Memorandum

Sanofi 1Q18 – Diabetes portfolio falls 20% YOY, driven by 26% YOY Lantus decline; Toujeo +3% YOY to $243M; Soliqua flat; Optimism for Praluent post-ODYSSEY Outcomes – April 30, 2018

Executive Highlights

  • Sanofi’s diabetes portfolio fell 20% YOY in 1Q18 to €1.3 billion ($1.6 billion). Management emphasized that this is consistent with financial guidance projecting 6%-8% annual loss in diabetes over 2015-2018; the portfolio is expected to drop 9% YOY in 2018 overall, which implies that we’ll see positive growth in 2Q, 3Q, and 4Q unless guidance is changed. Lantus was the primary factor responsible for this 1Q18 decline, and sales of the flagship product fell 26% YOY to €911 million ($1.1 billion).

  • Toujeo was the lone bright spot within Sanofi Diabetes in 1Q18 – sales of the next-gen basal insulin grew 3% YOY (but fell 9% sequentially) to €197 million ($243 million).

  • You’ll notice from the graphs below (for Sanofi Diabetes overall, Lantus, and Toujeo) that 1Q18 was the first quarter in many, many years where OUS sales surpassed US sales. This reflects immense pricing pressure on insulin products in the US, and also highlights specific challenges for Sanofi’s insulin glargines, namely that Novo Nordisk’s Tresiba and Lilly/BI’s Basaglar are favored over Lantus and Toujeo within major commercial plans and Medicare Part D.

  • Soliqua sales were flat sequentially at €9 million ($11 million). Management did not mention Soliqua at all during prepared remarks or Q&A, and we continue to be disappointed by painfully slow uptake of fixed-ratio basal/GLP-1 combos. We hear a lot about the various reasons for the low uptake.

  • ODYSSEY Outcomes was, as expected, a major talking point on the call. Management outlined plans to file for Praluent’s CV indication in 2Q18. Drawing on the sub-analysis that found the greatest CV benefit in patients with highest baseline LDL (≥100 mg/dl), Sanofi will promote the PCSK9 inhibitor to payers/HCPs for this highest-risk patient population. Management also shared that Sanofi/Regeneron are willing to compromise on list price to lower utilization management criteria, reducing prior authorization hassle for HCPs and expanding access for patients (music to our ears!). Despite these very exciting bright spots up ahead, Praluent underwhelmed in 1Q18, with sales falling 8% sequentially and rising 44% YOY to €49 million ($60 million) – sluggish for a product so early in its launch cycle. Poor reimbursement is a major roadblock.

  • Admelog launched as the first-to-market biosimilar mealtime insulin in the US earlier this month, and management elaborated that Medicaid will be the focus in 2018. This strategy could be very smart on Sanofi’s part, since Lilly just reported declining Humalog utilization in the Medicaid channel.

  • Sanofi’s GLP-1/glucagon dual agonist program had a slight hiccup in 1Q18 – 25% of participants on the study drug dropped out of the phase 2 trial due to tolerability issues. Management discussed this challenge in detail during Q&A, providing some reassurance that tolerability can be improved by adjusting the titration scheme. This work is now in progress at Sanofi as the company is still aiming to start phase 3 studies in obesity later this year. Management also mentioned “back-up” candidates, including a preclinical GLP-1/GIP/glucagon tri-agonist.

Sanofi reported 1Q18 financial results on Friday, and CEO Mr. Olivier Brandicourt led a call to discuss major business and pipeline updates. You can access the company’s presentation slides as well as a webcast replay online. The press release is here.

This report is organized into financial highlights and pipeline highlights, and we conclude with relevant Q&A from the call (featuring lots of interesting commentary on GLP-1 and multi-agonist approaches, on new biosimilar insulin Admelog, on Praluent and ODYSSEY Outcomes, and on drug pricing/the doughnut hole).

1Q18 Financial Results for Sanofi’s Major Diabetes Products

 

1Q18 Revenue (millions)

YOY Growth (reported / CER)

Sequential Growth (reported)

Total Diabetes

€1,333 / $1,642

-20% / -10%

-13%

Lantus

€911 / $1,122

-26% / -18%

-15%

Amaryl

€83 / $102

-7% / +2%

+3%

Apidra

€91 / $112

-7% / +1%

-6%

Insuman

€24/ $30

-11% / -7%

-8%

Blood Glucose Monitoring (BGM)

€13 / $16

-24% / -24%

-13%

Adlyxin

€5 / $6

-29% / -14%

0%

Toujeo

€197 / $243

+3% / +14%

-9%

Soliqua

€9 / $11

+125% / +175%

0%

Praluent (not included in Total Diabetes)

€49 / $60

+44% / +56%

-8%

Table of Contents 

Financial Highlights

1. Sanofi’s Diabetes Portfolio Falls 20% to $1.6 Billion, Driven by Losses in US Lantus Revenue; Lantus LOE Impact Expected to Subside in 2Q18 & Beyond

