JP Morgan Healthcare Conference

January 12-15, 2015; San Francisco, CA Day #1 Highlights - Draft

Executive Highlights

The 33rd Annual JP Morgan Healthcare Conference got underway today in our home town of San Francisco, packing the hallways of the Westin St. Francis and featuring presentations from some of the biggest companies in diabetes. Following most presentations, as part of the conference’s unique format, breakout sessions allowed companies to field questions from attendees and dive deeper into certain topics. Included below are our top ten highlights from the day, spanning diabetes devices, drugs, digital health, and team-based healthcare models. Overall, things went pretty well as planned, with little controversy on the diabetes front – although the halls were packed, so was Union Square, where many investors were seen basking outside in the sun, sipping espresso.

1. Medtronic CEO Mr. Omar Ishrak gave a four-year timeline of new products, with a diabetes milestone in each one. Notably, the MiniMed 640G is slated for a US launch by April 2016; the company had previously not given any projections.

2. Sanofi President of Global R&D Dr. Elias Zerhouni discussed the pipeline, and staunchly defended Toujeo’s (insulin glargine U300) value proposition, suggesting that coming biosimilar insulins will not commoditize the basal insulin market.

3. Intarcia provided a quick look at phase 3 results from FREEDOM-1 on its implantable exenatide mini-pump ITCA650, demonstrating mean A1c reductions of 1.4%-1.5% from baseline (8.4%) after 39 weeks along with low rates of nausea and solid weight loss. This presentation was very well done although wasn’t as packed as it may have been, probably because investors know there is no way in for some time – the company is as well capitalized as we’ve ever seen any private company.

4. Novartis’ presentation highlighted the company’s partnership with Google as a 2014 milestone and also discussed the industry’s evolution in the growing burden of chronic diseases.

5. Abbott CFO Thomas Freyman highlighting the October launch of FreeStyle Libre in the EU, characterizing it as a “breakthrough technology” and expressing high hopes for its potential.

6. Pipeline updates from Thermalin Diabetes and ViaCyte headlined the Biotech Showcase with management at both companies expressing striking optimism regarding upcoming phase 1 trials. We also met with Mesoblast, and discovered they will be disclosing results soon on the nephropathy front – we’re very keen to hear more from them and have high hopes, particularly since cell-based therapies are being prioritized in Japan.

7. A standing-room-only (three deep!) panel on digital health included Omada Health CEO Sean Duffy, DoctorOnDemand CEO Adam Jackson, doximity CEO Jeff Tangney, Flatiron CEO Nat Turner, Health Catalyst CEO Dan Burton, and Venrock Partner Bryan Roberts. The panel was full of quotable quotes, highlighted below. We tried Doctor on Demand over the weekend and were quite impressed – it was 25 minutes from their call to us to us picking up a Z-pack at Walgreen’s!

8. Bayer management provided a fairly bleak perspective on the company’s Diabetes Care portfolio in the face of enormous pricing pressure. Bayer has lost 70% of its reimbursement coverage for Medicare patients in the US due to competitive bidding and we assume Abbott is creating lots of competitive pressure as it is on a clear road to creating an attractive alternative in FGM.

9. J&J’s presentation emphasized the recent strong results for SGLT-2 Invokana (canagliflozin) and provided little commentary on the device side beyond acknowledging enormous marketplace challenges. Although diabetes was certainly acknowledged as an important area for J&J, it’s also clearly a challenging one.

10. Geisinger CEO Dr. Glenn Steele highlighted results from a recent study suggesting that a team-based, holistic healthcare delivery model can significantly reduce complication rates in people with type 2 diabetes – this was a pretty big deal. Kaiser also had a standing room only audience – there’s great interest in these models, that is for sure.

Top Ten Highlights

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

By April 31, 2015

By April 31, 2016
(FY 16)

By April 31, 2017
(FY 17)

By April 31, 2018 (FY 18)

MiniMed 640G in Europe
Predictive Low Glucose Management

MiniMed 640G in US
Predictive Low Glucose Management

MiniMed 670G in US
Hybrid Closed Loop

MiniMed 670G in Europe
Hybrid Closed Loop

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

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

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

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

4. Novartis’ presentation highlighted the company’s partnership with Google as a 2014 milestone and also discussed the industry’s evolution in the growing burden of chronic diseases. Upon marking the Google partnership as a key 2014 milestone, Mr. Joseph Jimenez (CEO, Novartis, Basel Switzerland) notably did not discuss the glucose-sensing contact lens but instead the broader accommodating lens project for presbyopia and myopia, leading us to wonder what the biggest focus of the partnership is – we imagine it’s twofold, at least! As Novartis described the glucose-sensing lens as a nearer-term project in 2Q14, we are curious as to if the reverse is now true or if management simply decided the presbyopia/myopia project was more appealing to investors. In addition, while not specifically relevant to diabetes, Mr. Jimenez opened the company presentation by emphasizing that Novartis plans to adjust to the industry’s key changes such as the growing aging population and the burden of chronic diseases; he noted that chronic diseases are expected to increase to 70% of the disease burden within the next ten years!

