Sanofi 3Q17 – Diabetes business falls 14% YOY driven by 19% YOY Lantus decline; Bright spot in Toujeo +19% YOY to $233M; Pooled basal insulins fall 4% YOY to $2.5B, rapid-acting segment rises 8% to $1.6B – November 3, 2017

Sanofi reported 3Q17 earnings yesterday morning in a call led by CEO Mr. Olivier Brandicourt (see the presentation deck here). From a bird’s eye view, 3Q17 was another challenging quarter for Sanofi Diabetes (driven by Lantus decline), but next-gen basal insulin Toujeo is a clear bright spot. Referencing PCSK9 inhibitor Praluent, management acknowledged that the sales trajectory for this new product launch has been lower than expected, and we’d extend this to fixed-ratio combination Soliqua to an even greater degree. On this page, you’ll find detailed highlights covering Sanofi’s diabetes products and pipeline. At the top, we’ve also included four pooled market analyses for 3Q17: (i) basal insulins, (ii) next-generation basals (Toujeo and Novo Nordisk’s Tresiba), (iii) rapid-acting insulins, and (iv) basal insulin/GLP-1 agonist fixed-ratio combinations (Soliqua and Novo Nordisk’s Xultophy).

Table 1: 3Q17 Financial Results for Sanofi’s Major Diabetes Products

Pooled Market Highlights

1. Pooled basal insulin sales fell 4% YOY and 2% sequentially to $2.5 billion in 3Q17. Despite the high base and only modest decline, we find this whole class performance to be disappointing – clearly, the number of patients out there that can benefit from basal insulin is growing and clearly there are easier-to-prescribe and easier-to-take basal insulins and so the class should be growing absent greater discounts and rebates.  The driving factor for the decline in the basal category is continued decline in Lantus sales, though Sanofi’s flagship product still leads the market by value with a 53% share in 3Q17. Newer therapies including Sanofi’s Toujeo, Novo Nordisk’s Tresiba, and Lilly/BI’s biosimilar Basaglar represent bright spots of growth. These products captured 9%, 11%, and 6% of pooled revenue, respectively. We see the first two as the best insulins for patients and the latter as a cheaper copy.

2. The next-generation basal insulin class grew 48% YOY in 3Q17 to $510 million, from a base of $345 million in 3Q16, but fell 10% sequentially. Novo Nordisk’s Tresiba captured 54% of this market by value, while Sanofi’s Toujeo claimed the remaining 46%. Together, the two products held a 21% value share of the $2.5 billion basal insulin market in 3Q17 (up from only 13% in 3Q16). This is a strong showing overall, and we hope to see continued gains in both volume and value for the next-generation insulins given their tremendous clinical benefits over older agents. Ensuring strong patient access will be key – a tailwind is awareness, which is clearly increasing among clinicians and patients alike. Very notably, Tresiba now has a hypoglycemia claim on its European label (EMA-approved in 3Q17) based on DEVOTE data, and could be granted a similar label update in the US come 1Q18. While this could certainly be a tailwind for Novo Nordisk’s next-gen insulin, thought leaders (including Dr. Jay Skyler) have suggested that Toujeo could be similarly beneficial in hypoglycemia risk reduction vs. earlier insulins – it just remains to be seen.

3. The rapid-acting insulin market grew 8% YOY and 2% sequentially to $1.6 billion. Notably, this growth came against easy comparisons, as the market fell 6% YOY in 3Q16, and fell 8% and 1% sequentially in 1Q17 and 2Q17, respectively. While it’s a positive to see high single-digit growth in 3Q17, the rapid-acting insulin will likely continue to face significant commercial challenges going forward – this includes intensifying competition from GLP-1 agonists and SGLT-2 inhibitors (advanced therapy classes that address postprandial excursions without hypoglycemia risk) as well as persistent pricing pressure, to say nothing of it just being harder to dose (automated insulin delivery may eventually help as well as type 2 patients staying older longer and eventually needing stronger agents – for now, it’s our sense that many HCPs simply avoid it because it’s hard to dose). Novo Nordisk’s NovoLog continued to lead the class with a 50% market share by value in 3Q17 (stable from 2Q17), just ahead of Humalog at 44% (up from 43% in 2Q17). Apidra captured the remaining 6% of total sales. The first next-gen mealtime insulin, Novo Nordisk’s Fiasp (faster-acting insulin aspart) will be launched in the US in 4Q17, and Sanofi has a biosimilar insulin lispro coming to market as well, brand name Admelog in the US.

4. Pooled sales of basal insulin/GLP-1 agonist fixed-ratio combinations (we need a better name for this class) totaled $37 million in 3Q17, up only 12% sequentially from $33 million in 2Q17. Given the impressive clinical profile of both agents, the milder side-effect profile vs. component monotherapies, and the tremendous enthusiasm from diabetes thought leaders (Dr. John Buse has called Xultophy “the most powerful anti-hyperglycemic agent on the planet”), we certainly had hoped for much stronger growth in the first three quarters of reported revenue. In the first three quarters of GLP-1 alone, sales were $68 million.

Financial Highlights

5. Sanofi’s overall diabetes portfolio fell 14% YOY as reported (10% in constant currencies) and 6% sequentially to €1.5 billion ($1.8 billion). This weak financial performance was largely driven by falling sales of flagship product Lantus (insulin glargine), though management confirmed that Sanofi is seeing lower realized prices on its diabetes drugs in general, due to intense negotiations with payers (in all likelihood, this means higher rebates). Management also announced updated financial guidance for the global diabetes business, forecasting a 6%-8% annual decline over 2015-2018 from the original guidance of 4%-8%, which is not a huge change but reinforces that the lower end of guidance is what Sanofi will reach.

6. Revenue from Sanofi’s flagship product Lantus fell 19% YOY to €1.1 billion ($1.3 billion). US sales of Lantus fell 29% YOY and 8% sequentially to €608 million ($714 million). Management anticipated a tough 2H17 for Lantus given the CVS Health and UnitedHealthcare formulary exclusions (with Lilly/BI’s biosimilar Basaglar preferred), and the upcoming exclusion from the Medicare Part D formulary in 2018 could be another headwind for this business.

