January 9-12, 2017; San Francisco, CA; Full Report – Draft

Executive Highlights

Greetings from the 35^th Annual JP Morgan Healthcare Conference in our home base of San Francisco, where this time the conference has come to us! We spent the week navigating the absolutely packed halls of the Westin St. Francis alongside over 9,000 other attendees, gleaning the latest insights into the diabetes drug and device industry.

Below is our full coverage of JPM 2017, along with highlights from concurrent conferences including Biotech Showcase and Health 2.0. Our report is divided into five categories: (i) Diabetes Drugs; (ii) Diabetes Technology; (iii) Obesity; (iv) Health Policy/Big Picture; and (v) Keynote Addresses/Additional Topics. Titles highlighted in yellow represent presentations that we found particularly notable.

Detailed Discussion and Commentary

Diabetes Drugs

AbbVie

Richard Gonzalez (CEO, AbbVie, Redwood City, CA)

AbbVie CEO Mr. Richard Gonzalez offered an overview of the company’s successes over the past five years, focusing on the de-risked pipeline and industry-leading growth. There was no mention of atrasentan, AbbVie’s phase 3 candidate for diabetic nephropathy. The company initiated the phase 3 SONAR study of atrasentan (an endothelin receptor antagonist) in May 2013, and according to ClinicalTrials.gov, the trial is still expected to complete in November 2018 (with final data collection in July 2018) despite the fact that recruitment is ongoing >three years after study-start. We certainly hope that SONAR is on schedule, as AbbVie’s candidate is currently one of the frontrunners in the competitive landscape for diabetic nephropathy, an area of continued very high unmet need. Several candidates for diabetic nephropathy were discontinued in 2016, which only adds to the urgency for better treatment options.

Amgen

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

Amgen’s presentation centered on the highly-anticipated upcoming FOURIER cardiovascular outcomes data for the PCSK9 inhibitor Repatha (evolocumab), which are to be presented at the ACC conference in March. Also on the subject of Repatha data, management expressed particular enthusiasm for the recent approval of the Pushtronex once-monthly Repatha delivery system by the FDA and EMA, as well as the recently-presented GLAGOV trial findings from AHA 2016, in which patients randomized to statin plus Repatha (n=423) experienced a mean 95% reduction in percent atheroma volume (the amount of abnormal fatty material in the artery), while patients randomized to statin monotherapy (n=423) experienced a mean 5% increase in this primary endpoint (p<0.0001). The GLAGOV trial results, obtained using intravascular ultrasound techniques are also published in JAMA. The high cost of Repatha remains a steep hurdle (about 75% of patients who are prescribed Repatha end up not taking it due to high cost, according to Q&A during the breakout session), and management discussed improving access as a major priority for 2017. Amgen anticipates that the expected positive data from the FOURIER CVOT may strengthen Repatha’s value proposition in the eyes of payers, and we certainly hope this is the case, for the sake of so many patients who cannot afford Repatha at its current price. We also hope that positive outcomes data can help expand the indication of Repatha to include primary prevention for those at high risk for cardiovascular events, such as the many patients with diabetes in whom residual cardiovascular risk is not adequately addressed currently.

• In the ensuing breakout session, Amgen management expressed strong support for the recent US District Court ruling banning the sale of Repatha’s main competitor, Sanofi/Regeneron’s Praluent (alirocumab). More on this surprising turn of events can be found below in our coverage of Regeneron’s presentation. 

Intarcia

Kurt Graves (CEO, Intarcia, Boston, MA)

Speaking to a packed – albeit moderately-sized – room, Intarcia CEO Mr. Kurt Graves unveiled a brand-new partnership with Calibr (California Institute of Biomedical Research) to develop a combination peptide product for diabetes and obesity – the third diabetes-related candidate to join Intarcia’s burgeoning pipeline. The collaboration will pair Calibr’s “Stapled-Peptide Platform Technology” with Intarcia’s implantable GLP-1 agonist ITCA 650 (exenatide mini-pump, submitted to the FDA in Novemer) to develop a dual peptide therapy. For background, “stapled peptides” have a synthetic brace (“staple”) that stabilizes the peptide in a specific confirmation, which can increase target affinity, increase cell penetration, and protect against proteolytic degradation. It’s unclear what the therapeutic target of this second peptide is at this point. Intarcia is developing an antibody-based peptide SGLT-2 inhibitor in collaboration with Numab, which we imagine could be a strong candidate for co-administration with ITCA 650. Indeed, Mr. Graves especially highlighted the potential of GLP-1 agonist and SGLT-2 inhibitor combinations for patients with diabetes and obesity, given their weight-loss benefits and cardioprotective potential. In addition, as part of its acquisition of Phoundry Pharmaceuticals, Intarcia is developing glucagon and next-generation amylin candidates, which we imagine could also be co-formulated with ITCA 650 using Intarcia’s Medici platform. There is much industry interest in GLP-1/glucagon dual agonists and GLP-1/GIP dual agonists within the diabetes and obesity field and we’d be excited to see Intarcia enter this arena as well. Mr. Graves suggested that Intarcia’s dual peptide efforts will benefit from greater flexibility than competitors because Intarcia will be able to adjust the quantities of GLP-1 agonist and other peptides in the mini-pump throughout the development process, rather than being bound to specific ratios.

• Under the terms of the agreement, Calibr will receive Intarcia equity upfront and additional shares vesting and cash payments over time based on key development, regulatory, and sales milestones. In addition, Calibr will be eligible for royalties on product sales. Calibr is a nonprofit biomedical research institute based in La Jolla, CA – we first heard about the organization at the JDRF Mission Summit in January 2016, during which Calibr unveiled a number of fascinating pipeline projects related to type 1 diabetes, including a number of beta cell proliferators, a novel glucose-responsive insulin, a liver-targeted insulin, and some work on selectie immune modulators. With this collaboration, Intarcia joins the ranks of Calibr’s partnerships that include Merck, JDRF, BMS, Pfizer, the Gates Foundation, the Wellcome Trust, and CIRM.
• Mr. Graves emphasized Intarcia’s commitment to demonstrating ITCA 650’s value proposition and superiority relative to other diabetes oral and injectable medications through head-to-head studies. The phase 3 FREEDOM-2 trial already demonstrated striking superiority for ITCA 650 compared to Merck’s DPP-4 inhibitor Januvia (sitagliptin) in terms of A1c and weight. Mr. Graves further shared that Intarcia intends to initiate a head-to-head trial of ITCA 650 against an SU and an SGLT-2 inhibitor in 2017 and that the company intends to conduct real-world head-to-head trials of ITCA 650 against “leading orals and even the leading injectable GLP-1” post-approval. We’re certainly eager to see how ITCA 650 stacks up against Novo Nordisk’s market-leading Victoza (liraglutide) or Lilly’s patient-friendly Trulicity (dulaglutide). We’d also love to see a comparison between ITCA 650 and Novo Nordisk’s next-generation, highly-potent once-weekly semaglutide, though this may be some time away considering that semaglutide is still under regulatory review as well. Overall, Mr. Graves was very clear that Intarcia intends to position ITCA 650 as the best drug to use with metformin as a second-line therapy, echoing the company’s longstanding position that it hopes to move GLP-1 agonist therapy to earlier in the treatment algorithm through this product.
• Mr. Graves further outlined a number of additional strategies to differentiate and competitively position ITCA 650 within the robust diabetes market. In particular, he intriguingly hinted that Intarcia would pursue a highly innovative, outcomes-based reimbursement model with payers for ITCA 650. Mr. Graves suggested that current players in the diabetes field have been somewhat reluctant to fully engage in value-based reimbursement contracts because adherence cannot be guaranteed with traditional medications and thus manufacturers can’t ensure replication of clinical trial outcomes (though Lilly and Harvard Pilgrim have a highly interesting agreement for Trulicity, as have Merck and Aetna for Januvia – clearly the field is slowly moving in this direction). Mr. Graves also shared that Intarcia will eschew the traditional “army of sales representatives” model to promote ITCA 650 upon launch and will instead focus on engaging 5,000-10,000 early-adopter physicians. Finally, the company remains incredibly focused on the customer experience of ITCA 650 for patients – Mr. Graves shared that both the insertion and removal procedures for the product can be performed in under 60 seconds (!), down from 15 minutes such a few years ago.
• Notably, Mr. Graves shared that Intarcia’s ultimate goal is to develop therapies to prevent or delay the onset of type 2 diabetes. We would be excited to see Intarcia expand into a prediabetes indication. Pharmacotherapies such as metformin are currently underutilized as prediabetes interventions, despite strong evidence that it can delay the onset on type 2 diabetes. We expect that this underutilization is due to both a combination of provider reluctance to prescribe pharmacotherapies for prediabetes and patient reluctance to take a twice-daily pill for disease prevention – we imagine the latter could be addressed through a once- or twice-yearly medication implantation for prevention. As an early step in this direction, Mr. Graves highlighted Intarcia’s recently-announced partnership with the Gates Foundation to develop once- or twice-yearly prevention therapies for HIV. We’re glad to see Intarcia’s platform gain validation and support from the Gates Foundation and were pleased to hear Mr. Graves connect this new partnership back to Intarcia’s core goals within diabetes.

Ionis

Stanley Crooke, MD (CEO, Ionis, Carlsbad, CA)

CEO Dr. Stanley Crooke highlighted recent phase 2 data for glucagon receptor antagonist IONIS-GCGRRx as a treatment for type 2 diabetes. Topline results from the trial (n=79) show that 50 mg and 75 mg doses of the agent delivered once-weekly result in 0.7% and 1.4% reductions in A1c, respectively (p<0.05 and p<0.001 vs. placebo, respectively). Baseline A1c was 8.8% across all three study arms (placebo, 50 mg, and 75 mg). The treatment increased mean GLP-1 levels for patients on 50 mg or 75 mg of the glucagon receptor antagonist, while placebo-treated patients experienced a mean decrease in GLP-1. Moreover, 42% of participants in the 50 mg group and 64% of participants in the 75 mg group experienced a ≥1% decline in A1c vs. only 8% of participants in the placebo group. In addition to these endpoints supporting the drug’s favorable glycemic effects, safety results were also positive for IONIS-GCGRRx. Three individuals in the 75 mg arm experienced clinically meaningful increases in liver enzymes, which is important because Ionis management has described the goal of this phase 2 study as a means of identifying an optimal dose to advance into phase 3. Liver enzyme levels subsided for the three individuals in question with decreased dose, so we imagine a phase 3 study may feature a dose closer to 50 mg, though nothing has yet been decided. This phase 2 investigation of IONIS-GCGRRx has been a major talking point for the company for quite some time now – positive interim data was a big focus of Ionis’ 2Q16 and 3Q16 earnings calls – and we’re pleased to see promising topline results. We expect to hear more on the completed phase 2 study during Ionis’ 4Q16 update (date not yet announced).

• Ionis’ new strategic partnership with Novartis to develop and commercialize lipid-lowering drugs was another focus of Dr. Crooke’s JPM presentation. The agreement is centered around AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx (Akcea Therapeutics is a fully-owned subsidiary of Ionis), and Ionis management has emphasized that both drugs could fill an opportunity to treat cardiovascular (CV) disease by effectively bringing down lipid levels. As the overlap between diabetes, dyslipidemia, and CV disease becomes even more pressing, we’re glad to see collaboration around this complicated therapeutic area.

J&J

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

Mr. Alex Gorsky, CEO of J&J, shared no major updates on the diabetes front (or otherwise for that matter). In fact, he remained very vague throughout his fireside chat as well as the breakout session, not mentioning any specific product by name and commenting only on healthcare in the broadest sense. The breadth of J&J’s business across medical devices, consumer devices, and pharmaceuticals is part of what has allowed the company to excel, Mr. Gorsky remarked. We were ultimately disappointed in the lack of substantive discussion on any therapeutic area, let alone diabetes, where of course we would have loved to hear about SGLT-2 inhibitor Invokana (canagliflozin) and the CANVAS cardiovascular outcomes trial set to report at ADA 2017, about the LifeScan/WellDoc partnership (we look forward to hearing from WellDoc tomorrow), about plans for closed loop (we last heard in November that Animas is still in discussions with FDA regarding pivotal trial design), and the list goes on … we continue to wonder about the management structure for diabetes devices, where the P&L goes to the managed device arena at J&J but the management is out of Consumer. Our ears will be peeled for these updates during J&J’s 4Q16 earnings call on January 24.

Lexicon

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

Very notably, Lexicon CEO Mr. Lonnel Coats discussed two new additions to its early-stage clinical development pipeline: a phase 1 SGLT-1 inhibitor LX2761 for diabetes and an AAK1 kinase inhibitor LX9211 for neuropathic pain. There candidates were first posted on the company’s pipeline page at the time of its 3Q16 update, but were not discussed on the call. Excitingly, Mr. Coats shared that the SGLT-1 inhibitor LX2761 initiated phase 1 studies earlier this week – the double-blind, randomized, placebo-controlled, ascending single dose trial will enroll both patients with type 2 diabetes and healthy volunteers. While the trial is not yet listed on ClinicalTrials.gov, Lexicon shared that initial phase 1 data readouts are expected in 2017. In the breakout session, Mr. Coats characterized the phase 1 trial as largely a proof-of-concept and safety study, designed to determine the optimal maximally-tolerable therapeutic dose (SGLT-1 inhibition can cause diarrhea) and evaluate some unspecified glycemic measures. SGLT-1 occurs primarily in the GI tract and preclinical studies indicate that LX2761’s main effect is in delayed and reducing intestinal glucose absorption and postprandial glucose, while elevating plasma GLP-1. Mr. Coats suggested that LX2761 may be a particularly attractive treatment option for patients with renal impairment, for whom traditional SGLT-2 inhibitors are contraindicated due to a lack of efficacy – as a selective SGLT-1 inhibitor, the glucose-lowering effect of LX2761 is not dependent on increasing urinary glucose excretion. In the phase 1 trial, Mr. Coats hopes to especially confirm that LX2761 is indeed locally-acting and that it may have a postprandial glucose effect. He suggested a number of intriguing potential indications for the candidate: as a monotherapy, in combination with other diabetes medications, and even as a potential obesity or prediabetes treatment. Notably, Sanofi holds the rights of first negotiation for the future development and commercialization of the compound – we expect part of the eventual decision to exercise these rights may be dependent on the performance of Lexicon/Sanofi’s phase 3 SGLT-1/2 dual inhibitor sotagliflozin.

• We’re curious if Lexicon and/or Sanofi may eventually evaluate LX2761 in type 1 diabetes patients as well – the currently listed indication in the pipeline is just “diabetes” and we certainly hope Lexicon continues its commitment to developing adjunct therapies for type 1 diabetes. Additionally, we wonder  if the selective SGLT-1 inhibition mechanism can mitigate some of the DKA concerns associated with SGLT-2 inhibition in type 1 diabetes – the high profile concerns and incomplete understanding of SGLT-2 inhibitor-associated DKA risk in type 1 diabetes is one of the larger barriers to indication expansion and uptake for this class in our view and we expect many patients and providers would welcome an adjunct therapy to insulin for type 1 diabetes that minimizes this risk.
• Lexicon shared that IND-enabling studies for its LX9211 neuropathic pain candidate are complete, with phase 1 trials expected to initiate in 2017. We also learned that the candidate is an AAK1 kinase inhibitor and that Lexicon has acquired exclusive development and commercialization rights for this candidate. For background, LX9211 was selected though a neuroscience drug candidate discovery partnership between Lexicon and BMS – the alliance was formed in 2003 and the selection announcement of this first candidate was made in April 2015. At the time, the announcement shared that both Lexicon and BMS would undertake IND-enabling for the candidate and that BMS has the first option for exclusive clinical development and commercialization rights upon the commencement of phase 1 trials. We’re not too surprised that BMS declined to exercise this option, given its much-publicized decision to discontinue discovery research in diabetes followed by its high-profile exit from the diabetes field in 2013 (“this is too much of a pain.”). Neuropathic pain is an area of tremendous unmet need, but development of neuropathic pain treatments often involves lengthy and costly clinical trials – we imagine that Lexicon either hopes to eventually seek a development and commercialization partner for this candidate or hopes to fund its clinical development through sales of sotagliflozin and its carcinoid syndrome candidate (telotristat ethyl, submitted to FDA).
• Mr. Coats provided more color on the thinking behind the phase 3 program in type 2 diabetes. He emphasized that the goals of the type 2 diabetes program differ from the type 1 diabetes program. In type 1 diabetes, sotagliflozin hopes to be the first adjunct therapy to insulin and offer the first option to potentially address severe hypoglycemia and DKA in patients with type 1 diabetes who are already on insulin. On the other hand, in type 2 diabetes, differentiation from the dozens of other drugs on the market will be key for sotagliflozin. Thus, Mr. Coats shared that the type 2 diabetes program is constructed around three major goals: (i) demonstrating efficacy and safety across the spectrum of patients with type 2 diabetes, both against appropriate comparators and in combinations; (ii) demonstrating efficacy and safety in patients with renal impairments; and (iii) demonstrating cardiovascular benefit. As such, the phase 3 program is expected to include a number of head-t0-head studies, as well as the required cardiovascular outcomes trial. We’re curious if Sanofi will plan to do a quick, small pre-approval outcome trial to meet the 1.8 hazard ratio for cardiovascular safety for approval before conducting a larger post-approval study designed to demonstrate cardiovascular superiority. This strategy would certainly allow sotagliflozin to reach the market for type 2 diabetes more quickly, though a small trial likely wouldn’t support a cardiovascular indication and Lexicon appears to be counting on a cardioprotective benefit for sotagliflozin. Indeed, in the breakout session, Mr. Coats characterized the blood pressure reductions produced by sotagliflozin as “quite phenomenal” and “one of the most exciting pieces that people should pay attention to.” In fact, he shared that the blood pressure reduction data was one of the reasons that convinced him to accept the CEO role in 2014 (“I was shocked by it – you just don’t see that type of reduction”).
  
