Top Stocks Set to Disrupt the Diabetes Market
Jul 6, 2018 16:26:36 GMT -5
sportsrancho, sla55, and 1 more like this
Post by mannmade on Jul 6, 2018 16:26:36 GMT -5
www.fool.com/investing/2018/07/06/top-stocks-set-to-disrupt-the-diabetes-market.aspx
Top Stocks Set to Disrupt the Diabetes Market
Revolutionary new drugs and medical devices could make these companies smart additions to your portfolio.
Author Picture Todd Campbell (TMFEBCapital)
Jul 6, 2018 at 12:59PM
More than 84 million Americans have prediabetes, and as a result, the number of them with diabetes is expected to soar to over 55 million by 2030 from about 30 million today, according to the Institute for Alternative Futures (IAF). This suggests Americans are at a greater risk of developing life-threatening diabetic complications than ever before. Preventing deaths from such secondary conditions as kidney failure and cardiovascular disease won't be easy, but a slate of companies, including Medtronic Plc (NYSE:MDT) and Novo Nordisk (NYSE:NVO), are working on new therapies that may transform how diabetes is treated.
Some of these game-changing diabetes treatments are years (if not decades) away, but a few are already here or fast-approaching. If you're interested in investing in companies that could disrupt the diabetes market, here's what you should know about the disease, the existing treatment options for it, and the revolutionary research being done to defeat it.
A light bulb shines above someone's head.
IMAGE SOURCE: GETTY IMAGES.
First, what is diabetes?
To understand diabetes, you need to understand the importance of insulin, an anabolic hormone produced by beta cells in the pancreas that allows our bodies to absorb and store glucose, a simple sugar found in many carbohydrates. When glucose levels in the bloodstream increase, such as after eating, a healthy pancreas produces insulin. This allows the liver and muscles to convert the glucose into glycogen, which is stored to provide energy as needed in the future. Since glycogen is a major source of energy for the human body, insulin is critical to its proper function.
In type 1 diabetes, the pancreas produces too little insulin, or none at all. This forces the body to generate energy via other, less-ideal processes. The exact cause of type 1 diabetes is unknown, but genetics and viruses are thought to cause sufferers' immune systems to attack and destroy beta cells. Typically, type 1 diabetes is diagnosed in childhood or adolescence, so it's sometimes referred to as "juvenile diabetes."
In type 2 diabetes, patients develop a resistance to the insulin that the pancreas produces. Genetics, smoking, and obesity are all believed to contribute to insulin resistance. Typically diagnosed in adults, type 2 diabetes now accounts for about 95% of all diabetes cases.
A life-threatening disease
If insulin isn't produced by the pancreas, or if the body develops insulin resistance, then too much glucose will remain in the bloodstream, which can damage blood vessels and nerves. If left untreated, this can result in the loss of feeling in limbs, including the feet. Patients may lose their ability to feel pain in their extremities, which can result in infections going unnoticed, and untreated. Over time, such untreated wounds can lead to life-threatening conditions, such as gangrene, that can require amputation. Although this outcome is relatively uncommon, every year, more than 70,000 Americans over the age of 20 must have toes, feet, or lower legs amputated as a result of diabetes complications.
A more common risk of diabetes is damage to the glomeruli in the kidneys, which are responsible for filtering waste products out of the bloodstream. This damage leads to too much protein leaking into the urine, and can cause scarring that can lead to kidney failure. Kidney disease is more common in type 1 diabetics, but it also affects type 2 patients. Overall, diabetes is the most common cause of kidney failure in America.
Damage to blood vessels can also cause a heart attack or a stroke. More than 68% of people age 65 or older who have diabetes die from heart disease, and diabetics are up to four times as likely to die from heart disease as healthy adults, according to the American Heart Association.
In total, complications associated with diabetes make it the seventh-leading cause of death in the United States.
How we treat diabetes now
The goal of diabetes treatment is to keep blood glucose levels in check. Typically, that means keeping average blood sugar levels below 7%, or about 154 mg/dL or 8.5 mmol/L. In their attempts to stay below this target, patients regularly monitor their glucose levels by using lances to draw blood from a finger, which they then rapidly analyze using a glucose meter.
Finger sticks and glucose meters are commonly used by people with type 2 diabetes. However, type 1 patients are increasingly using continuous glucose monitors (CGM) to track their blood sugar more precisely over time. (More on that in a minute.)
When insulin levels are too high, patients may take insulin to control their diabetes. There are five major types of insulin treatments :
Rapid-acting insulin: Works within minutes, and can last two to four hours.
Regular/short-acting insulin: Works in 30 minutes, and lasts three to six hours.
Intermediate-acting insulin: Works within one to two hours, and lasts up to 18 hours.
Long-acting insulin: Works within one to two hours, and lasts over 24 hours.
Ultra long-acting insulin: Works within one to two hours, and can last 42 hours.
If insulin isn't controlling a patient's blood glucose levels on its own, then other medications may be used, including:
Sulfonylureas: Stimulates the pancreas to release more insulin.
Biguanides: Decreases glucose production in the liver.