7. Next-gen basal insulin Toujeo grew 19% YOY as reported (23% in constant currencies) to €198 million ($233 million), up from €167 million ($186 million) in 3Q16. This advanced therapy was the lone bright spot within Sanofi’s diabetes portfolio, the only product to experience positive YOY growth in 3Q17. That said, sales were down 6% sequentially, and we can’t help but wonder how US pricing pressure is negatively affecting recorded revenue.

8. In its third quarter on the market, Soliqua posted €8 million ($9 million), representing 60% sequential growth. We continue to be disappointed with sluggish uptake, considering Soliqua’s very compelling clinical profile, strong safety/efficacy, and the quality of life benefits associated with a fixed-ratio basal insulin/GLP-1 combo. We blame conservative HCPs in the US who are less familiar with combinations for not moving to this product; it is obviously far better for many patients.   

9. Revenue from Regeneron-partnered PCSK9 inhibitor Praluent grew 20% YOY as reported (26% in constant currencies) to €42 million ($49 million). Sales were flat sequentially, and management acknowledged that while Praluent’s financial performance has been strong overall, its sales trajectory is trending below expectations for a relatively new and highly efficacious product. Sanofi reiterated that positive results from the soon-to-complete ODYSSEY Outcomes trial of Praluent (expected 1Q18) could be positive news for Praluent’s sales outlook.

Pipeline Highlights

10. Admelog (biosimilar insulin lispro), tentatively approved by the FDA in September, was highlighted as a significant future growth opportunity for Sanofi Diabetes. That said, management underscored that the first-to-market biosimilar mealtime insulin will likely be a tailwind in 2019 as opposed to 2018, due to timing in the payer contracting cycle and the fact that these contracts are more exclusive in the rapid-acting insulin category vs. any other diabetes drug class.

11. We noticed several new studies listed on ClinicalTrials.gov of SGLT-1/2 dual inhibitor sotagliflozin in type 2 diabetes, including SOTA-INS (add-on to basal insulin), SOTA-CKD3 and SOTA-CKD4 (in patients with comorbid kidney disease), and SCORED (a 10,500-person CVOT powered for superiority on CV death/heart failure hospitalization). This has certainly developed into a robust clinical program.

Pooled Market Highlights

1. Basal Insulin: Pooled Revenue Falls 4% YOY from High Base, Driven by Continued Lantus Declines

Pooled revenue for the basal insulin market fell 4% YOY and 2% sequentially to $2.5 billion in 3Q17. We attribute this third consecutive quarter of decline (-2% YOY in 1Q17, -3% YOY in 2Q17) largely to Sanofi’s Lantus (insulin glargine) business: The exclusion from the CVS Health (effective January 2017) and UnitedHealthcare (effective April 2017) formularies came as a substantial headwind for a product with already-fluctuating sales, and Lantus revenue has dropped 12%, 18%, and 19% YOY in Q1, Q2, and Q3, respectively. Lantus still leads the class by value, capturing 53% of the $2.5 billion market, although this is down from its 62% market share by value in 2016. Novo Nordisk’s Levemir (insulin detemir) held 20% of pooled sales in 3Q17, while next-generation newcomers Novo Nordisk’s Tresiba (insulin degludec) and Sanofi’s Toujeo (insulin glargine U300) held 11% and 9% each. These next-gen products are expanding their market share, up from 7% (Toujeo) and 6% (Tresiba) in the full year 2016 – much more on this below. Lastly, Lilly/BI’s first-to-market biosimilar basal insulin Basaglar captured 6% of whole class revenue in 3Q17 (growing substantially since the product’s US launch at the end of 4Q16). By volume, Lantus held 49% of total US basal insulin prescriptions (TRx) as of October 2017, while Levemir held 22%, Toujeo held 9%, Tresiba held 9%, and Basaglar held 4% (this is according to slide 9 in Novo Nordisk’s 3Q17 earnings presentation). Novo Nordisk management believes Tresiba is on track to capture 10% TRx by year-end. In the company’s 3Q17 update, management highlighted the product’s impressive value share in select international markets such as Japan (41%), Switzerland (30%), Italy (30%), Denmark (28%), and Greece (24%), where Tresiba is reimbursed at a similar level as Lantus. This insinuates to us that when access/affordability is taken out of the equation, patients and providers are opting more toward Tresiba and its improved, next-generation clinical profile. More on this below, where we outline dynamics in the next-generation basal insulin market specifically.