Sanofi’s diabetes portfolio fell 20% YOY as reported (-10% operationally) to €1.3 billion ($1.6 billion) in 1Q18, dropping from €1.7 billion ($1.8 billion) in 1Q17. Whole portfolio sales also declined 13% sequentially, following consecutive sequential drops of -14%, -1%, -6%, and -1% in 1Q17, 2Q17, 3Q17, and 4Q17. Alongside loss of exclusivity (LOE) for dialysis therapy sevelamer, Lantus’ LOE was widely cited as a headwind to Sanofi’s overall revenue. Certainly, this was a weak first quarter performance for Sanofi Diabetes, but it wasn’t unexpected. Management emphasized that these results are consistent with financial guidance of 6%-8% annual loss in diabetes over 2015-2018. The portfolio was up 4% in 2015, down 3% in 2016, and down 11% in 2017; Sanofi projects another 9% YOY decline in full year 2018. Notably, CEO Mr. Olivier Brandicourt suggested that the negative impact of Lantus will lessen in 2Q18 and beyond: US Lantus sales now make up only ~30% of Sanofi’s global diabetes portfolio, compared to ~50% in 1Q16. That said, it’s hard to imagine Sanofi reversing the momentum of its diabetes franchise in the very near future. SGLT-1/2 dual inhibitor sotagliflozin could enter the market for type 1 diabetes mid-2019 at the earliest, and mealtime insulin Admelog (biosimilar insulin lispro) has long-term potential but likely won’t drive much growth either until 2019, after Sanofi is able to secure reimbursement (more on sotagliflozin and Admelog below). Toujeo is a bright spot within Sanofi’s diabetes portfolio (+3% YOY to $243 million in 1Q18), but is also losing share within the “next-gen” basal insulin category. In our view, the performance of Sanofi’s diabetes & CV business over 2018 will hinge on Toujeo and on PCSK9 inhibitor Praluent (more on Toujeo and Praluent below as well).

  • As expected, US diabetes sales took the biggest hit, falling 37% YOY as reported (-27% operationally) and -28% sequentially to €528 million ($651 million), from €836 million ($891 million) in 1Q17 and €730 million ($875 million) in 4Q17. OUS sales fared relatively better but still dropped 6% YOY as reported and climbed 1% sequentially to €675 million ($832 million), from €719 million ($766 million) in 1Q17 and €670 million ($803 million) in 4Q17. Management highlighted that diabetes sales in emerging markets rose 18% YOY operationally to €392 million ($483 million). They also pointed to relative stability in European markets, where diabetes revenue fell only 1% YOY operationally to €393 million ($484 million). It’s quite telling that 1Q18 is the first quarter with Sanofi’s diabetes revenue greater OUS vs. in the US (see this on the graph below, and the same goes for Lantus and Toujeo). To be sure, headwinds to the Lantus franchise in the US (formulary exclusions, pricing pressure/higher rebates, losses in Medicare Part D volume, etc.) drove the decline in overall diabetes sales. In Europe, biosimilars and Toujeo have intensified competition for Lantus.

Sanofi Diabetes Portfolio Sales (1Q05-1Q18)

  • Closing of the Medicare “Doughnut Hole” – now scheduled to complete in 2019, rather than 2020, under the February budget deal – surfaced during Q&A. CEO Mr. Olivier Brandicourt expressed dissatisfaction with the way this policy shifts costs from health plans to industry. He explained that Part D expenses leveraged on drug companies will increase from 50% to 70%, and argued that this actually does little to help Medicare beneficiaries long-term. While the nuanced cost dynamics of Part D are complicated, we note that this policy has been touted as cost-saving for patients. We don’t yet understand it that well. Sanofi expects its proportion of diabetes sales to Part D to continue to decline over the next few years, which will help shield the company from adverse financial impact. Nonetheless, Mr. Brandicourt projected a 1% impact on total US sales with this legislation, noting that diabetes is a large part of that 1%. We estimate this ~1% of Sanofi’s annual US sales at ~$108 million. Lilly’s Head of Diabetes and SVP Mr. Enrique Conterno expressed similar concerns on their 1Q18 call, naming ~$200 million is forgone revenue under this new policy, mostly lost in diabetes.

2. Lantus Falls 26% YOY to $1.1 Billion – Lowest Quarterly Revenue Since 1Q10; Facing Pricing Pressure, Part D Losses, and Biosimilar + Next-Gen Competition

Lantus sales fell another 26% YOY as reported (-18% operationally) to €911 million ($1.1 billion), dropping from a high base of €1.2 billion ($1.3 billion) in 1Q17. With a 15% sequential drop from €1.1 billion ($1.3 billion) in 4Q17, this is the lowest that quarterly Lantus revenue has been since 1Q10. Of course, none of this is surprising: Sales have been falling for the past three years, and Sanofi’s commentary for the past few quarters has focused on countering the financial impact of Lantus’ loss of exclusivity (LOE). US sales have been hit especially hard, diving 40% YOY as reported (-31% operationally) and -29% sequentially to €413 million ($509 million) in 1Q18, while OUS revenue dropped a more modest 7% YOY as reported and actually climbed +1% sequentially to €498 million ($614 million). In 2017, global sales fell 19% on the year. By and large, management has emphasized the impact of pricing pressure (ever-growing rebates) and loss of Medicare Part D patients as driving the decline in US Lantus sales, and they’ve also pointed to exclusion from the CVS Health and UnitedHealthcare formularies (in favor of Lilly/BI’s biosimilar Basaglar). Indeed, Basaglar posted an estimated $332 million in sales for 1Q18, representing ~80% of the revenue Lantus has lost in the past two years (from $1.6 billion in 1Q16 to $1.2 billion in 1Q18). Basaglar and Novo Nordisk’s Tresiba were both given a preferred position over Lantus and Toujeo on the Medicare Part D formulary for 2018. To be sure, Lantus is losing some volume to Sanofi’s own next-gen Toujeo, but even considering both products together, the company’s insulin glargine franchise fell ~11% YOY to $1.4 billion in 1Q18 (from $1.5 billion in 1Q17). Moreover, the basal insulin market overall has fluctuated of late, falling 4% YOY in 2017 to $9.9 billion, and we expect this hurricane of forces has combined to exacerbate Lantus’ decline.