  • Currently, ClinicalTrials.gov lists just two phase 3 trials for sotagliflozin in type 2 diabetes – one as a monotherapy and one as an add-on to metformin. The remaining trials in the program are expected to initiate in 2017 and we’re eager to learn precisely which comparators and combinations will be evaluated – we’re particularly curious if Sanofi will conduct a head-to-head trial against a selective SGLT-2 inhibitor or against a GLP-1 agonist.
• Mr. Coats remained extremely positive about the data for sotagliflozin in type 1 diabetes thus far. He reviewed the topline results from the phase 3 inTandem1 and inTandem2 results, sharing that additional data readouts – including time in range (from CGM sub-studies), body weight, and blood pressure findings – from these trials are expected in 2017. Previously, Lexicon shared that some additional data may be available at ADA 2017. Additionally, Mr. Coats reiterated the results from the third and last phase 3 trial in the type 1 diabetes program – inTandem3 – is expected in mid-2017. Mr. Coats also boldly implied that sotagliflozin may actually demonstrate a comparable or reduced DKA rate to placebo in inTandem3 or in the real world – he suggested that the low DKA rates seen in the placebo groups of inTandem1 and inTandem2 was due to the optimized insulin design of the trial and that DKA rates in the placebo group of inTandem3 may be closer to the 5%-8% recorded by the T1D Exchange.

Lilly

David Ricks (CEO, Lilly, Indianapolis, IN)

In his very first conference presentation and address to the investment community since stepping into the CEO role, Lilly’s Mr. David Ricks demonstrated an impressive grasp Lilly’s diabetes priorities and provided a number of tantalizing details on GLP-1 agonist Trulicity’s (dulaglutide) performance. Mr. Ricks highlighted Trulicity’s strong uptake in the diabetes market, despite its status as the fifth-to-market GLP-1 agonist facing the highly “entrenched” Victoza (Novo Nordisk’s liraglutide). Indeed, Mr. Ricks shared that, two years after launch in late 2014, Trulicity surpassed Victoza in terms of total prescriptions (TRx) – wow! Based on Lilly’s presentation slides, both Victoza and Trulicity have enjoyed strong upward trajectories in TRx in the US in the last two years, though Trulicity’s is noticeably steeper and appears to be accelerating while Victoza’s appears to be plateauing somewhat. Mr. Ricks emphasized that Trulicity has also served as an instrumental catalyst for overall GLP-1 agonist growth, with class growth more than doubling from 13% year-over-year (YOY) at Trulicity launch to 29% YOY as of this week. That said, 29% YOY growth is a slight dip from the high of ~35% in the first half of 2016 – we’ll have to see if this is a short-term dip or a longer trend as new classes such as SGLT-2 inhibitors gain popularity. We’re very curious to learn more details about GLP-1 agonist market dynamics when the major GLP-1 agonist companies report their 4Q16 earnings (Lilly on January 31, Novo Nordisk on February 2, AZ on February 2). Overall, Mr. Ricks highlighted both Trulicity and BI-partnered SGLT-2 inhibitor Jardiance (empagliflozin) as major drivers of growth for Lilly in the remainder of this decade. He further emphasized that Lilly’s growth expectations are driven by volume, rather than price, and that Lilly’s main strategy is product differentiation within diabetes. As he put it, “We want to keep moving the bar of what’s possible for patients with new insulins, with GLP-1, with Jardiance.” This strategy is certainly paying off – Mr. Ricks shared that every single product in Lilly’s diabetes portfolio is growing market share in every market.

• “With SGLT-2 inhibitors, and Jardiance specifically, our growth ambition probably exceeds the size of the DPP-4 inhibitor class.” While barely mentioned in prepared remarks, Mr. Ricks made it clear in the breakout session that expanding the indicated population for Jardiance will be core priority for Lilly’s growth. For context, revenue for the DPP-4 inhibitor class totaled $4.7 billion in the first half of 2016 and the largest product in the class, Merck’s Januvia (sitagliptin), regularly posts ~$1.5 billion in sales each quarter. Mr. Ricks shared that Lilly and BI place enormous importance on the launch of the expanded indication for Jardiance and that commercial promotion of the new label will begin next week (!). The launch of the new label benefits from the fact that Jardiance is already on the market and has relatively good access, according to Mr. Ricks, and BI will further contribute its cardiology expertise to Lilly’s endocrinology expertise in the launch. On the other hand, he pointed out that the challenge will be to educate primary care physicians to consider and treat indications beyond glucose-lowering in their patients with diabetes and that this will take time. Responding to a question from our very own Ms. Kelly Close, Mr. Ricks also highlighted the significant potential opportunity for Jardiance as a heart failure medication in patients without diabetes – he shared that BI is taking the lead on the two planned heart failure CVOTs for Jardiance.
• We were somewhat surprised that Mr. Ricks did not call out Basaglar (biosimilar insulin glargine) as a growth driver in prepared remarks – both Basaglar and Humalog (insulin lispro) were highlighted as such in Lilly’s 2017 Financial Guidance in mid-December. Rather, Mr. Ricks suggested that insulins and animal health together would form the base of Lilly’s overall portfolio, providing steady moderate growth across varied geographies in the next few years. In the breakout session, he clarified that this expectation does include Basaglar growth and emphasized that Lilly’s development of Basaglar was driven by a desire for a complete insulin portfolio that includes a basal insulin, rather than a goal of becoming a “biosimilar company.” We did not hear any commentary on the progress of Basaglar’s long-awaited US launch – the product has been available in US pharmacies since December 15 and we’re eager for details on its early uptake given that is holds exclusive positioning on several formularies and will be included in Lilly’s new discount insulin program.
• GLP-1 agonists and other incretins were highlighted as key diabetes development priorities for Lilly. Despite the launch of two GLP-1 agonist/basal insulin combinations, Lilly remained confident in Trulicity’s prospects given its once-weekly dosing as opposed to the once-daily dosing of the combinations. In the longer term, Lilly management suggested that a once-weekly GLP-1 agonist/basal insulin combination would be an R&D goal, as well as “upgraded” incretins with dual or triple agonism to enhance weight loss. Lilly’s early-stage pipeline is certainly well set up to achieve these goals – the company’s clinical development portfolio includes a phase 1 GIP/GLP-1 dual agonist, a preclinical once-weekly GLP-1/glucagon dual agonist, a preclinical once-weekly insulin, and a preclinical once-weekly glucagon.
• We thought Mr. Ricks did very well in his first high-profile public turn as Lilly CEO. We appreciated the specific mentions of diabetes in the prepared remarks and his detailed responses to diabetes-related questions in the breakout session (though, we did wonder at the absence of president of Lilly Diabetes Mr. Enrique Conterno – he’s traditionally been a valuable voice in Lilly’s JPM presentations and we missed his insightful commentary – that said, we recognize that he likely has his hands full with his added responsibilities as president of Lilly USA). We also greatly appreciated Mr. Ricks clear commitment to investing in the incredible team at Lilly and to Lilly’s core mission – he shared that he even has a print of Lilly’s original code from 1899 displayed in his office! Retired CEO Mr. John Lechleiter shepherded Lilly through the development and launch of an extraordinary number of diabetes products and we’re eager to see what Mr. Ricks’ tenure brings.

MannKind: Aetna Signs-On to Reimburse; CGM/Time-in-Range Studies Planned; Financial Prospects Looking Up

Matthew Pfeffer (CEO, MannKind, Valencia, CA)

MannKind CEO Mr. Matthew Pfeffer announced near- and mid-term plans for Afrezza, including (i) a new contract with Aetna for reimbursement with “light” prior authorization (effective January 1); (ii) more specific timing on upcoming clinical studies (pediatric, type 1, type 2); (iii) establishing an in-house sales team by end of 1Q17; and (iv) expanding Afrezza to ex-US markets. Following previous wins with Express Scripts and Medicare Part D (both of which now cover the inhaled insulin with no prior authorization), Mr. Pfeffer shared that Aetna has added Afrezza to its formulary with only a few “light” prior authorization requirements. During a very engaging breakout session, he described reimbursement contracts as an important part of MannKind’s revamped commercialization strategy for Afrezza, especially since previous partner Sanofi was less successful on this front – “they didn’t even file with Medicare, and how could you not, when it’s 40% of the market?” We certainly see good payer coverage as a critical piece of Afrezza’s relaunch, given the competitive pricing environment surrounding insulin products in general; the contract with Aetna will hopefully lead to greater uptake in 2017. Management had previously touched upon three planned clinical trials during the company’s 3Q16 update, and Mr. Pfeffer provided more detail in his JP Morgan presentation. He confirmed that a JDRF-partnered pediatric study will begin in 1Q17, followed by a trial in type 1 participants that he hopes will involve Dexcom CGM measurements and a trial in type 2 participants that he hopes will use Abbott’s Freestyle Libre Pro. While these trial designs aren’t confirmed, Mr. Pfeffer emphasized the value of using CGM and collecting time-in-range data to better inform HCPs on how to optimally dose Afrezza. Doctors tend to be conservative in initiating a new product and prescribe too-low a dose, he explained, which makes patients feel unsuccessful in their first few months on Afrezza. Results from these clinical trials could also lend additional support to the ultra-rapid-acting designation of the agent – a decision from the FDA on this label change (filed in 3Q16) is expected in September 2017. From an insurance perspective, Mr. Pfeffer suggested that an ultra-rapid-acting label would distinguish Afrezza from existing rapid-acting insulins on the market and would push many more payers to reimburse the drug. Mr. Pfeffer shared that MannKind’s contract with an external sales organization expires at the end of January, at which point an internal sales force of twice as many full-time employees will be solidified during a 60-day transition period. Direct-to-consumer ads will launch to targeted audiences in 1H17, and he added that MannKind might sponsor a diabetes-focused reality TV show that prominently features Afrezza (!) – all things to watch for in the year ahead. International expansion is a focal point for the mid-term future. Management is preparing filings for Brazil, Canada, Mexico, Australia, MENA, and UAE, and is evaluating possible submissions to the EMA and other jurisdictions.

• Mr. Pfeffer appeared genuinely optimistic about an upswing in Afrezza sales in 2017, following a 2016 characterized by sluggish sales and financial uncertainty as MannKind took over all commercialization of Afrezza from Sanofi. As a start, two major agreements with Sanofi and Amphastar in 3Q16 seemed to bolster the company’s financial position to close out the year, and Mr. Pfeffer mentioned that MannKind has since sold its surplus facility in Valencia, CA for $17.3 million. We’re happy to note management’s positive outlook – given the positive patient testimonials we’ve heard on Afrezza, in conjunction with the great potential for inhaled insulin to improve patient lives, our fingers are crossed for an upward trajectory of prescriptions and sales.

Merck

Ken Frazier (CEO, Merck, Kenilworth, NJ)

In a conversational fireside chat, Merck CEO Mr. Ken Frazier expressed an extremely positive outlook on the company’s DPP-4 inhibitor franchise and its upcoming SGLT-2 inhibitor franchise, despite continued pricing pressures and a competitive commercial landscape. This includes DPP-4 inhibitor products Januvia (sitagliptin) and Janumet (sitagliptin/metformin) – mainstays of Merck’s diabetes business – as well as Pfizer-partnered SGLT-2 inhibitor products ertugliflozin, ertugliflozin/metformin, and ertugliflozin/sitagliptin, all three of which were submitted to the FDA in late 2016. When asked during the breakout session how the recent expansion of the Jardiance label to include reduction of cardiovascular (CV) death would affect prospects for ertugliflozin (and, more broadly, what a four-product SGLT-2 inhibitor market might look like), Mr. Frazier demonstrated confidence in the new addition to the class. In fact, he suggested the company’s 10 plus years of experience with Januvia positions Merck ideally to make the ertugliflozin franchise another success. He was especially optimistic about an ertugliflozin/sitagliptin combination: “When you put an SGLT-2 inhibitor together with the diabetes market leader (Januvia), that could be a very important combination that gets more people to their A1c goal.” Notably, SGLT-2 inhibitor/DPP-4 inhibitor combinations haven’t seen much commercial success to date (see our recent coverage of Lilly/BI’s Glyxambi [empagliflozin/linagliptin] and AZ’s saxagliptin/dapagliflozin), but we imagine that the popularity of Januvia (along with its reassuring cardiovascular safety data from TECOS) and the phase 3 clinical profile of ertugliflozin, coupled with Merck’s longstanding marketing expertise in the diabetes field, might well strengthen the field’s enthusiasm for this particular class of combination agents (it is not our sense that there is not excitement as much as it is our sense that the payors haven’t yet recognized the value). Mr. Frazier added that the company has used EMPA-REG OUTCOME to inform the study design of ertugliflozin’s CVOT, VERTIS CV, scheduled to complete in 2019. He acknowledged that pricing pressures have been particularly volatile in the diabetes space, but suggested that this debate is more so focused on insulin rather than DPP-4 inhibitors, and further emphasized that Januvia’s growth in share of total prescriptions (TRx) continues to offset any pricing pressures in the US. Merck will report its 4Q16 earnings on February 2, and we look forward to additional details on the ertugliflozin submission as well as financial results from Januvia/Janumet.

• Mr. Frazier also spoke positively about Merck’s up-and-coming biosimilar insulin glargine business in MK-1293. However, there was no mention of the ongoing Sanofi lawsuit over patent infringement of Lantus (insulin glargine). An FDA decision on MK-1293 was expected in June 2017, but we anticipate that this may be delayed pending a lawsuit settlement. We were slightly disappointed that there was no mention of Merck’s glucose-responsive insulin MK-2640 but we know investors tend to care more about near-term candidates – the phase 1 trial of the candidate appeared to finally complete in August but we have not heard any commentary on the results from Merck management since.

Questions and Answers

Q: Can you comment on the Jardiance label expansion? How are you thinking about SGLT-2 vs. DPP-4?

A: Let me start by saying that Januvia has >70% share of the US market, and is doing well on a global basis. This is a very comfortable product profile, and we expect it to continue to be a mainstay of diabetes treatment. There’s always room for additional oral antidiabetic products. This is, indeed, what we set out to create with Pfizer. I’ll talk about the size of the Jardiance market to give some perspective: ~20% of patients have both type 2 diabetes and CV disease, but half of those may have renal impairment, so you’re left with ~10% of the type 2 diabetes patient population who benefits from this label expansion. Of that 10%, a vast majority of patients aren’t at A1c goal. When you put an SGLT-2 inhibitor together with the diabetes market leader (Januvia), that could be a very important combination that gets more people to their A1c goal. We’ll have to see over time how this plays out; we’ll have to wait for additional CVOTs, including our own. But ultimately, we think SGLT-2 is an important market for us to be involved in. We recently modified our study (VERTIS CV), trying to take advantage of what we learned from EMPA-REG OUTCOME. We expanded the study and changed it somewhat. It’s an outcomes study, so I can’t predict exactly when it will read out, but most likely in 2019.

Mylan

Heather Bresch (CEO, Mylan, Canonsburg, PA)

Mylan’s presentation took the form of a fireside chat with the company’s controversial CEO, Ms. Heather Bresch. Unsurprisingly, in light of the recent public outcry over the skyrocketing price of Mylan’s EpiPen, the conversation – plus the subsequent breakout Q&A session – focused largely on drug pricing, leaving little room for discussion of Mylan’s diabetes portfolio. The emphasis on pricing was also fueled by President-elect Donald Trump’s strong commentary (made at a press conference that occurred just an hour before Mylan’s presentation) on the need for bidding on drug prices and that drug companies are “getting away with murder” when it comes to drug pricing. News of this generated a great deal of buzz within the halls of the Westin St. Francis on Wednesday morning. When pressed, Ms. Bresch noted that it would be “premature to respond” to any of these comments, but did acknowledge that “the pricing model has got to change.” She further commented that pledging to keep price increases below 10% per year, as some pharmaceutical companies have done, is “not the answer” and she called for a market-based system instead of the PBM rebate-based system that currently prevails. “If anybody is walking away from this conference thinking ‘business as usual,’” she closed, “it is a mistake.” Given Mylan’s actions, we thought her remarks overall were disingenuous. Drug pricing has been a hot topic throughout this meeting, though several other pharmaceutical executives expressed on Monday and Tuesday (notably, before President-elect Trump’s comments) that they did not expect drug pricing policies to change drastically in 2017 and beyond. Ms. Bresch made no concrete solutions and we’d like to see action steps like those undertaken by Novo Nordisk (no big increases) and Lilly (patient subsidies) and Sanofi (lower prices to start).

• On the diabetes front, Ms. Bresch very briefly mentioned Mylan’s Biocon-partnered biosimilar insulin glargine (Lantus) program. The product is already available in Japan and was submitted to the EMA in November. According to the company’s 3Q16 update, FDA submission was “on track” to occur by 4Q16, but this has not yet occurred, and we have heard no updates on the program since. We’ll be interested to see how Mylan/Biocon’s product will be competitively priced and positioned relative to Lilly/BI’s similar insulin glargine Basaglar (launched in the US in December) and originator Lantus, especially for the formularies that have excluded Lantus in favor of Basaglar for 2017 (such as CVS Health and UnitedHealthcare). We expect the safety and quality assurance of biosimilar insulin – particularly from companies without longstanding experience and reputations in the insulin market – to remain a question mark for some patients and providers.

