Who Will Pioneer the New Diabetes Market?

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There's a shakeup coming in diabetes treatments, a market long dominated by insulin products. Big pharma is betting on SGLT2, a new drug class that could pair with existing treatments. SGLT2 has attracted the likes of Johnson & Johnson (NYSE: JNJ  ) and the partnership of Bristol-Myers Squibb (NYSE: BMY  ) and AstraZeneca (NYSE: AZN  ) . The first drugs to market could bring explosive earnings -- but risk questions and regulatory snags make that finish line hard to cross.

Why all this buzz? SGLT2s block glucose heading for the kidneys and reroute it through the urine. If there's less glucose in the blood, there's less work for the remaining insulin. The glucose focus gives these drugs the advantage of being insulin-independent, unlike most diabetes treatments. Drugs from this class can pair with insulin much more easily, without an interference risk. Diabetes patients often have to mix and match treatments to find one that works, and these drugs would provide a versatile new piece to that assembly process. But what companies will pioneer this new market?

First in line? Not so fast...
Bristol-Myers Squibb and AstraZeneca's SGLT2 drug Forxiga was recommended for approval by the European Medicines Agency back in April. The victory came months after the Food and Drug Administration denied the drug approval in the U.S., citing safety concerns about cancer risks. Bristol-Myers plans to file a new FDA application next year, and it will take several months after that for another decision.

The setback comes at a bad time for the backing companies, which are both suffering from patent expirations. Bristol-Myers had a failed hepatitis C treatment and a delayed blood thinner. AstraZeneca is facing down a bevy of patent expirations next year under the helm of a new CEO. The summer purchase of Amylin, conducted by Bristol-Myers with a pay-in from AstraZeneca, is a ray of light.

Forxiga's denial wasn't a shocker. The FDA has cracked down  on diabetes approvals since 2008, when Avandia was found to have heart attack risks. This regulatory trap may catch other SGLT2 medications as well.

A better contender?
Johnson & Johnson is on deck with canagliflozin, its late-stage development SGLT2 inhibitor. The NDA for canagliflozin was filled in May, and the FDA should make a formal decision in a few months. Clinical data showed the drug to be more effective than Merck's (NYSE: MRK) blockbuster Januvia. Canagliflozin appears not to harm patients' hearts, and trials had no signs of cancer risks, giving this drug a stronger shot at approval.

Johnson & Johnson has enough going on that a failure in the diabetes space would be a small blip. But the company has no track record of success in this particular market -- just a number of diabetes partnerships that have failed or petered out.

Foolish final thoughts
SGLT2 medications could become an important cog for patients building the perfect treatment combination. The first approved drug will need to definitively prove its safety, but this first approval will make it easier for the ones that follow. Bristol-Myers and AstraZeneca should have final word on Forxiga by late next year. Johnson & Johnson will follow shortly behind with a decision on canagliflozin.

Pharma stocks are practically synonymous with risk, and AstraZeneca carries the most out of the three. The company has huge patent expirations coming and new management at the helm; it's worth taking a seat and watching for a stronger game plan to emerge. Bristol-Myers posted a net loss of $711 million last quarter, but its recent acquisition of Amylin with AstraZeneca should help it in the diabetes space. Johnson & Johnson's diversity helps make it the fairest of them all, provided investors are willing to pay for shares near the top of their 52-week range.

For nearly 100 years, Merck's cutting-edge research has led to a number of medical breakthroughs. Today, however, this pharma stalwart is staring down a steep patent cliff and facing generic competition for its top-selling drug. Will Merck crumble under its own weight, or will it continue to pay dividends to investors for another century? To find out if this pharma giant has the stamina to keep its Bunsen burners alight, grab your copy of our brand new premium research report today. Our senior biotech analyst Brian Orelli, Ph.D., walks you through both the opportunities and threats facing Merck, and the report comes with a full 12 months of updates. Claim your copy now by clicking here.

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