Sanofi 3Q14 – Lantus up 8%; Significant increase in US rebating leads to guidance for f-l-a-t diabetes sales in 2015 – October 28, 2014

Sanofi reported 3Q14 financial results this morning in a call led by CEO Mr. Chris Viehbacher. Sales for the company’s entire Diabetes Division grew 8% year-over-year (YOY) in 3Q14 to €1.8 billion (~$2.4 billion). In a surprise move, management provided worrying early informal guidance on Lantus’ pricing and likely performance in 2015. In response to that announcement, the vast majority of Q&A consisted of questions on Sanofi’s current and future diabetes portfolio. We look forward to hearing Novo Nordisk’s take on the insulin pricing environment on Thursday, when Novo Nordisk (Sanofi’s only competitor in the basal insulin market) will provide its 3Q14 financial update. Included below are our top five highlights from the call, followed by Q&A.

1. Lantus (insulin glargine) sales grew 8% YOY as reported to €1.6 billion (~$2.1 billion), slowed by increased payer pressure in the US (previous growth has been well into the double digit percentages in most other quarters).

2. In order to maintain reimbursement and access, Sanofi accepted a high level of rebates during tough payer negotiations in the US; as a result, Sanofi expects sales for the Diabetes Division as a whole to be flat in 2015 – this was discussed very extensively during Q&A.

3. During Q&A, management expressed confidence in Sanofi’s concentrated insulin glargine formulation Toujeo (regulatory decisions expected in 1Q15 in the US and 2Q15 in the EU), suggesting that it has a stronger PK/PD profile than Novo Nordisk’s Tresiba (insulin degludec).

4. The inhalable insulin Afrezza, which Sanofi licensed from MannKind in August, is on track for a US launch in 1Q15; Sanofi sees Afrezza as a tool to reduce treatment inertia in type 2 diabetes patients not at goal on oral drugs alone.

5. Lyxumia (lixisenatide) posted a modest gain, to €8 million (~$11 million), while the rapid-acting insulin analog Apidra (insulin glulisine) performed well from a relatively small base, growing 21% to €88 million (~$120 million).

Table 1: Diabetes Division 3Q14 Sales by Product

Top Five Highlights

1. Lantus (insulin glargine) sales grew 8% YOY as reported in 3Q14 to €1.6 billion (~$2.1 billion). Though it continues to be responsible for the lion’s share (87%) of Sanofi’s overall diabetes sales, this was quite low growth for the franchise. Indeed, the results in 3Q14 represent a slight slowdown from 2Q14, in which Lantus sales grew 11% YOY, as well as a decrease from the more consistent low-double-digit growth in 2013 (full-year 2013 Lantus sales rose 15% from 2012). The slight slowdown was due to relatively modest 6% YOY growth for Lantus in the US, which is the franchise’s largest market; Sanofi’s press release attributed the domestic results to increased competitive pressure at the payer level (there was much more discussion on pricing during the call – see below). Lantus SoloSTAR represented 62% of Lantus sales, compared to 57% in 3Q13. Year-to-date through the end of September, Lantus sales grew 9% as reported compared to the same period in 2013.  

• Lantus sales were stronger outside of the US. In Emerging Markets, Lantus grew 17% as reported to €230 million (~$310 million) – the press release attributed this result to strong performance in China, Turkey, the Middle East, Mexico, and Africa. Lantus performed uncharacteristically well in Western Europe, with sales growing 10% as reported (driven by patient gains, according to management) compared to low-to-mid-single-digit quarterly YOY growth over the past year – the large markets in Germany, France, and Italy were the star performers here. During Q&A, management noted that in Japan (where Novo Nordisk’s Tresiba has fairly liberal market access relative to other geographies), Lantus is holding on to ~65% of new patient share and a 60% overall market share vs. Tresiba’s ~20%.

