drop sharply to 6% in 2Q13 from 12% in 1Q13, but management stated during their 2Q13 update that increased marketing and a recent regulatory approval in China may be able to reverse the trend.  
  • We look forward to watching how improved compounds and applications affect the DPP-4 inhibitor market. For example, we believe that development of branded fixed dose combinations will result in considerably higher efficacy; we also think once-weekly applications (Januvia) will appeal to many.

 

Table 3: Total DPP-4 revenue and growth

 

2011

1Q12

2Q12

3Q12

4Q12

2012

1Q13

2Q13

DPP-4 Inhibitors revenue (millions)

$5,986

$1,753

$1,967

$1,915

$2,208

$7,842

$1,935

$2,204

Growth (year on year)

53%

39%

40%

24%

25%

31%

10%

12%

US

$2,866

$812

$862

$889

$951

$3,520

$812

$983

International

$3,119

$941

$1,104

$1,026

$1,256

$4,323

$1,123

$1,220

US Growth

27%

26%

27%

20%

19%

23%

0%

14%

International Growth

90%

53%

51%

27%

30%

39%

19%

11%

Merck’s US Market Share**

88%

86%

86%

86%

84%

85%

81%

82%

Merck’s Int’l Market Share**

69%

66%

66%

60%

62%

64%

56%

61%

BMS/AZ’s US Market Share

11%

13%

13%

13%

13%

13%

16%

16%

BMS/AZ’s Int’l Market Share

5%

6%

6%

6%

6%

6%

7%

7%

Lilly’s US Market Share

0.4%

1%

1%

2%

2%

2%

3%

2%

Lilly’s Int’l Market Share

0.1%

0.3%

0.4%

0.9%

1%

0.8%

2%

3%

Novartis’ Int’l Market Share***

22%

21%

20%

22%

20%

21%

24%

24%

Takeda’s Int’l Market Share***

4%

7%

8%

10%

10%

9%

12%

6%

*This chart, and our analysis in general, does not include BI’s revenue share of Tradjenta, since BI is private and does not disclose revenues. We believe that omission is minor since Lilly’s Tradjenta revenue only makes up 2.4% of the US DPP-4 market and 2.5% of the international DPP-4 market. **Market shares are by value, not volume. *** Novartis’ DPP-4 products were only available outside the US through 2Q13, while Takeda’s DPP-4 products were launched in the US at the very end of 2Q13 and the company did not report US sales for the quarter.

 

GLP-1 Agonists

  • The GLP-1 agonist class in 2Q13 constituted 23% of the non-generic, non-insulin diabetes drug market by value, up from 18% in 2Q12, with Victoza and Bydureon supplying virtually all of the growth. Nevertheless, the GLP-1 class also saw a slowdown in growth, growing by 16% in 2Q13 to $678 million, down from 42% growth in 2Q12. Victoza’s market share continues to grow, from 68% of the GLP-1 market in 2Q12 to 74% of the GLP-1 market in 2Q13. Victoza provided 76% of the growth in the class in 2Q13. The drug continues to lead this class by a wide margin. Bydureon rose from 6% of the GLP-1 market in 2Q12 to 10% of the GLP-1 market in 2Q13, and provided 23% of the growth in the class in 2Q13. Byetta’s market share continued to decline, down to 16% in 2Q13 from 27% in 2Q12. Sanofi’s Lyxumia (lixisenatide) generated $1.31 million in revenue in 2Q13, and contributed 0.9% to the growth in the class. With the recent approval and launch of Lyxumia in the EU, we imagine that Byetta’s share will continue to decline, since both are perceived as “short-acting GLP-1 agonists”; Lyxumia is also more patient – friendly (once a day injection), which also drives choice. Victoza and Bydureon are long-acting, though they may also feel some competitive pressure from Lyxumia’s entry. Nevertheless, the entire GLP-1 market still has plenty of room to grow as it will benefit from improved applications .