Novartis

Joseph Jimenez (CEO, Novartis, Basel, Switzerland)

Novartis’ CEO Mr. Joseph Jimenez discussed the company’s investments in NASH as part of a “bolt on strategy” to strengthen the pipeline. Very notably, Mr. Jimenez shared that the company is developing an SGLT-1/2 dual inhibitor for NASH and that this candidate may move into phase 2 studies soon. We could not find any mention of this candidate on the company’s pipeline page, but are very excited by this announcement nonetheless. Lexicon/Sanofi are currently developing phase 3 SGLT-1/2 dual inhibitor sotagliflozin for type 1 and type 2 diabetes, but this is the first we’ve heard of a company developing such a candidate for NASH. Additionally, Mr. Jimenez provided an overview of several FXR agonists in clinical development for NASH within Novartis’ development pipeline – both Intercept Pharmaceuticals and Gilead have FXR agonists under development for NASH as well, in phase 3 and phase 2, respectively. Novartis’ presentation also highlighted its recent partnership with Conatus Pharmaceuticals to develop emricasan (a phase 2 oral pan-capase inhibitor). “Our goal is to build a portfolio of products in NASH that people can take from the early to the end stages of this disease,” Mr. Jimenez shared, referring to NASH an “underappreciated area.” We’re certainly glad to see this commitment to NASH, a common comorbidity of type 2 diabetes and an area of high unmet need, from a pharma giant like Novartis, although Mr. Jimenez underscored that the company will proceed cautiously – “accelerating these pipeline products will really depend on the strength of phase 2 data.” Still, we were happy to note substantial discussion of the NASH pipeline at this meeting. We look forward to even more on this during the company’s 4Q16 earnings call on January 25.

• Mr. Jimenez highlighted an aim to “turn around Alcon,” though he acknowledged that reversing the decline of Alcon, the company’s Verily-partnered ophthalmology division, was also one of five top priorities outlined at JPM 2016 last January. But he maintained optimism – growth is coming, but is merely taking longer than expected. Mr. Jimenez pointed to a couple bright spots: (i) In 2Q16, Novartis transferred all ophthalmology drugs to the pharmaceutical division and sharpened Alcon’s focus on surgical and vision care, which according to Mr. Jimenez will save $1 billion between now and 2020; (ii) 2Q16 and 3Q16 marked two consecutive quarters of sales growth for Alcon’s contact lenses. That said, we’ve heard nothing but radio silence for more than a year on the glucose-sensing contact lens that Novartis is said to be developing with Verily – we think this means the project must be further back on the development timeline (if at all), which is quite disappointing given how Novartis continues to prioritize Alcon as a whole (growing this division was cited as a company priority in 1Q16, 2Q16, and 3Q16).

OPKO Health

David Okrongly (President, OPKO Health, Miami, FL)

President of OPKO Health Mr. David Okrongly notably shared that the company will initiate a phase 2b trial in 2H17 for GLP-1/glucagon dual agonist TT401 and that the company’s focus is an obesity indication, rather than a type 2 diabetes indication. TT401 was added to the pipeline when OPKO Health acquired Transition Therapeutics in July 2016. Mr. Okrongly reviewed phase 2a data for the candidate, which demonstrated non-inferior A1c reductions and superior weight loss for TT401 compared to AZ’s GLP-1 agonist Bydureon (exenatide once-weekly). Despite the statistically significant weight loss, Mr. Okrongly shared that the company will pursue a modified dose in the phase 2b trial in the hopes of more robust weight loss results without intolerable nausea and vomiting. Ultimately, the company hopes to investigate this candidate for an obesity indication rather than type 2 diabetes – Mr. Okrongly emphasized that the obesity trials are smaller than those in diabetes, with endpoints that are easier to meet. OPKO Health’s early-stage pipeline also boasts a phase 1 long-acting GLP-1/glucagon dual agonist (MOD-6031) that is also being investigated for obesity. All in all, the focus on obesity for candidates in this class is an unconventional strategy within the robust competitive landscape – most candidates are seeking a type 2 diabetes indication with weight loss as an added benefit (the “glucose-plus” model of diabetes drug development), whereas OPKO Health appears to be flipping this to develop an obesity medication with added glycemic benefits – this is similar to Novo Nordisk’s Saxenda. The bar for new drugs in type 2 diabetes is certainly incredibly high and rising, given the dozens of diabetes medications that are available, some now with demonstrated cardioprotective benefits. That said, while fewer obesity medications are on the market, uptake in the obesity pharmacotherapy field is extremely challenging given the degree of patient and provider resistance to treating obesity with pharmacotherapies – there is one notable exception, Saxenda! We’ll be watching closely to see if OPKO Health’s bold move pays off.

Regeneron

Leonard Schliefer, MD, PhD (CEO, Regeneron, New York, NY)

Regeneron CEO Dr. Leonard Schleifer discussed the currently unfolding legal situation surrounding its Sanofi-partnered PCSK9 inhibitor, Praluent (alirocumab). Late last week, the US District Court of Delaware banned the sale of Praluent, following a previous lawsuit in which Regeneron was shown to have infringed on two of Amgen’s patents covering the PCSK9 inhibitor class. The banning of Praluent from the US market came as quite a surprise; many believed that the court would simply penalize Regeneron by requiring the company to pay a royalty on sales of Praluent back to Amgen. Following the decision, Regeneron’s partner Sanofi immediately announced via press release that it will appeal this decision. However, the US District Court today issued a denial of Sanofi/Regeneron’s motion to stay the injunction. This extends the date by which Sanofi/Regeneron will be able to seek appellate review of the Court’s order to 45 days (from the original 30 days). Dr. Schleifer emphasized that Regeneron will do everything in its power to make sure that Praluent remains accessible to the patients who need it. Despite Dr. Schleifer’s positive commentary, this court decision appears to be a big blow to both Sanofi and Regeneron – many have blockbuster expectations for Praluent and at one point, albeit some time ago, Sanofi was positioning Praluent to be the new crown jewel of its combined Diabetes and Cardiovascular business unit, following flagging Lantus (insulin glargine). Sanofi presents at JPM 10 am on Tuesday and we look forward to the company’s take on this decision. This story is certainly not over yet … from our view, the CVOT results are the big deal in this field for all the companies.

• In more positive news, management briefly highlighted the initiation of a large scale genetic sequencing project by the Regeneron Genetics Center. The project will involve the sequencing of more than 150,000 de-identified DNA samples to determine the possible targets of PCSK9 inhibitors – an excellent step forward, in our view, to better understand which patients stand to benefit most from this promising new drug class.
• Dr. Schleifer additionally expressed high hopes for Regeneron’s Bayer-partnered Eylea (aflibercept) for diabetic retinopathy (DR) with diabetic macular edema (DME). The product generated $3.32 billion in US sales in 2016 and global sales reached over $5 billion. Near-to-mid-term growth seems promising for Eylea, as increased diagnosis rates expand the market for diabetic eye disease treatments.

Sanofi

Olivier Brandicourt (CEO, Sanofi, Lyon, France)

Sanofi CEO Mr. Olivier Brandicourt acknowledged that Sanofi has faced headwinds lately, particularly with regards to flagship Lantus (insulin glargine), but emphasized the long-term upside to the company’s overall performance due to its significant portfolio expansion efforts. Mr. Brandicourt’s presentation largely focused on the progress of Sanofi’s six major new product launches, three of which are in diabetes and cardiovascular: Toujeo (U300 insulin glargine), Soliqua (insulin glargine/lixisenatide), and Praluent (alirocumab). The story for all three drugs, in our view, is very much “wait and see” given the stiff competition in each of these therapeutic areas. Management expressed optimism regarding Toujeo’s growing total prescription share (6.8% TRx in the US as of September 2016) and favorable formulary status (3 out of 4 covered lives in 2017), but it remains to be seen how the drug will fare against Novo Nordisk’s competitor next-generation basal insulin Tresiba (insulin degludec), which boasts a flexible dosing claim and potential hypoglycemia benefit from the SWITCH 1 and 2 trials (though the label does not yet include a hypoglycemia benefit claim), plus newly-launched Basaglar (biosimilar insulin glargine). On  the other hand, hopes are high for GLP-1 agonist/basal insulin combination Soliqua, the newest addition to Sanofi’s diabetes portfolio, though more time is needed to assess its performance. Approved in the US in November and now available in pharmacies, this highly-anticipated basal insulin/GLP-1 agonist co-formulation has enormous potential to improve diabetes care and make diabetes management easier and more effective for patients and providers alike. Novo Nordisk’s competitor Xultophy (insulin degludec/liraglutide) may have a slightly better clinical profile, given liraglutide’s demonstrated cardioprotective benefit and advantages of insulin degludec over U100 insulin glargine, but we expect Sanofi’s pricing model will be attractive for many (even if some may take it every 18 hours, which would lower the pricing advantage). Management reiterated during the breakout session Q&A that Soliqua will be priced at approximately $19.90/day assuming an average dose of 47 units – far less than Xultophy’s premium price of ~$31/day.

• On the pipeline front, Sanofi confirmed that phase 3 trials in type 2 diabetes for Lexicon-partnered SGLT-1/2 dual inhibitor sotagliflozin initiated at the end of 2016. ClinicalTrials.gov currently lists two trials in the program: one of sotagliflozin as a monotherapy (expected to complete in March 2018) and one as an add-on to metformin (expected to complete in March 2019). Management echoed the strong enthusiasm of the company’s 3Q16 update, underscoring the differentiation potential of sotagliflozin due to its dual inhibition mechanism. The company further reiterated that its less renal-dependent mechanism could make it an attractive option for the many diabetes patients with impaired renal function – current SGLT-2 inhibitors are contraindicated in patients with impaired renal function due to decreased efficacy. Sanofi is responsible for the phase 3 development of sotagliflozin in type 2 diabetes while Lexicon has been responsible for its development in type 1 diabetes. The phase 3 program in type 1 diabetes is progressing significantly ahead of the type 2 diabetes program – Lexicon recently reported positive topline phase 3 results in type 1 diabetes and expressed optimism that it will be able to file for type 1 with the FDA ahead of completion of the type 2 program. We’re certainly looking forward to more updates on this candidate during Lexicon’s JPM presentation at 10:30 am on Wednesday.
• Mr. Brandicourt expressed great optimism for its Regeneron-partnered PCSK9 inhibitor Praluent, pending positive results from the ODYSSEY CVOT. Many have held blockbuster expectations for Praluent (at one point it was positioned to be the new crown jewel of Sanofi’s combined Diabetes and Cardiovascular unit), but a currently unfolding legal situation has dealt a major blow: late last week, the US District Court of Delaware banned the sale of Praluent, following a previous lawsuit in which Regeneron was shown to have infringed on two of Amgen’s patents covering the PCSK9 inhibitor class. Sanofi/Regeneron continue to assert that Amgen’s claims are invalid and plan to appeal the decision – see our JPM 2017 Day #1 coverage for more.

Sernova

Philip Toleikis, PhD (CEO, Sernova, London, Ontario, Canada)

Sernova President and CEO Dr. Philip Toleikis reviewed the clinical progress of the company’s Cell Pouch System, a thin, implantable, beta cell encapsulation device currently in phase 1/2 for type 1 diabetes treatment. The system provides a vascularized environment for donor islet cells or stem cells to thrive, ultimately maturing into an “organ-like” hub to essentially replace the function of the pancreas. Notably, type 1 diabetes patients receiving Cell Pouch will still be required to take immunosuppressive medications, as the company has not yet developed microencapsulation technologies to protect the cells from the body’s autoimmune response. Additionally, Sernova does not yet have an unlimited cell source for its device and currently relies on donor islets. Despite Cell Pouch’s technical limitations, Sernova has experienced a string of positive news in recent months: this past July the company received $2.45 million from the JDRF to fund a phase 1/2 trial of the Cell Pouch System (slated to begin in 1Q17), and in November Sernova announced a collaboration with CTI Clinical Trial and Consulting Services, which will help them submit an Investigational New Drug Application (IND) to the FDA. These developments are certainly strong votes of confidence in the Cell Pouch System. Though the Cell Pouch System is Sernova’s most advanced project, Dr. Toleikis also highlighted the company’s plans of delving into the stem cell technology and cellular microencapsulation arenas. The creation of an unlimited stem cell-derived beta cell source and development of microencapsulation technologies, coupled with Cell Pouch’s vascularized environment, could certainly provide a long-term therapeutic option for patients with type 1 diabetes, or insulin-dependent type 2 diabetes. Our fingers are certainly crossed for progress in this increasingly promising realm of beta cell encapsulation (see our coverage of JDRF’s recent Bay Area Chapter Meeting for an overview of the other players in the beta cell encapsulation competitive landscape). A microencapsulated, vascularized system with stem cell-derived beta cells certainly seems like the holy grail at this point, but the proposition is very technically challenging and it appears that the most advanced players in the field – Sernova and ViaCyte – are focusing their efforts on less-ambitious implantable devices that promote vascularization but require immunosuppressants. Indeed, ViaCyte actually appears to be de-emphasizing its more advanced macroencapsulation technology that removed the need for immunosuppressants, due to a highly variable cell survival response in its ongoing phase 1/2 trial. While we would love to see a functional cure for type 1 diabetes in the near future, we hope that therapies such as Cell Pouch lay the groundwork for more transformative therapies in the future.

Takeda

Christophe Weber (CEO, Takeda, Osaka, Japan)

Takeda announced its decision to restrict its R&D focus strictly to oncology, gastrointestinal disease, and diseases of the central nervous system – diabetes and obesity are notably not included on this list. This represents a dramatic change for Takeda: up until this point, the company applied a “disease-agnostic” business model focused primarily on developing small molecule therapies for a range of conditions, but has now shifted 180 degrees to become disease-specific, pursuing therapies including and beyond small molecules for exclusively cancer, GI, and CNS targets. As part of the new strategy, Takeda will consolidate its R&D facilities to only those in Osaka, Japan and Boston, MA. Management noted that this company-wide transformation has made “great progress” and is progressing ahead of schedule. Company representatives explained that this move has “been on the radar screen” for quite some time – an observation that was perhaps foreshadowed by the fact that Takeda’s past earnings updates have consistently downplayed the company’s diabetes portfolio. Indeed, Takeda’s DPP-4 inhibitor Nesina (alogliptin) and TZD Actos (pioglitazone) were not mentioned during either the company’s main presentation or the corresponding breakout session. The company exited obesity when its partner Orexigen acquired all US rights to Contrave (naltrexone/bupropion extended-release) from Takeda in March 2015. We are disappointed (though not surprised) to see this reduced emphasis on diabetes – this strategic move further underscores the increasingly high bar for new diabetes drugs and the challenging market for obesity pharmacotherapies. We’re curious to learn more about how Takeda’s existing diabetes products will be impacted by the restructuring. As of the company’s 3Q16 update, Nesina sales grew 12% year-over-year (YOY) as reported but fell 7% in constant currencies to $114 million (11.6 billion JPY). Actos’ sales have not been broken out for two consecutive quarters.

ViaCyte

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

ViaCyte appears to be de-emphasizing its phase 1/2 PEC-Encap beta cell encapsulation therapy in favor of its preclinical PEC-Direct therapy. CEO Dr. Paul Laikind’s presentation very clearly differentiated ViaCyte’s two beta cell encapsulation and replacement therapies. The more advanced candidate, PEC-Encap (formerly known as VC-01), encapsulates ViaCyte’s stem cell-derived PEC-01 islet cells in an Encaptra Device, which protects the cells from the immune system and is meant to eliminate the need for the immunosuppressive therapies that are currently required to cadaver islet transplants. The candidate has been in a phase 1/2 trial since 2014 and Dr. Laikind shared that the PEC-Encap demonstrated good cell survival when implanted in human subjects. Unfortunately, he acknowledged that the response has been hugely varied across participants in the trial and that the efficacy of PEC-Encap is inhibited by the foreign body response that many participants exhibits to the encapsulation device. As such, he suggested that ViaCyte will have to further refine the encapsulation and protection from immune response technology. As such, Dr. Laikind anticipates that the PEC-Direct will be the first product to market – a phase 1/2 trial for the candidate in patients with type 1 diabetes and hypoglycemia unawareness is expected to initiate in 1Q17. Unlike PEC-Encap, PEC-Direct features direct vascularization relatively small number of carefully placed ports – this minimizes the foreign body response to allow for better cell growth but also requires the patient to take immunosuppressive therapies, much as they would for donor islet transplantations. That said, PEC-Direct utilizes the same PEC-01 stem cell-derived islets, which address many of the supply and availability issues associated with islet transplantation. The first cohort in the phase 1/2 trial of PEC-Direct will enroll three to six participants and employ a limited dose to demonstrate safety. The second cohort will enroll 40 participants and feature an efficacy primary endpoint of signification production of insulin, as measured by C-peptide levels. ViaCyte expects to complete this trial and initiate a phase 3 trial in mid-2018, with approval projected for 2020 or beyond. The company expects to seek both an Orphan Drug and a Breakthrough Therapy designation, which should help speed the regulatory process. Overall, Dr. Laikind characterized PEC-Direct as posing a relatively low technical/execution risk. That said, he acknowledged that PEC-Encap’s indication will likely encompass a broader indication as it represents as a functional cure for patients with type 1 diabetes, whereas the immunosuppressive therapies required for PEC-Direct likely limits its application to only those patients with severe hypoglycemia unawareness.