  • All this said, management implied that the worst is behind them: US Lantus revenue now makes up only ~30% of global diabetes revenue, compared to nearly 50% in 1Q16, and they thus expect the negative impact of Lantus on overall sales to diminish as early as 2Q18.

Lantus Sales (1Q05-1Q18)

  • Notably, other biosimilar insulin glargine products are on the horizon. Sanofi is currently leveraging patent infringement lawsuits to delay two more biosimilar glargine market entries from (i) Merck’s Lusduna Nexvue; and (ii) Mylan/Biocon’s candidate (Semglee outside the US). Lusduna Nexvue received tentative FDA approval in July, and Semglee has been approved in the EU but remains under review at FDA; neither can enter the market prior to lawsuit resolution. Lilly/BI weren’t able to launch Basaglar for ~30 months following initiation of Sanofi’s lawsuit against them, however, so it could be a while before we see more biosimilar basal insulins hit pharmacy shelves in the US.

3. Toujeo Revenue Rises a Modest 3% YOY to $243 Million; US Sales Dive 26% YOY due to Continued Pricing Pressure + Part D Losses; No Commentary on Tresiba’s Hypoglycemia Benefit/Label Update

Sales of next-gen basal insulin Toujeo totaled €197 million ($243 million) in 1Q18, climbing 3% YOY as reported (+14% operationally) from €192 million ($205 million) in 1Q17, when sales grew 86% YOY. Toujeo (insulin glargine U300) took an unfortunate 9% sequential dip in 1Q18, following a 9% QOQ rise in 4Q17 and a 6% QOQ drop in 3Q17. These aren’t the fluctuations we expect to see from a product that’s still relatively new (now entering its fourth year on the market). We noted a near complete absence of Toujeo during both prepared remarks and Q&A, despite the fact that this is the only Sanofi diabetes franchise that experienced YOY growth in Q1. Still, we view Toujeo’s first quarter performance as fairly good in the context of an overall basal insulin market that’s facing immense pricing pressure. In 2017, Toujeo grew 27% YOY to $926 million in annual revenue, and we see ample market opportunity for these sales to climb by the double-digits again in 2018, easily surpassing $1 billion; Toujeo and Tresiba (Novo Nordisk’s insulin degludec) are far better options for basal insulin therapy compared to what came before them (namely, Lantus and Levemir).

  • The first quarter of 2018 continued a trend for Toujeo of middling US performance offset by consistent OUS growth. Toujeo revenue in the US fell 26% YOY as reported (-15% operationally) and -23% sequentially to €85 million ($105 million) in 1Q18. OUS sales balanced this performance, rising 46% YOY and +6% sequentially to €112 million ($138 million). More specifically, sales grew 46% YOY in Europe, +146% in emerging markets, and +20% in the rest of the world, operationally. Sanofi attributed the sluggish US performance to (i) losses in Medicare Part D, since Basaglar and Tresiba are both preferred over Toujeo and Lantus in 2018; and to (ii) pressure pushing down net price. Even in early February (when Sanofi hosted its 4Q17 earnings call), management was already noticing “an expected loss” of Toujeo prescriptions to Part D since January 1. As for the pricing pressure challenge, this is not unique to Toujeo, but is weighing down on all insulin products including Lantus, Lilly’s Humalog and Basaglar, and the rest. Indeed, Sanofi cited Toujeo’s US performance alongside that of Lantus in explaining the 10% YOY operational drop in global diabetes franchise sales. Interestingly, Lilly/BI’s Basaglar (biosimilar insulin glargine) also posted a somewhat lackluster 1Q18 performance, rising only 8% sequentially in its sixth quarter on the US market despite better positioning than Lantus and Toujeo within Part D as well as major commercial PBMs, supporting the notion of widespread pricing pressure on insulin. We would love to see volume information on these products, which perhaps will come during Novo Nordisk’s May 2 earnings call.

  • We were surprised not to hear anything from Sanofi management on the recent label update for Tresiba to add DEVOTE data showing CV safety and hypoglycemia benefit vs. Lantus. This was major news for the diabetes field, as it represented the first-ever comparative claim on a diabetes drug label. Our fondest wish is that this update brings far more attention to the issue of hypoglycemia and how it can be minimized with next-gen basal insulins Tresiba and Toujeo (while it’s true that no published RCT outcomes data supports Toujeo’s benefit on severe hypo, we know this product is also superior to Lantus given its much flatter PK/PD profile). We actually think this could be a plus for Toujeo in the eyes of prescribers: While many KOLs give an edge to Tresiba due to its PK/PD profile, dosing flexibility, and now, hypoglycemia claim, there is also broad agreement that both advanced basals offer clinically-significant improvements over Lantus and Levemir. Having hypoglycemia benefit reflected on even one label is a big win. Additionally, we imagine the familiarity that patients/providers have with standard of care Lantus (the original glargine product) and with Sanofi’s SoloStar pens affords some edge to Toujeo. Head-to-head trials will offer clarity on Toujeo vs. Tresiba: Novo Nordisk’s phase 3 study comparing the two is ongoing (expected completion in December 2018, pushed back from October); Sanofi’s phase 4 BRIGHT study met its primary endpoint showing similar A1c reduction, but secondary endpoints, including hypoglycemia, will be presented at ADA 2018 in Orlando. We expect generally positive results, particularly given real-world evidence from the LIGHTNING program indicating lower rates of severe hypoglycemia with Toujeo vs. Lantus, and similar rates with Toujeo vs. Tresiba. We can speculate on this question – how will Tresiba’s hypo-related label update affect the Toujeo business? – but we’ll have to wait for future quarterly updates to really see the impact.