2. Management’s gloomy outlook for flat Lantus franchise sales in 2015 absolutely dominated the call and Q&A. We learned during that call that during negotiations with payers over formulary positioning, Sanofi was forced to accept significant increases in rebates due to “aggressive discounting by competition” – ostensibly from Novo Nordisk’s Levemir (insulin detemir). The good news is that Sanofi emerged with preserved >90% unrestricted coverage in commercial and non-commercial channels, which was its primary goal in the negotiations. The bad news for the company is that because of the high level of rebating, Lantus will likely now be a drag on Diabetes Division growth rather than the main driver. Even with the positive anticipated contributions from the launches of Toujeo and Afrezza (see below), along with continued contributions from Apidra and Lyxumia and likely patient growth, management suggested that total diabetes sales in 2015 will be “broadly stable” (read: flat). The company is already feeling the effect of the pricing pressure in the US this year, as the 3Q14 results in the US demonstrate – management also shared during Q&A that Sanofi already lost a few accounts at the beginning of the year. We expect to see a similar or perhaps even greater negative impact in 4Q14.

• While payer pressure was the primary reason for the subdued 2015 guidance, there are other factors at play as well:
  
  • Much of Lantus’ recent growth in previous quarters has been due to price increases (see our 2Q14 report), and during Q&A one caller suggested that the concessions on rebates might be a partial response to those recent price increases (management did not address that point) – we suggested that growth based on price increases could be unsustainable back in our 4Q13 Industry Roundup, and insulin price increases over the past year have drawn the ire of many patients, providers, and payers.
  • The Affordable Care Act is increasing the number of patients covered by Medicaid, which is one of the least profitable coverage groups for drug companies.
  • The expected European launch of Lilly/BI’s biosimilar insulin glargine formulation contributed in part to Sanofi’s outlook.
  • The rise of SGLT-2 inhibitors and once-weekly GLP-1 agonists may have an indirect impact on the potential for pricing premiums for basal insulin. SGLT-2 inhibitors (unlike many other type 2 diabetes drug classes) have an insulin-independent mechanism and therefore retain much of their efficacy in patients with more longstanding diabetes, with a lower risk of hypoglycemia than insulin. The AWARD phase 3 program for Lilly’s once-weekly GLP-1 agonist Trulicity (dulaglutide) painted a very positive clinical profile vs. Lantus, with superior efficacy, less weight gain, and less hypoglycemia.
• During the call, Sanofi management focused on the positives: despite the concessions on rebates, the company maintained a high degree (>90%) of unrestricted coverage in the US. As a rationale for the decision to sacrifice pricing for access, CEO Mr. Chris Viehbacher suggested that a strong prescription base for Lantus will benefit the launch of the concentrated insulin glargine formulation Toujeo, which is expected next year. Later, during Q&A, he also noted that basal insulin is not the only insulin market segment, and that future increased patient migration from premixed insulin is a possibility that could grow the size of the entire pie.
• The timing of aggressive pricing competition with Levemir (if that is indeed what is going on, which is not certain) appeared to catch the company and investors by surprise – management noted during Q&A that competitors’ behavior has changed Sanofi’s expectations. From the tone of the questions during Q&A, some investors appeared to be potentially worried that Sanofi’s guidance marked the beginning of continued price aggression in the basal insulin market. Management did not comment on Novo Nordisk’s possible rationale, but suggested that it is in neither company’s best interest to begin a “race to the bottom” on pricing, as both companies (along with Lilly) hope to introduce novel basal insulins shortly (Toujeo, Tresiba, and peglispro/BIL for Sanofi, Novo Nordisk, and Lilly respectively).
  
  • More aggressive rebating might explain Levemir’s continued strong performance in recent quarters – the product grew 27% year-over-year to $660 million in 2Q14. However, a curious factor is Novo Nordisk’s high-profile launch of the new FlexTouch pen for Levemir, which debuted at ADA – a new pen seems like a useful tool to pursue more of a pricing premium, rather than go in the other direction.
  • Although Sanofi did not disclose the magnitude of the rebates for 2015, management hinted that the rebate levels are now “probably” closer to those for Levemir. Previously, at least according to one caller, rebates for Lantus have historically been narrower than those for Levemir.