• The modest (but still disappointing) decline for the basal insulin class in 3Q17 highlights how challenging the market is: not only are there no rising insulin profits to fuel growth, the rebates and discounts are becoming more pronounced, so not only is revenue down but so is profitability. Indeed, pricing pressure is leading to lower realized prices on insulin prescriptions for the manufacturer. So even if companies see a rise in total prescriptions for insulin, this may not translate to meaningful sales growth (much of these profits are returned to PBMs in the form of rebates). It seems fitting, according to this view of the insulin marketplace, that the basal insulin class has hovered around $2.5 billion in quarterly revenue since 2013 (note that this is still a huge $10 billion annual market), with slight fluctuations but no dramatic increases. Without a doubt, we believe there are substantial clinical improvements that could make for better insulin products, which requires R&D investment. The insulin competitive landscape is still robust, but we wouldn’t be surprised if manufacturers look for a higher innovation threshold before advancing a new insulin candidate into late-stage development (as was the case for Novo Nordisk and its phase 2 oral insulin, discontinued in 3Q16). In Dr. Thomsen’s words, it’s becoming increasingly difficult for a new insulin to differentiate itself, and some are quick to perceive incremental rather than truly disruptive improvement over existing options. We disagree with this last point – Toujeo and Tresiba, in our view, are more than “incremental” steps above their predecessors given the longer, flatter PK/PD profiles, flexible dosing, etc. – but we understand and appreciate the competitive pressures at play here (and indeed, until we had tried the new insulins and heard feedback, we also felt the changes were possibly more on the incremental side – one of the biggest errors we’ve made in judgement in Closer Look in nearly a decade).
• Despite declining basal insulin sales overall, Basaglar, Tresiba, and Toujeo represent bright spots of growth. In 3Q17, the Basaglar business grew an impressive seven-fold YOY and 68% sequentially to $146 million, sparked by US launch in late 4Q16. We imagine Basaglar’s favorable formulary status is at play: Lilly/BI’s biosimilar is listed as a preferred drug over Lantus on the CVS Health and UnitedHealthcare formularies, and it holds equal footing to Lantus on the Express Scripts formulary (this was implemented in 2017 and will carry over into 2018). In line with this, US Basaglar sales nearly doubled sequentially between 2Q17 ($60 million) and 3Q17 ($115 million). Tresiba sales rose 66% YOY as reported to $278 million in 3Q17, while Toujeo sales rose 19% YOY as reported to $233 million. Generally, with this analysis, we’re just seeking to show the impact of true new basal insulins; the analysis of next-gen new basal insulins Tresiba and Toujeo is below.
• Additional biosimilars are on the horizon for the basal insulin class, although Sanofi is currently fighting two of them in patent infringement lawsuits. The company issued one lawsuit against Merck for Lusduna Nexvue (biosimilar insulin glargine) in September 2017, and another against Mylan for its Biocon-partnered biosimilar glargine in October. If Sanofi’s lawsuit resolution with Lilly/BI is any sort of precedent, we imagine it could still be a while before these second and third biosimilar basal insulins reach the market – it was ~30 months after Sanofi initially filed its lawsuit against Lilly/BI that Basaglar was launched in the US. That said, even Sanofi management had to acknowledge that greater biosimilar competition for Lantus is on its way. During Q&A, EVP of Diabetes & Cardiovascular Mr. Stefan Oelrich suggested that the FDA may be granting interchangeability designations to biosimilar basals by 2020: This designation would allow a pharmacist to switch patients between products without consulting the prescriber, which would have a profound impact on market dynamics.

Figure 1: Basal Insulin Market (1Q05-3Q17)

2. Next-Generation Basal Insulin: Sales Grow 48% YOY to $510 Million, Comprising 21% of Total Basal Insulin Market (Up from 13% in 3Q16)

The next-generation basal insulin class grew 48% YOY in 3Q17 to $510 million, from a base of $345 million in 3Q16. Novo Nordisk’s Tresiba captured 54% of this market by value, while Sanofi’s Toujeo claimed the remaining 46%. Tresiba edged ahead of Toujeo in value share for the first time in 1Q17 and has remained in the lead ever since. We wonder if Tresiba’s brand-new EMA label update to reflect reduced risk of severe hypoglycemia vs. Lantus will give Novo Nordisk additional advantage in future quarters – payers of the world may not see the advantage as much as patients and then HCPs may be put in the middle. The hypoglycemia benefit is based on results from the DEVOTE trial, a very large and robust dataset which found 40% risk reduction for severe hypoglycemia with Tresiba vs. Lantus (p<0.001), plus a 53% relative risk reduction for severe hypoglycemia overnight (p<0.001). This is groundbreaking on the regulatory front, as Tresiba is now the first diabetes product with a hypoglycemia benefit displayed clearly on its label. An FDA decision on a similar label update is expected in 1Q18, and given the size of the US market, this could be another appreciable tailwind for Tresiba. That said, some thought leaders including Dr. Jay Skyler have suggested that Toujeo may have a significant hypoglycemia benefit over older insulins as well. It’s important to keep in mind that no head-to-head trial of Tresiba vs. Toujeo has been done to investigate outcomes. Overall, we’d like to make sure the profound benefits of this next-gen class relative to earlier insulin therapy aren’t overshadowed by the Tresiba vs. Toujeo competition – we’d love for both these products to be more widely accessible and widely used among people with diabetes. Both products experienced solid quarters in 3Q17. Tresiba sales rose 66% YOY as reported to $278 million, while Toujeo sales grew 19% YOY as reported to $233 million. According to slide 9 of Novo Nordisk’s 3Q17 presentation, Tresiba and Toujeo are neck-and-neck in terms of total US basal insulin prescriptions (TRx), both holding a 9% share as of October 2017. Together, these two next-gen products held a 21% value share of the $2.5 billion basal insulin market in 3Q17 (up from only 13% in 3Q16). We hope to see continued gains in both volume and value for the next-generation insulins given their tremendous clinical benefits over older agents, but ensuring strong patient access will be key.

• Notably, the next-generation basal insulin market experienced a 10% sequential decline in 3Q17. Individually, Tresiba sales fell 20% sequentially and Toujeo sales fell 6% sequentially. This comes against the difficult comparison of 45% sequential growth in 2Q17, when the pooled market totaled $569 million (an all-time-high). This marks the second sequential decline in the market’s history (and in each product’s history) following 1Q17, when the overall market fell 12% sequentially (-4% for Tresiba and -19% for Toujeo). We heard commentary from both companies that continued US pricing pressure around diabetes drugs, and particularly insulin, contributed to lower realized prices in 3Q17, and we suspect this was at play for Tresiba and Toujeo. That said, management from Novo Nordisk and Sanofi alike seemed relatively unfazed by rocky sequential performance – we are surprised not to see more pressure from the companies though we probably have little visibility overall into that. Novo Nordisk underscored that Tresiba will continue to be a main commercial priority for the company in 2018, and Toujeo was a clear bright spot in Sanofi’s diabetes portfolio in 3Q17.