Toujeo Sales (1Q15-1Q18)

4. Soliqua’s Commercial Struggle Continues: $11 Million Sales Stay Flat Sequentially; No Commentary from Management; Restrictive US Indication + Poor Reimbursement

Soliqua sales of €9 million ($11 million) nearly tripled YOY but were flat sequentially in 1Q18, the product’s fifth quarter on the market. Once again, the fixed-ratio combo product (basal insulin glargine/GLP-1 agonist lixisenatide) showed incredibly sluggish commercial performance, failing to build on low sequential growth of +25% in 2Q17 ($6 million), +60% in 3Q17 ($9 million), and +13% in 4Q17 ($11 million). The YOY growth of +125% as reported (+175% operationally) in 1Q18 occurred from the very low base of 4 million ($4 million) in 1Q17. All reported 1Q18 sales were in the US, despite the launch of Suliqua in several European countries in 2017. Compared to our initial expectations set some years back, we’re still very surprised by Soliqua’s performance, particularly so early in the product’s launch cycle, and we were further disappointed at the lack of mention of Soliqua during both prepared remarks and Q&A. At JPM 2018, CEO Mr. Olivier Brandicourt acknowledged that Soliqua launch was progressing more slowly than expected (the company hasn’t explicitly mentioned where in Europe Suliqua has launched), and the product is certainly facing a number of significant headwinds. For one, reimbursement prospects are weak, though Sanofi has previously remarked that access is slowly-but-steadily improving. Second, management has cited low provider awareness of Soliqua and the fixed-ratio combination class (also including Novo Nordisk’s Xultophy). And third, HCPs – particularly in the US – show reluctance to prescribe fixed-ratio combinations. Recently, Prof. Philip Home offered some valuable clarity on how prescribers view fixed-ratio combos: Many consider GLP-1s a “pre-insulin” therapy, so some diabetologists consider the fixed-ratio combination of a GLP-1 with insulin as inherently illogical. Moreover, the US labels for both Soliqua and Xultophy (insulin degludec/liraglutide) require patients to already be on basal insulin or the specific GLP-1 included in the combo before starting the fixed-ratio injection, with limits patient eligibility. For example, a patient has to be on Victoza (liraglutide) first before progressing to Xultophy, and on Adlyxin (lixisenatide) first before progressing to Soliqua – this is an especially tall hurdle for Sanofi because so few patients are on the standalone lixisenatide product (see below). As Prof. Home explained, HCPs are often drawn to the market leaders in each class – perhaps Sanofi’s Lantus (insulin glargine) and Novo Nordisk’s Victoza (liraglutide) or Lilly’s Trulicity (dulaglutide) – and there is no fixed combination for this. Many providers are understandably reluctant to switch a patient from an established therapy, and we imagine formulary restrictions also play a role.

  • Looking ahead, it’s possible that more widespread European launch could be a tailwind for Sanofi’s franchise, especially because the EU label indicates Suliqua for intensification as well as second-line therapy to metformin, removing the “Adlyxin first” barrier. The company will have to secure reimbursement in some key countries, but notably, Novo Nordisk has shown with Xultophy that fixed-ratio basal/GLP-1s can do very well in Europe where reimbursement is strong. While Xultophy sales of $112 million in 2017 could also be higher, they easily trump Soliqua’s $30 million in revenue last year. We remain extremely eager to see both Soliqua and Xultophy do better commercially and make it into the hands of far more patients. Both products boast a remarkable clinical profile, offering glucose-lowering on par with basal-bolus therapy but with a milder side-effect profile (less hypoglycemia, less weight gain, less GI discomfort) and greater patient convenience/lower injection burden.

  • Sales of standalone GLP-1 agonist Adlyxin (lixisenatide) fell 29% YOY as reported (-14% operationally) to €5 million ($6 million), from €7 million ($7 million) in 1Q17. Adlyxin sales were flat sequentially. This GLP-1 agonist has never grossed >$12 million in quarterly revenue and claimed <1% of the $6.5 billion GLP-1 agonist market in 2017. Sanofi has largely disregarded the product in favor of Soliqua and phase 3 once-weekly GLP-1 agonist efpeglenatide – which, in many ways, makes the lackluster performance of Soliqua all the more disappointing. In some ways, it seems like lixisenatide was developed to be part of Soliqua, with Sanofi not yet expecting substantial revenue from the GLP-1 by itself. Some thought leaders have pointed out that lixisenatide is closer to a twice-daily agent marketed as once-daily (meaning it’s rather short-acting and can’t compete on efficacy with the other GLP-1 agonists when taken only once every 24 hours).