 

Table 4: Total GLP-1 revenue and growth

 

2011

1Q12

2Q12

3Q12

4Q12

2012

1Q13

2Q13

GLP-1 agonist sales (millions)

$1,815

$522

$587

$601

$685

$2,433

$669

$678

Growth (year on year)

106%

43%

42%

29%

23%

34%

28%

16%

Share of Non-Generic Diabetes Drug market

15%

17%

18%

20%

22%

20%

24%

23%

Share of Non-Generic Drug Market Growth

31%

24%

24%

27%

23%

25%

45%

28%

Byetta sales*#

$693

$159

$156

$137

$136

$588

$129

$106

Byetta market share**

38%

30%

27%

23%

20%

24%

19%

16%

Bydureon sales*

$4.4

$12

$35

$43

$68

$158

$66

$67

Bydureon market share**

0.2%

2%

6%

7%

10%

7%

10%

10%

Bydureon share of GLP-1 growth

0.5%

8%

18%

25%

38%

21%

30%

23%

Victoza sales

$1,118

$351

$396

$421

$481

$1,687

$474

$504

Victoza market share**

62%

67%

68%

70%

70%

70%

71%

74%

Victoza share of GLP-1 growth

99.5%

92%

82%

75%

62%

79%

70%

76%

Lyxumia sales

$0

$0

$0

$0

$0

$0

$0

$1.3

Lyxumia market share

0%

0%

0%

0%

0%

0%

0%

0.2%

Lyxumia share of GLP-1 growth

0%

0%

0%

0%

0%

0%

0%

0.9%

*Byetta and Bydureon sales for 3Q12 quarter are estimated from international revenues from Eli Lilly and revenues from BMS/AZ

**Market share by revenue  #Byetta product sales for 1Q13 and 2Q13 estimated since Lilly’s share of Byetta revenue is unknown.

 

Insulins

  • The insulin market grew 12% in 2Q13 to reach $5.1 billion, reaching (and exceeding) the $5 billion milestone for the first time. This result was versus an “easier” 6% comparison increase in growth in 2Q12 and on par with the 13% growth in 1Q13. The US market saw extraordinarily positive growth, rising 19% in 2Q13 (on par with the 21% growth in 1Q13 and up from 10% in 2Q12). International growth also had a very nice bump, totaling 9% in 2Q13, up significantly from 6% growth in 1Q13 and from 2% growth in 2Q12. Overall, the insulin market is seeing very solid growth, perhaps due to patients staying older and moving to more advanced medications and staying on the medications longer. The market share of basal insulins increased slightly to 46% in 2Q13 (from 44% in 2Q12), while that of human insulins decreased slightly to 16% (from 17% in 2Q12). The market share of rapid acting insulins also decreased slightly to 38% (from 39% in 2Q12). By our estimates, the insulin market shares held by Novo Nordisk, Sanofi, and Lilly have also remained roughly stable at 43%, 38%, and 19%, respectively in 2Q13. Our model includes only Novo Nordisk, Sanofi, and Lilly, and does not include smaller, more regional insulin companies.

 

Table 5: Total insulin revenue and growth

 

2011

1Q12

2Q12

3Q12

4Q12

2012

1Q13

2Q13

Insulin revenue (billions)*

$16.7

$4.31

$4.50

$4.49

$4.98

$18.5

$4.88

$5.06

Growth (year on year)