3. The sluggish prospects for Lantus raise the stake for Toujeo, a more concentrated “U300” (300 U/ml) insulin glargine formulation that is currently under regulatory review. Sanofi specified that it expects regulatory decisions for Toujeo in the US in 1Q15 and in Europe in 2Q15, in line with previous guidance. This will make Toujeo the second next-generation basal insulin analog to reach the European market (behind Tresiba), and the first to market in the US (where Tresiba was held up by an FDA CRL) – this is of course assuming Toujeo is approved, but we see very little reason why it would not be, as it proved reasonably comparable to Lantus in phase 3 with signs of additional benefits on factors including hypoglycemia.

• During Q&A, management forecast a Toujeo vs. Tresiba showdown, and made some boldly positive statements in support of Toujeo. Most notably, Sanofi believes that Toujeo has a better PK/PD profile that leads to better 24-hour coverage – there is no head-to-head data on the two compounds, so it would be impossible to prove or refute the claim at this point, but we still found the comment surprising. Additionally, management noted that Toujeo will reach the market first in the US, and that Sanofi has a bigger base of basal insulin prescriptions upon which it can build a market for Toujeo.
• Management did not comment on how the pricing pressure for Lantus could impact future reimbursement negotiations for Toujeo. A great deal depends on how payers view the new generation of basal insulin analogs (including Toujeo, Tresiba, and perhaps further down the road, Lilly’s peglispro) and the products’ clinical differentiation vs. the previous generation of basal insulin analogs. Sanofi and Novo Nordisk have both expressed strong confidence in the improved PK/PD profiles and hypoglycemia benefits of their new products, but we are not sure that the entire clinical community shares their level of enthusiasm. During Sanofi’s ADA investor call, several analysts questioned the validity of Sanofi’s splitting of the time periods used for the hypoglycemia calculations, particularly when the time periods used were not part of the prespecified hypoglycemia endpoint. Given the increasingly competitive pricing environment, some payers may not be willing to pay for an incremental benefit that was not entirely consistent across trials. However, as Sanofi management pointed out during the company’s 2Q14 update, investors questioned the extent of Lantus’ differentiation vs. its predecessors before it launched (that seems insane to us – the difference between Lantus and the far less stable NPH were major).

4. Management spoke enthusiastically about the inhaled rapid-acting insulin Afrezza, which Sanofi licensed from MannKind in August. In line with previous guidance, a US launch for Afrezza is expected in 1Q15, with Sanofi responsible for global commercial, regulatory, and development activities. A full slide in the presentation was dedicated to Afrezza. CEO Mr. Chris Viehbacher began his prepared remarks with the Exubera story, highlighting several differences between Exubera and Afrezza, including the small and elegant device. He also emphasized that the product has an incredibly fast-acting PK/PD profile that resembles the profile for endogenous insulin.

• Regarding Afrezza’s positioning, Mr. Viehbacher noted that Sanofi does not necessarily see Afrezza as a way to replace insulin injections. Rather, it could be particular useful for the “lost decade,” or period of treatment inertia when type 2 diabetes patients are no longer at control on oral therapy but have not yet begun injectable therapy. We would agree with this assessment, as Afrezza (at least for now) seems most likely to be used as a specialized product for some type 2 diabetes patients and perhaps some type 1 diabetes patients with post-prandial hyperglycemia (or initial needle-phobia who require large doses), rather than a product to replace rapid-acting insulin en masse.
• That said, we believe MDI is on the decline due to SGLT-2 inhibitors and other easier to use oral drugs (as well as incretins); this will likely affect Afrezza as well, though we believe Afrezza can largely expand the market for rapid acting insulin.
• For more on Sanofi and MannKind’s partnership, read our report on the closing of the deal in late September. 

5. Due to the buzz about Lantus pricing, there was little to no discussion of Sanofi’s other products on the market.

• The short-acting GLP-1 agonist Lyxumia (lixisenatide) accrued €8 million (~$11 million) in global sales in 3Q14 – up from €6 million in 2Q14 and €3 million in 3Q13. Half of Lyxumia sales came from Western Europe, approximately 25% came from emerging markets, and 25% came from the rest of the world, including Japan. According to a Zealand press release on Lyxumia royalties, sales were particularly strong in the UK, Spain, Japan, and Brazil. The product has been launched in over 20 countries, and approved in over 50, with more launches expected in 4Q14 and 2015. For a product that has been on the market for over a year, Lyxumia has not picked up the momentum that some might have hoped, although US approval should be a major energizer (see below). Although the GLP-1 agonist class is getting increasingly crowded with compelling new once-weekly candidates (like Lilly’s recently-approved Trulicity), Lyxumia has the advantage of being one of the most short-acting GLP-1 agonists, which appears to confer particular potency on postprandial glucose lowering – longer-acting agents have a more balanced profile in terms of lowering postprandial and fasting plasma glucose.
  