• We’re disappointed that ViaCyte seems to be de-prioritizing its more ambitious PEC-Encap project for now, though we understand that PEC-Encap is a much more technically difficult proposition and acknowledge ViaCyte for advancing the field forward nonetheless. Sernova is currently developing Cell Pouch, a thin, implantable device that provides a vascularized environment for beta cells and the company hopes to eventually develop microencapsulation technologies to locally protect cells within the device. We’re curious if ViaCyte’s PEC-Direct may be an early foray into the development of a similar microencapsulation device for a broader type 1 diabetes indication – a combination of the best of both worlds of PEC-Encap and PEC-Direct, if you will. ViaCyte holds an advantage in this approach in that it already holds an unlimited cell source (PEC-01 cells) for its replacement therapies, while Sernova is still currently using donor islets in its device and is investigating several unlimited cell source options. Additionally, despite the somewhat disappointing results, ViaCyte’s is likely gaining valuable information from the PEC-Encap trial. Defymed’s preclinical MAILPAN “bioartificial pancreas” features a similar macroencapsulation approach as PEC-Encap and recently partnered with Dr. Doug Melton’s Semma Therapeutics for an unlimited stem cell-derived beta cell source – it remains to be seen if the MAILPAN system will run into similar issues as the PEC-Encap. Regardless, Cell Pouch and MAILPAN are both still pre-IND and ViaCyte remains the most advanced company in the beta cell replacement therapy field – we’re excited to see where each of these companies and therapies will be in one, five, and ten years.

Viking Therapeutics

Brian Lian, PhD (CEO, Viking Therapeutics, San Diego, CA)

Hosted as part of the Biotech Showcase, this session offered an overview of Viking’s three major pipeline products, including VK2809, a liver-selective thyroid receptor agonist for the treatment of lipid disorders. A phase 2 trial of VK2809 in hypercholesterolemia and NASH is underway, and CEO Dr. Brian Lian confirmed that topline data will read-out toward the end of 2Q17 – “it will be a big year!”. This falls in line with timing disclosed during the company’s 2Q16 financial update, when management shared that a phase 2 study would begin in 3Q16 with expected completion in 2Q17. Dr. Lian emphasized the convenience this agent offers as an oral, once-daily formulation. He summarized preclinical as well as phase 1 data (presented at ACC 2016). Highlights of the phase 1b study include up to 79% reduction in triglycerides – a major component of liver fat, in particular – and a strong safety/tolerability profile, with no severe adverse events occurring at any dose. Based on these results, the phase 2 trial is also investigating low, medium, and high doses of VK2809. The study’s primary endpoint is change in LDL, and Dr. Lian also described exploratory endpoints such as liver fat volume and triglyceride levels. NASH is a common comorbidity of type 2 diabetes and is an area of high unmet need, as is clear from our NASH competitive landscape, where there are no treatments yet approved and available to the many patients in-need. We’re hopeful that phase 2 results for VK2809 will be positive and compelling, enough to propel the drug candidate into phase 3.

Diabetes Technology

Abbott

Brian Yoor (CFO, Abbott, Chicago, IL)f

To our disappointment, we didn’t hear any updates on timing for the US approval and launch of the FreeStyle Libre consumer version. CFO Mr. Brian Yoor reminded the packed ballroom that the innovative device is available in Europe (200,000+ users), was submitted to FDA in 3Q16, and that Abbott “looks forward to bringing the product to the US market in the future.”. At this point, the “1Q17” launch timing estimated in the 2Q16 earnings call may not be realistic – the estimate was made before the FreeStyle Libre Pro was approved in September and before the consumer version was even submitted. It sounds like Abbott has had its hands full with its massive acquisition of St. Jude Medical, which just completed on January 4^th. As noted in our 2016+2017 Reflections piece, we’re sure whether Abbott is going for a non-adjunctive (insulin-dosing) claim in the submission, which would certainly require a longer review. Dexcom’s EVP Steve Pacelli and CEO Kevin Sayer highlighted Libre’s inaccuracy in hypoglycemia (see detailed write-up below or our Reflections piece), so it will be interesting to see how FDA interprets the factory calibrated sensor. It’s also possible that we’re reading too much into the dearth of information, and an approval could come in the next three months – but we would be surprised!

Baxter

José Almeida (CEO, Baxter, Deerfield, IL)

Baxter CEO Mr. José Almeida said that the ongoing launches of AMIA (US) and CLARIA (outside of the US), both peritoneal dialyzers that include the SHARESOURCE connectivity platform, have been “very successful.” He later expressed that “the new dialyzer, THERANOVA, by itself is probably the closest to human kidney performance you get in a dialyzer…We are confident that it will launch in the next two years.” He was presumably referring to US launch timing, as the system has already obtained regulatory clearance in Europe, Australia, and New Zealand. In less exciting news, Mr. Almeida shared that Baxter had been developing a home hemodialysis machine, but opted to cancel and reinvest due to their belief that the return on investment wouldn’t be optimal. Nevertheless, successful launches of AMIA and CLARIA mean that more people with renal complications are getting the therapy they need, and THERANOVA seems to be cause for further hope.

Bigfoot

Jeffrey Brewer (CEO, Bigfoot Biomecial, Milpitas, CA)

Over at the Biotech Showcase, Bigfoot Biomedical CEO Mr. Jeffery Brewer confirmed the plan to begin a pivotal trial for the smartloop AID service in mid-2017. He also discussed the promise of automating insulin delivery alongside reimbursement challenges for type 1 diabetes therapies. While great strides have been made recently in getting automated insulin delivery (AID) devices close to market, he underscored that we’re just scratching the surface – the real opportunity is not only in automating insulin dosage, but in harnessing data to inform insulin titration recommendations, in monitoring AID systems to find areas for improvement, and in using artificial intelligence to engage patients in a dialogue about their insulin regimen. We agree – could CGM + smart insulin titration software offer 80% of the value of a pump+CGM system, but with much less cost? Turning to reimbursement, Mr. Brewer acknowledged a major obstacle for type 1 diabetes therapies: “The disease presents a challenge in demonstrating short-term payoffs. Better glucose control is going to benefit patients in the long-term, which is beyond what most private payers can consider when they have an average of two years before someone flips to a new insurance plan.” However, an important argument to encourage reimbursement lies in the ability of AID services to minimize insulin dosing errors and prevent hospitalizations. According to Mr. Brewer, a hypoglycemia-related hospitalization costs a mean of $33,700, a hyperglycemia-related hospitalization costs a mean $25,980, and these diabetes-related hospitalizations are occurring once every two patient-years. The source for these figures was not specified, but the hypoglycemia number is approximately double the typical $17,654 figure used for severe hypoglycemia hospitalizations. If true, that is startling. We see high potential in Bigfoot’s service model for one monthly price, offering payers a lower upfront cost and more of an at-risk relationship for Bigfoot. An open question is how quickly Bigfoot can build this model - it makes so much sense for payers, though there will be logistical complexities to offering a durable pump controller, disposable pumps, infusion sets, CGM sensors, and transmitters all in one monthly package. We’ll also be interested to see how well the MiniMed 670G is covered at launch, what Medtronic’s 1,000-patient outcomes study will show, and whether other companies can leverage its data.

Common Sensing

James White (CEO, Common Sensing, Boston, MA)

In a panel discussion entitled “CEOs and their VCs,” Common Sensing President Mr. James White reiterated that the company has raised $4.5 million to date (including investors Qualcomm Ventures and Sanofi) and anticipates another raise of undisclosed quantity this summer. After the panel, Mr. White told our team that Common Sensing, developer of a Bluetooth-enabled smart cap for disposable insulin pens (Gocap), is looking to build out a coaching service. This would entail a partnership with glucose monitoring companies (talks underway, and Dexcom is already providing CGM for a Common Sensing trial at Joslin) and remote providers that track injection and dosing information, in conjunction with glucose trends, to assist patients with their glycemic management. Our 2016  + 2017 Reflections piece highlighted this type of business models as a key trend in the field (e.g., Livongo, OneDrop, mySugr), and we wonder if Common Sensing can drive it through the addition of insulin dose data. Mr. White also told us that the Common Sensing team has expanded from seven members in June to 10 today, and that they are exploring open loop (insulin dosing advice) – in which an intelligent algorithm uses fingerstick or CGM data to titrate basal and/or bolus insulin. That is definitely a logical place to go with a connected pen and another trend we see in the field, particularly with the recent FDA clearance of Voluntis Insulia and the new Novo Nordisk/Glooko partnership. Mr. White said it would be “cool” if the LED display on the Gocap could tell users not only how much insulin is left, but also how much they should inject.

Dexcom

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

Dexcom’s quietly confident CEO Kevin Sayer gave his best JPM presentation ever, pre-announcing all-time high revenue of $168 million, representing a strong 28% year-over-year (YOY) gain on a very tough comparison to 4Q15 (55% growth when G5 mobile launched), plus a solid 13% sequential gain from the previous record high in 3Q16. Impressively, Dexcom has now seen record-high sales in seven out of the past nine quarters, though for the third straight quarter, saw its lowest YOY quarterly growth since 3Q12 – likely a reflection of the large base of sales and the tough year-over-year comparisons. Total 2016 sales of ~$570 million rose ~42% over 2015, crossing half a billion for the first time and on the upper end of guidance for $550-$575 million. Mr. Sayer shared very strong confidence for 2017, with sales expected in the range of $710-$740 million, though at a lower growth rate of 25%-30% YOY – obviously revenue growth will naturally slow as sales rise, plus Medtronic and Abbott will/might launch competitive products in the US this year (Medtronic’s Guardian Sensor 3 in the 670G and Guardian Connect; Abbott’s FreeStyle Libre consumer version). We see upside to this guidance if things go well with the important new product launches this year: non-adjunctive labeling to launch in 1Q17 (very compelling marketing; see below), G5 Android, touchscreen receiver, and the new inserter and smaller transmitter (“G5x”; much easier to train, less expensive, and less intimidating to use). Dexcom also just expanded the sales force by ~20% (adding ~20 reps), which should also bring some tailwind this year.

• Dexcom’s worldwide installed base is now ~200,000 users, a ~40% rise from ~140,000-150,000 shared at JPM one year ago and reflecting an estimated 80,000-90,000 new patients added in 2016 – we assume that means ~20,000 patients stopped using Dexcom during the year, though this was not addressed today. Dexcom estimated it grew US CGM penetration in type 1 by four percentage points in 2016, an impressive achievement. Management expects to grow the worldwide patient base to ~270,000 by the end of the year (35% growth, outpacing revenue). As he has in the past couple of quarters, Mr. Sayer reminded attendees that Dexcom’s new patient adds are now ~60% from MDI and ~40% from pumps, flipping the company’s historical split – and a good sign it is hitting a broader population of type 1s. The base remains 75%-80% in the US (~150,000) and 20%-25% outside the US (~50,000), expected to continue in 2017.

• Dexcom plans to launch four major product updates in 2017, including the non-adjunctive (insulin-dosing) label claim later in 1Q17, the Android version of G5, the new touchscreen receiver, and the one-touch inserter and lower profile transmitter (G5x) – the latter three are presumably still under FDA review, and management did not indicate when during the year they might launch. The marketing for the non-adjunctive labeling indication is pretty compelling – see an example here from Dexcom’s bigger investment in direct-to-consumer marketing (“1 jam-packed 10-hour day. No fingerpricks.** The Dexcom G5 Mobile Continuous Glucose Monitoring (CGM) System is the only device that lets you treat without pricking your finger.”).
• Meanwhile, 2017 will also include a G6 FDA filing (paving the way for a launch next year) and an IDE filing and study for the first-gen Verily product (launch late next year). Mr. Sayer again showed the compelling G6 pre-pivotal data that headlined DTM, emphasizing the no calibration MARD of 9%. G6 will initially be 10-day wear and one calibration per day. In addition to showing the second-gen Verily prototype next to an M&M (first shown at DTM), we got a first-ever glimpse of the first-gen Verily product slated to launch next year – it is still meaningfully smaller on the body and similarly pear-shaped to the very tiny second-gen version, but with a slightly larger profile off the body. Both Verily products are expected to be 14 day wear, factory calibrated, fully disposable, and talk to a phone via Bluetooth (no receiver expected). The first-gen Verily product will exist alongside the traditional G6 sensor and transmitter, and if both products launch next year, we’ll be interested to see how Dexcom handles this (see quote below). Management suggested that the Verily product might be useful in type 1, but will be targeted at type 2 and new business models are under discussion with payers and pharma. The second-gen Verily sensor was quoted as a “2020-2021 timeline, depending on regulatory,” more specific (and perhaps slightly later) than the previous “as early as 2020” timing.
  
  • “From a regulatory timing perspective, we have resources lined up to move both G6 and the first-gen Verily product in parallel. The commercial launch of the G6 product will remain our core, type 1 focused product using the core sales force and infrastructure. What will be the target focus for the first Verily product? We’ve always believed it will be useful for type 1s, but we look at this as an opportunity to enter into type 2. We are exploring things with insulin companies and payers and different go to market strategies with the Verily product, as opposed to a more traditional launch with G6.” – Steve Pacelli
• Dexcom is already rolling out marketing for the non-adjunctive (insulin-dosing) claim. It is very well done and definitely maximizes the no confirmatory fingerstick part of the label, even though two are needed per day for calibration (example here; see below). This is taking a page out of Abbott’s FreeStyle Libre marketing book in Europe and could help drive CGM adoption in reluctant prescribers and patients. Management also alluded to a positive impact in payer discussions: “This will differentiate us with payers. We will take it to managed care and say we’re the only system labeled to replace fingersticks.”

• Dexcom expects more data from the DIaMonD study to read out early this year and hopefully a publication in the first half of 2017. As a reminder, this study also includes data from people with type 2 diabetes and an insulin pump crossover phase.
• Medicare coverage is still expected in 2018 and discussions are ongoing now that the non-adjunctive claim has been approved. There is still a lot of back and forth happening to educate Medicare, which is unfortunate to hear – this has been a long time in the making! Management was confident this will happen, and it’s just a matter of jumping through the administrative hoops.
• Mr. Sayer talked more than ever about reducing cost, driving new business models with payers, and using CGM in non-intensive diabetes – all will be key for expanding this market and driving Dexcom’s mid/long-term growth, particularly as CGM competition heats for intensively managed patients. Showing cost-effectiveness and meaningful clinical efficacy with payers – particularly for type 2 – will be the most critical piece.
  
  • “Payers look at cost per member per month, per day, per year. That’s how they look at it. What is most expensive in our system is new electronics. Through the Verily relationship, we have very aggressive cost reduction targets, even though it’s disposable, to get the cost per day down. It is designed to last for 14 days, which will help. We can get them down, and I won’ give you a percentage, but they are extremely aggressive. We have not automated all of our manufacturing, though we have automated some and move more in our new plant in Arizona. We will move more things in house and send other things out. We think we can take a significant amount of cost out of our system. It’s hard to take a deep breath when you’re growing as fast as we are. You don’t change your processes. We can look at things differently. We have initiatives on all many fronts to reduce costs. The new applicator is less expensive, and the generation after that will take significant costs out of the system. We’ve identified each piece, where we can we take cost down. We just can’t ever take quality away from the sensor performance.”
  • “CGM will be a key element of cost reduction in diabetes in the healthcare system. When does a patient move to insulin and should it be long acting vs. fast-acting. What is the actual cost and therapeutic benefit of a sophisticated insulin delivery system? CGM? Can we predict and identify those at risk for expensive hospitalizations and keep those patients from re-admission when they leave and shorten their stay? Is the patient actually taking the medication that the system is providing them? All of our future systems will produce the data necessary to answer these and many other questions. Every thing we are doing is aimed at reducing costs on the system and ultimately making CGM available to everyone.” – Mr. Sayer
  • “CGM is a technology that delivers benefits across the board to every constituent: patients, clinicians, and payers. For patients, it will help navigate the day to day decisions and feedback loop for a precise understanding of glucose response. For clinicians, it will navigate who needs more attention and develop hyperglycemia-personalized treatment plans. For payers, CGM will help them deeply understand the efficacy of treatment to better target care to improve outcomes while reducing costs. There is no technology better designed for at-risk models than Dexcom. We’re not afraid to enter these agreements. We’re not going to be able to sell systems like we do now, as we get into populations beyond type 1 diabetes.”
• Sales tripled YOY in December in Germany following the positive CGM reimbursement win last summer. The German business will be a “major initiative” in 2017. Management noted that the biggest limiting factor in Germany is training, as payers require documentation that a patient was trained on the system. Dexcom is working with different training models, hiring nurse educators on a contract basis, and online tools.
• Gross margin is expected to range from 67% to 70% for 2017, and operating expenses are anticipated to increase by ~20%-25% over 2016 (growing slower than revenue).
• Management was emphatic that “Libre is not a CGM” and the accuracy may not be good enough to dose insulin. We cannot wait to see what FDA does on this front. As noted in our 2016+2017 Reflections piece, Libre is less accurate overall than G5, particularly in hypoglycemia – per the Libre Pro US label (see page 45 here), only 53%-58% of Libre Pro points are within 15%/15 mg/dl of YSI at <80 mg/dl vs. 89%-91% for Dexcom’s G5/G4 with Software 505 (see page 240 here):
• Dexcom has begun early phase analytic projects and started to look at patient patterns, outcomes, and population analytics. For instance: “Our California patients have the lowest average glucose readings in our database. I won’t tell you who is the worst.” With this growing investment in Big Data, Dexcom will be able to show payers which patients are most compliant, how well patients do on G5, etc. Mr. Sayer also reminded attendees of the upcoming open APIs, noting that several potential partners have stepped forward already.