3. Rapid-Acting Insulin: Sales Rise 8% YOY; Pooled Market Still Hovering Around $1.6 Billion; Upcoming Next-Gen Fiasp and Biosimilars

The rapid-acting insulin market grew 8% YOY and 2% sequentially to $1.6 billion in 3Q17. Notably, this growth came against easy comparisons, as the market fell 6% YOY in 3Q16, and fell 8% and 1% sequentially in 1Q17 and 2Q17, respectively. This class of products, which currently encompasses Novo Nordisk’s NovoLog (insulin aspart), Lilly’s Humalog (insulin lispro), and Sanofi’s Apidra (insulin glulisine), has fluctuated around $1.6 billion in pooled quarterly sales for the past two years after taking a 21% sequential dive in 1Q16. While there was high single-digit growth in 3Q17, overall, rapid-acting insulin will likely continue to face significant commercial challenges going forward, even despite a bigger audience who needs it – this includes intensifying competition from GLP-1 agonists and SGLT-2 inhibitors (advanced therapy classes that address postprandial excursions without hypoglycemia risk) as well as persistent pricing pressure. Both yesterday and today, we heard from Novo Nordisk and Sanofi management that payer contracts are more challenging/exclusive in the rapid-acting insulin category vs. any other diabetes drug class – so the tough pricing environment that already surrounds all prescription medicines for diabetes is even more intense for prandial insulins. Sanofi’s EVP of Diabetes & Cardiovascular Mr. Stefan Oelrich elaborated, “it’s because products are seen as largely interchangeable by the payer.” This is a disheartening reality, as we’ve heard many stories of patients unwillingly switched between NovoLog and Humalog, and we recently read a stirring blog post by an individual who couldn’t get UnitedHealthcare coverage of Afrezza (MannKind’s inhaled mealtime insulin) even though he benefited enormously from the product over NovoLog.

• NovoLog continued to lead the class with a 50% market share by value in 3Q17 (stable from 2Q17), just ahead of Humalog at 44% (up from 43% in 2Q17). Apidra captured the remaining 6% of total sales. Sanofi management acknowledged during today’s Q&A that it hasn’t been able to compete with Novo Nordisk or Lilly in the rapid-acting insulin category, meaning Apidra has never really gained commercial traction. The company sees an opportunity here with its first-to-market biosimilar mealtime insulin, EMA-approved in July under brand name Insulin lispro Sanofi and tentatively approved by the FDA in September as Admelog. Given that Lilly will not be pursuing any legal action regarding insulin lispro patents, Sanofi’s biosimilar could be launched in the US as early as 1Q18, though due to the timing of payer contracts, management asserted that Admelog won’t be a substantial growth driver for the business until 2019 (see our pipeline highlights for further details).
• Soon to make a commercial splash is Novo Nordisk’s Fiasp, FDA-approved in 3Q17. Novo Nordisk has yet to break out sales for Fiasp, although the product has already launched in Europe and Canada. So far, Fiasp has been included with the rest of the company’s new-generation insulins (Tresiba, Xultophy, and Ryzodeg), but we imagine the product is doing well considering the overall success of this portfolio, which drove 61% of growth in Novo Nordisk’s diabetes/obesity business in 3Q17. Fiasp is scheduled for a US launch in 4Q17, and is being priced on par with NovoLog, which will help ensure strength in formulary negotiations and good patient access overall (we were very pleased to hear this pricing strategy). We’re hopeful that this next-gen rapid-acting insulin, with its faster time-action profile vs. existing candidates, can spur underlying class growth. The FDA also granted MannKind’s inhaled insulin Afrezza an ultra-rapid-acting claim in 3Q17, which could bolster this struggling franchise. Afrezza sales totaled only $1.5 million in 2Q17, and the product has thus not been wrapped into our pooled market analysis, though we consistently hear positive patient feedback on the inhaled insulin and we believe it could gain more commercial traction if the larger insulin players had contracts that were more fair.

Figure 2: Rapid-Acting Insulin Market (1Q06-3Q17)

4. Basal Insulin/GLP-1 Agonist Fixed-Ratio Combinations: Sales Total $37 Million, Growing 12% Sequentially

Pooled sales of basal insulin/GLP-1 agonist fixed-ratio combinations totaled $37 million in 3Q17, up only 12% sequentially from $33 million in 2Q17. These products, Novo Nordisk’s Xultophy (insulin degludec/liraglutide) and Sanofi’s Soliqua (insulin glargine/lixisenatide), are very early in their launch cycle and were among the most highly-anticipated new diabetes drugs in recent history. Given the impressive clinical profile of both agents, the milder side-effect profile vs. component monotherapies, and the tremendous enthusiasm from diabetes thought leaders (Dr. John Buse has called Xultophy “the most powerful anti-hyperglycemic agent on the planet”), we certainly had hoped for much stronger growth in the first three quarters of reported revenue. Pooled class sales summed to $19 million in 1Q17, then rose 75% sequentially to $33 million in 2Q17. By value, Xultophy held 76% market share in 3Q17 (down from 82% in 2Q17) with $28 million in revenue (this was flat sequentially). Soliqua held the remaining 24% of the market by value with $9 million revenue (up 60% sequentially from a low base of $6 million in 2Q17). As Sanofi management identified during today’s Q&A, clinical inertia and provider reluctance are enormous hurdles to the commercial success of these drugs, and we’re disappointed to see commercial uptake so far behind clinical enthusiasm. We expect that most providers who treat diabetes will have some hesitation in integrating this new class into their practice, if only because learning how to prescribe, dose, and treat patients with these agents will take some time. To this end, we were pleased to hear about Sanofi’s peer-to-peer and medical education efforts around Soliqua. Xultophy is less of a commercial priority for Novo Nordisk right now compared to Tresiba and Victoza (the individual components), but we’re eager for the day this changes, because the company could contribute very positively in generating greater awareness of this new class and its advanced benefits. It’s a shame to have highly-effective type 2 diabetes therapies finally approved, only to be prescribed at such low volume. Reimbursement is also important. Sanofi shared that Soliqua is covered for 65% of commercial patients and 25% of Medicare Part D patients, though that does not speak to co-pays. Sanofi’s struggling diabetes business could benefit immensely from Soliqua’s potential success, and the fixed-ratio agent could benefit from the fact that it’s priced on par with other GLP-1 agonists (while Xultophy is priced at a premium, to our latest knowledge). On the other hand, Xultophy combines a next-gen basal insulin (carrying lower hypoglycemia risk) with a GLP-1 agonist that has proven CV benefit. We’d love to see head-to-head data, though we’re not sure who would fund that study, and importantly, we see plenty of room for both these advanced therapies to be commercially successful, and to help so many people living with diabetes.