DPP-4 inhibitors: Prevents the breakdown of human glucagon-like peptide-1 (GLP-1), an enzyme that naturally lowers blood glucose.
SGLT2 inhibitors: Prevents sodium-glucose cotransporter 2 (SGLT2) in the kidney from reabsorbing glucose.
Better glucose management
As I mentioned, monitoring blood glucose is critical to controlling diabetes, and historically, that required finger sticks and a glucose meter. Unfortunately, that "point-in-time" approach to tracking blood sugar levels has fallen short for many people. According to studies, diabetics spend about 70% of their day outside of their desired blood glucose range.
To better control blood sugar levels, patients are increasingly turning to continuous glucose monitors, or CGMs. These systems rely on small sensors inserted just under the skin that regularly collect and relay information to a separate receiver that calculates, reports, and tracks blood glucose levels.
Medtronic, DexCom (NASDAQ:DXCM), and Abbott Labs (NYSE:ABT) are the biggest CGM manufacturers, and each recently won FDA approval for new systems that may accelerate the adoption of such devices.
Medtronic's history in this market stretches back to MiniMed, a company that won FDA approval in 1999 for a CGM device that physicians could use to evaluate patient data. Medtronic acquired MiniMed in 2001, and in 2004, it won approval for the first CGM that directly alerted patients when their blood sugar levels got too high (hyperglycemia) or too low (hypoglycemia).
In March, Medtronic secured FDA approval for the Guardian Connect -- the first of its CGM's that is able to send the data it collects directly to an app for Apple devices such as the iPhone. In addition, the device can be used in concert with Sugar.IQ, an app that uses IBM's Watson AI to glean insight based on glucose patterns, insulin use, and diet, and it offers a predictive feature that may be able to tell patients that their blood sugar is about to get too high or too low up to 60 minutes in advance.
The Guardian Connect will become available to Apple users this summer, but there's no timeline for an Android version, so it will be interesting to see how demand for it compares to DexCom and Abbott's latest devices.
DexCom's newest CGM is the G6, which also won approval in March. The G6 is DexCom's first completely "finger-stick" free CGM. The company's previous model eliminated the need for finger sticks to check whether insulin was needed throughout the day, but they were still required twice daily to calibrate the system. The G6 doesn't require that kind of calibration.
The device boasts a short two-hour warm-up period, which means it can begin trending data more quickly after sensors are swapped, and sensors can be worn for 10 days, up from seven days previously. It can send data to a receiver, or to an app that's available for both Apple and Android devices. Like the Guardian Connect, it alerts patients when their glucose readings get too high or low.
Arguably, the G6 puts DexCom back in the lead technologically versus the Freestyle Libre, an Abbott Labs' CGM that won FDA approval in 2016. The Freestyle Libre was the first device to eliminate the need for finger sticks for calibration, and because it launched at a lower price than DexCom's G5, its sales have been strong.
According to Abbott, 650,000 people are already using the Freestyle Libre and as of March, 50,000 patients are being added per month. It will be interesting to see if that pace slows now that the G6 is available, though, particularly since the Freestyle Libre doesn't provide alerts; doesn't automatically send sensor data to its receiver; and there isn't an app available in the U.S. for it yet, so a separate receiver is still required.
A person points at a wall covered by diagrams, including a light bulb.
IMAGE SOURCE: GETTY IMAGES.
The era of the artificial pancreas arrives
On their own, CGMs represent a major advance in diabetes management, but their use in closed-loop systems is potentially more disruptive. By combining a CGM, sophisticated software, and an insulin pump to automatically measure and dose insulin as it's needed, a closed-loop system effectively takes over for the pancreas, which is why some people refer to these systems as an artificial pancreas.
Medtronic's MiniMed 670G became the first FDA approved closed-loop system in 2016. It features sensors that measure blood glucose for up to seven days, a transmitter, an insulin pump, and software. The system calculates blood glucose levels every five minutes, and automatically adjusts how much insulin it doses based on those readings.
At mealtimes, patients enter an estimate of the carbs they'll consume, and the system calculates the amount of insulin they'll need accordingly. If the patient estimates inaccurately, the MiniMed 670G will compensate based on later readings. It also includes a feature that shuts off insulin ahead of projected blood sugar lows to proactively manage risks.
Because this system significantly reduces the burden on patients, and increases the amount of time they stay within their desired blood sugar range, demand for it has been robust. As of March, 70,000 people were using it, up from 20,000 at the end of 2017. Medtronic didn't break out MiniMed 670G sales specifically, but it did say that the system is a big reason why the company's diabetes revenue increased 26% year over year to $645 million in its fiscal fourth quarter.
Medtronic is the only maker of an artificial pancreas right now, but other companies are developing their own closed-loop systems, and will launch them soon. Those closest to debuting them are the privately held Bigfoot Biomedical, Insulet (NASDAQ:PODD), and Tandem Diabetes Care (NASDAQ:TNDM). Bigfoot Biomedical is using Abbott's Freestyle Libre, while Insulet and Tandem Diabetes are using DexCom's CGMs.