  • Topline results from the ELIXA CVOT for Lyxumia are expected in 2Q15, which would support a regulatory resubmission in the US in mid-2015. We hope the trial makes the deadline for submission to ADA, and with its current estimated primary completion date of January 2015, we believe that should be possible. 
• Sanofi’s rapid-acting insulin analog Apidra (insulin glulisine) grew a strong 21% to €88 million (~$120 million). This represents an upswing from 2Q14 (in which sales rose 13% YOY) and 1Q14 (in which sales rose 14% YOY), and is not due to an easy comparison: 3Q13 was actually Apidra’s strongest quarter in 2013 in terms of YOY growth (28%). The fact that Apidra is growing from a relatively small base (compared to Humalog’s $710 million in 3Q14 and NovoLog’s $780 million in 2Q14) makes direct comparison of growth rates relatively misleading, but we would have loved to hear reasons for the upswing during the call. Apidra’s growth was fairly balanced across geographies.
• Amaryl (glimepiride) sales fell 4% YOY as reported and 9% sequentially to €87 million (~$115 million). The product has seen a gradual decline in sales over the past couple of years.
• The human insulin Insuman (marketed ex-US) achieved sales of €34 million (~$45 million), flat from 3Q13.
• Revenue from the BGStar and iBGStar blood glucose meters was €14 million (~$20 million), up 25% in constant currencies from 3Q13 (Sanofi did not break out BGM sales in 3Q13 – we’re always interested to see when they do). New products like the MyStar Extra BGM (see our EASD Exhibit Hall Report) that are relatively new to the market in Europe likely played a role. This bodes well, of course, for Agamatrix, who manufactures the meters.

Honorable Mention: Management briefly addressed Amgen’s recent patent infringement lawsuit against Sanofi regarding its PCSK9 inhibitor alirocumab (proposed brand name: Preluent). CEO Mr. Chris Viehbacher noted that Sanofi rigorously evaluated the patent situation before it opted into Regeneron’s program. Rather confidently, he suggested that at this point, Sanofi anticipates no delay to the filing or launch of alirocumab. Our most recent experience with patent lawsuits was Sanofi’s lawsuit against Lilly/BI for the companies’ insulin glargine formulation – that lawsuit triggered a 30-month stay of approval (unless the case is decided in the defendants’ favor before then), and we are curious to learn more about the factors underlying Sanofi’s apparent confidence in the timely resolution of the Amgen lawsuit. During Q&A, Mr. Viehbacher suggested that alirocumab should see success on the market even before outcomes data is available, as LDL lowering in the range of 40%-60% would be hard for physicians to ignore.

Questions and Answers

Q: I want to get a better sense of the significant change in the outlook for the diabetes market – how much of that is Novo-specific versus just the general deterioration of the US reimbursement outlook from a payer pressure perspective, and the perspective from channel mix changes?

A: We cannot comment on any competitor. A deteriorating payer environment only works if you have people who are going to offer something in return. If someone wants price protection or higher rebate, it only works if there is a competitive offer on the table. Payers play one person off against the other; that’s the way it works. There really is only one dynamic and that is competitive pressure.

I think obviously, what we do is look at what has happened with previous accounts, dialogue with payers. The most important thing is that we believe we’ve secured extremely strong coverage at a very good price point. There’s an adjustment in a one-year timeframe, but I think it actually positions the company well, and we have Toujeo and Afrezza to launch. We continue to believe that diabetes will contribute to the growth of the company over the medium term.

Q: You showed you currently value with Genzyme. Is the company now in a good position to execute another major transaction to diversify away from diabetes?