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

6. Running concurrently with JPM, the Biotech Showcase featured new pipeline highlights from Thermalin Diabetes and ViaCyte. Thermalin CEO Mr. Richard Berenson (Newton, MA) presented on the small company’s portfolio of novel insulin analogs, underscoring the market value of the company’s lead product Fluorolog (a U500 rapid-acting insulin with onset of action = ~30 minutes). The company hopes to move Flourolog into a phase 1 clinical trial this year, though progress is dependent on the resolution of Series B funding (the company is seeking ~$7 million to complement the ~$6 million raised in 2014). We also heard striking optimism from ViaCyte CEO, Dr. Paul Laikind (San Diego, CA), who provided an update on the phase 1/2 clinical trial of the company’s stem cell-derived islet replacement therapy for type 1 diabetes (pancreatic progenitor cells encapsulated in an implanted immune protective device) that began in September 2014 ( NCT02239354). As a reminder, these are the first encapsulated islets to reach the clinic in the US and, to date, two patients have been implanted with the therapy with a third scheduled for implantation in the near future. Pending initial evidence of safety in these patients (data available mid-2015), ViaCyte hopes to move on to a multicenter study (n=36); the primary endpoint efficacy endpoint will be C-peptide levels at six-month relative to baseline, though the FDA has requested that the implant be monitored in vivo for two years to assess long-term durability. For more details on progress at both ViaCyte and Thermalin, please see our detailed reports below.

7. A standing-room-only (three deep!) panel on digital health included Omada Health CEO Sean Duffy, DoctorOnDemand CEO Adam Jackson (telemedicine via videochat app), doximity CEO Jeff Tangney (social network for physicians), Flatiron CEO Nat Turner (organizing the world’s oncology information), Health Catalyst CEO Dan Burton (data warehouse + analytics), and Venrock Partner Bryan Roberts. The discussion was wide-ranging and touched on the problems each company seeks to solve, business models, consumer engagement, and even predictions for 2015. Broadly, all panelists spoke to the need to save the system money, to design excellent consumer experiences, and the benefits of selling to employers/enterprises. Comments also underscored a recurring theme – it’s never been harder to be a practicing doctor – this is a major negative force in our view and one for which the implications aren’t yet obvious. Our favorite quotes are highlighted in the detailed discussion below.

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

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

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

Honorable Mention

  • Isis CEO Dr. Stanley Crooke discussed the company’s pursuit of targeted therapies and indications for subgroups within the broader type 2 diabetes population. The phase 2 glucagon receptor inhibitor ISIS-GCGRRx is perhaps the most effective glucose lowering agent Dr. Crooke has ever seen, but glucagon as a target can be associated with certain side effects. As a result, Isis sees ISIS-GCGRRx as best suited for later-stage diabetes patients on insulin or who are not at control on multiple oral drugs. Isis hopes that the novel insulin sensitizer ISIS-PTP1BRx could become a safer PPAR agonist with the possibility of weight loss. Therefore, it might be best positioned as an optimal agent for diabetes patients with concomitant obesity. The glucocorticoid receptor inhibitor ISIS-GCCRRx should prove best in patients with glucocorticoid-driven diabetes; one key goal of current studies is to ensure that the drug does not interfere with the hypothalamic-pituitary-adrenal axis, a problem with previous corticoid drugs. There currently is not much precedent for targeted approvals for subgroups within the type 2 diabetes population; Dr. Crooke acknowledged that Isis’ plan involves a bit of risk, but he believes that the right data could persuade regulators to consider targeted approvals.
  • Speaking to a crowded luncheon keynote, Mr. Jamie Dimon (CEO, JP Morgan, New York City, NY) did not express particular optimism for healthcare reform, noting that innovation in companies is more likely to have the potential to drive down cost. He came off as relatively neutral to the Affordable Care Act’s effects, responding that he “doesn’t know the impact of Obamacare” but does know that he strongly believes that it is important to “provide healthcare to all of our citizens.” While most of his keynote focused on everything but healthcare (the global economy, interest rates, energy and oil), the audience did indeed seem absorbed in Mr. Dimon’s opening up of his recent journey with throat cancer, to which he highlighted healthcare as a field that very much “takes a village” and expressed immense gratitude for his care team.
  • Kaiser Permanente’s presentation highlighted the organization’s dedication to virtual care and telemedicine in today’s changing healthcare industry. Similar to what we have heard throughout the meeting so far, Kaiser Permanente’s management emphasized that the industry is undergoing fundamental change with care transformation, an aging population, and the Affordable Care Act (ACA). The organization stressed that its critical strategy to move forward in this environment involves bringing integrated clinical information systems and making a virtual care footprint. To achieve this, Kaiser Permanente is notably investing in over one hundred pilots in telemedicine and in better understanding behavioral health to use these tools to deliver higher quality and ultimately more affordable care.