Tandem's automated system won approval in June, and will be the first to launch in August. It pairs its t:slim, a tube-based pump that can be continuously updated with new features, with DexCom's G6 CGM.
Bigfoot Biomedical doesn't have any products on the market yet, but Insulet competes against Tandem with OmniPod, a tubeless pump that's attached to the skin to deliver insulin for up to three days. Insulet hopes to win approval of its automated insulin system in late 2019 or 2020. Trials of Bigfoot Biomedical's system should start this year.
Disruptive diabetes devices
Doing away with finger sticks and automating delivery are big wins for type 1 patients, but a much larger opportunity exists for disrupting how type 2 patients manage their blood sugar.
Because only a fraction of type 2 patients require the same intensive-insulin management as type 1 patients, CGMs only have low, single-digit-percentage penetration of the type 2 market. If that is to change, CGMs will have to get simpler to use and cheaper.
DexCom hopes to deliver on those goals via a collaboration with Alphabet healthcare subsidiary Verily. The two companies are working together to create miniaturized, disposable CGM sensors that would work better and be less expensive than currently available technology. DexCom hopes to get them to market in 2020.
Ideally, these smaller, smarter, and cheaper sensors will not only win over type 2 patients, but will also open the door to the use of CGMs by people with prediabetes who want to prevent their disease from progressing. If that happens, then these next-generation sensors could really reshape the indication.
DexCom and Verily aren't the only companies interested in tapping a broader market, either. Fitbit (NYSE:FIT) is working with Medtronic on technology that combines their areas of expertise. Also, Apple is reportedly developing technology that will use sensors in the Apple Watch to track blood sugar, so people can better understand how diet impacts their glucose levels. The tech giant has made significant investments in its healthcare app to establish itself as a repository for healthcare data; eventually, data collected by Apple Watch sensors could be stored within individual patients' healthcare records, and used to improve how doctors treat diabetes.
A scientist preparing to look at a sample using a microscope.
IMAGE SOURCE: GETTY IMAGES.
Diabetes drug discovery
Novo Nordisk (NYSE:NVO), Eli Lilly (NYSE:LLY), and Sanofi (NYSE:SNY) are the biggest diabetes drugmakers in the world, and they're hard at work developing treatments to better control the disease.
Novo Nordisk markets the top-selling NovoLog, a rapid-acting insulin that's delivered by injection using an all-in-one, pen-sized device; the long-acting insulin Tresiba; and the GLP-1 drug Victoza.
A once-daily, new-generation insulin for type 1 and type 2 patients, Tresiba has a 25-hour half-life, and duration of action of at least 42 hours. Since it lasts longer, Tresiba reduces patient burden by offering more dosing flexibility. Victoza has been around since 2010, but the FDA updated its prescription label last year to include data from trials showing it reduces the risk of major cardiovascular events, including heart attack and stroke, in type 2 patients. As a result, Victoza's sales grew 16% in 2017.
Ozempic, a once-weekly, injectable GLP-1 treatment for type 2 diabetes, and Fiasp, a new fast-acting mealtime insulin, won FDA approval in 2017, so they could boost Novo Nordisk's sales in the short term. Longer term, it's the company's work on oral diabetes drugs and its stem cell research that everyone should be watching.
Insulin and biologics, including GLP-1 diabetes medications, are destroyed by digestive enzymes if they're taken orally, so currently, they must be injected. However, Novo Nordisk's making headway in overcoming that obstacle. It's already running late-stage studies of an oral formulation of Ozempic, and its conducting early-stage research on an insulin tablet.
Novo Nordisk's stem cell research is even more revolutionary. Someday, the company hopes it will be able to transform adult stem cells into insulin-producing beta cells. Human trials won't happen for years, but if they're successful, this approach could provide type 1 patients with a functional diabetes cure.
Diabetes drugs accounted for about 44% of Eli Lilly's total revenue in 2017, and it's engaged in intriguing research and development, too. One of its biggest recent advances is Basaglar, a low-cost biosimilar to Sanofi's long-acting insulin, Lantus. Although biosimilars are not perfect copies of the biologics they mimic, they work similarly enough to the brand-name drugs for the FDA to recommend their use. As of June, Basaglar was about 15% cheaper than Lantus, according to GoodRx, and since Lantus was generating $7 billion in sales per year at its peak, Basalgar's launch is significant -- its sales skyrocketed over 400% to $432 million in 2017.
A person hands a prescription to a pharmacist.
IMAGE SOURCE: GETTY IMAGES.
One of Eli Lilly's more intriguing R&D projects is a nasally delivered dose of glucose that can be administered to patients suffering from hypoglycemia -- dangerously low blood sugar. This condition can occur when patients take too much insulin; currently, all the rescue treatments available to patients must be injected. In trials, one puff of Lilly's nasal glucose led to recovery in most patients within 30 minutes; based on those results, Eli Lilly plans to file for FDA approval of the treatment in 2018.
It's also developing its "connected diabetes ecosystem" project. It inked a collaboration deal in December to use DexCom's CGMs alongside smart insulin pens to address the needs of patients who don't rely on or aren't interested in insulin pump technology. The company also recently started an early-stage trial for its own closed-loop, automated insulin delivery system.