A: Diabetes is less than 20% of our sales today are in the US and Europe. When you look at it, the company still grew its bottom line at 10% even though clearly the diabetes growth is significantly less than what you saw in the first two quarters of the year. That’s the advantage of the diversified model. The most accretive way that we can continue that diversification is through the launch of new products. Doing an acquisition doesn’t change anything on diabetes, so we’re going to continue to grow and develop our diabetes franchise. Whether or not you want to add something in terms of an acquisition, it’s something you do at any time. You don’t have to wait until you’re concerned about diabetes or not. The reality is that you have to do a transaction though that makes financial sense for our shareholders.

Today, the cost of debt capital is virtually zero, and that’s often reflected in a lot of asset prices. We continue to look at everything, but we’d continue to look at everything no matter what the diabetes is in this business. We are still a big company, and I think the growth prospects – when you add in a new product – is good. I don’t particularly see a need to go to a deal, and I think the company is pretty well diversified today.

Q: On Lantus, it seems really strange to see this action you have taken – there are only two possibilities. One is that Toujeo is going to get fully block, and so you’re buying access for Toujeo. However, I don’t see how that’s the case because Toujeo’s not approved – that narrows it down to only one other possibility: Novo competing on price with Levemir. I know you don’t want to comment on a given competitor, but are there other competitors besides that? What’s the only possibility I can think of. Additionally, if you could comment on your ability to secure access to for Toujeo at this point – am I mistaken in thinking that you probably cannot wrap this in as part of the deal? Is this a multi-year contract? Normally peers would only want to do this for one year at a time because the market’s changing.

A: All I can say is that we’re talking about competitive pricing.

Q: Will Toujeo have long-term access or market access in 2015?

A: Toujeo is going to stand on its own two feet. It’s a product that’s got a benefit on hypoglycemia. We’ve clearly been talking to payers and key opinion leaders. The market access will occur when the product is launched as is normal. We believe that actually Toujeo has a very strong market positioning. I think, over time, even this seasoned basal insulin market is in competition between two players – it’ll be Toujeo against Tresiba. The benefit is that Toujeo (a) gets to the market first; (b) we have a bigger base of prescriptions to build Toujeo off of; and (c) we actually believe we have a better profile in terms of the PK/PD profile, which leads to different titration schedule and better 24-hour coverage. So that’s an independent thing so that’s why we’re confident about the launch of Toujeo, but that’s not today’s agenda.

Q: Is it a one-year contracting cycles most likely for Lantus and Toujeo?

A: It’s kind of a mix – we can’t really say.

Q: Thinking about modeling, where do the extra rebates flow through in the P&L account?

A: You start with a rough price, which makes you gross sales, and then you count for the rebate. Of course, the rebates here will be a combination of many factors. On the one hand you have the rebates of the commercial channels, you have rebates on public channels, you have the impact of the coverage gap – all of that will be booked into the same line. What we’ve given already for the next year will be flat. I don’t think we are going to give more guidance or more detailed guidance, but the way it works is that you will see an increase in rebates. At the same time, you should look at 2014 to start with. Clearly, we’ve seen that everything being equal, an increase of the WACC [weighted averaged cost of capital] price changing into a net positive; this will be a net positive impact even after rebates. This will – whatever are the rebates – will lead them in, too, if we take any other price increase next year on [indiscernible] price.

Q: In the past, you’ve talked about growing the franchise in diabetes through to the loss of patents. Do you think we can look forward to a return to growth in 2016, or will these factors flow through?

A: It’s difficult to speculate on what everybody else is going to do. I’ll tell you how I look at this – generally, what you see in these types of markets is somebody comes in, trying to gain market share with price, and everyone aligns their price; you’re essentially in an oligopoly situation.

I think you’re going to see people come in with branded products. You have to also remember that this basal insulin market is not an isolated market, and therefore pricing in one segment could have an effect on others. We may well see migration from pre-mixed insulin, for instance, or even human insulin into the basal market. You have players coming in. All three are proposing if I take Lilly as well, branded products coming in and none of us are going to make a return on investment if everybody has a race to the bottom.

I think Toujeo will increasingly be the product that overtakes Lantus – and then you add in Afrezza; and then you also add in Lyzumia and LixiLan; I think we have a number of options to look for growth in this segment.