5. Underwhelming Quarter for Praluent – Sales Fall 8% Sequentially to $60 Million – but Huge Opportunities Ahead for CV Indication + Better Reimbursement Post-ODYSSEY Outcomes

Praluent sales of €49 million ($60 million) grew 44% YOY as reported (+56% in constant currencies) from a low base of €34 million ($36 million) in 1Q17. Sequentially, sales of the Regeneron-partnered PCSK9 inhibitor (alirocumab) fell 8% from €53 million ($63 million) in 4Q17. US Praluent revenue increased 8% YOY to €26 million ($32 million), falling 26% sequentially from $42 million in 4Q17. OUS revenue more than doubled YOY and climbed 28% sequentially to €23 million ($28 million). This isn’t the strength we’d hope to see from a relatively new and highly-effective therapy, and the geographical sales trends highlight that the primary headwind is poor reimbursement in the US. One year ago, in 1Q17, US sales represented the large majority of the Praluent business (72%) while OUS sales comprised only 28% of the global total. As of 1Q18, these numbers converged so that US revenue reflected 53% and OUS revenue reflected 47% of the global total. The Praluent franchise is doing well in international markets, and while the same head room for growth exists in the US (plenty of patients in need of more efficient LDL-lowering), low access/affordability stands in the way. Certainly, a tough US reimbursement landscape extends to Amgen’s Repatha (evolocumab) as well. Amgen reported 1Q18 Repatha sales of $123 million, more than doubling YOY from $49 million in 1Q17 and rising 26% sequentially; US revenue rose 20% sequentially to $84 million and OUS revenue grew 39% sequentially to $39 million – a better financial performance to be sure, but again, underwhelming for a new/efficacious drug that’s also indicated for CV risk reduction. Pooled PCSK9 inhibitor sales grew a modest 14% sequentially from $161 million in 4Q17, more than doubling YOY from a low base of $85 million in 1Q17. Repatha captured 67% of this market by value, with Praluent holding the remaining 33%. Notably, Amgen’s share grew from 4Q17, when the split of pooled revenue was 61%/39%. This follows the new CV indication for Repatha, added to the label in early December 2017 and rolled out more extensively in 1Q18. The FOURIER CVOT for evolocumab reported a full year before the ODYSSEY Outcomes CVOT for alirocumab, so Amgen had a head start in leveraging cardioprotection into better payer coverage. Of course, we now have two positive PCSK9 CVOTs on the books which should help the whole class, and Sanofi/Regeneron have big plans for ODYSSEY Outcomes as well.

  • Management shined a spotlight on positive ODYSSEY Outcomes results (presented at ACC 2018) and readily discussed next steps for Praluent’s commercial development. Sanofi/Regeneron will file for a CV indication in 2Q18, which is even faster (and more impressive!) than the swift original timeline of 3Q18. Mr. Brandicourt called attention to the subgroup analysis showing that patients with higher baseline LDL (≥100 mg/dl) derived the greatest benefit from alirocumab treatment in ODYSSEY Outcomes. “We now have a strong story to take to payers and physicians,” he explained, suggesting that Sanofi’s strategy is to first and foremost secure reimbursement for patients with very high LDL, and to promote Praluent to the medical community as particularly advantageous for this high-risk population.

    • We certainly see merit to this approach. Risk stratification has been proposed in a variety of scenarios (e.g. getting people at high-risk for type 2 diabetes onto metformin or into a DPP), and it would get the ball rolling on PCSK9 reimbursement, which is currently abysmal. Over time, as Praluent and Repatha demonstrate cost-savings, payers would hopefully expand coverage to people with lower starting LDL as well. The ethical conundrum here is that patients have to get more sick (higher LDL levels) in order to access a better drug. Moreover, Dr. Steven Nissen argued at ENDO 2018 that this ODYSSEY Outcomes sub-analysis was flawed: Study protocol included back-titrating, meaning patients on alirocumab were scaled back to a lower dose once they reached LDL ≤25 mg/dl, while alirocumab was stopped entirely once LDL fell ≤15 mg/dl. In other words, participants who started with LDL ≥100 mg/dl were more likely to receive maximum doses of the PCSK9 inhibitor, and this dose confounding skewed results, making it appear as if the highest-risk participants drove the overarching findings. This was one thought leader’s opinion and we’re eager to collect more, but it’s nonetheless important to keep the possibility of dose confounding in mind.

  • During Q&A, Mr. Brandicourt asserted that Sanofi/Regeneron are prepared to lower list price on Praluent in order to reduce utilization management criteria! This could be a major win for patients who currently face an extremely high sticker price, and for providers who currently face enormous administrative hassle in seeking prior authorizations for PCSK9 prescriptions. For context, the utilization management criteria on Repatha under CVS Health fell from 45 questions down to 12 following the CV indication – in effect, HCPs have to jump through 33 fewer hoops to get Repatha covered for their patients, and our fingers are tightly crossed that Praluent sees the same fate very soon. Per Mr. Brandicourt’s prepared remarks, Sanofi is already in “active discussions” with “a number of payers.” According to Mr. Stefan Oelrich (EVP of Diabetes & Cardiovascular at Sanofi), between 65%-75% of prior authorizations for Praluent are rejected upfront, as things stand.

  • Mr. Brandicourt also mentioned the Preliminary New Evidence Update from ICER (the Institute for Clinical and Economic Review). ICER will continue to refine its cost-effectiveness analysis on Praluent, and a final New Evidence Update is promised by May 3, 2018. In ICER’s interpretation, ODYSSEY Outcomes does confirm a mortality benefit with alirocumab treatment. Per the comment on page 7, ICER will not extend a more favorable cost-effectiveness calculation to Repatha. Mr. Brandicourt underscored that ODYSSEY Outcomes was the “first non-statin study to show a nominally significant benefit on all-cause mortality,” although many thought leaders speculate that FOURIER would have found an all-cause mortality benefit with evolocumab as well with longer follow-up. Median follow-up time was only ~1.1 years in FOURIER vs. 2.8 years in ODYSSEY Outcomes.