Further, Eli Lilly is collaborating with Sigilon, a clinical stage R&D company, on encapsulated cell therapies for type 1 diabetes. As part of this deal, which was announced in April, Eli Lilly secured exclusive rights to Sigilon's afibromer technology for $63 million up front, plus milestone payments, and an equity investment. Sigilon will test its technology to see if it can encapsulate insulin-producing stem cells so that they won't spark a foreign-body immune response. As with Novo Nordisk's efforts, this could effectively restore insulin production in patients.
Not to be left out, Sanofi recently got an FDA OK for Admelog, a biosimilar to Eli Lilly's rapid-acting Humalog. Sanofi launched Admelog in April, so we'll have to wait to see if has as much success as Eli Lilly's Basalgar, but it's certainly possible that Admelog could disrupt the rapid-acting insulin market. Humalog sales were $2.9 billion in 2017, and Sanofi is marketing a savings card that will allow patients to buy a 5-pack of Admelog for about half of Humalog's retail price.
Sanofi's also awaiting an FDA decision on sotagliflozin, a drug it licensed from Lexicon Pharmaceuticals (NASDAQ:LXRX) in 2015 for $300 million up front, up to $430 million in development and regulatory milestones, up to $990 million in specified sales milestones, and tiered, escalating royalties ranging from low double-digit percentages to 40% of net sales.
If it gets the thumbs up, sotagliflozin will be the first diabetes drug to control blood glucose levels by inhibiting both SGLT2 and SGLT1, which is responsible for reabsorbing glucose in the gastrointestinal tract. FDA approval is uncertain because there are some questions about its safety. An increased rate of diabetic ketoacidosis (DKA), a life-threatening buildup of acids in the blood that occurs when blood sugar is too high for too long, was observed in some patients. However, DKA risks exist with previously approved SGLT2 drugs, too, so this drug could make it to market.
Sanofi is also conducting phase 3 studies on SAR341402, a rapid-acting insulin that could challenge NovoLog, and efpeglenatide, a long-acting GLP-1 drug that could compete against Trulicity and Ozempic.
What I find most interesting, though, is Onduo, a collaboration between Sanofi and Verily Life Sciences that's seeking to improve patient outcomes by developing diabetes management solutions that incorporate software, devices, and medicine. Onduo is offered free to members of participating insurance plans -- they receive welcome kits that include a connected blood glucose monitor, or a DexCom CGM if applicable, that shares blood sugar information with certified coaches who work with members in between their doctor visits. A comprehensive, real-time approach, Onduo could help many more people better control their blood sugar.
Pills spilling out of a bottle in the shape of a U.S. Dollar symbol.
IMAGE SOURCE: GETTY IMAGES.
Should you buy these diabetes stocks?
The market for diabetes treatment is undeniably massive and the potential to address diabetes with innovations that allow patients to manage blood sugar better could produce billions of dollars in sales for medical device makers and drugmakers.
Top 9 Most Innovative Diabetes Stocks
Company Market Cap Product Type Market capitalization
Medtronic (NYSE:MDT) $118 billion Medical devices $116.1 billion
Novo Nordisk (NYSE:NVO) $118 billion Medication $117.2 billion
Abbott Labs (NYSE:ABT) $108 billion Medical devices $107.5 billion
Sanofi (NYSE:SNY) $107 billion Medication $105.3 billion
Eli Lilly & Co. (NYSE:LLY) $96 billion Medication $88.4 billion
DexCom (NASDAQ:DXCM) $9 billion Medical devices $8.6 billion
Insulet (NASDAQ:PODD) $5 billion Medical devices $5.1 billion
Lexicon Pharmaceuticals NASDAQ: LXRX) $1 billion Medication $1.4 billion
Tandem Diabetes Care (NASDAQ:TNDM) $1 billion Medical devices $1.2 billion
DATA SOURCE: YAHOO!FINANCE. AUTHOR'S TABLE. MARKET CAPS AS OF JULY 6, 2018.
Among the medical device companies, Medtronic and Abbott Labs have multidecade track records of dividend increases that should make them intriguing to income investors. However, their diabetes businesses account for only small fractions of their overall revenues. For instance, Medtronic's sales topped $8 billion in fiscal Q4, and diabetes was only responsible for about 8% of that.
Novo Nordisk, Eli Lilly, and Sanofi all pay dividends, too, and while they get a greater share of their sales from diabetes than Medtronic and Abbott do, they're still diversified biopharma companies. For that reason, while they might be good stocks to buy for some investors, they're not diabetes pure plays that I plan on adding to my portfolio.
Growth investors like me who are interested in direct exposure to disruptive diabetes treatments might want to consider buying DexCom, Insulet, and Tandem Diabetes. Because DexCom's CGMs are being considered for use in multiple closed-loop systems, and because it's working with Verily on smaller, cheaper, sensors that could allow it to significantly expand into type 2 diabetes market, it's my favorite of the three.