Q: You said rebates are kicking in from next year – why were sales then flat this quarter? Why is all this positive pricing you had in the first half suddenly evaporating?

A: I was referring to some contracting that had been done towards the end of the year. There is an effect on pricing this year; there was an effect in the first half of this year, and even some contracts that can have an effect on this year. The full-year impact comes in 2015, however, there is an impact this year. “No” only on the price, but we actually lost some market share because we lost a couple of accounts at the beginning of the year.

Q: Given that you’re going to have about five or six new product launches next year, what does that mean for SG&A? It’s already up significantly this year; are we going to see more demand for you to add head count in the various regions and add other costs?

A: We’re not going to give guidance on the whole year. I would say yes, we will be investing in new products, particularly Preluent, Toujeo, and Afrezza next year. To a degree, Toujeo and Afrezza can rely upon an existing promotional base from Lantus, but there will probably be an incremental investment beyond that. Preluent is a new product, and there will be investment behind that. Again, though, we’re trying to lead with our diabetes franchise because you see an awful lot of comorbidities in patients at risk with high cholesterol and diabetes. Obviously, we’re not talking about a primary care product, especially at the launch period.

Q: In 2015, if you assume flat sales for the diabetes division globally, this suggests a sales decline for Lantus in the US. Can you confirm this? Do you think that the pricing power can be regained in this market after the phase of higher rebates or not?

A: We’ve tried to be transparent and give you some information – but we really don’t want to get into a 2015 guidance nor region-by-region conversation. The math is pretty obvious on this front. I think we’re also trying to be prudent at this point, so I can’t really speculate on what assumptions are, nor on the market share.

Q: In the context of the Amgen’s infringement against the patents of PCSK9, can you confirm that there is no restrictions in terms of manufacturing of alirocumab and your ability to file by end of year? More broadly, what are the next steps and what can of protection can you put in place here?

A: There is and always has been more to Sanofi than diabetes. That’s where we’re going – PCSK9 is one. The patent situation was something that was investigated by the company at the time we opted into the program with Regeneron. Obviously, our own patent attorneys took a view on the strengths of those patents that Amgen is trying to assert. That analysis led us to opt in, and we’re going to be vigorously defending our situation. There is no delay to the filing of PCSK9.

Q: Everyone is surprised to see no growth, and there’s no incremental competition from new entrants. Perhaps you could help us understand the dynamics into 2016 a little more. You made a few comments this morning about a sustainable path post this and still expecting diabetes to contribute to growth over the medium term. Does that mean you think you’ve re-priced the market now to a level that you’re comfortable with and you expect less price competition in 2016 as you come down to some sort of floor level? Could you comment on where you see your net pricing versus Levemir? Do you think this bring you more into line?

A: At this stage, we can’t really start speculating on 2016. Competitive pricing doesn’t really depend on us. I would say the pricing is far more complex, obviously, because you have a Medicaid segment, you have a Medicare segment, you have a commercial book of business segment – I think our view is that we have a very solid competitive position now where we are. If you have over 90% of coverage, you have the whole market to go after.

A: Once again, we are not in a position to give guidance for next year. How can you manage gross margin versus SG&A; there are still ways to cut costs and invest more behind key project on the euro zone. What is important when you think about gross margin in the mix of the business? When you increase the share price of Lantus is directly favorable to the overall gross margin. This will not be exactly similar to next year.

Q: Where are you relative to competitors in terms of Lantus pricing? Historically, there’s been a much narrower rebate for Lantus than your main competitor. Do you feel that you’re closer to pricing parity level now? Or do you feel that there could still be pressure in 2016?

A: Obviously, we do not know the exact price point of the competition, and it is also a moving target. You know, it varies – account for account and channel by channel. It is probably fair to assume that after the pricing actions we have taken now, we are closer to where Levemir was or is. How this is going to unfold in the future is just speculation, so I would not enter that game. The thought I would give you is, however, is that it is that Lilly and Novo and ourselves are entering into the innovation play in basal insulins. I do not think that it is in the interest of the existing players to go for a race to the bottom.

