GSK – Are they overpaying to get back in diabetes?

GSK – Are they overpaying to get back in diabetes?

Shares of Sirtris Pharmaceuticals (NASDAQ:SIRT) took off faster than a Randy Johnson fastball today after GlaxoSmithKline (NYSE:GSK) agreed to buy the company for $720 million. This all cash offer is an 84% premium over where Sirtris shares closed Tuesday and comes on the same day GSK announced “Sales of Avandia products, for the treatment of type 2 diabetes, fell 56% to £191 million. Sales in the USA for the quarter were £99 million, down 66%, with Avandia’s share of total prescriptions in the US oral anti-diabetic market currently stable at around 4%. In Europe sales were £54 million, down 14%, and in International markets £38 million, down 44%.”

Some may recall that Sirtris is developing a line of anti-aging and diabetes medications based on a derivative of red wine. Although their diabetes pipeline looks interesting it should be noted that their lead compound SRT501 is currently being tested in patients with Type 2 Diabetes in a Phase 2a study in combination with metformin. Results from this trial are expected in the second-half of this year. As promising as SRT501 has looked in early trials the compound is still far from even being submitted to the FDA. Diabetic Investor may just be a little jaded but we have been down this path where results look good early only to see late stage trials reveal issues. What Diabetic Investor is wondering is why would GSK pay such a premium for a promising yet unproven compound? This move is even stranger when they could have easily formed an alliance with the company as the drug moves through the development process before dishing out nearly a billion dollars.

Is GSK that desperate to put the Avandia debacle behind them?

This move is also somewhat strange considering the trend in diabetes management, particularly with non-insulin using type 2 patients. Mainly due to the Avandia controversy physicians have been reexamining their approach to treating their type 2 patients. So far the major beneficiary of this reexamination has been Januvia from Merck (NYSE:MRK) and Actos from Takeda. As everyone knows Diabetic Investor isn’t huge fan of Januvia as the drugs performance has been subpar at best. It’s also well known that Actos will soon lose its patent protection. Finally, we’re all well aware that Byetta LAR from Amylin (NASDAQ:AMLN) is right around the corner and will be game changing technology when available.

GSK must be hoping that SRT501 has more than just a diabetes application as should it make all the way to market it will face a host of competition. This is not to say the drug cannot be successful rather why spend so much today when they could have spent considerably less money to see if the drug actually had potential.

There is no question that the diabetes market will continue to expand and no one therapy regimen will dominate. However, the trends in managing type 2 diabetes are not in GSK’s favor. Physicians, in particular, primary care physicians who treat nearly 80% of all patients with diabetes are moving towards more aggressive treatment of the disease. As we accurately pointed out yesterday the old treat to failure is still alive and well but also true is the fact that physicians are initiating insulin and GLP-1 therapy earlier in the treatment cycle than ever before. This move towards more aggressive treatment earlier in the treatment cycle is largely the result of the Avandia controversy. Simply put, the Avandia controversy forced physicians out of their comfort zone and into looking for other options.

Diabetic Investor currently understands GSK’s interest in the diabetes market. With their size, resources and experience in the space they have the ability to be a formidable player in the diabetes market. What we just can’t fathom is why pay so much for what really is an unproven compound. We’ve said it before and we’ll likely say it again, when it comes to the diabetes market never discount any possibility no matter how strange it may seem.

David Kliff
Diabetic Investor
847-634-4646 fax
224-715-3761 mobile