13%

12%

6%

6%

13%

11%

13%

12%

US Revenue

$8.14

$2.13

$2.25

$2.31

$2.57

$9.36

$2.58

$2.67

Int’l Revenue

$8.58

$2.18

$2.25

$2.18

$2.40

$9.14

$2.30

$2.39

US Growth

13%

13%

10%

11%

21%

15%

21%

19%

Int’l Growth

12%

11%

2%

1%

6%

7%

6%

9%

Rapid Acting Insulin US Revenue

$2.98

$0.81

$0.86

$0.87

$0.93

$3.51

$0.95

$0.95

Rapid Acting Insulin Int’l Revenue

$3.58

$0.86

$0.90

$0.86

$0.96

$3.63

$0.91

$0.95

Rapid Acting Insulin US Growth

14%

20%

15%

13%

17%

18%

17%

11%

Rapid Acting Insulin Int’l Growth

13%

5%

-1%

-6%

1%

1%

5%

6%

Rapid Acting Insulin Market Share**

39%

39%

39%

38%

38%

39%

38%

38%

Basal Insulin US Revenue

$3.80

$1.10

$1.18

$1.22

$1.36

$4.91

$1.38

$1.47

Basal Insulin Int’l Revenue 

$3.09

$0.75

$0.79

$0.79

$0.85

$3.21

$0.83

$0.87

Basal Insulin US Growth

16%

23%

23%

27%

38%

29%

26%

25%

Basal Insulin Int’l Growth

20%

8%

-3%

2%

4%

4%

10%

11%

Basal Insulin Market Share**

41%

43%

44%

45%

44%

44%

45%

46%

Human Insulin US Revenue

$1.35

$0.22

$0.22

$0.22

$0.28

$0.94

$0.24

$0.25

Human Insulin Int’l Revenue

$1.91

$0.57

$0.57

$0.54

$0.60

$2.31

$0.57

$0.57

Human Insulin US Growth

7%

-32%

-37%

-36%

-20%

-31%

11%

15%

Human Insulin Int’l Growth

-1.0%

25%

18%

14%

20%

21%

0%

-0.4%

Human Insulin Market Share**

20%

18%

17%

17%

18%

18%

17%

16%

*Only Lilly, Novo Nordisk, and Sanofi are included in our analysis. **Market share by revenue

 

SGLT-2 Inhibitors

  • The newest class of diabetes drugs, SGLT-2 inhibitors, shows encouraging early signs. In 2Q13, the second quarter for which BMS/AZ’s Forxiga (dapagliflozin) reported results, Forxiga revenue totaled $5 million, up from $3 million in 1Q13. Given that Forxiga has only been launched in Europe, where reimbursement for new compounds is very rare, due to increasingly common austerity measures, we would not expect to see the strongest demand there. In the US, BMS/AZ resubmitted the drug to the FDA in mid-2013, and a PDUFA date is set for January 11, 2014. BMS/AZ marketing the drug in the US would help the field substantially.
  • The first SGLT-2 inhibitor to reach the US market was J&J’s canagliflozin (Invokana), which received FDA approval on March 29, 2013 and launched the next day. While J&J did not break out sales of Invokana in 2Q13, management reported that it had achieved 15% new to brand (NBRx) share (share of new patient starts and switches) among US endocrinologists in week 13 of the drug’s launch. J&J has also submitted canagliflozin for approval to the EMEA, and management expects a decision in 3Q13. Lilly submitted the NDA for empagliflozin on March 25, 2013, placing a possible US approval in March 2014.

TZDs

  • The thiazolidinedione class (TZDs) continued to see major declines in sales. TZD revenue declined by 83% in 2Q13 to $125 million, much worse than the -41% drop seen in 2Q12. Takeda’s Actos is the only major brand accruing revenue in the TZD drug class, accounting for 96% of non-generic TZD revenue in 2Q13 (this excludes the revenue that Ranbaxy, Teva, Mylan, and Watson Pharmaceuticals have received from selling generic pioglitazone).
  • As a reminder, GSK’s Avandia has virtually disappeared from the market due to cardiovascular concerns that led to its removal from European markets and to its extremely limited distribution in the US. An FDA Advisory Committee voted in early June to loosen restrictions on Avandia, but we do not see this having a substantial effect on its sales since the damage is already done in terms of public perception.
  • Actos franchise sales have also continued to experience sharp declines due to a greater focus on bladder cancer risk and generic competition. We expect sales of Actos and Avandia to continue to decline, especially due to pioglitazone’s genericization.
  • In 2Q13, Roche halted the development of its phase 3 PPAR-alpha/gamma dual agonist, aleglitazar, which was the only late-stage PPAR agonist in development.

