Novo scores a game-changing diabetes approval, reversing an embarrassing rejection

Two years after the FDA's shock rejection of Novo Nordisk's ($NVO) next-generation insulin, the Danish drugmaker has convinced U.S. regulators to change their tune, setting the stage for a market duel with Sanofi ($SNY).

Novo's Tresiba, now cleared for Type 1 and Type 2 diabetes, is a long-acting insulin analog that can be dosed just once a day to keep blood glucose under control. In tandem with its Tresiba approval, the FDA signed off on Ryzodeg, a combination of the new insulin and Novo's older NovoLog, which is dosed multiple times per day.

Tresiba's green light reverses a stinging 2013 decision in which the FDA, cracking down on diabetes drugs after the emergence of cardiovascular dangers tied to GlaxoSmithKline's ($GSK) Avandia, demanded Novo run a long-term outcomes trial before it would consider approval. The blow derailed a treatment analysts expected to bring in more than $3 billion a year, allowing Novo's competitors to creep ahead with long-lasting insulins of their own.

Novo promptly got to work on the required long-term safety study but didn't expect actionable data until 2016, setting the timeline for approval all the way back to 2017. But the drugmaker caught a glimmer of hope earlier this year when a small group of researchers who saw interim results from the outcomes said they believed Tresiba had demonstrated a sufficient safety profile ahead of schedule. And management, without seeing the data, took them at their word and resubmitted the insulin in March.

Novo's faith has now paid off, but the U.S. market has shifted in Tresiba's years on the shelf.

In April, Sanofi launched Toujeo, a daily insulin designed to usurp its top-selling Lantus, and analysts worry that the prospect of multiple new insulins competing for market share could lead to a value-destroying price war. Novo, by coming in second, missed out on the first-mover advantage it once seemed to have.

Meanwhile, Eli Lilly ($LLY), at work on a daily insulin of its own, ran into a major setback earlier this year as safety concerns forced it to delay an FDA filing for its candidate, but the company has vowed to find a path forward.

With its new insulin finally FDA-approved, Novo also gets the chance to move forward in the U.S. with Xultophy, a combination of Tresiba and the blockbuster GLP-1 drug Victoza that analysts say could further boost the insulin's value. On its own, Victoza brings in more than $2 billion a year for the company, and a smaller dose of the same drug recently won U.S. approval to treat obesity.

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