There Will be No New Diabetes Drugs in the Future

Last Friday, I had the pleasure of attending the Wharton Healthcare Conference and sat in on an interesting venture capital panel. The moderator, Steven Sammut, a venture partner at Burrill, asked the panel to list some of the challenges they see in vc. Stephen Sullivan, a Partner at Skyline Ventures, paused for a second and then looked straight out into the crowd and said, “there will be no new diabetes drugs going forward.”

A rather bold statement and one that I thought had quite a few holes in it considering the amount of activity in the space. There are variety of new agents are in development for the treatment of type 1 or type 2 diabetes, including dipeptidyl peptidase-4 inhibitors, glucagon-like peptide 1 analogs, thiazolidinediones, glinides, and new insulin formulations. There are also a bunch of recently formed startups in the diabetes space including PhaseBio (Duke University), Catabasis Pharmaceuticals (Harvard University), and the Metabolic Development Solutions Co. (ex-Pfizer scientists).

Clearly, there are diabetes drugs in the pipeline, so why say that there will be no new diabetes drugs?

In 2007, Steven Nissen of the Cleveland Clinic published a paper in the New England Journal of Medicine linking GSK s Avandia to increased risk of congestive heart failure and heart attacks and accused GSK of hiding the heart risk from patients. The paper sent shockwaves through the industry as litigators lined up to sue GSK, Avandia would receive a blackbox warning, and Nissen rose to prominence as the protector of all patients. The reality is that Avandia probably did carry a higher risk of heart complications compared to alternatives, but it also was more efficacious and the pool of at risk patients was rather tiny compared to the entire treated pool.

The result of the Avandia fiasco is that the FDA has raised the approval bar for diabetes drugs so high that it is now prohibitively expensive to run a Phase III clinical trial for a new diabetes drug. Phase III diabtes studies are now outcomes-based studies with 10,000-30,000 patients. No startup company can fund such a trial, which means large pharma is left to foot the bill. Now even large pharma is saying they can t stomach the cost of the trial because even a good outcome no longer ensures FDA approval, as the approval bar keeps sliding.

In October 2010, Amylin believed that their long-acting GLP-1 analogue, Bydureon, would be approved as their Phase III study hit all of its endpoints with no safety concerns. Instead of approving the drug, the FDA came back and asked for a QTc study to evaluate the risk of higher-than-therapeutic doses of Bydureon on the cardiovascular safety profile. Amylin s management was at a loss to explain the FDA s seemingly newfound concern over the drug s possible cardiovascular risks at higher-than-therapeutic doses, since previous trials of Bydureon hadn t raised any red flags.

By most accounts, Bydureon is a good drug that should already be approved. The FDA s actions have had a profound effect on pharmaceuticals companies, many of which are simply walking away from late stage diabetes assets. Roche walked away from their late stage taspoglutide program, leaving its partner Ipsen to find $500 million to get the drug over the goal line.

While I think that Stephen s comments were provocative, I am not sure they are entirely true. Surely one of the new compounds bring developed by big pharma or one of the startups will get approved. What I do agree with is the fact that it will be prohibitively expensive for a startup company to develop a diabetes drug on their own. Partnering with pharma, especially for a lead product, limits the terminal value of a company and potential returns for a venture investor. While PhaseBio and Catabasis both have diabetes programs, they are also developing assets for different indications. This enables them to partner their diabetes program and focus on internally developing assets that are more manageable for a startup to pursue.

Even if what Stephen said was tongue in cheek, it is important to worry about the relative lack of drug development activity for a disease that afflicts 8% of the US population.