3. Diabetes Devices

Blood Glucose Monitoring

  • The Big Four blood glucose monitoring (BGM) companies (J&J, Roche, Abbott, and Bayer) brought in an estimated $1.9 billion in BGM revenue in 2Q13, representing a 5% YOY decline. This is the eighth consecutive quarter in which year over year growth was negative for the Big Four. Revenue declined by 14% year over year in the US and was nearly flat in international markets in 2Q13, nearly identical to 1Q13 (-16% in the US and flat internationally). While the year over year declines will make financial comparisons easier going forward, we expect to see sales continue to decline. This will be especially true in the US as CMS’ national competitive bidding program for diabetic supplies continues – we expect major drops moving forward as we understand some of the payers are making large cuts.
  • The effects of competitive bidding will be more evident in 3Q13, as it will represent the first full quarter since the law took effect on July 1. Although Medicare sales accounted for just 20% of their US business, compared to other competitors with higher percentages of Medicare businesses, we suspect that J&J will continue to be hit hard by competitive bidding overall, given the implications on pricing pressure for other players. J&J’s sales in the US were down a striking 27% in 2Q13, the largest decline of the Big Four.

Table 6: Total BGM revenue and growth

 

2011

1Q12

2Q12

3Q12

4Q12

2012

1Q13

2Q13

Big Four BGM revenue* (millions)

$7,968

$1,820

$1,964

$1,774

$2,018

$7,568

$1,717

$1,873

Growth (year over year)

6%

-2%

-4%

-11%

-3%

-5%

-6%

-5%

US Revenue**

$2,644

$646

$673

$619

$664

$2,634

$546

$581

Int’l Revenue**

$5,324

$1,175

$1,291

$1,155

$1,353

$4,934

$1,172

$1,292

US Growth

1%

7%

0.5%

-10%

-3%

-0.4%

-16%

-14%

Int’l Growth

9%

-7%

-6%

-12%

-2%

-7%

-0.3%

0.1%

J&J Revenue

$2,446

$617

$619

$576

$588

$2,400

$548

$535

J&J US Growth

4%

14%

0.3%

-4%

-13%

-1%

-22%

-27%

J&J Int’l Growth

11%

-2%

-3%

-8%

2%

-3%

-0.5%

-2%

Abbott Revenue

$1,361

$317

$329

$316

$361

$1,324

$315

$325

Abbott US Growth

7%

8%

8%

-8%

10%

4%

-4%

-6%

Abbott Int’l Growth

7%

-9%

-8%

-13%

-1%

-8%

2%

3%

Roche Revenue

$2,755

$562

$685

$552

$720

$2,502

$533

$650

Roche US Growth**

-10%

-5%

0.2%

-24%

5%

-1%

-22%

-8%

Roche Int’l Growth**

10%

-11%

-6%

-17%

-5%

-12%

-0.8%

-4%

Bayer Revenue

$1,406

$324

$331

$330

$349

$1,342

$321

$363

Bayer Overall Growth

6%

-2%

-10%

-4%

-4%

-5%

-0.8%

10%

*BGM revenue calculation is complicated by the fact that J&J, Roche, and Abbott only report Diabetes Care results and each company’s Diabetes Care total includes some fraction of non-BGM revenue – insulin delivery for Roche and J&J and CGM for Abbott. We roughly estimated the subsets of revenue for each – see our assumptions in the insulin delivery section for more details. Bayer does not break out specific revenue or growth of its Diabetes Care franchise; thus Bayer BGM revenue was roughly estimated based on Contour results, overall Medical Care growth, and past Diabetes Care performance; revenue includes estimated contributions from Bayer’s A1c business. Additionally, growth is presented in terms of USD, and different numbers are possible with different currency conversion assumptions. **Bayer does not provide US/International splits; we roughly estimate a 25%/75% split. Roche reports North American revenue; thus, US/international revenue is slightly distorted as Roche US revenue includes some fraction from Canada.

 