Q: I’m still struggling a bit on the Lantus and pricing because what’s basically a co-preferred market, with Novo planning to launch new product here, as well, it seems strange that they might lead a new round of pricing competition here. Can you reassure us that this isn’t pushback from the payers on Sanofi’s recent price action in 2013? Potentially the company had been too aggressive in the past on price increases. Does this all impact what your pricing strategy might be for Toujeo on launch? You had referred to that as a premium-priced product relative to Lantus in the past. Are you still thinking that might be the right strategy to go with?

A: I’m not aware of ever having described Toujeo as a premium-priced product. On our superior dynamics you go in and negotiate in contracts, and we obviously are in competitive situations on these contracts. The pricing on the lack of basis is not so relevant and has largely followed what Levemir has done. I think it’s a competitive situation, and I really don’t know what to say more than that.

Q: How are you seeing growth in emerging markets? Are you seeing increased competition from Tresiba in certain markets? How are you seeing the Japanese market development?

A: In emerging markets, the product is growing extremely dynamically, and we do foresee that this will continue into the future. For example, in China, we have well de facto – call it biosimilar competition – since a decade. That’s basically what you see in many emerging markets.

In Japan, we are in a specific situation to the extent that you have a Tresiba with a pretty liberal market access, and what we see is that we hold on to two-thirds – or about 65% – new patient share with Lantus. I think we’re doing a pretty good job defending our share. In overall share, we still hold a 60% market share with Lantus, whereas Tresiba must be somewhere a little bit above 20% in the last monthly data. That’s what I can give you and an update on the ex-US situation. The last point is in Europe we have a very strong third quarter. We are close to 10% growth for Lantus, overall more than 10% growth from diabetes in Europe; this is actually with a very slight negative on price, so it’s even more than that in volume. It’s a very healthy performance.

Q: Does your Lantus guidance assume Lilly launches a biosimilar in the EU? Or does Sanofi have a legal strategy to block the launch, so no launch is assumed?

A: In the 2015 assumptions, commercially we have embedded a biosimilar launch in Europe by Lilly, yes.

Q: You have previously said that a good proxy for conversion of Lantus to Toujeo is Copaxone, which I understand converted about 50% of prescriptions in about six months. Would you detail the strategy to deliver that degree of conversion beyond the superior hypoglycemia data?

A: In terms of the analog, what we’re trying to do is cannibalize Lantus. You can look at Copaxone, you can look at Tresiba in Japan – there are a number of analogs there. Obviously, this will depend on how fast you get out the market on market access. The most important is that we’re going to be putting all of our promotional effort behind Toujeo in the next year. I think there are a couple of strategies that will be different in terms of the promotion that we are doing. We’ll be able to tell you more close to the launch.

Q: You have given half of the guidance for 2015 with the diabetes indication. However, in 3Q14, the rest of the business has compensated for that, and you have been at 5% growth organically – this has been a kind of guidance over time. It’s not going to stick on one figure, but will you be so far away from the level in 2015 for the whole group? Can we anticipate this kind of level for the next few years?

A: The debate we always have is the minute you start trying to provide some transparency on some major aspect of the business, everybody wants to know about the rest. We will be giving guidance for 2015 with the 4Q14 results. The idea was to say, we have seen a shift in market dynamics in this part of the business. Rather than just saying that we’re seeing a shift in market dynamics, we tried to help quantify it for you.

Obviously, the rest of the business continues to develop. We have our growth platforms. We have launches on new products. There are cost-cutting maneuvers that are ongoing. All of that is going into a budget process for 2015 that has not yet been finalized and won’t typically be finalized for another four to six weeks. We will be able to provide guidance for the whole business with the 4Q14 earnings in February.

Q: Your message around pricing is very clear. On the volume side of the story, in the past you have commented about how this market is relatively stable and sticky on the insulin side. Do you see changes on that side of the coin, as well? Is managed care able to drive a more dynamic momentum into this market that historically has been quite sticky? On the government programs that you’ve mentioned, there is a potential threat that you get the best pricing kick-in on the franchise like Lantus. Is that part of your assumption on the pricing side, or are you clear of having negative collateral damage?

A: You do indeed see an uptick of roughly 1% to 1.5% of the insulin class as a whole. Most of the increment goes, however, into Medicaid as a channel; this, of course, is the least profitable channel.

