Exubera Update, Roche Reports

Exubera Update, Roche Reports

This morning Pfizer (NYSE:PFE) provided an updated status for the launch of their inhaled insulin product Exubera. Here’s what we learned today:

A. A. Physician and patient education will begin July 24, 2006 and be rolled out in phases.
B. B. Initial supplies of Exubera will be available in September.
C. C. Starter kits that will be used in the education phase should be available in the next week or two.
D. D. 2300 sales representatives are in San Francisco preparing for the education phase. This is the same sales force that handles Celebrex.
E. E. The education will have a heavy concentration on the delivery device.
F. F. Sales reps will be targeting heavy insulin prescribing endocrinologists.
G. G. The company is targeting Exubera for type 2 patients that currently use two oral medications but are failing to achieve adequate control.
H. H. Although no specifics were provided on reimbursement rates the company commented they expected Exubera to be reimbursed at levels similar to TZD’s, typically Tier 2.
I. I. No specific information was provided on Exubera pricing.
J. J. The company is comfortable with analyst’s estimates for Exubera, although they did not specify over what time frame.

Interestingly Nektar Therapeutics (NASDAQ:NKTR) raised their revenue guidance for Exubera manufacturing and royalty revenue from a range of $60 to $80 million to a range of $70 to $90 million, with most of the revenue being generated by manufacturing sales to Pfizer. This announcement really isn’t that surprising as Pfizer begins to ramp up Exubera sales and does not want to have any potential supply issues with the launch of a new product.

Diabetic Investor heard nothing during the Pfizer call that would change our outlook for Exubera. We continue to believe Exubera is a niche product that will fail to reach the lofty sales estimates produced by the analyst community. Our view is actually reinforced by the fact that Pfizer is spending so much time in the education phase and that the delivery device is the prime area of concentration.

The one possible new item to come to light today was for the first time Pfizer stressed Exubera would be a low margin product. Besides the cost of manufacturing the insulin and the cost of the delivery device, Exubera requires patient and physician support similar to an insulin pump company. According to the company they will provide 24-hour-a-day, 7-day-a-week call center staffed by healthcare professionals.

While Diabetic Investor understands the rational for targeting high insulin prescribing endo’s, this does mesh with their stated target market for Exubera, type 2 patients currently on two oral medications who are not achieving proper control. With nearly 80% of patients with diabetes being treated by their primary care physician, Pfizer stands a better chance of hitting their target market within the primary care physician arena. One reason Pfizer may be shying away from the primary care provider is they understand these physicians lack the time and resources to handle a complex product like Exubera. The appear to be operating on theory that if they can get the endo’s to prescribe Exubera primary care physicians will follow their lead.

Diabetic Investor sees the Exubera rollout similar to how Byetta was rolled out, in that, endo’s will experiment with the product and await patient feedback. Unlike Byetta where the feedback promoted expanded use of the drug, Exubera feedback is likely to hurt future growth. Although Byetta is an injectable the drug was initial targeted at a market similar to Exubera’s target audience. Offsetting the injectable factor, Byetta came with an excellent profile. Clinical trials for Byetta showed solid control and progressive weight loss. Results from the clinical trials for Exubera have been less than impressive. It should also be noted that patients did not see adding Byetta to their treatment regimen as a personal failure, whereas patients view moving to insulin therapy as such. The reality of the situation is patients are not afraid of injections, something the success of Lantus and Byetta prove, they are afraid of insulin.

Turning our attention to Roche, share erosion in their Accu-Chek line of blood glucose monitoring products appears to have stopped. The company announced that sales in their diabetes care unit grew 6% in the second quarter and they expect sales to accelerate in the future. According to a press release issued by the company, “Growth in the first six months was fuelled primarily by strong growth of the Accu-Chek Compact line and Accu-Chek Aviva, which is becoming one of the main growth drivers for Diabetes Care.” While encouraging it should be noted that the Aviva carries much lower margins and is considered a value monitor. Given the aggressive pricing by Roche’s competitors, namely Abbott (NYSE:ABT) and LifeScan, a unit of Johnson and Johnson (NYSE:JNJ), it is not surprising that Roche is using the Aviva as their main weapon to fight back.

The company did not provide any information on their Spirit insulin pump as to when it will become available in the United States. The company did state that sales of the Spirit are seeing double-digit growth outside the US.

As we mentioned yesterday we did not believe Roche would sit ideally bye and let Abbott and LifeScan share growth go unabated.

An interesting side story is developing in the blood glucose monitoring market that has gone largely unnoticed. Besides sales growth for the entire category slowing from the low teens to the high single digits, margins are coming under tremendous pressure. Something Diabetic Investor predicted as price was the only card companies had left to play to gain share. With no one expecting category growth to return to the double digit area, maintaining and stealing market share has become critical. While test strips have fat margins the price genie is now out of the bottle. Like a ragging stream let loose after a damn breaks restoring normality is difficult if not impossible. The landscape for the BGM is changing and not in a positive way.

David Kliff
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