CGM

  • By our estimates, the CGM market grew 26% in 2Q13 to reach approximately $70 million. While growth in 2Q13 was less than the 32% growth in 2Q12 and 30% growth in 2012, this is not altogether surprising due to the growing base of sales. The field has grown 40% since early 2012, when quarterly sales were closer to $50 million. In 2Q13, CGM accounted for 3.6% of the glucose testing market (Big Four BGM revenue plus CGM revenue), up from 2.7% in 2Q12. The gain reflects growing CGM sales alongside six straight quarters of declining Big Four BGM sales.
    • We expect CGM sales to continue increasing as the technology gains wider acceptance among patients and healthcare providers and as it becomes more user friendly. This will be driven by next-generation products – more accurate sensors (Dexcom’s G4 Platinum, Medtronic’s Enlite), integrated pumps and automated insulin delivery (Medtronic MiniMed530G, Animas Vibe, Tandem t:slim), remote monitoring offerings (Dexcom Share, Medtronic Connected Care), and more studies with newer products. We also expect it to continue to grow as it becomes a component in important diabetes technology advances.  
  • We believe Medtronic and Dexcom are roughly splitting the US CGM market, though Dexcom appears to be edging ahead. Though our 2Q13 estimates suggest Dexcom actually has 64% of the US market (up from 55% in 1Q13), we believe the notable uptick could be an artifact of the underlying assumptions (see below). That said, Dexcom’s 2Q13 revenue was ~$33 million in the US, up a striking ~70% year-over-year and 28% sequentially. Meanwhile, Medtronic had a particularly challenging 2Q13 in the US, with overall sales (pumps + CGM) down 3%. The picture is different in international markets, where we estimate that Medtronic has an 81% market share by sales. It will be interesting to see how these market shares look in a year, when Medtronic’s Enlite has come to the market and as Dexcom’s G4 expands further.

 

Table 7: Total CGM revenue and growth^

 

2011

1Q12

2Q12

3Q12

4Q12

2012

1Q13

2Q13

CGM Revenue

$176

$51

$55

$56

$66

$229

$65

$70

Growth (year on year)

49%

44%

32%

21%

26%

30%

27%

26%

US Revenue

$129

$36

$39

$40

$49

$164

$47

$52

International Revenue

$47

$15

$16

$16

$17

$65

$18

$18

US Growth

41%

32%

26%

20%

29%

27%

30%

33%

International Growth

76%

79%

47%

23%

18%

37%

20%

10%

Medtronic Revenue

$108

$32

$33

$34

$34

$133

$37

$33

Medtronic US Market Share**

50%

53%

50%

52%

41%

48%

45%

36%

Medtronic Int’l Market Share**

91%

84%

82%

82%

82%

83%

84%

81%

Dexcom Revenue

$66

$19

$22

$21

$32

$93

$28

$36

Dexcom US Market Share**

50%

47%

50%

48%

59%

52%

55%

64%

Dexcom Int’l Market Share**

3.7%

11%

13%

13%

14%

13%

11%

15%

Abbott Revenue*

$2.60

$0.75

$0.75

$0.75

$0.75

$3.00

$0.79

$0.79

*Estimated. We expect CGM revenue to be minor. ** Market shares are by revenue. ^Medtronic and Dexcom do not directly report US/OUS CGM numbers. The numbers above reflect a 91%/9% pump/CGM revenue split for Medtronic in 2Q13 based on an unlabeled bar graph presented at Medtronic’s Analyst Day. To minimize assumptions, our model applies the same overall Medtronic Diabetes sales growth rate (-3%) to both pumps and CGM. However, it’s likely that on a growth basis, Medtronic CGM sales outperformed pump sales in the US. That fact would put Dexcom and Medtronic on a more equal market share footing in the US, a fact not reflected in the 64% Dexcom/36% Medtronic market share split. Dexcom’s US/OUS split is based on comments during Dexcom’s 2Q13 financial update – the international business accounted for 5-10% of total product revenue and international sales doubled in 2Q13.

 