Financial Highlights

5. Overall Diabetes Portfolio: Revenue Falls 14% YOY to $1.8 Billion; Adjusted Financial Guidance Forecasts 6%-8% Annual Decline in Diabetes Business Over 2015-2018

Sanofi’s overall diabetes portfolio fell 14% YOY as reported (10% in constant currencies) and 6% sequentially to €1.5 billion ($1.8 billion). This weak financial performance was largely driven by falling sales of flagship product Lantus (insulin glargine). The basal insulin was excluded from the CVS Health and UnitedHealthcare formularies in 2017 in favor of Lilly/BI’s biosimilar Basaglar, but deeper pricing pressures surrounding diabetes drugs are also a major factor contributing to revenue decline. Sanofi management confirmed that the company is seeing lower realized prices on its diabetes products due to intense negotiations with payers. We imagine this culminates in higher rebates and greater patient discounts. Novo Nordisk management also discussed US pricing pressure and lower realized price during its 3Q17 update yesterday. This is becoming a common theme for pharmaceutical earnings calls: US pricing pressure has been cited as a distinct challenge by AZ in 2Q17, J&J in 1Q17 and 2Q17, Lilly in 2Q17, and Merck in 1Q17 and 2Q17. In our view Sanofi, has been particularly hard-hit by these pressures because its diabetes portfolio is so dominated by insulin, where pricing woes have reached a fever pitch. In contrast, the other insulin giants have been able to offset these challenges with a comparatively deep portfolio of other diabetes products. For Novo Nordisk, this is namely GLP-1 agonists with Victoza and eventually semaglutide. And for Lilly, it’s a litany of GLP-1 (Trulicity), SGLT-2 (Jardiance), and DPP-4 (Tradjenta), not to mention biosimilar Basaglar, offered at a lower price point. For Sanofi in 3Q17, only next-generation basal insulin Toujeo (insulin glargine U300) experienced YOY growth (19% as reported, 23% in constant currencies).

• In prepared remarks, management shared an adjustment to its financial guidance for the global diabetes business, forecasting a 6%-8% annual decline in diabetes revenue over 2015-2018 (from the original guidance of 4%-8%). This does not come as a surprise, given commentary during the company’s 2Q17 update that the global diabetes business would likely “come in below” the 4%-8% window (now the suggestion is that it’ll be at the low end). This was alluded to as early as 1Q17, when management outlined two potential reasons that the franchise would be likely to miss the 4%-8% projection: (i) The impact of the Lantus formulary exclusions has only been partially realized so far (after all, the UnitedHealthcare formulary only went into effect on April 1, at the beginning of 2Q17), and the product is expected to lose volume and sales even more rapidly in the second half of the year. (ii) Sanofi’s overall diabetes portfolio will face a tough comparison in 4Q17, since sales were up 2% YOY to $2.1 billion in 4Q16. Though this adjusted financial guidance is not surprising, we are no less saddened by the news of these financial difficulties for an organization that provides so many essential medicines to people with diabetes. On the other hand, we are pleased to see that the low end of this adjusted guidance still remains at 8%, as we expected that it might be shifted even lower.

6. In Continued Decline, Lantus Sales Fall 19% YOY to $1.3 Billion; Additional Challenge from Medicare Part D Exclusion in 2018

Revenue from Sanofi’s flagship product Lantus (insulin glargine) fell 19% YOY as reported (16% in constant currencies) to €1.1 billion ($1.3 billion) in 3Q17, also falling 6% sequentially. This YOY drop occurred against an easy comparison, following an 11% YOY decrease in 3Q16 to €1.4 billion ($1.6 billion), highlighting an overall trend of declining Lantus sales since mid-2015. Overall, global Lantus sales are at about 2010 levels as the chart below starkly shows and revenue per patient is almost certainly lower than at that stage. This represents the lowest reported revenue for Lantus since 1Q12, although the decline has certainly been accelerated by the drug’s exclusion from the CVS Health and UnitedHealthcare formularies in 2017. Lilly/BI’s Basaglar (biosimilar insulin glargine), launched in the US in December 2016, is the preferred basal insulin over Lantus on both of these formularies, and has equal footing to Lantus on the Express Scripts formulary. Since Basaglar’s entry to the US market, we’ve seen Lantus sales fall 16% sequentially in 1Q17, 2% in 2Q17, and now 6% in 3Q17. Formulary status within these three major PBMs will remain the same in 2018, although Sanofi will encounter the additional blow of exclusion from the Medicare Part D formulary. All this said, management seemed satisfied with the coverage they have been able to preserve in payer negotiations for the year ahead. Sanofi’s presentation (slide 12) indicated that Lantus was preferred for 68% of 184 million commercially covered lives in 2017, which will fall to 56% in 2018. Lantus was covered but not preferred on 13% of plans in 2017, which is down to 11% in 2018. Turning to Medicare Part D, Lantus was preferred for 92% of 41 million lives in 2017, but this will fall to 79% in 2018. For both 2017 and 2018, Lantus is covered but not preferred for 2% of lives within the Medicare channel. This slide served as an important reminder of how much we don’t know about payers, PBMs, and their formulary negotiations. While it is good news for Sanofi that the company was able to retain a portion of its patients within CVS and UnitedHealthcare (50% and 56% retention, respectively, as of 2Q17 – no update was given for 3Q17), management remarked that this translates to lower realized prices, as the company is paying higher rebates. On yesterday’s Novo Nordisk earnings call, CEO Mr. Lars Jørgensen commented that Sanofi may be able to exercise similar counterstrategies in Medicare Part D, and we suspect this is what has happened to retain 79% in 2018. But again, this could likely mean lower realized prices for Sanofi. In other words, sustaining prescription volume is not enough to return the franchise to growth or even to keep sales flat (though we should note that this is still a very large business, >$1 billion per quarter, as things stand). Indeed, management expects continued Lantus decline, leading to its updated guidance of 6%-8% loss for the diabetes business between 2015-2018.