IBM Watson Health

Deborah DiSanzo (General Manager, IBM Watson Health)

In one of the most packed rooms we’ve ever seen at JPM, IBM Watson Health General Manager Deborah DiSanzo provided a compelling overview of the business’ priorities, including five enthusiastic mentions of the Medtronic Diabetes partnership to develop the Sugar.IQ app. IBM’s commitment to this partnership is unquestionably strong, and she said that the app is being updated weekly with new features. She did not share launch timing today, but based on Medtronic’s presentation on Monday, the Sugar.IQ app will conduct a full US launch this May-October. Ms. DiSanzo said that the hypoglycemia prediction feature (2-4 hours in advance) is already built into the app, which is new and exciting news if it’s true – Medtronic told us in September this would be saved for a next-gen version. She did express a belief in Q&A that this prediction feature has been designated as a class I device, which could support inclusion in the initial launch this year. (Note: Medtronic confirmed with us that there is a lot of nuance in how the FDA classifies various features of the app, and this single comment does not capture the whole regulatory story around Sugar.IQ.) In response to a question from Glooko CEO Rick Altinger, we also learned that Medtronic and IBM jointly own Sugar.IQ’s intellectual property, meaning Watson partner Novo Nordisk (and by association, Novo Nordisk’s new partner Glooko) will not be able to leverage the Sugar.IQ algorithms or data – no surprise there. Although the IBM Watson partnership with Novo Nordisk was not listed on any slide or mentioned, we understand the partnership is going very well. ADA’s logo appeared on the partnership slide, but was not discussed.

More broadly, we left this presentation extremely impressed with the resources and potential IBM has to change diabetes care through better use of data. The IBM Watson Health team is a remarkable 7,000 employees (over 1,000 data scientists!), and value-based care (including chronic disease and diabetes) is one of its five core focus areas along with oncology/genomics, government, life sciences, and imaging. Ms. DiSanzo believes IBM has amassed the largest non-governmental data set available in the world, which includes claims data from 200+ million lives (Truven acquisition), 100+ million patient EHR records (acquisitions of Phytel and explorys), 30+ billion images (acquisition of Merge healthcare), 1.2 million medical abstracts, 4+ million drug patents, and 40+ million research documents. For Watson, this is a huge competitive advantage – machine learning needs data to crank through, and IBM has a remarkable set to train the cognitive computer on. No revenue details or growth metrics were shared for this business unit (as expected), though she was clear that the business model is purely software-as-a service – we see big potential for Watson to change diabetes care, particularly for HCPs’ workload and payers. Notably, an IBM Watson Health partnership was announced today with the FDA (!) to study the use of “blockchain” technology for secure exchange of healthcare data; the initial focus is in oncology, though wearables are mentioned in the press release. More detail and some of our favorite slides and quotes are below; view the full slide deck here (highly recommended).

• In Q&A, Ms. DiSanzo immediately mentioned Medtronic in response to a question about IBM Watson Health’s “largest customer.” Her response: “We don’t disclose revenues for anything. In terms of largest customer, we like to think about it as ‘clients’ and ‘partners.’ It’s hard to think who is the largest. Medtronic is a very important client for us. What Watson has been able to do in diabetes is really fundamental. After looking through 10,000 patients in the Medtronic CareLink database, Watson identified we could predict within 2-4 hours the onset of hypoglycemia. That is built into Sugar.IQ, which Medtronic is now selling. We’re updating it with new features every month. This helps diabetes patients with their disease. Medtronic is a huge client, and diabetes is a huge disease that we need to get a handle on.”
  
  • This differs slightly from what Medtronic has said publicly on a few fronts: (i) Earlier this week at JPM, CEO Omar Ishrak pushed back the full Sugar.IQ launch to May-October of this year (it beta launched to 100 MiniMed Connect users last September), meaning it is not truly available yet; (ii) Medtronic told us in September that the initial version of Sugar.IQ is not expected to include this hypoglycemia prediction feature, though that may have changed since then; and (iii) Sugar.IQ was expected to be free at launch to Medtronic pump/CGM users, so we’re not sure if “selling” is accurate. (Medtronic confirmed with us that it will be a “companion app” for current pump/CGM users, suggesting it will be free.)
• Ms. DiSanzo highlighted the Sugar.IQ app a number of times – it was called out notably on the partnership slide, mentioned in prepared remarks, and even the talk’s last slide showed a Watson insight we’ve never seen: “Correction boluses of 2-2.25 units were usually followed by lows. Here’s a 3-step process to rescuing lows.” We’ve included the two slides below:

• She did note that the Sugar.IQ app is being updated weekly with new features, and she believes the FDA has designated the hypoglycemia prediction feature as a Class I medical device. Medtronic later confirmed with us that there is a lot of nuance in how the FDA classifies various features of the app, and this single comment does not capture the whole regulatory story around Sugar.IQ. Here is what she said in response to a broader question on working with the FDA: “We are working with the FDA; it is vitally important. Today, we announced an IBM and FDA partnership with blockchain technology and securely exchanging healthcare data. In the cognitive application with Medtronic, because we are alerting patients way ahead of time [of hypoglycemia] and what a patient could do or what blood glucose could do (or walk or eat something), FDA was comfortable giving that, I believe, a Class I designation. In other things, that will constantly change. For retrospective review of images, we think those could be class II. We have to work carefully with the FDA.”
• Glooko CEO Rick Altinger asked about the Sugar.IQ intellectual property in Q&A, and Ms. DiSanzo confirmed Medtronic and IBM jointly own it. The de-identified data and algorithms will not be shared with other IBM partners: “The de-identified data can be put in the Watson Health cloud. That data, and the cognitive technology, is for use with collaborators, clients, and partners. Medtronic brought their 10,000 patient data set, and that’s Medtronic data. They may choose to put in the Watson Health Cloud, though Medtronic chose not to. It stays Medtronic’s data. The Sugar.IQ app is joint intellectual property between Medtronic and IBM. If someone else wants to develop a diabetes app with Watson, they could, but they don’t have access to this IP.”
• “We have an insane amount of data. We believe we have amassed the largest non-governmental data set available.” It is indeed impressive to see IBM Watson’s data repository, including claims data (200+ million lives), EHR records (100+ million), imaging (30+ billion), medical abstracts (1.2 million), and drug patents (4+ million):

• Many questioners wondered if IBM Watson could put healthcare providers out of business. Ms. DiSanzo persuasively positioned Watson as “augmented intelligence” and a productivity booster. We see tremendous potential here in diabetes, particularly for reading glucose traces, making graded therapy recommendations, and clinical trial matching. The examples were very compelling, showing how Watson can save time, crank through hard-to-understand data (unstructured notes, images), incorporate far more data than any human can (EHR, clinical trials, etc.), rank order what is most important, and even bring intelligence into rural areas where there aren’t enough healthcare providers (India, China).
  
  • “Watson for Oncology reads EHRs and understands what is happening with patients. From this information, Watson creates a treatment schedule: red, green, yellow. What treatments could be used? Does Watson get it right? Manipal hospital in India conducted a double-blinded clinical trial of 938 patients. In 99% of cases, Watson for Oncology agreed with the experts. And for those 300 other patients, Watson identified drug treatments that could work, but were newer than the board was aware of ... Watson doesn’t diagnose and doesn’t treat; it is augmented intelligence to help clinicians care for patients. But Watson can help match the tumor with a particular therapy... Clinical trial matching also takes an enormous amount of time, and Watson can help in looking at inclusion and exclusion criteria.”
  • “If a radiologist is going to look at CT scan, it’s many images. Most of those images don’t need to be read, which wastes time. Watson can prioritize the images in the stack by simply looking at them first. Watson can also look at the EHR text with it. “Look at this first.” That will speed up radiology reading time, help get to a definitive diagnosis faster, and increase workflow. Even with that, the amount of images will go up and up. Watson will help improve workflow.”
  • “In an 800 stack CT study, you really don’t have to look at 780 images. There is nothing on them. I think radiologists’ jobs are really hard, and imaging studies are getting more complex. Machine learning absolutely helps. It can handle the simpler things – the workflow of what images to look at first. It can also annotate the image. There is a lot of information in the EHR, and what Watson does is machine learning on the image and EHR. There is a lot of improvement in workflow in radiology that can happen.”
  • “People ask me all the time – can Watson do this? If there is a data source, Watson can do it. But Watson needs to be trained. So if we’re training on ALS for Watson, we’re not training on something else. We have focused on five pillars. We are very large in governments, oncology, value based care (understanding the cost of chronic disease, care pathways), life sciences, and imaging. We then prioritize within those.”
  • “We have clients in China and India, and they say, ‘We are hopelessly short of oncologists.’ You could imagine some cognitive technology helping tremendously, enabling them to understand what disease patients are facing.”
• IBM Watson can also be used for drug discovery. Ms. DiSanzo provided a compelling example from ALS, where Watson rank-ordered potential genes from 1-1,500. Barrow looked at the top 10 genes, and found Watson had got it right: 8/10 of those genes did affect ALS, and five of those had never been identified in ALS before. Ms. DiSanzo emphasized Watson’s speed – the analysis was done within months, whereas humans by hand would have taken years. We wonder what potential this has in diabetes to sort through heaps of genomic and health data and identifying better targeted therapies, much like cancer has done.
• “We have a sustainable competitive advantage. We started ten years ago. If you’re going to teach a computer something, to learn on its own, time matters. We started in machine learning in imaging a decade ago. We know how hard it is. We’ve done it and have been successful at it. We started with EHRs five years ago. We know how hard it is to read structured and unstructured text. We have acquired the best assets in the industry that we can build on top of (including Truven and explorys). There are startup companies in machine learning, and it’s going to take them time. We are an integrated business unit within IBM solely focused on health; 76% of my team is from healthcare, and the other 24% are super smart data scientists. We’ve done this for a while.”
• IBM estimates the total Watson Health market opportunity as $360 billion. The slide showed total world healthcare spend of $8 trillion, of which 25% is estimated to be waste! This includes imaging (unnecessary tests), oncology (variability of care), life sciences (failed clinical trials), government (fraud, waste, abuse), and value based care (cost of chronic disease).

Insulet

Patrick Sullivan (CEO, Insulet, Billerica, MA)

Insulet CEO Patrick Sullivan gave a condensed version of the November Investor Day deck and confirmed the same pipeline timing, including a mid-2017 FDA submission of the new Dash Android PDM (launch by end of year). We most enjoyed the insightful and convincing commentary in Q&A on the payer landscape and competition. The fast-paced, standing-room-only Q&A emphasized the OmniPod’s differentiated business model from other pumps – a big advantage as the company talks to payers and defends against the near-term competitive noise from Medtronic’s MiniMed 670G. Mr. Sullivan persuasively noted that Insulet’s revenue model is a recurring stream, and in any given quarter, just 8%-10% of new revenue comes from new patient starts. President Shacey Petrovic added that the OmniPod business model is really an at-risk model with payers already – the startup OmniPod cost ($500-$600) is one-tenth of traditional tubed pumps, and if patients stop using the OmniPod, Insulet loses the revenue. In other words, a traditional tubed pump is a riskier upfront investment for payers. Meanwhile, Insulet continues to gather real-world data on outcomes through its very successful Glooko partnership and has doubled the size of its market access team. Mr. Sullivan called the MiniMed 670G a market “distraction” for Insulet, but not a “disruption” as it has been for other pump companies (e.g., Tandem) – indeed, Insulet reported a strong 3Q16 and we expect the momentum to continue into 4Q16 based on today’s optimistic commentary (nothing specific shared on guidance or sales). The presentation reiterated that 80% of Insulet’s new patients are from MDI, a clear sign it is expanding the market and also less likely to lose many patients to the 670G – the hybrid closed loop will be a big jump for the majority of type 1s on MDI and fingersticks. Analysts pressed management in Q&A about the Ypsomed international distribution partnership, which expires in mid-2018; management said it may renew the agreement, go direct on its own (better margins and more control), or do some combination. (As a reminder, Ypsomed is currently launching its own tubed Ypsopump in Europe.) Last, an update on Medicare reimbursement is expected “early this year,” and management had even been hoping to share news today; we’ll likely hear more on the 4Q16 call in February. Overall, we remain impressed with the new team and the strategy, even with all the competition and pressure in insulin pumps. See quotable quotes from the Q&A below.

• On the MiniMed 670G: “With the 670G back in September, there was some distraction for us in what was going on in the market. The impact has been a “distraction.” Our business model, is very, very different than other tubed pumps companies. Our revenue is largely related to ongoing, recurring revenue. In any quarter or year, our new patient starts are a very small percentage, 8%-10% of revenue. The business model is just different. For other, the 670G may be more of a disruption.” – Mr. Sullivan
• On the payer landscape and preferred agreements like UHC/Medtronic: “The OmniPod was not impacted by the UHC decision. That was to make Medtronic a preferred tubed pump. Our access is the same through UHC. We have doubled the size of our market access team and have a growing footprint in understanding the payer landscape. What are payers looking for in diabetes? There is a demand to look at outcomes and real-world data to conclusively demonstrate how these systems impact A1c, time-in-range, quality of life, etc. That is an area where we have made and continue to make significant investment. We will deliver data through clinical trials. Through our partnership with Glooko, we can also look at certain payers’ populations – How is OmniPod performing? We would consider shared risk, but we really don’t have to do that – our business model is an at-risk business model. With a tubed pump, it’s $5,000-$7,000 upfront, and the payer hopes the patient is compliant and they get an outcome. For the OmniPod, it’s $500-$600, one tenth or less of the upfront cost, and then ongoing pods are the revenue model – that’s very attractive to most payers. It’s a natural at-risk model. They are going to pay for compliance and as they get results.” – Ms. Petrovic
• On new business models with the Horizon Automated Glucose Control system: “We don’t anticipate the economics to change. We’re talking about a 2019 launch, so we’re still working out the details of the business plan .It’s a little early to comment in a detailed fashion.” – Ms. Petrovic
• On the renewing the Ypsomed partnership: What’s assumed in our guidance is continuing with the Ypsomed arrangement as it exists today. There is likely upside if we went direct. Our agreement with Ypsomed expires in mid-2018. We are going to do the best thing for our patients in Europe and for the business. That could be continuing with Ypsomed, going direct, or some combination.” – Ms. Petrovic
• On Medicare coverage: “I was hoping to have something by this conference – actually by the end of last year – but we didn’t get any news from Medicare. My birthday is Wednesday [laughter]. I know that CMS is working to resolve this short-term. I would expect something early this year. We will hopefully hear before the change in administration, but that won’t have an impact on what needs to get done. We are working closely with Medicare, and I’m very confident we will get coverage at some point. I just don’t know when [...] in total, Medicare and Medicaid represent a 30% increase in our market opportunity. If you talk about 1.7 million patients in the US, 30% of that are the additional patients in Medicare and Medicaid not available to us today.” – Mr. Sullivan
• On BD’s Investor Day announcement of a type 2 patch pump: Our focus right now is totally on our new PDM with Dash and the pod together. I think there has been a lot in this market of patch pumps about “developing” a product. That’s half the battle. The real battle is in manufacturing 18 million of these on an annual basis. That is not trivial. You need a nuclear grid supply chain that highly reliable to manufacture those products over and over again. There has been some additional movement in patch pumps, but for coming to market, the barriers to entry are not trivial.” – Mr. Sullivan

Livongo

Glen Tullman (CEO, Livongo, Mountain View, CA)

According to Livongo CEO Mr. Glen Tullman, over half of the of the Fortune 100 is using or in contracting (intend to move forward) with his company’s cellular-enabled BGM and remote coaching service (in just two years since launch), and his lofty objective is for 80% of the Fortune 500 to be by the end of 2017. He added that 79 companies will be added to the platform in the next 90 days! We were floored by these remarks – we know that Livongo is now serving “tens of thousands” of enrollees as of a November update, but providing service for at least 400 of the largest US businesses would be astounding. Mr. Tullman attributed the impressive uptake of the program to: (i) Consumers love for it (Net Promoter Score = 63); (ii) Documented clinical data showing it works; and (iii) Employees ultimately save money by investing in Livongo. As a reminder, Livongo raised an impressive $49.5 million Series C Round early last year from investors including Humana, Blue Cross/Blue Shield of Massachusetts, and Merck, adding to existing investors Kleiner Perkins and General Catalyst.

Medtronic

Omar Ishrak (CEO, Medtronic, Minneapolis, MN)

Medtronic CEO Omar Ishrak gave a diabetes pipeline update, headlined by news that the full US launch of the MiniMed 670G hybrid closed loop will now occur in May-October of this year (“first half of FY18”), with only an initial “customer training launch” to occur by the end of this April (“second half of FY17”). Medtronic will still technically hit the previously planned “Spring 2017” and “April 2017” timing with the “customer training launch,” though it’s now clearer than ever that this initial rollout will be quite deliberate. The slide’s layout did imply that the full 670G launch will be closer to May than October (see below), though it’s hard to know for sure. Mr. Ishrak emphasized that the device is a “major breakthrough in diabetes,” but will “require some care in the launch.” A controlled 670G launch is definitely in line with Medtronic’s press release following the September FDA approval, though this is the first time management has shared plans for an initial “customer training launch” (de-emphasized and hardly readable in the pipeline slide), followed by a full launch in the May-October time frame (called out on the slide in a big, bold box). We wonder how big that initial customer launch will be and if it will change Medtronic’s subsequent marketing or launch plans. Certainly, the company MUST manage expectations and training carefully, and it is still ahead of the nearest competition (see our latest AID landscape here). On the other hand, it’s also possible that certain pieces of the launch plan are taking longer than expected (e.g., patient and HCP education, reimbursement, manufacturing) – there is a lot to execute on here and it’s a reminder that ambitious timelines may be hard to hit for this new class of device. An international launch of the MiniMed 670G is also slated for this May-October, the first launch timing we’ve heard – as of September’s FDA approval, we only knew that international regulatory “approval” was expected in “summer 2017.” The slide also indicated two delays in the CGM pipeline:

• Medtronic’s new standalone mobile CGM, Guardian Connect with Guardian Sensor 3, is now slated for a US launch in May-October, behind the previous plan to launch by this April. This is a direct competitor to Dexcom’s G5 and an important Medtronic foray into CGM for MDIs.
• The Sugar.IQ app with IBM Watson has also been pushed back to a US launch in May-October, a significant delay from the earlier plan to launch by the end of 2016. This cool app was demoed and beta launched in September at Health2.0. We wonder if the full launch has been pushed back to coincide with the Guardian Connect launch – Medtronic has long maintained that this app will be focused more on standalone CGM users than pumpers.
• The iPro3 professional CGM is still running on schedule, slated to launch by April 2018 (on par with the June 2016 Analyst Meeting).
• See the pipeline slide below (diabetes is on the far right). H2FY17 means a launch by April 31, 2017, H1FY18 means a May 1 –October 31, 2017 launch, and H2FY18 means a launch by April 31, 2018.

