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3 Companies Aiming to Significantly Reduce Diabetes Treatment Costs

- By Matt Winkler

Total U.S. health care spending in 2015 was an astronomical $3.2 trillion. That is 16% of the entire national debt. As much as we blame the prices of new drugs for this gargantuan sum, one of the biggest chunks of it comes from diabetes, a disease whose treatment has not changed all that much since 1922. According to the American Diabetes Association, diabetes accounts for $322 billion in total U.S. health care spending as of 2016.

One Harvard study puts the annual cost at a much higher $822 billion annually. Whichever number you want to believe, it is among the costliest diseases in the world, for both patients and taxpayers. Thanks to Medicare and Medicaid, diabetes costs are socialized.

There are two reasons for the rising costs. First, the price of insulin has tripled since 2002. Second, the nature of lifetime treatment necessitates ever-rising doses of insulin as the disease progresses.

Short of hoping Americans radically change their diets overnight and drastically reduce sugar intake, the problem is not going away. But there is hope for significant cost reduction nonetheless. Here are three companies on the cutting edge of the newest diabetes advancements that, with some luck, may help reduce this nearly unfathomable cost to the U.S. economy and taxpayers.

Novo Nordisk and semaglutide

Novo Nordisk A/S (NVO) recently announced its once-weekly GLP-1 agonist semaglutide handily beat Eli Lilly's (LLY) GLP-1 agonist dulaglutide in terms of weight loss and blood sugar control in a pivotal Phase III trial. GLP-1 agonists, unlike insulin, stimulate pancreatic cells to produce insulin in a glucose-dependent manner. Meaning, GLP-1 agonists only induce native insulin production when blood glucose levels are high enough to trigger it. This is much more convenient than manually measuring blood sugar before injecting insulin directly.

While markets are focused on the one-on-one beat, raising Novo shares at the expense of Eli Lilly's, there is potentially more exciting news regarding semaglutide yet to come. Novo Nordisk has already demonstrated in a Phase II trial that an oral formulation of semaglutide can work as well. If this continues into Phase III, the implication could be big for diabetes treatment costs. Oral formulations of otherwise intravenous drugs increase patient compliance and, if it works better than GLP-1 agonists currently on the market, it could keep diabetes patients healthier for longer, reducing long-run costs as the disease progresses, by far the costliest aspect of diabetes.

Roche and the artificial pancreas

Another innovative way to increase patient compliance and reduce long-run costs is to simply automate everything. Roche Holding AG (RHHBY) is currently sponsoring a late-stage development of an artificial pancreas that uses continuous glucose monitoring (CGM) technology together with an insulin pump to keep diabetics' blood sugar in perpetual balance.

A pivotal Phase III trial was announced late last month, cosponsored by Roche Diabetics Care Inc. The ingenious closed-loop system uses a smartphone app to notify patients when blood sugar levels go out of range of preset limits. Since most of the damage from diabetes occurs when patients are out of their blood sugar target ranges, by keeping diabetics range-bound for longer, and hopefully perpetually, much of the cumulative damage from diabetes can hopefully be blunted or maybe even prevented for the long run. This closed-loop artificial pancreas is currently intended for Type 1 diabetics, though if successful it may be trialed for the much more prevalent Type 2 population.

Oramed and oral insulin

Perhaps the most ambitious of new diabetes treatments is an oral insulin formulation from Oramed Pharmaceuticals Inc. (ORMP). Oramed just recently announced a planned Phase III trial for what has been termed the holy grail of diabetes treatments.

Oral insulin could fundamentally change the entire diabetes playing field since it would change the way insulin interacts with blood glucose and make the process more akin to what occurs in healthy people. Oramed is using similar technology to what Novo Nordisk is using in its own oral GLP-1 treatment, so there is reason to believe it could actually work.

Oral insulin could get prediabetics on insulin earlier since injecting insulin daily is not only inconvenient but almost taboo and a last resort. Getting prediabetics on insulin faster could go a long way in reducing late-stage complications as the disease progresses and insulin resistance sets in.

There is reason to believe insulin resistance - the factor that necessitates ever-higher doses of insulin and where most of the costs lay - will be less of a problem with an oral formulation because oral insulin goes through the liver, which is the natural organ for regulating insulin release once it receives it from the pancreas. It is a way of having the body naturally regulate insulin release rather than having to measure the dose via blood sugar analysis constantly.

All or any success amongst these three companies could take a significant bite out of overall diabetes costs over the next decade and beyond. Diabetes is by far the costliest health care niche and badly in need of a major advance. With three companies with potentially paradigm-shifting treatments in the pipe, chances are we will see that major advance before the close of this decade and before diabetes costs spiral completely out of control, if they have not done so already.

Disclosure: Long NVO, ORMP.

This article first appeared on GuruFocus.