Developing a first-in-class drug can be lucrative. You start off with no competition. And once another drug comes along, there's little incentive for doctors to switch unless the new treatment has some defining benefit.

For instance, Merck's (NYSE: MRK) DPP-4 inhibitor Januvia and combo product Janumet had combined sales of more than $1 billion in the first quarter, while Bristol-Myers Squibb (NYSE: BMY) and AstraZeneca's (NYSE: AZN) follow-on DPP-4 inhibitor franchise registered sales of just $81 million over the same timeframe.

But as Bristol-Myers and AstraZeneca found out yesterday, being first in class also brings on added scrutiny. The companies are developing a first-in-class diabetes drug called dapagliflozin. The drug inhibits SGLT2, a protein involved in moving sugar filtered by the kidneys back into the bloodstream. If you inhibit SGLT2, the sugar gets excreted in the urine.

Dapagliflozin lowers blood-sugar levels in diabetics quite well, but people taking the drug got bladder and breast cancer at a higher rate than those taking placebo. A majority of the Food and Drug Administration advisory committee that met yesterday was concerned about the cancer risk and potential damage to the liver. The final vote was 9-6 recommending against approving the drug.

The side-effect signal wasn't that strong -- nine cancers versus one for placebo -- but the committee wasn't willing to take the chance. If SGLT2 drugs had been approved previously and hadn't shown an effect, the committee might have blown off the data as being due to chance alone. Bristol-Myers and AstraZeneca will have to wait until the FDA hands down its final decision in October, but I have a hard time seeing the agency going against its panel of outside experts on this one.

I don't know how the duo will be able to satisfy the agency; a trial to prove that there isn't an increase in cancer is probably impractical. They might just have to wait until other SGLT2 drugs being developed by Johnson & Johnson (NYSE: JNJ), Eli Lilly (NYSE: LLY), Boehringer Ingelheim, Isis Pharmaceuticals (Nasdaq: ISIS), and others are far enough along that it becomes clear there isn't a class effect. Even then, the FDA may not be satisfied that this isn't something specific to dapagliflozin. Unfortunately, being first in class doesn't guarantee you'll be first on the market.

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