Pipeline Highlights

6. Admelog Launches in US as First-to-Market Biosimilar Mealtime Insulin; First Focus is Medicaid (2018) Followed by Commercial Plans (2019) and Medicare (2020)

Sanofi launched Admelog (biosimilar lispro), the first-to-market biosimilar mealtime insulin, to US pharmacies on April 2. According to Mr. Stefan Oelrich, EVP of Diabetes & Cardiovascular, Medicaid has shown terrific early interest and the first coverage agreements have been signed. That said, he reiterated previous commentary that Admelog won’t be a major revenue driver for the company until 2019, and he elaborated that Sanofi will focus on building reimbursement within commercial plans for 2019, while Medicare coverage will be a priority in 2020. We look forward to the first broken out sales for Admelog later this year, and we’re hopeful that the product will represent a discounted/more affordable rapid-acting insulin for patients (to this end, it’s good news that Medicaid uptake is already underway). At our local CVS in San Francisco, the list price for Admelog is $279 per vial and $534 per pack of five SoloStar pens. These prices don’t differ significantly from $275/vial and $549/pen pack for Lilly’s Humalog (insulin lispro), even though biosimilars are meant to come at a 15%-20% discount vs. the originator product. However, we note a couple important caveats: (i) List prices can vary between pharmacies, and our sample size was one. (ii) List prices only mean so much without considering reimbursement and patient discounts – Lilly management commented earlier this week that Medicaid utilization of Humalog is falling (“favorable segment mix” contributed to a 12% YOY rise in sales to $792 million in 1Q18), whereas Sanofi is actively promoting Admelog to Medicaid health plans and has launched the Insulin Valyou Savings Program to cap out-of-pocket expenses at $99/vial and $149/pen pack. Ultimately, we’re excited about this new product and the benefits it could bring to patients (namely, expanded therapeutic choice). Admelog could also boost Sanofi’s diabetes business in 2019 and beyond, though it’s too early to tell right now what the financial impact will be for the company or what the commercial impact will be for the rapid-acting insulin market.

  • As background, Admelog received full FDA approval in December 2017, after Lilly decided not to pursue a patent infringement lawsuit against Sanofi. As Lilly management explained, the only still-active patents for Humalog pertain to the KwikPen device, and Sanofi’s SoloStar device is “fundamentally different.” In other words, there was no basis for litigation. (In contrast, Sanofi has launched patent lawsuits against all biosimilar insulin glargine candidates to-date, from Lilly/BI, Merck, and Mylan/Biocon.) Sanofi has already launched biosimilar insulin lispro in a few European countries, where it’s branded as Insulin lispro Sanofi. EMA granted approval in July 2017, and we saw the first European marketing of this product in the EASD (Lisbon) exhibit hall; messaging highlighted sustainable cost, availability in SoloStar pens (which are familiar to patients), and Sanofi’s long history of expertise in diabetes and insulin manufacturing.

7. Newfound Concerns of Tolerability with GLP-1/Glucagon Dual Agonist (25% of Participants Dropped Out of Phase 2 Study); Management Reaffirms Excellent Efficacy; Phase 3 Trials in Obesity Still on Track for 2H18 Start

We were very interested in management’s comments regarding SAR425899 (GLP-1/glucagon dual agonist). As far as we’re aware, phase 3 trials in obesity are still on track to begin in 2H18, but management’s tone was decidedly less positive on today’s call compared to what it’s been in the past. “The real issue we’re dealing with is tolerability, and the dropout of one-fourth of patients because of tolerability issues,” said Mr. Elias Zerhouni, Sanofi’s President of Global R&D. “We had a higher GLP-1 effect in the molecule than we expected from non-human primate data, and we think the titration was too abrupt. So, we’re working to adjust titration and dosing. By early summer, late June, we’ll know a lot better.” Sanofi announced that it would advance this GLP-1/glucagon dual agonist into phase 3 for obesity during an Analyst Day in December 2017, and we were pleased to note this R&D expansion into diabetes-adjacent indications, given the tremendous unmet need in obesity care. Then, at JPM in January, CEO Mr. Olivier Brandicourt shared a positive outlook on what phase 3 weight loss data would show. He pointed to phase 2 findings of ~8 lbs weight loss after just four weeks of treatment, and he suggested that this agent was at least as if not more efficacious than Novo Nordisk’s GLP-1 agonists liraglutide and semaglutide. Presumably, some of the tolerability challenges with SAR425899 became apparent as investigators dove deeper into the phase 2 results – this study only completed in late December last year, so we imagine analysis had just begun in time for JPM the second week of January. We’re cautiously optimistic that clinical development will proceed as planned (a phase 2, proof-of-concept study in NASH is also supposed to begin by year-end), once Sanofi scientists device a dosing/titration scheme with a stronger tolerability profile. Mr. Zerhouni gave us some reason for this optimism, emphasizing once again that this molecule has excellent efficacy. He attributed this to “the nature of the molecule, it’s affinity,” and supported Mr. Brandicourt’s view that it could be superior to existing GLP-1 agonists. Of course, we’ll have to wait-and-see what emerges from Sanofi’s ongoing efforts to optimize titration, and we’ll be watching this one with bated breath.