Insulin Pumps

  • We estimate that the insulin pump market was virtually flat in 2Q13, or perhaps up a modest 2% to $495 million in 2Q13, with 0.5% growth in the US and a 5% growth internationally. The ~60% US/40% international revenue split has stayed roughly the same since 2007, though it has changed over time from a ~70% US/30% international split back in 2004. It continues to be challenging to calculate market growth since Animas and Roche do not report sales directly and Insulet and Medtronic both have other sales that can obscure what the pump market did compared to CGM, distribution, etc.
    • Insulet had the strongest quarter in 2Q13, with worldwide OmniPod sales rising 25% to $48 million in 2Q13 – this was in line with the 25-30% quarterly growth observed over the past year. By our calculations, Insulet provided 68% of the pump industry’s growth in 2Q13, the highest we’ve ever seen for the company. Wow! Additionally, 2Q13 was Insulet’s first quarter ever with positive cash flow. We expect the positive growth and profitability trends to continue as more patients get on the second-gen pod, which has a higher gross margin than the first-gen version.  
    • By our estimates, Medtronic’s worldwide insulin pump sales rose 1%, carried by 8% growth outside the US. By contrast, insulin pump sales fell an estimated 3% in the US, marking five straight quarters of negative pump sales growth in the US (the first time we’ve seen this since we’ve been tracking Medtronic). With the FDA approval of the MiniMed 530G/Enlite sensor on September 27 (launch expected in early 4Q13), the company should finish out the calendar year on a high note. The sales gains outside the US stemmed from continued adoption of the Paradigm Veo insulin pump/Enlite CGM, a trend that will no doubt continue once the MiniMed 640G predictive low glucose management pump launches internationally (forecast to happen between November 2013 to April 2014).
    • We estimate J&J Animas sales did not grow in 2Q13 – it’s tough to know for certain, since LifeScan and Animas sales are not individually broken out. However, given that combined worldwide LifeScan/Animas sales fell 13%, including a 23% drop in the US, we think flat growth is a conservative best-case scenario. However, we expect Animas will see a bump in sales once the Vibe insulin pump (integrated with the Dexcom G4 Platinum CGM) is approved – the product is currently under FDA review, and as of Dexcom’s 2Q13 call, Animas had just received a round of written questions from the FDA. We expect this would likely launch in or around 1Q14. This product should provide an important catalyst to Animas’ US business – in Dexcom’s 1Q13 earnings call, management noted, “Animas and J&J have made public comments that they're growing 30-50% in markets in Europe where the Vibe has launched in direct head-to-head competition with the [Medtronic] Veo system.” That is great news for the company – we imagine they are not doing much right now since it would be hard for Animas to compete against the new Medtronic pump in the US as well as the new (relatively!) Tandem and the improved Insulet pumps.
    • By our estimates, Roche had worldwide sales of $56 million in 2Q13, down 5% year-over-year. Sales were down in both the US (-8%) and internationally (-4%). On the pipeline side, Roche’s Accu-Chek Insight insulin pump system is expected to launch in the EU in 2013, and an FDA filing is anticipated in 1H14.  Like the Accu-Chek Combo (Spirit insulin pump and Aviva meter), the Insight handheld serves both as a blood glucose meter and pump remote controller. It is also challenging to track this market due to lack of common discussion on the area.
  • At the end of 2Q13, Medtronic continued to lead the pump market with 68% worldwide market share by sales, followed by 11% for Roche, 11% for J&J, and 10% for Insulet. Compared to the market share figures at the end of 2Q12, Insulet’s share moved up by 1.8 percentage points (8.0% to 9.8%), Roche’s share dropped by 0.9 percentage points (12.3% to 11.4%), Medtronic declined by 0.6 percentage points (68.5% to 67.9%), and J&J dropped 0.3 percentage points (11.2% to 10.9%). We note that these are rough estimates given that Medtronic, Insulet, J&J, and Roche do not directly report pump sales.

 

         Table 8: Total insulin pump revenue and growth*

 

2011

1Q12

2Q12

3Q12

4Q12

2012

1Q13

2Q13

Insulin Pumps Revenue

$1,921

$497

$483

$488

$507

$1,991

$513

$495

Growth (year on year)

