Could This Popular Diabetes Treatment Also Treat Alzheimer's Disease?

Here's a sobering fact: By 2050, one in every three Americans will have diabetes, according to the Centers for Disease Control and Prevention. The number of Alzheimer's cases will also triple from current numbers. Therefore, when scientists announced that Novo Nordisk's (NVO -0.03%) popular new diabetes treatment, Victoza, could potentially be used to treat Alzheimer's patients, investors were intrigued.

The markets for diabetes and Alzheimer's treatments are as different as night and day. Diabetes is well understood and treated with established medications, while Alzheimer's disease has frustrated scientists with disappointing failures from companies like Johnson & Johnson (JNJ 1.49%), Pfizer (PFE 2.40%), and Eli Lilly (LLY -2.63%).

Getting to know Mr. Novo
Before discussing this potentially game-changing treatment, we should take a closer look at how Novo Nordisk, the world's largest manufacturer of diabetes treatments, fared in the first half of fiscal 2013.

During the fiscal year, 78% of the company's revenue was generated from its diabetes treatment segment, which reported 12% year-over-year growth. The remainder of revenue came from its smaller biopharmaceuticals segment.

Investors should understand the difference between Novo's analog insulins and human insulins. Both analog and human insulins are grown in saccharomyces cerevisiae (better known as baker's yeast) expressing the genetic code for insulin. Analog insulins, however, are genetically modified to either enter the bloodstream more quickly or more smoothly -- resulting in faster-acting or longer-lasting treatments. Analog insulins can make diabetes easier to control and reduce the number of daily injections, but they are also more expensive than human insulins.

The majority of Novo's diabetes treatment revenue is generated by three leading analog insulins -- NovoRapid (NovoLog in the United States), NovoMix, and Levemir.

Victoza, on the other hand, is a newer drug that can imitate a hormone (GLP-1) to stimulate the production of more natural insulin. This reduces the number of daily injections in a more natural way.

The following chart shows how Novo's major diabetes products fared during the first half of fiscal 2013.

Sources: Company report and author's conversions and calculations.

It's clear that demand for human insulins is slowing down despite having lower prices. Demand is steadily rising for Novo's analog insulins, although sales of Victoza are climbing the fastest.

Victoza still faces challenges
Although Victoza is Novo's fastest-growing product, it could face a major challenge from Eli Lilly's dulaglutide. This is a similar GLP-1 therapy that finished three late-stage trials with positive results comparable to Victoza. Dulaglutide has the advantage of being a once-weekly treatment, however, while Victoza needs to be taken daily.

This isn't the first time that Lilly has been a problem for Novo Nordisk. Earlier this month, Novo lost a major contract with U.S. pharmacy benefits manager Express Scripts, resulting in Novo's NovoRapid/NovoLog and Victoza being dropped in favor of diabetes treatments from Eli Lilly, Bristol-Myers Squibb, and AstraZeneca.

Could Victoza be used to treat Alzheimer's disease?
Considering the challenges facing Victoza, investors perked up news that the drug could be used as a potential treatment for Alzheimer's disease.

Most companies that are working on Alzheimer's treatments believe that brain plaques, composed of beta-amyloid proteins, are a major cause of the disease. The prevailing theory suggests that these plaques clog up neural pathways and kill brain cells.

The road to clearing brain plaques has been paved with disappointments, however.

One of the most disappointing attempts to clear away brain plaques was bapineuzumab, a treatment being tested by Pfizer, Johnson & Johnson, and Elan. Bapineuzumab was intended to bind with the plaques and clear them out individually. However, the treatment was found to be ineffective in treating patients with mild to moderate Alzheimer's disease, and trials for the intravenous version of the drug were discontinued last August.

Another major disappointment was Eli Lilly's solanezumab, which was also intended to clear away the plaques. It showed poor efficacy rates in phase 3 trials for advanced Alzheimer's cases. The drug is now being tested on mild Alzheimer's cases instead.

Trying where others have failed
Those high-profile failures are what make the new studies of Victoza so intriguing. A recent study by Professor Christian Holscher at Lancaster University showed that Victoza reduced brain plaque buildup by 30% in mice. Although a potential approval of Victoza as an Alzheimer's drug is still in the distant future, it is an area of potential growth to keep an eye on.

Surprisingly, Victoza isn't the only diabetes treatment with the potential to treat Alzheimer's. Last month, Takeda Pharmaceutical (NASDAQOTH: TKPYY) initiated a phase 3 trial to investigate the use of its diabetes treatment Actos to delay the progression of Alzheimer's. Actos is being tested to decrease inflammation of the brain, slowing down the progress of the disease. It does not go after the brain plaques that other treatments are targeting.

A Foolish final thought
In conclusion, Victoza still has a lot of growth potential as a diabetes treatment. Its possible application in Alzheimer's disease is another positive growth catalyst as well. Although the road has been bumpy, especially with the loss of the Express Scripts contract and possible competition from Lilly's dulaglutide, Victoza should remain Novo Nordisk's fastest-growing drug.

The robust growth of Novo's diabetes segment is encouraging for the company. It is especially so since Novo suffered a setback in February when the Food and Drug Administration refused to approve Tresiba, a long-acting insulin that the company had hoped would become a blockbuster drug.

Shares of Novo have had a bumpy ride, only climbing 8% over the past 12 months. Investors interested in Novo should keep a close eye on sales of Victoza and the company's three main analog insulins, as they are the company's main sources of long-term growth.

Editor's note: A previous version of this article stated that Novo Nordisk's insulin is made using bacteria instead of baker's yeast. The Fool regrets the error.