  • Mr. Zerhouni alluded to a GLP-1/GIP/glucagon tri-agonist in Sanofi’s preclinical pipeline, and he positioned this as a “back-up” to the GLP-1/glucagon dual agonist in phase 2, the “next in line” candidate for clinical-stage development. This was the first time we’ve heard of Sanofi’s tri-agonist, and we hope it advances into phase 1 studies regardless of what happens with SAR425899. Mr. Zerhouni outlined the company’s goal to “push duration of action from once-daily, to once-weekly, to longer,” to create a next-gen type 2 diabetes therapy with much lower injection burden (perhaps once-monthly). Novo Nordisk has a GLP-1/GIP/glucagon tri-agonist in phase 1 for obesity (trial completed in August 2017, according to CT.gov); we’re not sure of the dosing frequency for NN9423, and of course it could change as this candidate progresses through clinical development. To be sure, multi-agonist approaches are generating a lot of buzz in the diabetes field, despite their early-stage. This emerging class holds potential to offer superior efficacy vs. current GLP-1 agonists, and lower injection burden would be icing on the cake. That said, Sanofi was aiming for once-monthly dosing with GLP-1 agonist candidate efpeglenatide and decided against it, so there are certainly technical challenges in creating a drug with efficacy that lasts four full weeks after a single injection. Intarcia’s GLP-1 candidate ITCA 650 lasts for three-six months, but this is a mini pump implanted into the abdomen that continuously releases exenatide subcutaneously.

8. Sotagliflozin NDA Submitted for T1D; T2D Phase 3 Program Ongoing; Possible Future Indication for Diabetes/Heart Failure

In passing, management noted the NDA submission for Lexicon-partnered SGLT-1/2 dual inhibitor sotagliflozin. This regulatory filing is seeking a type 1 indication (based on results from the inTandem pivotal program), and FDA and EMA decisions are anticipated in 1Q19. Sanofi is also leading phase 3 development of sotagliflozin for type 2 diabetes, and these trials are summarized in the table below. For a type 2 submission, Sanofi is targeting 2019 (when all trials should have concluded, except for the CVOT). Slide 35 of the company’s earnings presentation also lists plans to file sotagliflozin for worsening heart failure in diabetes by 2021. There was no discussion of this during prepared remarks or Q&A, nor have any phase 3 studies aiming for a heart failure indication been posted to ClinicalTrials.gov, although a phase 2 study is ongoing in patients with type 2 diabetes and worsening heart failure to assess sotagliflozin’s safety, tolerability, and PK/PD profile in this patient population. The phase 2 trial (n=81) is expected to complete in March 2019, and we expect phase 3 investigations are slated to begin shortly thereafter.

Phase 3 Program for Sotagliflozin in Type 2 Diabetes

Trial

Estimated Enrollment

Comparator/Design

Estimated Completion

Sotagliflozin as monotherapy

400

Placebo

January 2019

Sotagliflozin as add-on to metformin

500

Placebo, metformin alone

March 2019

Sotagliflozin as add-on to a sulfonylurea

500

Placebo, metformin alone, SU alone

May 2019

SOTA-INS (add-on to insulin)

560

Insulin glargine (Sanofi’s Lantus)

May 2019

SOTA-CKD3 (in patients with moderate renal dysfunction)

780

Placebo

September 2019

SOTA-CKD4 (in patients with severe renal dysfunction)

276

Placebo

September 2019

SOTA-GLIM (head-to-head vs. SU)

930

Glimepiride

May 2019

SOTA-EMPA (head-to-head vs. empagliflozin)

700

Empagliflozin (Lilly/BI’s Jardiance)

May 2019

SCORED

10,500

CVOT vs. placebo

March 2022

The table below reflects the latest updates, as far as we are aware, on Sanofi’s diabetes/obesity pipeline products. Items highlighted in yellow indicate notable changes to the pipeline in 1Q18.

Candidate

Phase

Timeline/Notes

Admelog (biosimilar insulin lispro)

Launched

Launched to US pharmacies along with Insulin VALyou Savings Program in 2Q18 (we are very impressed with this); FDA-approved in December 2017; EMA-approved in July 2017 under brand name Insulin lispro Sanofi; SORELLA 1 trial presented at ADA 2016; SORELLA 2 trial results presented at ADA 2017, along with one-year SORELLA 1 data

Sotagliflozin (SGLT-1/2 dual inhibitor)

Phase 3

Submitted to FDA and EMA for type 1 diabetes, decisions expected 1Q19; Positive phase 3 results in type 1 (led by Lexicon) presented at ADA and EASD 2017; Phase 3 program in type 2 underway, readouts/FDA filing expected 2019

SAR341402 (rapid-acting insulin)

Phase 3

GEMELLI 1 (open-label vs. Novo Nordisk’s NovoLog) expected to complete January 2019; FDA submission slated for 2019; Added to pipeline in 4Q16

Efpeglenatide (once-weekly GLP-1 agonist)

 

Phase 3

Phase 3 trial initiated in 4Q17 (delayed from 4Q16) and expected to complete February 2020; Licensed from Hanmi

SAR425899 (GLP-1/glucagon dual agonist)

Phase 2

Phase 3 trials in obesity scheduled to begin 2H18; Phase 2 proof-of-concept in NASH scheduled for 2018 study start; Phase 2 in type 2 diabetes completed December 2017; Promising phase 1 results presented at ADA 2016

SAR438335 (GLP-1/GIP dual agonist)

Phase 1

Added to pipeline in 3Q15

GLP-1/GIP/glucagon tri-agonist

Preclinical

Mentioned during Q&A on 1Q18 call; Supposedly “entering clinical development right now”

Once-weekly LAPSInsulin-115/efpeglenatide combination

Preclinical

Acquired from Hanmi in November 2015; Hanmi is leading early development efforts and Sanofi will revisit this candidate in ~2019 or later

Select Questions and Answers

On Sanofi’s Diabetes/Obesity Pipeline

Q: On the GLP-1/glucagon, are you willing to discuss the efficacy and toxicity that you saw in the phase 2 study compared to what one would expect for a GLP-1 agent? What differentiation do you want to highlight vs. other products?