10%

4%

2%

2%

4%

4%

3%

2%

US Revenue

$1,174

$309

$290

$305

$307

$1,180

$306

$291

Int’l Revenue

$747

$188

$193

$183

$200

$811

$207

$203

US Growth

11%

5%

3%

2%

3%

0.5%

-1%

0.5%

Int’l Growth

10%

0.7%

1%

1%

6%

9%

10%

5%

Medtronic Revenue

$1,349

$360

$331

$344

$343

$1,378

$370

$336

Medtronic US Growth

7%

2%

-1%

-1%

-2%

-0.6%

-3%

-3%

Medtronic Int’l Growth

18%

7%

4%

7%

10%

7%

12%

8%

Medtronic Share of Growth

72%

64%

16%

32%

34%

39%

55%

32%

Insulet Revenue

$126

$35

$39

$43

$45

$162

$44

$48

Insulet US Growth

26%

30%

26%

26%

26%

27%

20%

24%

Insulet Int’l Growth

NA

NA

700%

300%

188%

105%

200%

50%

Insulet Share of Growth

16%

32%

65%

52%

49%

48%

45%

68%

J&J Revenue

$207

$53

$54

$53

$57

$217

$52

$54

J&J US Growth

3%

7%

7%

7%

7%

7%

-3%

0%

J&J Int’l Growth

8%

-20%

-5%

0%

5%

-5%

7%

0%

J&J Share of Growth

4%

5%

18%

16%

17%

13%

0%

0%

Roche Revenue

$240

$49

$60

$48

$63

$235

$46

$56

Roche US Growth

119%

-5%

0.2%

-24%

5%

-64%

-22%

-8%

Roche Int’l Growth

-8%

-11%

-6%

-17%

-5%

15%

-0.8%

-4%

Roche Share of Growth

7%

0%

0%

0%

0%

0%

0%

0%

*We cannot be certain about these numbers, since Medtronic, Roche, Insulet, and J&J Animas do not directly disclose their insulin pump revenue. Medtronic’s ~91%/9% split between pumps and CGM stems from graphs presented at the company’s 2012 analyst day. Insulet’s estimates are based on management’s comments in the company’s 2Q13 call: 1) year-over-year OmniPod growth was 25% from 2Q12; and 2) international OmniPod sales grew 50% from 2Q12. J&J Animas’ pump figures are based an assumption of zero growth in 2Q13, the same overall Diabetes Care US/OUS split, and a rough estimate of the J&J’s pump/BGM split. Roche’s assumptions include: 1) a 92% pump/8% BGM sales split estimated from a 2Q13 slide’s bar graph depicting 1H13 Diabetes Care sales; and 2) the same North America/Outside North America sales split as for overall Diabetes Care.

 

4. Obesity

  • Vivus’ Qsymia generated revenue of $5.5 million in 2Q13, while Arena/Eisai’s Belviq posted $4.1 million in revenue. Vivus’ sales of $5.5 million rose from $4.1 million in 1Q13 and $2.0 million in 4Q12 (Qsymia’s first full quarter on the market). Nevertheless, Vivus’ result was below analysts’ consensus estimate for 2Q13 revenue of $7.5 million. We believe that Qsymia’s slower uptake likely resulted from a number of factors, including restricted access due to only REMS-certified mail-order pharmacies distributing the drug, low reimbursement, as only ~20% of scripts were covered at the end of 3Q12 vs. over 30% coverage in 1Q13 (and 34% of commercial lives covered), and limited provider or patient education surrounding obesity since an FDA-approved anti-obesity medication had not been launched in 13 years.
    • Direct comparisons between Vivus and Arena/Eisai are difficult since Vivus recognizes revenue when a script is sold to a patient and Arena/Eisai recognize revenue when Belviq is stocked. As a result, Belviq revenues likely benefited from distributors purchasing their initial stock during 2Q13. For more information on how the two anti-obesity drugs’ 2Q13 differed, please see our Vivus 2Q13 report at http://www.closeconcerns.com/knowledgebase/r/7e6dc694.

 

Table 9: Qsymia and Belviq revenue (millions USD)

 

3Q12

4Q12

2012

1Q13

2Q13

Qsymia Revenue

$0.04

$2.0

$2.04

$4.1

$5.5

Qsymia Sequential Growth

N/A

4778%

N/A

105%

34%

Belviq Revenue

$0

$0

$0

$0

$4.1

 

  • GI Dynamics’ EndoBarrier sales were ~$300,000 in 2Q13, down from ~$400,000 in 1Q13 and up from ~$100,000 in 2Q12. Management attributed the less than expected revenue in 2Q13 to the launch delays at centers in Australia. On the positive side, the first patients received treatment in GI Dynamics’ REVISE-Diabesity trial in the UK. GI Dynamics noted that this trial is an important step towards making the EndoBarrier Therapy more mainstream in England.
  • As a result of Allergan's approved plan to sell its obesity intervention business unit, financial results are now reported as “discontinued operations.” The obesity business appeared as a $7.2 million loss on Allergan’s 2Q13 financial statement. In its 1Q13 quarterly report, management noted that the company expected “to execute a signed agreement by the middle of 2013.”