Ultimately, I expect combining software and wearables with medications will lead to the next big step forward in treating diabetes, but further out, the one big thing I'll be watching is what progress is made on developing stem cell therapies. If those efforts succeed, then the need for closed-loop, artificial pancreas systems could disappear.
Top Stocks Set to Disrupt the Diabetes Market
Revolutionary new drugs and medical devices could make these companies smart additions to your portfolio.
Author Picture Todd Campbell (TMFEBCapital)
Jul 6, 2018 at 12:59PM
More than 84 million Americans have prediabetes, and as a result, the number of them with diabetes is expected to soar to over 55 million by 2030 from about 30 million today, according to the Institute for Alternative Futures (IAF). This suggests Americans are at a greater risk of developing life-threatening diabetic complications than ever before. Preventing deaths from such secondary conditions as kidney failure and cardiovascular disease won't be easy, but a slate of companies, including Medtronic Plc (NYSE:MDT) and Novo Nordisk (NYSE:NVO), are working on new therapies that may transform how diabetes is treated.
Some of these game-changing diabetes treatments are years (if not decades) away, but a few are already here or fast-approaching. If you're interested in investing in companies that could disrupt the diabetes market, here's what you should know about the disease, the existing treatment options for it, and the revolutionary research being done to defeat it.
A light bulb shines above someone's head.
IMAGE SOURCE: GETTY IMAGES.
First, what is diabetes?
To understand diabetes, you need to understand the importance of insulin, an anabolic hormone produced by beta cells in the pancreas that allows our bodies to absorb and store glucose, a simple sugar found in many carbohydrates. When glucose levels in the bloodstream increase, such as after eating, a healthy pancreas produces insulin. This allows the liver and muscles to convert the glucose into glycogen, which is stored to provide energy as needed in the future. Since glycogen is a major source of energy for the human body, insulin is critical to its proper function.
In type 1 diabetes, the pancreas produces too little insulin, or none at all. This forces the body to generate energy via other, less-ideal processes. The exact cause of type 1 diabetes is unknown, but genetics and viruses are thought to cause sufferers' immune systems to attack and destroy beta cells. Typically, type 1 diabetes is diagnosed in childhood or adolescence, so it's sometimes referred to as "juvenile diabetes."
In type 2 diabetes, patients develop a resistance to the insulin that the pancreas produces. Genetics, smoking, and obesity are all believed to contribute to insulin resistance. Typically diagnosed in adults, type 2 diabetes now accounts for about 95% of all diabetes cases.
A life-threatening disease
If insulin isn't produced by the pancreas, or if the body develops insulin resistance, then too much glucose will remain in the bloodstream, which can damage blood vessels and nerves. If left untreated, this can result in the loss of feeling in limbs, including the feet. Patients may lose their ability to feel pain in their extremities, which can result in infections going unnoticed, and untreated. Over time, such untreated wounds can lead to life-threatening conditions, such as gangrene, that can require amputation. Although this outcome is relatively uncommon, every year, more than 70,000 Americans over the age of 20 must have toes, feet, or lower legs amputated as a result of diabetes complications.
A more common risk of diabetes is damage to the glomeruli in the kidneys, which are responsible for filtering waste products out of the bloodstream. This damage leads to too much protein leaking into the urine, and can cause scarring that can lead to kidney failure. Kidney disease is more common in type 1 diabetics, but it also affects type 2 patients. Overall, diabetes is the most common cause of kidney failure in America.
Damage to blood vessels can also cause a heart attack or a stroke. More than 68% of people age 65 or older who have diabetes die from heart disease, and diabetics are up to four times as likely to die from heart disease as healthy adults, according to the American Heart Association.
In total, complications associated with diabetes make it the seventh-leading cause of death in the United States.
How we treat diabetes now
The goal of diabetes treatment is to keep blood glucose levels in check. Typically, that means keeping average blood sugar levels below 7%, or about 154 mg/dL or 8.5 mmol/L. In their attempts to stay below this target, patients regularly monitor their glucose levels by using lances to draw blood from a finger, which they then rapidly analyze using a glucose meter.
Finger sticks and glucose meters are commonly used by people with type 2 diabetes. However, type 1 patients are increasingly using continuous glucose monitors (CGM) to track their blood sugar more precisely over time. (More on that in a minute.)
When insulin levels are too high, patients may take insulin to control their diabetes. There are five major types of insulin treatments :
Rapid-acting insulin: Works within minutes, and can last two to four hours.
Regular/short-acting insulin: Works in 30 minutes, and lasts three to six hours.
Intermediate-acting insulin: Works within one to two hours, and lasts up to 18 hours.
Long-acting insulin: Works within one to two hours, and lasts over 24 hours.
Ultra long-acting insulin: Works within one to two hours, and can last 42 hours.
If insulin isn't controlling a patient's blood glucose levels on its own, then other medications may be used, including:
Sulfonylureas: Stimulates the pancreas to release more insulin.
Biguanides: Decreases glucose production in the liver.
DPP-4 inhibitors: Prevents the breakdown of human glucagon-like peptide-1 (GLP-1), an enzyme that naturally lowers blood glucose.