Mr. Elias Zerhouni (President, Global R&D, Sanofi): We had two primary endpoints that we needed to achieve on the efficacy side (A1c and body weight), and we achieved more than our minimum thresholds on both. The real issue we’re dealing with is tolerability, and the dropout of one-fourth of patients because of tolerability issues. We had a higher GLP-1 effect in the molecule than we expected from non-human primate data, and we think the titration was too abrupt. So, we’re working to adjust titration and dosing. We’re doing trials now, and we have very innovative imaging studies to look at the receptors. By early summer, late June, we’ll know a lot better. The reason we’re optimistic is because of the efficacy profile. We think our GLP-1/glucagon is differentiated primarily because of the relationship between the receptor and the nature of the molecule, it’s affinity.

Q: You have a dual agonist that’s kind of at risk, and then you have a GLP-1 agonist coming in 2020 or later. Would you consider doing any licensing deals? Will you try to increase speed on the other dual agonist that you have in phase 1?

Mr. Olivier Brandicourt (CEO, Sanofi): We never say no. We’re in diabetes because we see an opportunity. We’re moving full speed ahead with sotagliflozin, launching first in type 1 diabetes as you know. Our strategy is to use these assets as a stepping stone to get to a new mechanism of action, or new combinations such as dual agonists. I’ll ask Elias to talk about back-up approaches we have for dual agonists.

Mr. Zerhouni: Our strategy for diabetes, to go beyond the current wave of drugs, is to go into dual, triple, and even quadruple action points. We do have back-ups. Our dual agonist is not hopeless. Hopefully, we’ll get titration and the dose right in the next few months. The next in line is the tri-agonist, which could enter clinical development soon. With the approach and platform we’ve developed, once-monthly is a possibility for that one. So, there’s a whole program here. Obviously, it will depend on clinical results, but our idea is to go into multi-agonist pharmacology and to really push duration of action from once-daily, to once-weekly, to longer.

Q: Can you outline what the Admelog opportunity is? I understand that’s now been launched.

Mr. Brandicourt: We officially launched in the US on the second of April this year.

Mr. Stefan Oelrich (EVP, Diabetes & Cardiovascular, Sanofi): The product is now launched in the US. We had previously introduced the product in a number of European countries. While we do not comment precisely on commercial potential, I’ll say that we are making good progress, especially within Medicaid. We have very strong interest from all major plans there, and we’ve signed a couple of first agreements. We expect to have sales for Admelog this year. We had advertised previously that we see commercial opportunities in other channels more in 2019 and 2020, not this year. Commercial plans will be a focus in 2019, and Medicare in 2020.

On Praluent

Q: Can you discuss the feedback you’re getting from payers so far? Could point-of-care rebates help at all here, in terms of lowering patient expenses?

Mr. Oelrich: I think payers share our excitement on ODYSSEY Outcomes. We’re willing to make some compromises on price in exchange for better utilization management, so that’s something we’re discussing right now. The very high initial reactions, clocking in at 65%-75% for new patients, will come down significantly as a positive consequence of that. Stay tuned. We’ll update you on the next call about where we land on this one.

Mr. Brandicourt: The aim is improving areas of patient affordability. We can’t really make a comment on the path through, but hopefully that will happen. We can enhance patient access by streamlining and creating more favorable UM criteria, as Stefan said. We’re really pushing for that in our current discussion. In order to obtain that, we’re ready to provide an attractive price that’s reflective of what we announced with ICER several months ago.

On Pharmaceutical Pricing

Q: Lilly and Novo Nordisk have both talked about doughnut hole discounts. Can you quantify what you see the impact being for Sanofi?

Mr. Brandicourt: We are early. But frankly, we believe that this was the wrong approach. The new policy shifts costs from health plans to the industry, and next year, drug companies will cover 70% instead of 50%. Again, there’s very minimal long-term help to beneficiaries. How much is it going to cost us? You have to consider the business and the decline in our US diabetes franchise – the proportion of our sales going to Part D is of course expected to decline in the coming years. So by 2020, our US sales would be impacted by ~1% with the new legislation regarding the coverage gap. That refers to 1% of total US sales, and diabetes is a big proportion.

On Executive Structure

Q: With the management changes, do you have an idea of the type of profile you’re looking for in a new CFO? Would you prefer a CFO with operational skills and background, or more of an M&A background?

Mr. Brandicourt: We want everything. I’m going to compliment Jerome again. We want a profile that has operational experience in driving daily financial activities of a very large, multinational corporation, but at the same time, a very good understanding of what corporate finance is. We’re setting the bar very high, and we’ll see where we land. I wouldn’t put one priority above the other. Certainly, there’s a priority in acquiring Bioverativ and Ablynx. We’re in process on Bioverativ and as you know, the Ablynx deal is not closed yet. We’re moving toward full integration at the beginning of 2019. The process is going very well. For now, the CEO of Bioverativ is still driving that business, and is helping to integrate within our current and future Sanofi organization.

 

-- by Ann Carracher, Payal Marathe, and Kelly Close