 

Appendix: Key Assumptions

  • As noted in the previous bullets, many of the analyses in this report are based on estimated numbers. All market share numbers in this report are calculated by sales, not volume. We prepare this quarterly report because we think the results are directionally interesting, but we cannot emphasize enough that it is far from “perfect” and should not be taken as such.
    • For DPP-4 inhibitors, we omitted revenues from BI’s share of Tradjenta sales, since BI does not report their revenues. We believe that this omission would only lead to minor distortions since Tradjenta revenue makes up less than 2.5% of global DPP-4 inhibitors revenue.
    • For GLP-1 agonists, we pro-rated the Byetta and Bydureon sales figures from BMS in 3Q12. BMS completed the acquisition of Amylin on Aug 9, 2012, 40 days into the quarter. Lilly did not break out international Byetta product sales from US Byetta services revenue for 1Q13 and 2Q13, so the Byetta revenue is an estimate based on historical breakdown.
    • For insulins, we tracked only Lilly, Novo Nordisk, and Sanofi, and did not incorporate the smaller private companies that also participate in the market. 
    • For BGM, we estimated J&J, Roche, and Abbott’s BGM sales, since they only report Diabetes Care results. Each company’s Diabetes Care total includes some fraction of non-BGM revenue – insulin delivery for Roche and J&J and CGM for Abbott. See below for further details on how we estimated insulin delivery revenues for these companies. Furthermore, Roche reports North American revenue instead of US revenue, meaning that its US/international revenue is slightly distorted, as Roche US revenue includes some fraction from Canada. Bayer does not break out specific revenue or growth of its Diabetes Care franchise; thus, Bayer BGM revenue was roughly estimated based on Contour results, overall Medical Care growth, and past Diabetes Care performance. Bayer’s BGM numbers still include estimated contributions from its A1c business. Bayer does not provide US/International splits; we assumed a 25%/75% split. Overall, we have the least confidence in Bayer estimates.
    • For CGM, Medtronic and Dexcom do not directly report US/OUS CGM numbers. The numbers above reflect a 91%/9% pump/CGM revenue split for Medtronic in 2Q13 based on an unlabeled bar graph presented at Medtronic’s Analyst Day. To minimize assumptions, our model applies the same overall Medtronic Diabetes sales growth rate (-3%) to both pumps and CGM. However, it’s likely that on a growth basis, Medtronic CGM sales outperformed pump sales in the US. That fact would put Dexcom and Medtronic on a more equal market share footing in the US, a fact not reflected in the 64% Dexcom/36% Medtronic market share split. Dexcom’s US/OUS split is based on comments during Dexcom’s 2Q13 financial update – the international business accounted for 5-10% of total product revenue and international sales doubled in 2Q13. We are unsure of Abbott’s CGM revenue, but expect the revenue to be minor (though it may grow over time as the FreeStyle Navigator II becomes more widely available).
    • For insulin pumps, we cannot be certain about these numbers, since Medtronic, Roche, Insulet, and J&J Animas do not directly disclose their insulin pump revenue. Medtronic’s ~91%/9% split between pumps and CGM stems from graphs presented at the company’s 2012 analyst day. Insulet’s estimates are based on management’s comments in the company’s 2Q13 call: 1) year-over-year OmniPod growth was 25% from 2Q12; and 2) international OmniPod sales grew 50% from 2Q12. J&J Animas’ pump figures are based an assumption of zero growth in 2Q13, the same overall Diabetes Care US/OUS split, and a rough estimate of the J&J’s pump/BGM split. Roche’s assumptions include: 1) a 92% pump/8% BGM sales split estimated from a 2Q13 slide’s bar graph depicting 1H13 Diabetes Care sales; and 2) the same North America/Outside North America sales split as for overall Diabetes Care.

 

-- by David Zhang, Adam Brown, Hannah Deming, Jessica Dong, Hannah Martin, Manu Venkat,
and Kelly Close