• By geography, US sales of Lantus fell 29% YOY and 8% sequentially to €608 million ($714 million). Management expected a particularly tough 2H17 for the flagship product as the full force of the UnitedHealthcare exclusion set in (this went into effect on April 1, rather than January 1 like the CVS Health exclusion). Lantus also took a hit in Europe, with sales down 14% YOY and 5% sequentially to €184 million ($216 million) in 3Q17, compared to emerging markets where sales rose 10% YOY but declined 2% sequentially to €256 million ($300 million). Previously, management has acknowledged biosimilar competition in European markets as well as the US. We expect this competition will only intensify as more providers become familiar and comfortable with the efficacy, safety, and lower cost of biosimilar insulins. That said, we think much can be done to grow the basal insulin class as a whole, as clinical inertia delays the initiation of basal insulin therapy in patients who could really benefit.
• No update was given on Sanofi’s patent infringement lawsuits against (i) Merck for its biosimilar insulin glargine Lusduna Nexvue or (ii) Mylan for its Biocon-partnered biosimilar glargine. Lusduna Nexvue received tentative FDA approval in July, meaning the product can be launched in US pharmacies pending lawsuit resolution. The lawsuit against Mylan was filed recently, in late October, following Mylan/Biocon’s submission of a New Drug Application (NDA). If Sanofi’s lawsuit resolution with Lilly/BI is any sort of precedent, we imagine it could still be a while before these second and third biosimilar basal insulins reach the market – it was ~30 months after Sanofi initially filed its lawsuit against Lilly/BI that Basaglar was launched in the US. That said, there’s no doubt that biosimilars are on the horizon for the basal insulin class. During Q&A, Sanofi’s EVP of Diabetes & Cardiovascular Mr. Stefan Oelrich suggested that the FDA may be granting interchangeability designations to biosimilar basals by 2020: This designation would allow a pharmacist to switch patients between products without consulting the prescriber, which would have a profound impact on market dynamics.

Figure 3: Lantus Sales (1Q05-3Q17)

7. Toujeo Sales Rise 19% YOY to $233 Million, Buoyed by Ex-US Performance

Next-gen basal insulin Toujeo (insulin glargine U300) grew 19% YOY as reported (23% in constant currencies) to €198 million ($233 million), up from €167 million ($186 million) in 3Q16. This advanced therapy (with a flatter PK/PD profile vs. Lantus) was the lone bright spot within Sanofi’s diabetes portfolio, the only product to experience positive YOY growth in 3Q17. That said, sales were down 6% sequentially, from €210 million ($231 million) in 2Q17 – this is the second ever quarter of sequential decline for Toujeo (after 1Q17), still relatively early in its launch cycle. During prepared remarks, Sanofi highlighted Toujeo’s particularly strong performance in Europe (up 67% operationally to $63 million) and emerging markets (growing more than six-fold YOY to $22 million). In contrast, US sales fell 12% YOY as reported (7% in constant currencies) and also fell 12% sequentially to €108 million ($127 million). For comparison, Novo Nordisk’s next-gen basal insulin Tresiba (insulin degludec) posted $278 million in 3Q17, growing 66% YOY as reported but falling 20% sequentially (see above for our pooled analysis of the next-gen basal insulin market). We can’t help but wonder how pricing pressure is adversely affecting this advanced insulin class, as both Novo Nordisk and Sanofi management cited lower realized prices in the US due to intense negotiations with payers, higher rebates, and greater patient discounts. Thus, sales growth may be muted relative to volume growth. We learned yesterday from Novo Nordisk’s presentation slides that Toujeo captured 9% TRx in the US basal insulin market as of October 2017, exactly on par with Tresiba. TRx is growing consistently for both next-gen treatments (even in the face of sequential decline), while volume share is steadily declining for older products like Lantus and Levemir (insulin detemir). Like Lantus, Toujeo has been excluded from the Medicare Part D formulary in 2018. Tresiba will maintain its tier 2 position alongside Lilly/BI’s Basaglar, and this could have a negative effect on volume for Sanofi’s glargine products. Mr. Stefan Oelrich, Sanofi EVP of Diabetes & Cardiovascular, maintained some optimism on this front, explaining that Aetna’s Medicare Part D plans have picked up Toujeo, and the company retains favorable access there. Slide 12 of Sanofi’s deck shows that, for 184 million commercially-covered patients, 58% had preferred formulary access to Toujeo in 2017 – that will drop to 47% in 2018. An additional 21% had non-preferred coverage of Toujeo, down to 20% in 2018. For 41 million patients on Medicare Part D, 85% had preferred access to Toujeo in 2017, down to 73% in 2018. In both years, 5% have non-preferred coverage. Ultimately, we want payers to recognize the benefits and potential cost-savings of both next-generation basal insulins. This should not be a story pitting Tresiba against Toujeo, but rather, one that highlights how these advanced agents deliver superior quality of care over the insulins that came before them. We’d love to see this class expand immensely over the next few years, given the superior efficacy and improvements to patient quality of life (less hypoglycemia risk, more flexible dosing).

Figure 4: Toujeo Sales (1Q15-3Q17)

8. Soliqua Sales Grow 60% Sequentially from Low Base to $9 Million; Management Emphasizes Need to “Change Medical Practice” to Incorporate Fixed-Ratio Combos