SGLT2 inhibitors: Prevents sodium-glucose cotransporter 2 (SGLT2) in the kidney from reabsorbing glucose.
Better glucose management
As I mentioned, monitoring blood glucose is critical to controlling diabetes, and historically, that required finger sticks and a glucose meter. Unfortunately, that "point-in-time" approach to tracking blood sugar levels has fallen short for many people. According to studies, diabetics spend about 70% of their day outside of their desired blood glucose range.
To better control blood sugar levels, patients are increasingly turning to continuous glucose monitors, or CGMs. These systems rely on small sensors inserted just under the skin that regularly collect and relay information to a separate receiver that calculates, reports, and tracks blood glucose levels.
Medtronic, DexCom (NASDAQ:DXCM), and Abbott Labs (NYSE:ABT) are the biggest CGM manufacturers, and each recently won FDA approval for new systems that may accelerate the adoption of such devices.
Medtronic's history in this market stretches back to MiniMed, a company that won FDA approval in 1999 for a CGM device that physicians could use to evaluate patient data. Medtronic acquired MiniMed in 2001, and in 2004, it won approval for the first CGM that directly alerted patients when their blood sugar levels got too high (hyperglycemia) or too low (hypoglycemia).
In March, Medtronic secured FDA approval for the Guardian Connect -- the first of its CGM's that is able to send the data it collects directly to an app for Apple devices such as the iPhone. In addition, the device can be used in concert with Sugar.IQ, an app that uses IBM's Watson AI to glean insight based on glucose patterns, insulin use, and diet, and it offers a predictive feature that may be able to tell patients that their blood sugar is about to get too high or too low up to 60 minutes in advance.
The Guardian Connect will become available to Apple users this summer, but there's no timeline for an Android version, so it will be interesting to see how demand for it compares to DexCom and Abbott's latest devices.
DexCom's newest CGM is the G6, which also won approval in March. The G6 is DexCom's first completely "finger-stick" free CGM. The company's previous model eliminated the need for finger sticks to check whether insulin was needed throughout the day, but they were still required twice daily to calibrate the system. The G6 doesn't require that kind of calibration.
The device boasts a short two-hour warm-up period, which means it can begin trending data more quickly after sensors are swapped, and sensors can be worn for 10 days, up from seven days previously. It can send data to a receiver, or to an app that's available for both Apple and Android devices. Like the Guardian Connect, it alerts patients when their glucose readings get too high or low.
Arguably, the G6 puts DexCom back in the lead technologically versus the Freestyle Libre, an Abbott Labs' CGM that won FDA approval in 2016. The Freestyle Libre was the first device to eliminate the need for finger sticks for calibration, and because it launched at a lower price than DexCom's G5, its sales have been strong.
According to Abbott, 650,000 people are already using the Freestyle Libre and as of March, 50,000 patients are being added per month. It will be interesting to see if that pace slows now that the G6 is available, though, particularly since the Freestyle Libre doesn't provide alerts; doesn't automatically send sensor data to its receiver; and there isn't an app available in the U.S. for it yet, so a separate receiver is still required.
A person points at a wall covered by diagrams, including a light bulb.
IMAGE SOURCE: GETTY IMAGES.
The era of the artificial pancreas arrives
On their own, CGMs represent a major advance in diabetes management, but their use in closed-loop systems is potentially more disruptive. By combining a CGM, sophisticated software, and an insulin pump to automatically measure and dose insulin as it's needed, a closed-loop system effectively takes over for the pancreas, which is why some people refer to these systems as an artificial pancreas.
Medtronic's MiniMed 670G became the first FDA approved closed-loop system in 2016. It features sensors that measure blood glucose for up to seven days, a transmitter, an insulin pump, and software. The system calculates blood glucose levels every five minutes, and automatically adjusts how much insulin it doses based on those readings.
At mealtimes, patients enter an estimate of the carbs they'll consume, and the system calculates the amount of insulin they'll need accordingly. If the patient estimates inaccurately, the MiniMed 670G will compensate based on later readings. It also includes a feature that shuts off insulin ahead of projected blood sugar lows to proactively manage risks.
Because this system significantly reduces the burden on patients, and increases the amount of time they stay within their desired blood sugar range, demand for it has been robust. As of March, 70,000 people were using it, up from 20,000 at the end of 2017. Medtronic didn't break out MiniMed 670G sales specifically, but it did say that the system is a big reason why the company's diabetes revenue increased 26% year over year to $645 million in its fiscal fourth quarter.
Medtronic is the only maker of an artificial pancreas right now, but other companies are developing their own closed-loop systems, and will launch them soon. Those closest to debuting them are the privately held Bigfoot Biomedical, Insulet (NASDAQ:PODD), and Tandem Diabetes Care (NASDAQ:TNDM). Bigfoot Biomedical is using Abbott's Freestyle Libre, while Insulet and Tandem Diabetes are using DexCom's CGMs.
Tandem's automated system won approval in June, and will be the first to launch in August. It pairs its t:slim, a tube-based pump that can be continuously updated with new features, with DexCom's G6 CGM.