• Mr. Ishrak reiterated diabetes growth guidance from the 3Q16 call: “mid-to-high single digit” growth in the second half of FY17 (i.e., by April 2017), ramping from Q3 to Q4 (presumably as the initial 670G launch occurs).
• A slide on value-based healthcare mentioned diabetes first, noting that Diabeter now cares for 2,000+ type 1s at five Netherlands-based clinics “with a pipeline of UK, MEA, and US prospects.” This expansion plan was also mentioned at the June 2016 analyst meeting, though the patient base number has grown from 1,500+ as of the acquisition in April 2015. We’re not sure of the revenue here, though we could imagine the model eventually expanding to a network of Medtronic-owned type 1 diabetes clinics.
  
  • The same slide also mentioned obesity, noting the NOK acquisition for bariatric surgery care (35,000 patients treated). This division currently has eight Netherlands-based clinics and a roadmap to future expansion. The slide noted “standardized nutritional and medical support” and “increased patient engagement and more durable weight loss.”

MYSUGR

Frank Westermann (CEO, mySugr, San Diego, CA)

mySugr CEO Frank Westermann gave an outstanding update on the digital company’s progress and business model, sharing it has signed contracts with two German payers to provide usage-based unlimited strips, a connected BGM, and automated population management for $850 per year (~$71 per month). The specific meter was not specified, but we might assume it is Roche’s Accu-Chek Connect, a brilliant business move for both companies and a trend we see continuing to expand in BGM – as a reminder, One Drop, Livongo, and Dario Health all offer similar subscription approaches. However, mySugr can bring way more scale and software expertise, given its impressive 900,000+ registered users (1,000+ new per day)! The population management sounds very encouraging for driving better outcomes: mySugr’s algorithms permanently check the data stream from users, and if someone is out of a pre-defined therapy range for a pre-defined time, one of its coaches will proactively reach out. The individual therapy data is not shared with the payer, allowing mySugr to simply use it to provide the service – nice! The company is just beginning to raise a Series B round of funding (size not specified), and we have to imagine many are interested – Mr. Westermann estimated mySugr has the biggest digital diabetes customer base worldwide.

• We also appreciated a deeper dive into mySugr’s three-pronged business model to target its estimate of ~27 million insulin-using patients in the EU and US: (i) a premium version of mySugr for $2.99/month (offering additional features like a bolus calculator in Europe; $100+ million market possible); (ii) an industry partnership model, giving it a “~5% revenue share” (presumably of device sales; $750+ million possible); and (iii) contracts with payers to offer unlimited strips (usage-based), automated population management, and a connected meter to for $850 per year ($20+ billion possible). Obviously those are potential market estimates, but they do show how much revenue is possible.
• Notably, mySugr has seen a “10%-15% patient conversion to the partner BGM,” indicating a serious win for players like Roche that integrate their devices directly in the widely loved app (15,000+ reviews, 4.6 stars). Mr. Westermann noted that mySugr integrates with a growing list of glucose monitoring devices, including Abbott’s FreeStyle Libre, Dexcom’s G4/G5 (via Apple’s Healthkit), Roche’s Accu-Chek Connect BGM, and soon Medtronic’s CGMs and pumps following the November partnership announcement. He mentioned the Coaching product but did not share further updates following our coverage a couple months ago. We think the world of mySugr’s very smart 40-person team, of whom 14 have type 1 diabetes. The company will share retrospective outcomes data at ATTD through its partnership with Profil, which should help get payers’ attention.

Omada

Adam Brickman (Director, Strategic Communications, Omada Health, San Francisco, CA)

Omada Health’s Mr. Adam Brickman provided a number of updates: (i) Former Sanofi Global CMO Dr. Paul Chew has been brought on board t0 serve as Omada’s CMO; (ii) New modeled data shows that the Omada DPP delivers a financial return on investment before year two; and (iii) The company is moving toward “precision prevention for chronic disease.” The hiring of Dr. Chew is a very big deal – at Sanofi, he worked on the clinical programs of both metformin and Lantus. He originally intended to retire after his 15-year stint with Sanofi, but the Omada team was lucky enough to convince him otherwise. His hiring reflects Omada’s commitment to publishing, and he will spearhead an already-robust clinical pipeline, which includes three-year data of the DPP coming out this year (see the two-year results here), a Medicare cohort study, a Medicaid/safety-net controlled trial, and a randomized-controlled trial. The literature has shown Omada’s DPP to be clinically effective, but Mr. Brickman showed a graph demonstrating that, in a 480-member cohort, the projected return on investment (direct medical savings – program costs) rises into the black between years one and two of the program, and hits $840,000 by year five. When applied to larger population, these savings become meaningful, and more importantly mean that people are doing better. Omada has enrolled over 85,000 members to date and has over one billion data points of interaction with enrollees. Mr. Brickman said that “We are getting better at predicting behavior. In week three or four, we can tell the coach with confidence how ‘Jim Smith’ will do, exactly what kind of guidance he’ll need.” This extensive data collection, combined with constant A/B testing and launch of new code every Sunday (!), is really helping Omada to tailor and increase the efficacy of its prevention program.

• Mr. Brickman said that Omada is in conversations with CMS regarding virtual DPP reimbursement. In November, CMS released its finalized 2017 Physician Fee Schedule, including its final rule on Medicare coverage of DPP. Notably, a ruling on virtual DPPs (like Omada) was deferred until late 2017. Omada, however, believes that it has the data to support coverage.

Panasonic Healthcare Holdings

Hito Kotani (Panasonic Healthcare Holdings, Tokyo, Japan)

Privately-held Panasonic Healthcare Holdings’ Dr. Hito Kotani shared some details on Ascensia Diabetes Care (formerly Bayer), including an estimated 20% BGM market share globally (#3), 10 million global users, and potential plans to develop a CGM in the future. The CGM was almost hidden on the pipeline slide showing a generic, illustrated picture of a round transmitter with goals for better accuracy, affordability, and comfort (picture below). As a reminder, Bayer’s CGM was actually sold to AgaMatrix a few years ago (we learned this from Dr. Ken Ward at the July NIH AP Workshop), so we assume Ascensia will have to develop a new system based on its very accurate line of BGM strips. Nothing specific was shared on timing, but we’d have to imagine this is several years away. On the other hand, Panasonic Healthcare Holdings is 80% owned by KKR, a global investment firm with the resources to really drive this R&D if desired. An earlier slide showed Panasonic Healthcare Holdings’ business before and after the Ascensia acquisition, suggesting the deal added ~$701 million in revenue on top of Panasonic Healthcare Holdings’ existing business of ~$1 billion. (For context, Bayer’s last report in 3Q15 suggested the Diabetes Care business was doing ~$250 million in sales per quarter, with strong profitability.) This does suggest that Ascensia is more than half of Panasonic Healthcare Holdings’ business, so there should be strong commitment. Dr. Kotani highlighted that 99% of the Ascensia + In-Vitro Diagnostics business (point-of-care devices for A1c, lipids) is recurring revenue – the highest in a portfolio that also includes Health IT and Biomedical products – and we assume Ascensia’s profitability and cash-generation remains positive even as the BGM industry has seen a lot of pressure. There wasn’t other discussion of Ascensia’s pipeline, but we’re glad to see the company continuing to bring new products to the market – most recently with the Bluetooth-enabled Contour Next One meters. The company’s accurate strip line is a real asset and a huge win for partner Medtronic, whose CGM will benefit from more accurate calibration with Ascensia’s meter.

WellDoc

Kevin McRaith (CEO, WellDoc, Baltimore, MD)

WellDoc CEO Mr. Kevin McRaith announced that BlueStar, WellDoc’s type 2 diabetes management software, will soon not need a prescription. He added that this development “opens up a lot of operational flexibility with payers and employers.” We’re not sure when the transition will be official, but we imagine that it will come side-by-side with more DTC marketing. WellDoc just officially partnered with AADE last week, a move that we interpreted as a way to raise awareness of BlueStar among educators and integrate more educational content into the software. There were no updates on the planned 1Q17 launch of the recently cleared integration with the LifeScan Verio Flex BGM.

Obesity

Arena

Amit Munshi (CEO, Arena, San Diego, CA)

Led by new CEO Mr. Amit Munshi, Arena’s presentation focused on the company’s plan to “reset and restructure” – primarily by divesting from the “cost burdens” of the Eisai-partnered obesity drug Belviq (lorcaserin). This de-emphasis on obesity was first introduced in Arena’s 2Q16 update with a statement outlining the strategic shift to streamline operating costs and allocate greater resources toward the development of the company’s non-obesity pipeline products. As discussed in our report from Arena’s 3Q16 earnings update, we are disappointed but not surprised by these developments given the challenges Belviq has faced. Arena’s portion of Belviq revenue fell 36% YOY and 23% sequentially in 3Q16 to $3.3 million, the lowest quarterly revenue for the product since 4Q14 ($3.2 million). The September 2016 launch of once-daily Belviq XR in the US is a small bright spot, but in this increasingly challenging market for small-cap obesity companies, it is unclear how meaningful an impact this more convenient drug will have on the overall Belviq portfolio. The under-diagnosis and under-treatment of obesity, in combination with poor reimbursement for Belviq, make this an extremely challenging product for Arena.

Aspire Bariatrics

Kathy Crothall, MD (CEO, Aspire Bariatrics, King of Prussia, PA)

Distinguished Aspire Bariatrics CEO Dr. Kathy Crothall reviewed data to support the efficacy of the AspireAssist endoscopic weight loss device (FDA approved in June 2016) and to distinguish the approach from bariatric surgery. A substantial portion of her presentation emphasized the recent pivotal trial results for AspireAssist – participants on the device experienced a mean 32% excess body weight loss vs. 10% excess body weight loss for participants receiving lifestyle counseling alone (p<0.001), and 59% of individuals in the AspireAssist-treated group lost ≥25% of their excess body weight. There were few adverse events in the treatment arm of the study, and there was no evidence of adverse eating behaviors. Dr. Crothall expanded on this latter point in her JP Morgan remarks: She described lifestyle change as a secondary mechanism of action for AspireAssist, responsible for 20%-50% of total weight loss. Of patients surveyed (a little >600 individuals were on the device as of end of 2016), 78% say they eat fewer daily calories following insertion of the device and 91% say they chew food more thoroughly. As Dr. Crothall emphasizes, mindful eating is crucial for successful weight loss. She positioned AspireAssist as a more favorable, patient-friendly option for many patients compared to bariatric surgery. According to Dr. Crothall, 10%-15% of bariatric surgery patients experience wound site infections, 2%-5% experience a staple-line leak, 3.5% experience gastric strictures, 70% experience recurrent vomiting, 46% experience severe reflux, 80% experience dumping syndrome, and 98% experience nutritional deficiencies. In contrast, serious adverse events occurred in <4% of AspireAssist-treated patients in the pivotal trial, the most common being perioperative abdominal pain/discomfort and postoperative peristomal irritation, both of which are generally, expectedly associated with PEG tube placement. While we think there’s a long road ahead still for AspireAssist – along the way, the device will have to see greater uptake and better reimbursement prospects – Aspire Bariatrics seems well-positioned to pursue these goals and carry the obesity intervention forward. Dr. Crothall spoke to the reimbursement piece ­– the newest member of the Aspire Bariatrics management team is Vice President of Reimbursement Toni Harp, who brings great experience in healthcare policy.

• A two-year observational study of AspireAssist was recently published in the journal BioMed Central Obesity, and showed weight loss efficacy, declining A1c, improved quality of life, safety, and minimal side-effects. The single-center study (n=25) conducted at the Blekinge County Hospital in Sweden found ~54% excess body weight loss and a 0.15 increase in quality of life as measured by the EQ-5D after one year. After two years, excess body weight loss was a remarkable ~62% (p<0.01 for all comparisons). There were no serious adverse events or electrolyte imbalances noted during the trial. This adds to the body of evidence demonstrating the safety and efficacy of aspiration as a weight loss technique.

Orexigen

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

Orexigen President and CEO Mr. Mike Narachi, in an extremely patient-centric presentation, highlighted the launch of a promising new direct-to-consumer (DTC) advertising campaign for the obesity drug Contrave (naltrexone/bupropion). Titled “The Brains Behind Weight Loss,” Orexigen’s messaging is uncommonly science-intensive for a DTC campaign, emphasizing the drug’s dual action on the innate neural mechanisms that make losing weight so difficult: the hypothalamic circuitry mediating hunger and the mesolimbic reward circuitry mediating food cravings. The DTC campaign – which management pointed out is the only existing one for an obesity drug – is accompanied by a telemedicine program that allows patients to consult with a physician online and receive Contrave directly in the mail, thereby allowing both convenience and anonymity (an important consideration given the stigma that still surrounds pharmaceutical treatment of obesity). Launched on December 26, the DTC campaign has already produced a promising uptick in Contrave’s TRx share (now at 6.2%) as well as NBRx share (now at 45.4%). Mr. Narachi positioned the DTC campaign as the “key that will unlock more and higher quality conversations” between physicians and patients. Indeed, with the market potential of 110 million patients (only 3% of whom are currently prescribed a weight loss therapy), obesity remains an untapped opportunity. Orexigen management noted in the breakout Q&A session that “the market to date has not focused on the patient” and spreading awareness at the patient level of obesity’s biological basis with DTC campaigns such as this will help normalize the notion of obesity pharmacotherapy and thus reinvigorate the currently slow obesity market. We continue to believe that much of the challenges of the obesity market can be traced to a failure to “lay the groundwork” so to speak in terms of enhancing patient and provider acceptance of obesity as a diagnosis and pharmacotherapies as a treatment. We’re certainly glad to see Orexigen investing in public and patient education about obesity, though we’re unsure if the company has the resources necessary for such a heavy lift – we imagine that the weight of Novo Nordisk’s substantial resources behind Saxenda (liraglutide 3.0 mg) can also help establish the obesity pharmacotherapy market.

• Consistent with the global scope of the obesity epidemic, expansion into ex-US markets is a key part of Orexigen’s strategy. Contrave was approved and launched in Korea in 2Q16, and commercialization agreements for Spain and Canada were established in 3Q16. 4Q16 saw the drug’s launch in Central/Eastern Europe (under the trade name Mysimba), and commercialization agreements are currently ongoing in the UK/Ireland, Australia/New Zealand, and the Middle East. Orexigen’s OUS partnerships now span 38 countries – up dramatically from only one, South Korea, at this time last year.

Health Policy/Big Picture

Fireside Chat with Andy Slavitt, CMS

Andy Slavitt (Acting Administrator, CMS, Washington, DC)

CMS Acting Administrator Mr. Andy Slavitt excitedly announced that, for the first time in the 50-year history of Medicaid, there will be a comprehensive data platform containing claims and pharmacy data. The first release will include data from the majority of the states, which will contribute information on a monthly basis, but eventually encompass all 50 states. This represents a major de-siloing of masses of data. Mr. Slavitt, Nuna’s Ms. Jini Kim (who’s company built the platform), and UCSF’s Dr. Atul Butte were all very enthusiastic about the development. The potential impact of this data set is immense: It can alert public health workers to regional epidemics (“The next time there’s a water crisis in Flint, I don’t want to wait a damn year to find out. I want to know that day.” – Mr. Slavitt), give companies the opportunity to detect problems and create innovative solutions to offer to Medicaid beneficiaries (potentially in a concerted effort with the government), and open up avenues for natural experiments (which facets of Medicaid work and which don’t?) and epidemiological studies (particularly when this data set is merged with others). For diabetes, this data set could help inform where organizations should target population-level health interventions – where are the most people diagnosed? Where is that rate increasing the most rapidly? Where do people experience the most complications? Which factors could be responsible for elevated prevalence of diabetes and diabetes-related complications?

• Mr. Slavitt spoke passionately at the end of the session on the potential for repeal and replace of ACA: “There should be no pride issue on anything related to the ACA. Whether an idea comes from a Republican or Democrat, we should all hop on board. I’m sick and tired of this partisan approach. We are going to support this thing, but it will have to improve the lives of Americans. Ill support it if four things are met: (i) It covers the same amount or more people than before; (ii) The quality is just as good if not better; (iii) The cost curve is bent so Americans aren’t paying more; and (iv) It is fiscally responsible. If not, no thanks. But I will say this: Repeal and whatever – we want to see the damn plan. Show it to us. Let’s take a step back and not vote just to say we voted a certain way.”

Uncertainty Surrounds the Future of Healthcare Under the Trump Administration

Jane Axelrad (Chief, Drug Regulatory Policy, FDA, Washington, DC), Joseph Gulfo, MD (Lewis Center for Healthcare Innovation and Technology, Washington, DC), and Julie Gerberding, MD (Executive VP, Merck, Kenilworth, NJ)

Down the street from JPM, several sessions at the Biotech Showcase Conference were dedicated to a topic of looming uncertainty: the future of healthcare under the Trump administration. Inauguration day is only 10 days away, and yet even esteemed experts in the healthcare policy field (including Biotech Showcase’s impressive array of congressmen, policymakers, and legal strategists) have little clarity regarding the future of the ACA, Medicare/Medicaid policy, drug pricing, and the drug approval process after the transition of power. Although Trump’s precise action plan on healthcare remains a mystery, we did glean a great deal of insight into the potential areas of the healthcare system in which his administration could exert significant change. In a packed lunch symposium, the FDA’s newly-retired drug regulatory policy chief, the esteemed Ms. Jane Axelrad, explained that new presidents typically appoint new FDA commissioners, as well as about five other high-ranking appointments in the agency. We are nervous about the consequences of this for the current FDA commissioner Dr. Robert Califf – we would sorely miss his leadership at the FDA, and his impressive understanding of chronic diseases and emphasis on patient-centered outcomes.