In its third quarter on the market, Soliqua posted €8 million ($9 million), representing 60% sequential growth. We continue to be disappointed with sluggish uptake of the basal insulin/GLP-1 agonist fixed-ratio combination (insulin glargine/lixisenatide), considering Soliqua’s very compelling clinical profile. The product started off with revenue of €4 million ($4 million) in 1Q17 (following launch in early January), and this rose only 25% to €5 million ($6 million) in 2Q17. While we’re glad to see a slight acceleration of sequential growth, we think these sales should be much higher. In Q&A, management admitted that Soliqua sales to-date have been “modest,” but affirmed that the company is making progress on coverage in the US, sharing that 65% of commercially-insured lives and 25% of Medicare Part D lives had coverage for Soliqua as of 3Q17. Management noted steady growth in TRx, but also acknowledged that prescription volume for Soliqua is trending below expectations. Mr. Oelrich confirmed our suspicion that low commercial enthusiasm for Soliqua (and for Novo Nordisk’s Xultophy) stems from clinical inertia. He described a need to change medical practice in this category, so that diabetes care providers are more comfortable prescribing a fixed-ratio combination for patients uncontrolled on basal insulin glargine or lixisenatide monotherapy (importantly, the US product label only indicates Soliqua for individuals who have already tried one of its components). We’ve heard thought leaders, including Drs. Jim Gavin and Julio Rosenstock, espouse the superior glucose-lowering efficacy and less severe side-effect profile of fixed-ratio basal insulin/GLP-1 agonist therapies, and we fully agree with Sanofi that overcoming clinical inertia here is paramount. Most PCPs and even some endocrinologists will likely struggle with the idea of combining already-novel GLP-1 agonists with basal insulin. It will be a challenge to integrate Soliqua and Xultophy into their practice, and asking these doctors to learn how to prescribe, dose, and guide patients through an entirely new therapy class is a big demand. To this end, Sanofi management shared a sharpened approach to Soliqua marketing, educating HCPs on a very clear target patient in line with Soliqua’s indication – a person with diabetes uncontrolled on basal insulin after 12 months. Also mentioned were peer-to-peer and medical education programs to cultivate familiarity with Soliqua. We hope these initiatives, along with improved reimbursement prospects, have a more appreciable effect on volume/sales in the not-too-far future.

• Sales of Sanofi’s standalone lixisenatide product Adlyxin totaled €7 million ($8 million), identical to 1Q17 and 2Q17. This represents a 22% YOY drop from €9 million ($10 million) in 3Q16. Quarterly Adlyxin revenue maxed out at ~$12 million in 4Q15. The product claimed <1% of the pooled GLP-1 agonist market in 2Q17 (a grand sum of $1.4 billion), reinforcing our view that Soliqua is the main focus for Sanofi’s GLP-1 agonist business.

Figure 5: Adlyxin Sales (2Q13-3Q17)

9. Praluent: Sales Grow 20% YOY to $49 Million; ODYSSEY Outcomes to Complete December 2017

Revenue from Regeneron-partnered PCSK9 inhibitor Praluent grew 20% YOY as reported (26% in constant currencies) to €42 million ($49 million). Sales were flat sequentially, and management acknowledged that while Praluent’s financial performance has been strong overall, its sales trajectory is trending below expectations for a relatively new and highly efficacious product. By geography, ex-US Praluent (alirocumab) sales grew >six-fold YOY to €14 million ($22 million) in 3Q17. In contrast, US sales were flat YOY at €28 million ($33 million). Management highlighted the upcoming readout of the ODYSSEY Outcomes CVOT, expected in 1Q18, and stated that this will “inform strategy and future growth potential.” For context, Amgen’s PCSK9 inhibitor Repatha (evolocumab) has already shown cardioprotection in the FOURIER trial, and the company has submitted the data to the FDA in support of a label update (decision expected in early December). Thus, positive ODYSSEY Outcomes data could be important for Praluent to compete within the PCSK9 class, and it would also contribute to the push for better reimbursement of these agents, which both Amgen and Sanofi/Regeneron have cited as the major roadblock to uptake. A recent survey from the National Lipid Association demonstrated that prior authorizations for a PCSK9 inhibitor (whether Praluent or Repatha) are denied by payers 96% of the time – this is truly abysmal insurance coverage for a highly-effective class of lipid-lowering therapies. Though not mentioned on the call or in any of Sanofi’s prepared materials, Praluent was the focus of an important presentation at EASD 2017: New data from the ODYSSEY DM-INSULIN study in people with type 1 diabetes showed a mean 52% reduction from baseline LDL with alirocumab, on par with the 49% LDL drop in participants with type 2 diabetes. First presented at ADA 2017, this was the first study of its kind to investigate the effects of a PCSK9 inhibitor specifically in a diabetes patient population, and we applaud Sanofi for including type 1 participants as well as type 2. We maintain that PCSK9 inhibitors could be a very valuable addition to the diabetes treatment arsenal given the high residual CV risk in diabetes, and we hope this data helps make the benefit of this drug class even more apparent in the eyes of payers.

• Praluent captured 36% of the $138 million PCSK9 inhibitor market by value in 3Q17. This estimate is based on Amgen’s reported Repatha revenue of $89 million (64% of sales). This 36% vs. 64% split represents a continuation of what was seen in 2Q17, which is potentially a positive signal for Sanofi, since Praluent’s market share had been slipping in previous quarters (from 42% in 1Q17 and 40% in 4Q16). Pooled sales for the PCSK9 inhibitor class grew 59% YOY from a base of $49 million in 3Q16, and grew 9% sequentially from $129 million in 2Q17. We might expect an even higher sequential growth margin for a therapy class so new and so advanced, which once again underscores the major issue of poor reimbursement for PCSK9 inhibitors.
• Sanofi shared that the US Court of Appeals has ordered a new trial in Amgen’s lawsuit against Sanofi/Regeneron alleging Praluent’s infringement on patents for Repatha. The court has also vacated the permanent injunction ruling, meaning that Sanofi/Regeneron will continue to market, sell, and manufacture Praluent in the US for the time being. This is clearly positive news for Sanofi, given that Praluent is one of only two of the company’s diabetes/CV products showing positive YOY growth in 3Q17 (alongside Toujeo). In management’s words, “this will allow us to concentrate on building market position in the US as a run-up to ODYSSEY Outcomes in 2018.” We see distinct benefits to a two-product PCSK9 inhibitor market (especially in light of the surprising discontinuation of Pfizer’s phase 3 bococizumab in 3Q16), and we’d hope that instead of competing against one another Amgen and Sanofi/Regeneron could instead use their energy collaborating to expand payer coverage of products in this class.

