Recently, two pharmaceutical giants received FDA approval for a new treatment for type 2 diabetes. Farxiga (dapagliflozin) is a "sodium-glucose co-transporter 2 inhibitor", or SGLT2 inhibitor for short, in tablet form which helps to block glucose reabsorption and increases glucose excretion. The approval requires drug makers Bristol-Myers Squibb (NYSE:BMY) and AstraZeneca (NYSE:AZN) to conduct post-marketing studies that look at the risks for cardiovascular (CV) disease, bladder cancer, bladder tumor promotion, and liver abnormalities. The studies also need to look at the impact the drug will have on pregnant women and pediatric patients.

Farxiga was rejected back in 2012, when the FDA ruled insufficient data was presented about the drug's risks and benefits. In March 2013, a similar drug – Invokana (canagliflozin) – received FDA approval that also required the completion of several post-market studies. The approval made Invokana, which is manufactured by Janssen Pharmaceuticals, a Johnson & Johnson (NYSE:JNJ) company, a first-in-class treatment. As a first in class drug, Invokana was able to benefit from a period free from competition from similar drugs.

Farxiga found to be effective but long-term safety still under review
In April 2013, Bristol-Myers initiated a new randomized, placebo-controlled study, called DECLARE, with more that 17,000 adult patients suffering from type 2 diabetes. The study tested the efficacy of adding Farxiga to a patient's current anti-diabetes treatment and the risk of CV events or death. The study, which will provide additional data on the drug's long-term safety, should be completed by 2019 .

By December, an FDA advisory panel voted 13-1 in favor of Farxiga; panel members also voted 10-4 on the drug having an acceptable cardiovascular risk. According to MedPage Today, the drug's safety and efficacy was established after improvements in the average level of blood sugar were noted in over 9,400 patients. The drug has a few contraindications applicable to patients with renal disease and renal impairment and warnings for bladder cancer, low blood pressure, and others .

Bristol-Myers moving toward a simpler, specialty-based business
The approval of the drug comes on the heels of a December 2013 agreement between AstraZeneca and Bristol-Myers Squibb to consolidate their diabetes drug business. AstraZeneca is expected to acquire all of Bristol-Myers Squibb's interests in their joint diabetes portfolio for an upfront payment of $2.7 billion.

The agreement calls for additional milestone-based payments of up to $1.4 billion and royalty payments on net sales through 2025. There could also be a payment of $225 million based on the transfer of certain assets to AstraZeneca. The deal should be finalized during the first quarter of 2014. 

Third quarter results showed that Bristol-Myers' strongest segments were virology and oncology. Both segments combined made $1.88 billion, almost half of the third quarter's net sales of $4.06 billion. In contrast, the metabolics segment, which includes the diabetes portfolio, made $411 million.     The sale of the diabetes business by Bristol-Myers is part of the company's move toward more profitable specialties, while AstraZeneca continues its commitment to diabetes and metabolic disease, identified as one of several "growth platforms".

AstraZeneca shows greater focus on diabetes segment

For AstraZeneca, its diabetes business grew 60% in the third quarter of fiscal 2013 and contributed to overall growth of 8%. The diabetes franchise made $206 million, with almost half of sales provided by Onglyza, a diabetes treatment developed with Bristol Myers. Bristol-Myers also reported strong sales of Onglyza/Kombiglyze, which were up 19%. Forxiga, the European market name of Farxiga, has had good physician acceptance, however, obtaining reimbursements has been difficult. The drug had $3 million in sales during the quarter .

Competitor's drug Invokana reports strong sales

Meanwhile, Johnson & Johnson reported strong third quarter sales of Invokana and, in September 2013, approval was received to sell the drug in Europe. The company's pharmaceutical segment reported $7 billion in sales during the quarter, up 9.9% from $6.4 billion reported in the same period of 2012. Pharmaceuticals made up 40% of total third quarter sales of $17.6 billion. Sales of Invokana more than doubled during the quarter, however, specific sales figures were not provided .

My Foolish conclusion

This latest diabetes drug approval can provide AstraZeneca and Bristol-Myers Squibb with profits in the growing diabetes drug segment. The success of the drug could be limited if the post-market studies that must be conducted yield unfavorable results. Overall, the diabetes segment should continue to show strength over the long-term.