• Regarding the FDA, panelists suggested that the new administration may apply particular pressure to increase drug approvals in 2017 and beyond, following the abnormally low 22 new molecular entity approvals in 2016. Notably, of those 22 approvals, only one was for a diabetes medication (Sanofi’s GLP-1 agonist Adlyxin [lixisenatide]), and none were in cardiovascular disease or obesity. The Lewis Center for Healthcare Innovation and Technology’s Dr. Joseph Gulfo suggested that the low number of diabetes approvals is in part due to the fact that the bar for new diabetes drug approvals was raised to include a costly CVOT following the rosiglitazone controversy and that “unnecessary bar” was not removed following further analyses that deemed rosiglitazone safe. He further suggested that biotech companies and investors are more likely to pursue breakthrough designations due to their faster approval timeline and lower competitive pressure at market, which further exacerbates the limited development of new metabolic and cardiovascular drugs. We found Dr. Gulfo points quite salient – particularly from the small biotech perspective – and wonder how we can better incentivize new players in the diabetes field.
• Perhaps the most optimistic commentary on this subject came from Dr. Julie Gerberding, former director of the CDC and now an Executive VP at Merck. Despite serious concerns over women’s health and the future of Medicare and Medicaid coverage, Dr. Gerberding noted that Trump’s commitment to infrastructure improvement could be a bright spot in an otherwise bleak-looking future for healthcare. Infrastructure improvement provides an opportunity to create an environment in health – building roads, but also bike lanes and sidewalks beside them. This kind of investment, forecasted Dr. Gerberding, could “nudge people into better health.” Indeed, this notion of promoting “health in all policies” was raised during discussions of President Obama’s stimulus package, but never gained traction. She urged congress to leverage their majority for these wellness-promoting infrastructural improvements.

The Great Debate: Pricing, Innovation & Delivering Value in the New Era of Medicine

Giovanni Caforio (CEO, Bristol-Myers Squibb, New York, NY), Joseph Jimenez (CEO, Novartis, Basel, Switzerland), and Stephen Ubl (CEO, PhRMA, Washington, DC)

Three pharma powerhouses, Bristol-Myers Squibb CEO Mr. Giovanni Caforio, Novartis CEO Mr. Joseph Jimenez, and CEO of PhRMA Mr. Stephen Ubl, participated in an engaging panel discussion on drug pricing. Mr. Ubl argued that the recent hyper-focus on drug prices is “myopic.” Instead, he suggested that we focus on “super users” of healthcare, or those with chronic conditions such as diabetes, hypertension, and heart disease who rack up healthcare costs with hospital visits and emergency care. While the high cost of drugs should not be overlooked, Mr. Ubl explained how nearsightedness leads to missing other pieces of the puzzle – the breakthrough cure for hepatitis C, for example, means fewer liver transplants, a lower incidence of liver cancer, more people returning to work and paying taxes, all of which adds to the value of the product. Moreover, playing the blame game with pharmaceutical companies over price distracts from the important role industry plays in promoting innovation. Mr. Caforio agreed with this last point – arguing that there remain many unmet medical needs that must be pursued with rigorous science – and we tend to agree as well. We certainly see in our daily work how industry pushes forth the next generation of advanced therapies to better treat diseases and to better serve patients. That said, this narrative has been a party line for the pharmaceutical industry and has done little to quell the rising public and political furor over drug prices that boiled over in 2016. The high cost of drugs is becoming too blatant to ignore, and we hope that the pharmaceutical industry can work collaboratively with other stakeholders (including the major pharmacy benefits managers) to address this problem swiftly. Recent position statements on price from Novo Nordisk and announcements of discount insulin programs from Lilly are a good start, but just that – a start.

• We were intrigued by Mr. Jimenez’s perspective on outcomes-based pricing. Novartis is involved in a number of US-based contracts for heart failure drug Entresto through which the company gets paid based on the agent’s ability to lower hospitalization rates. There are barriers to outcomes-based pricing, namely the administrative burden for a payer to monitor and quantify specific outcomes, but Mr. Jimenez suggested that this is the direction the industry is moving, slowly but surely. Eventually, all pharmacotherapies will be priced according to outcomes, he forecasted, and Novartis hopes to be a frontrunner. We’ll be very curious to see how outcomes-based pricing will work for diabetes therapies – Lilly and Harvard Pilgrim are engaged in a value-based contract for GLP-1 agonist Trulicity (dulaglutide) and Aetna and Merck have a similar agreement for DPP-4 inhibitor Januvia (sitagliptin).

Healthcare Economics: Hope From Technology & Value-Based Care

Bob Kocher (Venrock, Palo Alto, CA), Christopher Chen, MD (CEO, ChenMed, Miami Gardens, FL), Adam Boehler (CEO, Landmark Health, Huntington Beach, CA), Shawn Leavitt (SVP of Total Rewards, Comcast, Philadelphia, PA), Noah Lang (CEO, Stride Health, San Francisco, CA)

Venrock’s Mr. Bob Kocher led off a panel discussion on value-based care with a grim overview of healthcare economics: $3.3 trillion dollars are spent on healthcare in the US every year, with two-thirds of the spend going toward wages, and abysmal average margins of -3%. He added that technology can help by increasing labor productivity, engaging patients, and helping payers capture quality and cost arbitrages. Each of the panel members heads up a value-based venture, and common themes that ran through all of their pitches were: (i) when incentives are properly aligned, value-based care is significantly more effective; (ii) healthcare has to be made easy, especially for underserved/elderly populations; and (iii) current infrastructure and technology was designed for fee-for-service care models, and would require significant revamping. See below for a number of quotable quotes from the panel along with descriptions of the presenter’s intriguing companies.

• Each of the panelist heads up or works for companies that are experimenting with value based care – we find the premises interesting, and the data is encouraging:
  
  • Dr. Christopher Chen (CEO, ChenMed, Miami Gardens, FL): ChenMed designed a high-touch concierge-like clinical model to focus on high-cost Medicare populations. Where the average PCP sees 2,300 patients for an average of nine minutes per year, ChenMed PCPs see 450 for an average of 168 minutes per year over the course of 13 visits. The program reduces hospitalizations by 38%-49%.
  • Mr. Adam Boehler (CEO, Landmark Health, Huntington Beach, CA): Landmark is a risk-based provider for “complex patients.” It delivers primary care to wherever its 40,000+ patients are – hospital, nursing home, home, etc.
  • Mr. Shawn Leavitt (SVP of Total Rewards, Comcast, Philadelphia, PA): Comcast has 153,000 employees, 90% of which make less than $60,000 per year. Mr. Leavitt has overseen a progressive project to provide better service for employees, with a hyperfocus on getting people to where they need to be to get the right care. The >$1 billion plan has a 93% actuarial value (the plan covers 93% of healthcare expenses) and $250 deductible.
  • Mr. Noah Lang (CEO, Stride Health, San Francisco, CA): Stride Health provides benefits to the growing segment of the population who doesn’t receive benefits through their job (e.g. Uber, Etsy, and Walmart employees). Stride focuses on convenience, offering services to help consumers navigate complex reimbursement and care landscapes, and engages with them where they receive paychecks. Mr. Lang said that 25% of the Stride population are weekly active users, who save an average of $400 per year in care alone.
• Curiously, Mr. Kocher said that wearables/sensors, personalized medicine, and big data/AI will “probably not” help to improve healthcare. He did not elaborate, though we’d have to disagree here, especially on the wearables/sensors point – widespread use of CGM, in our view, could drive more cost-effective remote care models, enable population tracking and prioritize care delivery, help customize therapies, and drive better insights through AI and big data. How else can meaningful outcomes be tracked between visits? How can a one-size-fits-all therapy work with equal efficacy for every patient? And how can we possibly hope to learn about population trends and begin to individualize therapy if not via big data and AI? Perhaps he is not sold yet, or perhaps he thinks of wearables/sensors as Fitbit-like consumer devices, but we see big potential here in diabetes.

Keynote Addresses/Additional Topics

Partnership and Alliance Models with Tech, Pharma, and Medical Devices

Jared Josleyn (Verily Life Sciences, Mountain View, CA) and James Mault, MD (Qualcomm Life, San Diego, CA)

Verily Life Sciences’ Jared Josleyn and Qualcomm Life’s Dr. James Mault riffed on digital health and shared optimism on their diabetes partnerships with Dexcom/Sanofi and Medtronic, respectively. We were excited to learn that Mr. Josleyn has type 1 diabetes and is the Partnerships and Business Development Lead at Verily – a great sign there is patient perspective as the organization continues to partner outside its walls. Mr. Josleyn confirmed the planned 2018 launch timing for the first-gen Verily CGM device with Dexcom (“very, very soon”) and shared commitment with partner Sanofi (Onduo) to drive new outcome-based business models in diabetes. He mentioned the Novartis smart contact lens partnership and said the indication for an accommodating contact lens for presbyopia is now in humans. Unfortunately, there was no update on the glucose monitoring contact lens, which was not a surprise. Charismatic CMO Dr. James Mault also mentioned Qualcomm Life’s partnership with Medtronic – “With Medtronic, much like Verily and Dexcom, we are collaborating and helping Medtronic build out next-gen CGM. We don’t have domain expertise in measuring the glucose molecule – that’s Medtronic. What we bring to the table is know-how when it comes to wireless stuff (Bluetooth and Wi-Fi) and power management (so the battery requirements can last as long as possible). That coalition and collaboration works quite well.”

• Dr. Mault also shared five critical success factors for digital health and wearables: (i) effortless and “magical” devices (“it cannot have a burden of effort”); (ii) medical grade/reliable data; (iii) fits into clinical workflow; (iv) outcomes data/demonstration of value; and (v) someone to pay for it (“consumers don’t pay for this stuff”). He emphasized the last point with a terrific example: “Raise your hand if you or someone you know has a smartphone. [All hands go up.] Keep your hand up if you have a health app. [All hands stay up.] Keep your hand up if you’re paying $5 a month or more for a health app. [All hands go down except for one person.] Consumers don’t pay for this stuff, or at least they’re not right now, and it’s not likely they will pay in significant amounts. This money is going to come from providers and payers that are now on the hook for outcomes.”
  
  • We thought this was a fantastic list and a clear sign that digital health overall, and in diabetes, is still early indeed – no devices hit a homerun on all those criteria. In fact, most don’t even hit one! His point about consumers was particularly critical, given the number of products attempting this route. On the other hand, we do see high potential in direct-to-consumer business models that are similar in monthly cash costs to insurance co-pays (e.g., $30-$50) – these should be cost neutral for patients, but save the administrative headache of dealing with payers, going to the pharmacy, etc.
• Dr. Mault again highlighted UHC’s Motion Program (incentivizing employees with up to $1,500 a year for meeting activity goals measured via a wrist-worn tracker; see our CES coverage), but was clear about the long evidence road: “The UHC Motion program was four years in the making and took millions of records analyzed and a pilot program of 100,000 employees for 18 months before there was enough data and justification to take it to actuaries and a plan to be written.” Last week we hoped similar incentive partnerships could be done with diabetes technology, though this was a reminder that payers will want to see significant evidence.
• Dr. Mault noted two other key trends from CES: the move to 5G cellular and clinical-grade wearables (e.g., Omron’s new wrist-worn BP monitor, HeartVue). Qualcomm CEO Steve Mollenkopf’s keynote address on 5G cellular was fascinating and we’ll have more on that soon; watch the full keynote address here. Dr. Mault called it “as profound as the introduction of electricity and the telephone 150 years ago...The potential impact to the global economy, once it is fully implemented, is an estimated $13 trillion. It will create 20 million new jobs. And it’s not the 5G itself, but 5G is enabling everything that we are talking about, and vastly more – self-driving cars, robotics, virtual reality/augmented reality, the Internet of Things.” In terms of interesting new devices, Omron’s new clinical-grade wrist-worn blood pressure monitor, HeartVue, impressed Dr. Mault: “The accuracy of these things is going to matter. We’re starting to see the market realize this, and clinically validated wearable devices are coming to fruition.”

Quotable Quotes

Jared Josleyn (Partnerships and Business Development Lead, Verily):

• “The Dexcom device will be out in 2018 – so very, very soon. We are also working on an accommodating contact lens for presbyopia that is also coming very, very soon. It’s now in humans.” [No timing was shared on the smart contact lens application for glucose monitoring.]
• When you move into new business models, it does take time for the industry to catch up and accept the new model. In our partnership with Sanofi, they clearly have that model in mind. We still need innovators to make products, and they cannot go away from that. Sanofi’s role in the development of new molecules that benefits patients still exists. But the new direction that is coming is relative to managing to an outcome.”
• “Google has seven different apps that have 1 billion-plus users. The methodology from a software perspective is iteration, learning from the user base, and building better and better products. When we build for the user, we start with the user first. But that’s not just the patient. Who are the players in the system? It changes depending on the indication, whether it’s mental health, diabetes, CVD, or other major chronic conditions. There are different nodes and care delivery mechanisms. We start with the user, which could mean the provider, patient, and in some cases the payers. By understanding the landscape holistically, we want to bring the data through the system to provide the right information to the right person at the right time. We also want to make it actionable and useful to manage disease and affect behavior in a positive way. That could be preventing type 2 diabetes patients going from orals to insulin, or move them back to better lifestyle choices and food. That’s how we tend to view it – through the prism of the user first and building backwards, rather than starting with what’s broken in the system.”
•  “I’m a type 1 diabetic and I came over from Lilly to Verily. I had a passion to move over to Verily following the partnerships with Dexcom and Novartis for glucose monitoring, as well as the Sanofi partnership. I get the best of both worlds – watching all the innovation in the space, contributing to behavioral management programs, and to a certain extent, being a guinea pig to try out apps and the next greatest Dexcom device prior to it coming out to market. It’s a real life application. It’s great to be at a company that is impressively innovative. It’s also wonderful to work with a team to advance new models, especially in diabetes, to change the outcomes for patients.”

Dr. James Mault (Chief Medical Officer, Qualcomm):

• “We have to be introspective and look at ourselves as technologists and put the Kool-Aid down. We must identify what we need to do, to bring this to reality and ubiquity. Here is my list of five:

1. We need to make devices and technology effortless – the word I use is “magical.” In terms of usability, it cannot have a burden of effort.
2. It needs to be a medical grade level of data and delivery. We have to be mindful and recognize privacy, security, and the unique aspects of healthcare. Clinicians must be able to rely on the data, so integrity has to be sound and not transposed. If a glucose of 108 reads 180, you might start giving insulin you shouldn’t be getting.
3. Clinical workflow: if we build it and everyone’s blood pressure is coming at me – 1,000 measurements to look at – it’s just not going to happen. We cannot just say “We have a great device, let’s send all the information.” We need the workflow with the downstream systems. The algorithms to look at the data have yet to be brought to fruition. We must also retrain our healthcare system – you don’t have to examine a patient face to face. I’m going to take care of thousands of patients I haven’t touched.
4. Outcomes data and demonstration of value. If you cannot demonstrate the value of a gadget or software, it’s not going to get adopted by physicians. There is a burden of proof on the technology community. Show us that this works. That doesn’t mean a 15-year prospective trial. But for context, the UHC Motion program was four years in the making and took millions of records analyzed and a pilot program of 100,000 employees for 18 months before there was enough data and justification to take it to actuaries and a plan to be written.
5. Once you do 1-4, then you have to find someone to pay for it. Raise your hand if you or someone you know has a smartphone. [All hands go up.] Keep your hand up if you have a health app. [All hands stay up.] Keep your hand up if you’re paying $5 a month or more for a health app. [All hands go down except for one person.] Consumers don’t pay for this stuff, or at least they’re not right now, and it’s not likely they will pay in significant amounts. This money is going to come from providers and payers that are now on the hook for outcomes. We’ve got to have outcomes data, workflow, medical grade systems, and usability before we see payment.
6. “[On partnerships], it comes back to recognizing what your strengths are for pharma and med tech. With Medtronic, much like Verily and Dexcom, we are collaborating and helping Medtronic build out next-gen CGM. We don’t have domain expertise in measuring the glucose molecule – that’s Medtronic. What we bring to the table is know-how when it comes to wireless stuff (Bluetooth and Wi-Fi) and power management (so the battery requirements can last as long as possible). That coalition and collaboration works quite well. We also have a connected inhaler in our work with Novartis. Novartis is the same thing – they are great at molecules, but not so great at wireless chips and communication. We build out a reference design and do the electronics and engineering – it’s the model we use in the mobile industry and everything else. Partners also benefit from our knowing what’s going to be in your phone next year and five years from now. It’s a royalty arrangement. Then you take this reference design and go find a contract manufacturer. We give you FDA quality system design docs and off you go. We are a Switzerland type of player. You saw the announcement of us doing the connected inhaler with Novartis, and we announced later last year a similar partnership with BI. That’s how we elevate an open ecosystem.”
7. “We will potentially look back at CES last week as a moment in history. It sounds grandiose, but it has potential of being as profound as the introduction of electricity and the telephone 150 years ago. It relates directly to what all of us will come to know as 5G [cellular]. 5G really had its coming out party last week. [Watch the full one-hour keynote address here.] The potential impact, once it is fully implemented, to the global economy is an estimated $13 trillion. It will create 20 million new jobs. And it’s not the 5G itself, but 5G is enabling everything that we are talking about, and vastly more – self-driving cars, robotics, virtual reality/augmented reality, the Internet of Things. It’s all predicated on this enabling capability with faster bandwidth. I encourage you to start looking at and studying 5G as we enter into the invention revolution [Qualcomm’s term] of the next 30 years with this capability. The device that I loved seeing was the first fully clinically validated wrist-worn blood pressure monitor from Omron. The accuracy of these things is going to matter. We’re starting to see the market realize this, and clinically validated wearable devices are coming to fruition.”