A: The best price in Medicaid is baked into the assumptions.

Q: On Toujeo, I noticed that the timeline in the US decision has moved into Q1, which seems a little bit earlier; is there any particular reason for that? Are you expecting an advisory panel? You said the key to the success of Toujeo will be the market access. In your recent rounds of contracting have you been discussing Toujeo? Does it form a separate conversation? How far advanced are you in discussing that product with the payers?

A: The approval date for Toujeo is Q1 in the US, and Q2 for the EU. It’s been a short form to say both in 1H15, but there’s no real change on the expected timeline. When I talked about market access, it’s principally a question of when you start looking at cannibalization rates you have to make sure that you’re starting from a point where you get a broad coverage; today, we just don’t know. It is important for the longer term, but it will be more of a factor about how big your sales get to be in 2015. You can’t go into any detail with payers until the product is approved. You can orient the product with your medical people, but you cannot actually engage with the pharmacy benefits group until you have an approval.

Q: How much of the impact on the sales level can you compensate on the bottom line? Did you say that you do see flexibility on the cost line to at least counter some of the effects? Can you give us any indication of how much you can rein in given that most of the impact’s going to be on pricing and not volume? Can you rein in some of the sales force? What other cost items can you flex out?

A: First of all, we cannot give you any details on the rebates; mostly, I’m sure our competitors would like to know that. For the rest, it comes back to that we don’t really want to give guidance for 2015. There are going to be cost reductions that we can do. We have launches of products that we can do. We’re going to be investing in new medicines. We’ll be happy to pull all of that together for you there. Again, the real objective was that we wanted to give you a heads up because we had perceived some change in the market dynamic already at the half year. That be came more crucial in Q3. That’s really all that this is meant to be – to help get at least some level of upfront information so you can do more modeling.

Q: Aren’t you surprised about the timing of the competitor’s behavior? Couldn’t that competitor have behaved this way basically a year earlier or even earlier? Was that kind of price pressure?

A: You’ll have to ask the competitor. The markets are dynamics places, and I would say that this is a change in our expectations – there’s no question about it.

Q: Where do you think the break-even pricing might sit for a smaller participant in the market in the directly substitutable generic for insulin – specifically, Mylan as a generic manufacturer? How much room is there for price thresholds? What do you see as the challenge for directly substitutable generic?

A: Mylan, Biocon is a number of years behind. I think it would be difficult to speculate on what the market is going to be by the time they get there. By then, you’ve got Toujeo up there, probably ezetimibe, probably Lilly filing a similar – possibly a Lilly novel basal. I think by the time that comes, you’re probably going to see a market between first generation basal insulin and second generation. We’ll wait and see. We know that Lilly has not gone for anything substitutable biosimilar, and I think trying to do a substitutable and doing the clinical studies – you have to question the economics of that for the company; I think it’s too early to speculate on that today.

Q: As we think about the launch trajectory of a product like alirocumab, without outcomes data, how should we think about the launch trajectory of alirocumab in the context of both another competitor who may help grow the market, but also the absence of outcomes data?

A: On alirocumab, we are trying to figure out what our physician attitudes are – do physicians believe that lowering cholesterol is a good thing? If you have patients who have multiple risk factors – if you have someone who has already had a heart attack and who, despite high statin use, still has high cholesterol, is overweight, still smoking, has diabetes…. and you can a offer product that dramatically decreases cholesterol by 60% – how many physicians would be willing to treat that patient with our without outcomes data?

I think we’ll be able to give you some more of the indications I mentioned. I’m sure if you go ask your favorite cardiologist and ask him or her whether he or she thinks it’s a good idea to reduce LDL, you’ll find at least nine times out of ten – if not 99 out of 100 – that they will think it’s a good idea. You’re going to be in this period of looking at a number of targeted populations between the FH populations, the statin-intolerant populations, the secondary-prevention population that you’re not going to be out there to try to replace statins. There’s probably a bigger unmet need than most people think – however, let’s try to distill this a little bit more for everybody when we have a little more time on November 20.

-- by Manu Venkat and Kelly Close