Hypertension is one of the major causes of chronic heart failure, a disease affecting more than 5 million Americans. As a result, hypertension drugs are widely used to reduce blood pressure in patients at risk of heart failure.
The most commonly prescribed of these drugs are either ACE inhibitors like enalapril -- formerly sold by Merck (NYSE:MRK) as the branded drug Vasotec -- or ARBs like Diovan, which is marketed by Novartis (NYSE:NVS). Despite the widespread use of ACE inhibitors and ARBs over the past 20 years, however, many patients still struggle to control their blood pressure. That suggests there's an opportunity for Novartis to capture market share with its latest blood pressure candidate, LCZ696.
First, a bit of background
ACE inhibitors like enalapril were first approved to treat high blood pressure in the early 1980s. These drugs work by reducing the production of enzymes known as angiotensin II that are responsible for constricting blood vessels and thickening and stiffening artery walls.
Similar to ACE inhibitors, ARB compounds also interrupt angiotensin II, but they do it differently. Instead of inhibiting the production of angiotensin II, ARBs like Diovan block angiotensin II from linking up with key receptors.
Since the two classes offer different mechanism of action, they can be prescribed alone or in combination with one another. But of the two, ACE inhibitors are more widely prescribed, accounting for 30% of all hypertension prescriptions in 2011. ARBs are the second most prescribed blood pressure-lowering drugs, accounting for 15% of prescriptions.
However, since all the major ACE inhibitors have lost patent exclusivity, spending on ACE inhibitors represented just 9% of spending on hypertension drugs in 2011. For comparison, spending on ARBs like Diovan accounted for 53% of the hypertension drug spending that year.
Rising pressure on Novartis
Spending on ARBs is heading south quickly following the expiration of patents covering key compounds, including Merck's Cozaar, which lost exclusivity in 2010. Generic Cozaar overtook Diovan as the most widely prescribed ARB in 2011, and ongoing conversion to generic ARBs caused Diovan's sales to slip 20% last year to $3.5 billion worldwide.
Diovan's sales slide would have been worse last year if not for stumbles at generic drugmaker Ranbaxy. Diovan lost patent exclusivity in 2012. However, Ranbaxy's challenging relationship with the Food and Drug Administration has delayed its rollout of a Diovan equivalent.
Novartis was less fortunate with Diovan HCT, a drug combining Diovan with hydrochlorothiazide, a drug that helps patients eliminate water and salt. Diovan HCT was generating more than $1.5 billion in annual sales for Novartis prior to losing exclusivity in 2012. Mylan (NASDAQ:MYL) began selling its generic version of Diovan HCT in September of that year, and Mylan has filled more than 4 million prescriptions for its generic Diovan HCT since its launch.
Given Mylan's success with generic Diovan HCT, it's not a stretch to assume that the eventual arrival of a Diovan generic will significantly eat away at Novartis' sales.
So far, Novartis attempts to lock up Diovan patients has centered on boosting prescriptions for Exforge, a one-pill combination drug that Novartis launched in 2007. Exforge combines Diovan with a calcium channel blocker -- another popular blood pressure-lowering approach -- and Exforge's sales grew 8% to $1.4 billion last year. However, Exforge faces its own patent headwind given roughly a quarter of Exforge's sales will be at risk later this year when the drug loses U.S. exclusivity in October.
Ushering a new therapy to market
If Novartis hopes to hang on to its blood pressure market share, it's going to have to offer a more effective therapy than low-cost generic ACE inhibitors and generic ARBs. So far, that hasn't been an easy thing to accomplish. While many indications see new therapies arriving every couple of years, ACE inhibitors and ARBs continue to dominate the market decades after their introduction.
That wouldn't be a bad thing if those therapies worked for everyone. Unfortunately, they don't. Just 50% of those with high blood pressure receive treatment, and only a third of those patients have their blood pressure adequately controlled. That leaves the door open for Novartis' up-and-coming drug LCZ696. LCZ696 is another Diovan combination drug. However, this time Novartis has paired up Diovan with a new compound called AHU-377, which inhibits activity of the neprilysin enzyme that is responsible for degrading blood pressure-lowering peptides.
In phase 2 trials, LCZ696 worked better than Diovan in controlling hypertension and interim results from a phase 3 study in chronic heart failure were impressive enough that independent monitors halted the trial early.
The recently stopped phase 3 trials evaluated LCZ696 in patients with heart failure and reduced ejection fraction, or HF-REF. Interim results showed LCZ696 patients lived longer without being hospitalized than patients treated with generic versions of Merck's Vasotec. That bolsters phase 2 findings showing that LCZ696 patients with a common form of heart failure known as HF-PEF had better morbidity and mortality rates than those treated with Diovan.
Foolworthy final thoughts
The interim data for LCZ696 in phase 3 accelerates the timeline to potential approval, suggesting that an FDA decision could come in as little as a year. If LCZ696 is approved, analysts estimate the drug could generate peak annual sales of at least $1 billion a year.
While the data adds conviction to LCZ696's potential to succeed Diovan, it doesn't guarantee the drug's approval. Investors should evaluate additional trial data when it's presented at a conference later in the year to make sure there aren't any surprises.