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It’s almost here! Johnson & Johnson (NYSE: JNJ  ) is eagerly awaiting a decision on its type 2 diabetes drug Invokana (canagliflozin) by the end of the month. The novel small molecule inhibits the SGLT2 protein, which is responsible glucose retention in the kidney, thus allowing diabetes patients to maintain healthy glucose levels. Invokana has blockbuster potential as the first SGLT2 diabetes drug to (potentially) hit the market. Here’s what investors need to know. 

Pass or fail?
It looks like Invokana should have no problem gaining approval. The only thing that could put a lid on investor enthusiasm is the cautious outlook on the new class of drugs by the FDA. Bristol Meyers Squibb (NYSE: BMY  ) and AstraZeneca (NYSE: AZN  ) failed to get their SGLT2 inhibitor Forxiga (dapagliflozin) approved in November of last year, although the drug did gain approval in Europe.

What was the holdup? Forxiga showed a possible link to increased cancer risk. Invokana data has steered clear of a similar link thus far, but that didn’t stop a panel from voting 8-to-7 over long-term cardiovascular safety concerns. Johnson & Johnson is conducting a trial evaluating the long-term effects of Invokana, which is expected to wrap up in 2015. That should appease the FDA panel for the upcoming PDUFA and lead to a thumbs-up for the new drug.

Market competition: SGLT2 inhibitors
There are big advantages for a first-in-class drug such as Invokana. Pfizer’s (NYSE: PFE  ) ertugliflozin and Eli Lilly’s empagliflozin are the next SGLT2 inhibitors that will be thrust upon the market. Both drugs are in phase 3 trials at the moment, which pegs approval to late 2014 or 2015 and gives Johnson & Johnson a sizable window to get comfy with doctors and patients.

The FDA is also expected to reconsider Forxiga later this year after reviewing additional safety data. Should it gain approval in its second attempt, will doctors be able to overlook previous safety concerns and prescribe it over Invokana? 

Market competition: The field
Being first in class doesn’t automatically make a drug king, but being first to market sure helps. Merck’s (NYSE: MRK  ) Januvia was the first DPP-4 inhibitor approved for type 2 diabetes and is now the most well-established therapy. The franchise recorded $5.75 billion in worldwide sales in 2012. And despite Forxiga's woes, the alliance between Bristol Meyers and AstraZeneca isn’t exactly out of the race, either. The Byetta franchise, acquired from Amylin Pharmaceuticals last August, brought in $227 million in 2012.

Usually, doctors hesitate to prescribe new drugs as first-line therapies in light of a smaller body of safety data. That would seem to bode well for Januvia and Byetta, except for a recent study that found patients taking either drug were twice as likely to develop pancreatitis, a potentially lethal condition. The study puts a smudge on Januvia’s squeaky-clean safety and side-effect profile and creates an interesting opportunity for Invokana.

Invokana's blockbuster potential
Will doctors prescribe Invokana over well-established therapies with new safety data in hand? I think it’s highly unlikely that we’ll witness a mass exodus from Januvia, but the timing of the pancreatitis analysis study does work in the new drug’s favor. Let’s just not forget that Invokana has cardiovascular concerns of its own to deal with. Still, the drug beat Januvia head-to-head when it came to lowering blood glucose levels in clinical trials and was also found to contribute to weight loss, a concern for diabetes patients. With or without displacing Januvia, Invokana has blockbuster potential and should be a great addition to Johnson & Johnson's product lineup.  

Is bigger really better?
Involved in everything from baby powder to biotech, Johnson & Johnson's critics are convinced that the company is spread way too thin. If you want to know if J&J is nothing but a bloated corporate whale -- or a well-diversified giant that's perfect for your portfolio -- check out the Fool's new premium report outlining the Johnson & Johnson story in terms that any investor can understand. Claim your copy by clicking here now.


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