Bigfoot Biomedical doesn't have any products on the market yet, but Insulet competes against Tandem with OmniPod, a tubeless pump that's attached to the skin to deliver insulin for up to three days. Insulet hopes to win approval of its automated insulin system in late 2019 or 2020. Trials of Bigfoot Biomedical's system should start this year.
Disruptive diabetes devices
Doing away with finger sticks and automating delivery are big wins for type 1 patients, but a much larger opportunity exists for disrupting how type 2 patients manage their blood sugar.
Because only a fraction of type 2 patients require the same intensive-insulin management as type 1 patients, CGMs only have low, single-digit-percentage penetration of the type 2 market. If that is to change, CGMs will have to get simpler to use and cheaper.
DexCom hopes to deliver on those goals via a collaboration with Alphabet healthcare subsidiary Verily. The two companies are working together to create miniaturized, disposable CGM sensors that would work better and be less expensive than currently available technology. DexCom hopes to get them to market in 2020.
Ideally, these smaller, smarter, and cheaper sensors will not only win over type 2 patients, but will also open the door to the use of CGMs by people with prediabetes who want to prevent their disease from progressing. If that happens, then these next-generation sensors could really reshape the indication.
DexCom and Verily aren't the only companies interested in tapping a broader market, either. Fitbit (NYSE:FIT) is working with Medtronic on technology that combines their areas of expertise. Also, Apple is reportedly developing technology that will use sensors in the Apple Watch to track blood sugar, so people can better understand how diet impacts their glucose levels. The tech giant has made significant investments in its healthcare app to establish itself as a repository for healthcare data; eventually, data collected by Apple Watch sensors could be stored within individual patients' healthcare records, and used to improve how doctors treat diabetes.
A scientist preparing to look at a sample using a microscope.
IMAGE SOURCE: GETTY IMAGES.
Diabetes drug discovery
Novo Nordisk (NYSE:NVO), Eli Lilly (NYSE:LLY), and Sanofi (NYSE:SNY) are the biggest diabetes drugmakers in the world, and they're hard at work developing treatments to better control the disease.
Novo Nordisk markets the top-selling NovoLog, a rapid-acting insulin that's delivered by injection using an all-in-one, pen-sized device; the long-acting insulin Tresiba; and the GLP-1 drug Victoza.
A once-daily, new-generation insulin for type 1 and type 2 patients, Tresiba has a 25-hour half-life, and duration of action of at least 42 hours. Since it lasts longer, Tresiba reduces patient burden by offering more dosing flexibility. Victoza has been around since 2010, but the FDA updated its prescription label last year to include data from trials showing it reduces the risk of major cardiovascular events, including heart attack and stroke, in type 2 patients. As a result, Victoza's sales grew 16% in 2017.
Ozempic, a once-weekly, injectable GLP-1 treatment for type 2 diabetes, and Fiasp, a new fast-acting mealtime insulin, won FDA approval in 2017, so they could boost Novo Nordisk's sales in the short term. Longer term, it's the company's work on oral diabetes drugs and its stem cell research that everyone should be watching.
Insulin and biologics, including GLP-1 diabetes medications, are destroyed by digestive enzymes if they're taken orally, so currently, they must be injected. However, Novo Nordisk's making headway in overcoming that obstacle. It's already running late-stage studies of an oral formulation of Ozempic, and its conducting early-stage research on an insulin tablet.
Novo Nordisk's stem cell research is even more revolutionary. Someday, the company hopes it will be able to transform adult stem cells into insulin-producing beta cells. Human trials won't happen for years, but if they're successful, this approach could provide type 1 patients with a functional diabetes cure.
Diabetes drugs accounted for about 44% of Eli Lilly's total revenue in 2017, and it's engaged in intriguing research and development, too. One of its biggest recent advances is Basaglar, a low-cost biosimilar to Sanofi's long-acting insulin, Lantus. Although biosimilars are not perfect copies of the biologics they mimic, they work similarly enough to the brand-name drugs for the FDA to recommend their use. As of June, Basaglar was about 15% cheaper than Lantus, according to GoodRx, and since Lantus was generating $7 billion in sales per year at its peak, Basalgar's launch is significant -- its sales skyrocketed over 400% to $432 million in 2017.
A person hands a prescription to a pharmacist.
IMAGE SOURCE: GETTY IMAGES.
One of Eli Lilly's more intriguing R&D projects is a nasally delivered dose of glucose that can be administered to patients suffering from hypoglycemia -- dangerously low blood sugar. This condition can occur when patients take too much insulin; currently, all the rescue treatments available to patients must be injected. In trials, one puff of Lilly's nasal glucose led to recovery in most patients within 30 minutes; based on those results, Eli Lilly plans to file for FDA approval of the treatment in 2018.
It's also developing its "connected diabetes ecosystem" project. It inked a collaboration deal in December to use DexCom's CGMs alongside smart insulin pens to address the needs of patients who don't rely on or aren't interested in insulin pump technology. The company also recently started an early-stage trial for its own closed-loop, automated insulin delivery system.