Cancer Moonshot

Joe Biden (Vice President of the United States)

Very special guest Vice President Joe Biden spoke movingly on the need to modernize the healthcare and research system to realize the promise of the “cancer moonshot.” Much of his speech highlighted the near-universal drive and commitment to fight and even cure cancer. We were struck by the sense of urgency surrounding cancer, as highlighted by Vice-President Biden’s anecdotes of gatherings with world leaders on topics such as nuclear proliferation that inevitably turned to his efforts in cancer due to the strong global concern and commitment to this cause. Vice-President Biden also highlighted the research funding procured for cancer and other indications by the 21^st Century Cures Act, which he characterized as “perhaps the last bi-partisan deal” – in sum, he stated “cancer is still a bi-partisan issue.” Throughout the eloquent presentation, we wondered to ourselves how we can similarly create a sense of global urgency surrounding diabetes – we’d love to hear your thoughts.

Digital Health Panel

Adam Boehler (CEO, Landmark Health), Chris Chen, MD (CEO, ChenMed), Noah Lang (CEO, Stride Health,), Shawn Leavitt (SVP of Total Rewards, Comcast,), and Bob Kocher (Partner, Venrock,)

Venrock’s Mr. Bob Kocher led off a panel discussion on value-based care with a grim overview of healthcare economics: $3.3 trillion dollars are spent on healthcare in the US every year, with two-thirds of the spend going toward wages, and abysmal average margins of -3%. He added that technology can help by increasing labor productivity, engaging patients, and helping payers capture quality and cost arbitrages. Each of the panel members heads up a value-based venture, and common themes that ran through all of their pitches were: (i) when incentives are properly aligned, value-based care is significantly more effective; (ii) healthcare has to be made easy, especially for underserved/elderly populations; and (iii) current infrastructure and technology was designed for fee-for-service care models, and would require significant revamping. See below for descriptions of the presenter’s intriguing companies.

• Each of the panelist heads up or works for companies that are experimenting with value based care – we find the premises interesting, and the data is encouraging:
  
  • Dr. Christopher Chen (CEO, ChenMed): ChenMed designed a high-touch concierge-like clinical model to focus on high-cost Medicare populations. Where the average PCP sees 2,300 patients for an average of nine minutes per year, ChenMed PCPs see 450 for an average of 168 minutes per year over the course of 13 visits. The program reduces hospitalizations by 38%-49%.
  • Mr. Adam Boehler (CEO, Landmark Health): Landmark is a risk-based provider for “complex patients.” It delivers primary care to wherever its 40,000+ patients are – hospital, nursing home, home, etc.
  • Mr. Shawn Leavitt (SVP of Total Rewards, Comcast): Comcast has 153,000 employees, 90% of which make less than $60,000 per year. Mr. Leavitt has overseen a progressive project to provide better service for employees, with a hyperfocus on getting people to where they need to be to get the right care. The >$1 billion plan has a 93% actuarial value (the plan covers 93% of healthcare expenses) and $250 deductible.
  • Mr. Noah Lang (CEO, Stride Health): Stride Health provides benefits to the growing segment of the population who doesn’t receive benefits through their job (e.g. Uber, Etsy, and Walmart employees). Stride focuses on convenience, offering services to help consumers navigate complex reimbursement and care landscapes, and engages with them where they receive paychecks. Mr. Lang said that 25% of the Stride population are weekly active users, who save an average of $400 per year in care alone.
• Curiously, Mr. Kocher said that wearables/sensors, personalized medicine, and big data/AI will “probably not” help to improve healthcare. He did not elaborate, though we’d have to disagree here, especially on the wearables/sensors point – widespread use of CGM, in our view, could drive more cost-effective remote care models, enable population tracking and prioritize care delivery, help customize therapies, and drive better insights through AI and big data. How else can meaningful outcomes be tracked between visits? How can a one-size-fits-all therapy work with equal efficacy for every patient? And how can we possibly hope to learn about population trends and begin to individualize therapy if not via big data and AI? Perhaps he is not sold yet, or perhaps he thinks of wearables/sensors as Fitbit-like consumer devices, but we see big potential here in diabetes.

Quotable Quotes

• “Everyone chases the new shiny object. A health plan needs to be an ecosystem – connect the right patient to the right provider at the right price. We’ve created ecosystems of service to ensure that’s what happens to our employees and their families so they don’t get the wrong service. How do we make this easy to make the right decision and hard to make the wrong one?” – Mr. Leavitt
• “Can you guess how many PCPs know when their patients were at the hospital? Probably close to zero. In our environment, everything is in one space at the point-of-care. That type of technology – claims, risk-based integration – is not available yet. That’s what doctors need to fundamentally change and improve risk.” – Dr. Chen
•  “You can’t do value-based care without someone quarterbacking the care team. In business, the quickest way to fail is to make sure no one is accountable. As soon as you make the point person accountable, there is a much higher chance of improving the overall result.” – Dr. Chen
•  “Because we aligned incentives by taking on risk, we can do things that fee-for-service providers can’t. We would lose money if we did fee-for-service. Doctors wouldn’t have the incentive to do what we do if we were fee-for-service. By taking risk, we align incentives. We pay doctors well and align incentives around healthcare utilization and patient satisfaction. The economics have to work. We’re not non-profits. Overwhelm patients with a model they love. Our Net Promoter Score is 93. We deliver care to them when they need it.” – Mr. Adam Boehler
• “There are hospitals out there that are hardwired. They invested a lot to be good at what they do. When they go to fundamentally change the philosophy care, it’s going to be big challenge. I think the majority of hospitals won’t be successful, and a minority will in that transition.” – Dr. Chen
• “Technology today is designed to optimize fee-for-service care. There are fundamental differences in workflows for fee-for-service and full-risk models.” – Dr. Chen
• “Most of what we learn in medical school is how to practice fee-for-service medicine. When Adam and I hire caregivers, we look for people who can fundamentally change the risk of a patient. An unstable heart failure patient is expensive, but a stable one is much less expensive. None of us who have gone to medical school are on the hook for these things. This is an evolving field of improving outcomes.” – Dr. Chen
• “Benefits professionals are notoriously risk-averse. If they’re putting their jobs on the line, it’s likely not going to happen. They’re not generally good at selling to the C-suite. If you don’t know how to talk to your CEO, CFO, leadership team about investing for value, you’re not going to be able to go in and sell like we have done. It’s an investment – added cost, but the payback is powerful. It requires that you think like a business-person. Lots of people in my chair don’t do that.” – Mr. Leavitt
• “For health plans to survive in the long run, they will need to rethink what they demand from primary care doctors. We need organizations that think about primary care differently, come up with payment models that are not fee-for-service, but reward organizations for health management. Not a reactive approach, but a health management approach. And pay for that. If they don’t pay for that, someone else will.” – Mr. Leavitt
•  “There is a rumor that the difference between fee-for-service and value-based care is 80% same, 20% different; just tweak the model. Well, the person saying that probably doesn’t know what value-based care looks like. It’s totally different. It’s more like 80% different, 20% same.” – Dr. Chen
•  “In our data, we have been able to analyze our employee data and analyze who has what level of stress. Those 15% with high financial stress spend $1100 more per year in healthcare costs, have 42 days of unplanned absence compared to 14, and on an individual productivity basis, there is a $44 million delta in productivity between individuals with high and low financial stress. Financial stress has a huge impact on individuals’ physical health.” – Mr. Leavitt

Type 1 Diabetes: Novel Therapies, Devices, and Diagnostics on the Horizon

Mark Fischer-Colbrie (JDRF Board of Directors, New York, NY); Jeffrey Brewer (CEO, Bigfoot Biomedical, Milpitas, CA); Mark Carthy (CEO, AnToLRx, Cambridge, MA); Tomas Landh (Novo Nordisk, Copenhagen, Denmark); Alborz Mahdavi, PhD (Protomer Technologies, Pasadena, CA); Robert Millman (CEO, Semma Therapeutics, Cambridge, MA)

What’s on the horizon in type 1 diabetes therapy? In an engaging panel discussion at the Biotech Showcase, Protomer’s founder Dr. Alborz Mahdavi focused on the potential of glucose-responsive insulins. Many rapid-acting and long-acting insulins grace the market – the next leap, “the future of technology in the insulin space,” will be glucose-responsive insulins, Dr. Mahdavi asserted. Protomer is working to create a continuously circulating insulin that responds dynamically to glucose levels, and plans to establish built-in safety features that minimize hypoglycemia risk. Dr. Mahdavi is a star in the glucose-responsive insulin field – he previously won both JDRF’s Glucose-Responsive Insulin Grand Challenge Prize and received significant funding from a collaboration between JDRF and Sanofi to advance glucose-responsive insulin. Novo Nordisk and Merck are also working on glucose-responsive insulins, along with other industry players and a number of academic groups. It’s been a while since we’ve heard a definitively positive update on any of these drug candidates, and Merck has been silent on MK-2640 since its phase 1 trial wrapped-up in August 2016, so we were happy to note such confidence in these agents from Dr. Mahdavi, even though almost all candidates in this field remain preclinical. Notably, several potential methods of glucose-response are under investigation – see our coverage of the JDRF/HCT Glucose-Responsive Insulin Workshop and our insulin competitive landscape for more.

• Bigfoot Biomedical’s Mr. Jeffery Brewer confirmed mid-2017 timing to begin a pivotal trial for the smartloop AID service. He also discussed the promise of automating insulin delivery alongside reimbursement challenges for type 1 diabetes therapies. While great strides have been made recently in getting automated insulin delivery (AID) devices close to market, he underscored that we’re just scratching the surface – the real opportunity is not only in automating insulin dosage, but in harnessing data to inform insulin titration recommendations, in monitoring AID systems to find areas for improvement, and in using artificial intelligence to engage patients in a dialogue about their insulin regimen. We agree – could CGM + smart insulin titration software offer 80% of the value of a pump + CGM system, but with much less cost? Turning to reimbursement, Mr. Brewer acknowledged a major obstacle for type 1 diabetes therapies: “The disease presents a challenge in demonstrating short-term payoffs. Better glucose control is going to benefit patients in the long-term, which is beyond what most private payers can consider when they have an average of two years before someone flips to a new insurance plan.” However, an important argument to encourage reimbursement lies in the ability of AID services to minimize insulin dosing errors and prevent hospitalizations. According to Mr. Brewer, a hypoglycemia-related hospitalization costs a mean of $33,700, a hyperglycemia-related hospitalization costs a mean $25,980, and these diabetes-related hospitalizations are occurring once every two patient-years. The source for these figures was not specified, but the hypoglycemia number is approximately double the typical $17,654 figure used for severe hypoglycemia hospitalizations. If true, that is startling. We see high potential in Bigfoot’s service model for one monthly price, offering payers a lower upfront cost and more of an at-risk relationship for Bigfoot. An open question is how quickly Bigfoot can build this model – it makes so much sense for payers, though there will be logistical complexities to offering a durable pump controller, disposable pumps, infusion sets, CGM sensors, and transmitters all in one monthly package. We’ll also be interested to see how well the MiniMed 670G is covered at launch, what Medtronic’s 1,000-patient outcomes study will show, and whether other companies can leverage its data.
• “Nature created the perfect cure for diabetes. It’s called the beta cell.” Mr. Robert Millman, CEO of Semma Therapeutics, discussed the company’s aim to “radically transform” our approach to type 1 diabetes through beta cell encapsulation. He described Semma as a preclinical company that will hopefully move a product into clinical testing within the next couple years. For background, Semma Therapeutics was founded by Harvard’s Dr. Doug Melton to commercialize his approach to creating stem cell-derived beta cells – from its inception, these cells held enormous potential for both encapsulation therapies and for drug research and discovery applications. Semma Therapeutics only recently explicitly stepped into the encapsulation field with its new partnership with Defymed, which boasts the preclinical MAILPAN “bioartificial pancreas” macroencapsulation system that features a semi-permeable membrane pouch to contain many insulin secreting cells. If successful, the combined technology could represent a functional cure for type 1 diabetes that does not require lifelong immunosuppressive therapy – that said, ViaCyte has evidently faced significant technical challenges with its macroencapsulation approach and we hope that Defymed and Semma Therapeutics will be able to either address or sidestep similar challenges. Despite its small number of years in existence, we’re excited to follow Semma Therapeutics’ progress in the years ahead.

Utilizing Biotech’s Biggest Untapped Resource: Diversity

Hannah Chang, MD (5AM Ventures, San Francisco, CA); Laurent Fischer, MD (CEO, Tobira Therapeutics, San Francisco, CA); Seema Kumar (Johnson & Johnson, New Brunswick, NJ); Julie Papanek (Canaan Partners, Westport, CT); Luke Timmerman (Timmerman Report, Seattle, Washington)

Mr. Luke Timmerman led this interactive discussion on the role of diversity in the biotech and pharmaceutical industries. The panelists spoke candidly, touching upon sensitive topics ­– the current political environment, recent minority shooting events – and commenting on how biotech companies could improve minority representation. Ms. Seema Kumar (J&J, New Brunswick, NJ) offered a particularly hopeful perspective, suggesting that pharmaceutical companies are increasingly recognizing the necessity for diversity and are implementing training programs to correct for both conscious and unconscious biases among their employees. Dr. Hannah Chang of locally-based 5AM Ventures suggested that owning up to biases is the most effective way to resolve the issues at hand. On that note, we recently put together a report on female leadership within major public diabetes companies – while the diabetes field is doing well on the whole, there’s still vast room for improvement, with more equal male-to-female representation on boards of directors. This is only one aspect to increasing diversity, of course, and we’d be very interested to learn how different minorities are represented on the boards of these diabetes companies. Ms. Julie Papanek (Canaan Partners, Westport, CT) advocated for hiring a recruiter in order to ensure more diversity and evolve the biotech and pharmaceutical sectors. She argued that recruiters allow a company to network globally, which also encourages a wider diversity of investors.

The Path from bugs to drugs: approaches to microbiome-based therapies and the risks and rewards for investors

Vernon Bernardino (FBR & Co., Arlington, VA), Nick Conley, PhD (CEO, EpiBiome, South San Francisco, CA), Lee Jones (CEO, Rebiotix, Roseville, MN), Jeffrey Riley (CEO, Synthetic Biologics, Dallas, TX), Matthew Wintle (HOST Therabiomics, Cambridge, MA), and Dirk Gevers, PhD (Janssen Human Microbiome Institute, Cambridge, MA)

In an exciting panel discussion, representatives of microbiome-focused companies highlighted the potential of emerging microbiome-based therapies. Reaffirming the incredible potential of the microbiome as a therapeutic target, each company takes a different approach to this complex system. EpiBiome, represented by Dr. Nick Conley, specializes in bacterial profiling and targets specific bacterial strains. HOST Therabiomics, on the other hand, focuses on the molecules that are produced by the bacteria and their interactions with the host. Rebiotix offers a completely different approach, focusing on “fecal microbial transplants” (FMT) utilizing healthy microbiota in donor stool as the basis of clinical treatment for metabolic disease. Challenges of growing and marketing microbiome-based therapies was a major topic of discussion. Rebiotix CEO Lee Jones pointed out that the field remains in its infancy and FDA guidelines for microbiome-based therapies simply do not yet exist (though several panelists cited the FDA as having been very helpful in these early days). Dr. Conley likened the current state of microbiome research and development to how antibiotics were viewed decades ago – with enthusiasm, but also a healthy dose of skepticism.

Lifetime trends in biopharmaceutical innovation: recent evidence and implications

Deborah Dunsire (Southern Cross Biotech Consulting LLC, Boston, MA), Bernard Munos (FasterCures, Washington, DC), and Murrey Aitken (QuintilesIMS Institute, Parsippany, NJ)

At Biotech Showcase across the street from JPM, Mr. Murrey Aitken, Executive Director of QuintilesIMS Institute, presented recent findings from the recently-released Lifetime Trends in Biopharmaceutical Innovation report analyzing development trends in biopharmaceuticals launched in the US in the past 20 years. The report showed an increase in overall drug launches from a base of 19 launches in 2008 to 47 in 2015. Other notable findings include an increase in specialist-prescribed medications (52% in 2000 vs. 67% in 2015) and an increase in number of drugs on the market for cancer treatment (11% in 1996-2000 vs. 28% in 2010-2015). A subsequent panel discussion took a deeper dive into the implications of these findings. Dr. Bernard Munos (FasterCures, Washington, DC) highlighted inefficiency of clinical research, and how this exacerbates the increasing costs and prolonged timescale of drug development, despite the existence of technological improvements in drug development methodology that should theoretically diminish this. Dr. Deborah Dunsire (Southern Cross Biotech Consulting LLC, Boston, MA) further suggested that the findings of the report should be evaluated by the pharmaceutical industry as a whole. All panelists agreed that a shorter clinical development timeline is key for an effective pharmaceutical market, but the best strategy to achieve this remains unclear.

• The average time from patent filling to the launch of a drug is 12.8 years – a figure that has remained constant over the past 20 years. The exceptions to this timeline include: (1) drugs that have been launched onto the market by the same company that filled out the patent (which take an average of 36 months less time); (2) drugs that have reached >$1 billion in annual sales (averaging 27 months less); and (3) oncology drugs (averaging 34 months less).

--by Adam Brown, Abigail Dove, Helen Gao, Brian Levine, Payal Marathe, and Kelly Close