Detailed Discussion and Commentary

JP Morgan Healthcare Conference: Public Companies

Sanofi: Breakout Session

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A: COPD is about 10%.

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

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


Joseph Jimenez (CEO, Novartis, Basel, Switzerland)

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

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

Questions and Answers

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

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

JP Morgan Healthcare Conference: Not-For-Profit Companies

Kaiser Permanente

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

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

JP Morgan Healthcare Conference: Technology Led Disruption in Healthcare

Panel Discussion – Quotable Quotes

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

  • “It’s an incredibly difficult thing to get outcomes in this space. For getting people in, it has to feel incredibly interesting and sexy and a neat program. It needs to look beautiful. We market in a very consumer way. The head of our consumer marketing team used to lead global brand at IDEO.” – Omada Health CEO Sean Duffy
  • [On the $100 million deal with Allina Health] “It’s the first and biggest example of the concept of shared risk and shared accountability being extended to the technology partner. In this case with Allina, we have a ten-year relationship; there are lots of economics that are tied to our ability to use technology as a means to outcomes improvement. We’ve got to put our money where our mouth is. It feels overdue in healthcare. We need more of that accountability to be extended to the technology partner.” – Health Catalyst CEO Dan Burton
  • “We view the biggest opportunity for impact in enterprise. It became very clear. It takes a whole lot of work to help people make changes that are clinically meaningful. A whole lot of work brings a price point that consumers cannot cover. For us, it was a no-brainer. The diabetes stats are absolutely terrifying. We had to sell to enterprise to reach them.” – Omada Health CEO Sean Duffy
  • “If we can be successful, healthcare as an industry will be smaller. The big problem we try to help solve is waste. There is anywhere from $700 billion to $1 trillion per year in waste.” – Health Catalyst CEO Dan Burton
  • “Direct to patient is a really hard way to scale a business. A lot of business are B2C, but we found that in B2P (business to patient), patients didn’t really care about engaging. We navigated to nodes, where patients are aggregated – capturing 10,000 patients in one sweep. We highly prefer enterprise just because how hard it is to gain scale otherwise.” – Flatiron CEO Nat Turner
  • “Oncologists basically don’t communicate. They didn’t know how many breast cancer patients they had. There was no clinical utility in the types of tools the centers had.” – Flatiron CEO Nat Turner
  • “Employers and plans now see telemedicine as a cost-saver.” – DoctorOnDemand CEO Adam Jackson
  • “Most clinicians believe that they follow the best practice evidence guidelines 90%+ of the time, if you survey them. But when you look at the data, systematically it’s a lot lower than that – in the 30-40% range. The data presents challenges in the way a clinician will respond. How do you deliver bad news? How do you work clinicians through their natural desire to get defensive? To not believe the data?” – Health Catalyst CEO Dan Burton
  • “We designed the interface from the ground up. What an American consumer would expect. Amazon is so good at selling us stuff. Uber is so good at getting a car here. GrubHub is so good at bringing us food. We built it to be sticky and memorable.” – DoctorOnDemand CEO Adam Jackson
  • “10-11% of payments are now in some form of shared risk, shared accountability format. That’ still leaves 90% in fee-for-service. There is schizophrenia in the health system.” – Health Catalyst CEO Dan Burton
  • “It’s not easy to be a doctor these days online.” – doximity CEO Jeff Tangney
  • “It’s pretty well studied: if you feed people for a certain amount of time and control their intake, they lose weight. But you’re not teaching them anything.” – Omada Health CEO Sean Duffy

Predictions for 2015:

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

JP Morgan Healthcare Conference: Keynote Address

Luncheon Keynote

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

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

BioTech Showcase

Theramlin Diabetes

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

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

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


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

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

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

Questions and Answers

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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