Further, Eli Lilly is collaborating with Sigilon, a clinical stage R&D company, on encapsulated cell therapies for type 1 diabetes. As part of this deal, which was announced in April, Eli Lilly secured exclusive rights to Sigilon's afibromer technology for $63 million up front, plus milestone payments, and an equity investment. Sigilon will test its technology to see if it can encapsulate insulin-producing stem cells so that they won't spark a foreign-body immune response. As with Novo Nordisk's efforts, this could effectively restore insulin production in patients.
Not to be left out, Sanofi recently got an FDA OK for Admelog, a biosimilar to Eli Lilly's rapid-acting Humalog. Sanofi launched Admelog in April, so we'll have to wait to see if has as much success as Eli Lilly's Basalgar, but it's certainly possible that Admelog could disrupt the rapid-acting insulin market. Humalog sales were $2.9 billion in 2017, and Sanofi is marketing a savings card that will allow patients to buy a 5-pack of Admelog for about half of Humalog's retail price.
Sanofi's also awaiting an FDA decision on sotagliflozin, a drug it licensed from Lexicon Pharmaceuticals (NASDAQ:LXRX) in 2015 for $300 million up front, up to $430 million in development and regulatory milestones, up to $990 million in specified sales milestones, and tiered, escalating royalties ranging from low double-digit percentages to 40% of net sales.
If it gets the thumbs up, sotagliflozin will be the first diabetes drug to control blood glucose levels by inhibiting both SGLT2 and SGLT1, which is responsible for reabsorbing glucose in the gastrointestinal tract. FDA approval is uncertain because there are some questions about its safety. An increased rate of diabetic ketoacidosis (DKA), a life-threatening buildup of acids in the blood that occurs when blood sugar is too high for too long, was observed in some patients. However, DKA risks exist with previously approved SGLT2 drugs, too, so this drug could make it to market.
Sanofi is also conducting phase 3 studies on SAR341402, a rapid-acting insulin that could challenge NovoLog, and efpeglenatide, a long-acting GLP-1 drug that could compete against Trulicity and Ozempic.
What I find most interesting, though, is Onduo, a collaboration between Sanofi and Verily Life Sciences that's seeking to improve patient outcomes by developing diabetes management solutions that incorporate software, devices, and medicine. Onduo is offered free to members of participating insurance plans -- they receive welcome kits that include a connected blood glucose monitor, or a DexCom CGM if applicable, that shares blood sugar information with certified coaches who work with members in between their doctor visits. A comprehensive, real-time approach, Onduo could help many more people better control their blood sugar.
Pills spilling out of a bottle in the shape of a U.S. Dollar symbol.
IMAGE SOURCE: GETTY IMAGES.
Should you buy these diabetes stocks?
The market for diabetes treatment is undeniably massive and the potential to address diabetes with innovations that allow patients to manage blood sugar better could produce billions of dollars in sales for medical device makers and drugmakers.
Top 9 Most Innovative Diabetes Stocks
Company Market Cap Product Type Market capitalization
Medtronic (NYSE:MDT) $118 billion Medical devices $116.1 billion
Novo Nordisk (NYSE:NVO) $118 billion Medication $117.2 billion
Abbott Labs (NYSE:ABT) $108 billion Medical devices $107.5 billion
Sanofi (NYSE:SNY) $107 billion Medication $105.3 billion
Eli Lilly & Co. (NYSE:LLY) $96 billion Medication $88.4 billion
DexCom (NASDAQ:DXCM) $9 billion Medical devices $8.6 billion
Insulet (NASDAQ:PODD) $5 billion Medical devices $5.1 billion
Lexicon Pharmaceuticals NASDAQ: LXRX) $1 billion Medication $1.4 billion
Tandem Diabetes Care (NASDAQ:TNDM) $1 billion Medical devices $1.2 billion
DATA SOURCE: YAHOO!FINANCE. AUTHOR'S TABLE. MARKET CAPS AS OF JULY 6, 2018.
Among the medical device companies, Medtronic and Abbott Labs have multidecade track records of dividend increases that should make them intriguing to income investors. However, their diabetes businesses account for only small fractions of their overall revenues. For instance, Medtronic's sales topped $8 billion in fiscal Q4, and diabetes was only responsible for about 8% of that.
Novo Nordisk, Eli Lilly, and Sanofi all pay dividends, too, and while they get a greater share of their sales from diabetes than Medtronic and Abbott do, they're still diversified biopharma companies. For that reason, while they might be good stocks to buy for some investors, they're not diabetes pure plays that I plan on adding to my portfolio.
Growth investors like me who are interested in direct exposure to disruptive diabetes treatments might want to consider buying DexCom, Insulet, and Tandem Diabetes. Because DexCom's CGMs are being considered for use in multiple closed-loop systems, and because it's working with Verily on smaller, cheaper, sensors that could allow it to significantly expand into type 2 diabetes market, it's my favorite of the three.
Ultimately, I expect combining software and wearables with medications will lead to the next big step forward in treating diabetes, but further out, the one big thing I'll be watching is what progress is made on developing stem cell therapies. If those efforts succeed, then the need for closed-loop, artificial pancreas systems could disappear.