Pipeline Highlights

10. Admelog’s US Launch Coming Soon; Strong Uptake Could Be Delayed to 2019 Due to Payer Contract Timing, Competitive Formularies in Rapid-Acting Insulin

Admelog (biosimilar insulin lispro), tentatively approved by the FDA in September, was highlighted as a significant future growth opportunity for Sanofi Diabetes, though management suggested that it will likely be a tailwind in 2019 as opposed to 2018. CEO Mr. Olivier Brandicourt expressed confidence that Admelog will receive full and final FDA approval in “the next few months,” which follows Lilly’s announcement last week that it will not pursue a patent infringement lawsuit over Humalog (insulin lispro). As we understand it, the tentative FDA approval indicated that Sanofi’s biosimilar had satisfied all regulatory requirements, but that it couldn’t be launched in the US until all patent disputes were settled. Now that there are no patent disputes, Admelog could presumably become available to US patients with type 1 and type 2 diabetes in 2018. This drug was EMA-approved in July under brand name Insulin lispro Sanofi, and we noticed a significant investment in marketing the product in the EASD exhibit hall – signs emphasized equivalent efficacy at a lower cost with messages like “everything you’d expect from a mealtime insulin, without the brand name.” Sanofi seems very committed to making its first-to-market biosimilar mealtime insulin a commercial success. That said, management acknowledged that the company is expecting Admelog to be a tailwind in 2019 as opposed to 2018, due to timing of the payer contracting cycle.

• Securing strong reimbursement status for Admelog will be critical. As Sanofi EVP of Diabetes & Cardiovascular Mr. Stefan Oelrich explained today, and as Novo Nordisk CEO Mr. Lars Jørgensen mentioned yesterday (during Q&A at the end of Novo Nordisk’s 3Q17 call), payer contracts are more challenging and more exclusive in the rapid-acting insulin category vs. any other diabetes drug class. Mr. Oelrich elaborated, “it’s because products are seen as largely interchangeable by the payer” – this is a disheartening reality, as we’ve heard many stories of patients unwillingly switched between NovoLog and Humalog, and we recently read a stirring blog post by an individual who couldn’t get UnitedHealthcare coverage of Afrezza (MannKind’s inhaled mealtime insulin) even though he benefited enormously from the product over NovoLog. Sanofi management maintained that Admelog should be a compelling offer for payers, but it will take the company some time to identify optimal negotiation strategies and to establish broad market access for the new biosimilar in the US. During Q&A, management also recognized that the rapid-acting insulin market has been dominated by Novo Nordisk and Lilly to-date, with very few pooled sales going to Sanofi’s Apidra (insulin glulisine). We see Admelog as a way for Sanofi to grow its market share within the mealtime insulin class.

11. Phase 3 Program for Sotagliflozin in Type 2 Diabetes Now Well Underway; New CVOT + Studies in DKD

While not mentioned on the call, we noticed several new studies listed on ClinicalTrials.gov of SGLT-1/2 dual inhibitor sotagliflozin in type 2 diabetes. This has certainly developed into a robust clinical program. The SOTA-INS trial, investigating sotagliflozin as an add-on to Lantus (insulin glargine), was initiated on time in September (Sanofi management announced during the 2Q17 update that this study would begin in the second half of the year). The 18-week study has change in A1c as its primary endpoint, and is expected to complete in May 2019. In August, Sanofi launched two trials of sotagliflozin in people with type 2 diabetes and comorbid kidney disease, whether moderate (SOTA-CKD3) or severe (SOTA-CKD4). Both are expected to complete in September 2019, and given the positive renal outcomes data we’ve seen for SGLT-2 inhibitors (including J&J’s canagliflozin in CANVAS and Lilly/BI’s empagliflozin in EMPA-REG OUTCOME), we appreciate this early, pre-approval effort to show applications of a dual SGLT-1/2 inhibitor in diabetes patients with reduced kidney function. Keep in mind, however, that these are not outcomes studies, and change in A1c is still the primary endpoint. Lastly, the SCORED CVOT is scheduled to begin this month (November 2017) according to ClinicalTrials.gov (estimated completion is then March 2022). Our ears perked up during Sanofi’s 4Q16 earnings call, when management alluded to a pre-approval sotagliflozin CVOT powered for superiority – and here it is. Per ClinicalTrials.gov, SCORED will have two primary endpoints, safety vs. placebo for three-point MACE (non-fatal MI, non-fatal stroke, CV death) but significant risk reduction vs. placebo for a composite of CV death and hospitalization for heart failure. This will be a massive trial, with estimated enrollment of 10,500 type 2 diabetes patients, and will therefore be a substantial investment as well. This speaks to Sanofi’s confidence in sotagliflozin as a potential new treatment offering for type 2 diabetes. Moreover, our sense is that showing CV efficacy is becoming increasingly important for new diabetes drugs, following the positive CVOT results for SGLT-2 inhibitors Invokana and Jardiance, and for GLP-1 agonist Victoza, not to mention the new CV indications added to the Jardiance and Victoza product labels. As such, starting this sotagliflozin CVOT now could be instrumental in its long-term success on the market for type 2 diabetes. We’re eager for more details on SCORED: Will the enrolled patient population be very high-risk (with a large proportion having established CV disease), or will it include a larger primary prevention cohort? How will adherence be monitored in trial protocol? Could this be an opportunity to look closely at amputations (a concern for SGLT-2 inhibitors since the signal for lower limb amputations in CANVAS)?

• This phase 3 program for sotagliflozin in type 2 is a good reflection of Sanofi’s clinical development goals for the candidate. All studies that we’re aware of are summarized in the table below. Previously, management has outlined a three-pronged strategy for sotagliflozin development toward a type 2 diabetes indication: (i) show efficacy for the drug as monotherapy (i.e. in patients who are not taking any other anti-hyperglycemic medicines), (ii) create use cases in combination with other oral drugs (metformin, SUs), and (iii) demonstrate benefits in people on a background of insulin therapy. Looking at the list of trials below, you’ll see these goals are covered and then some, given the newly-initiated studies of sotagliflozin in people with renal impairment and the planned CVOT.
• Sanofi’s partner Lexicon is leading the type 1 program for sotagliflozin, and notably, an FDA submission for a type 1 diabetes indication is planned for 1H18 (as early as 1Q18). Lexicon has elected to exercise its co-promotion option following regulatory approval in the US, meaning it will cover 40% of commercialization costs stateside while Sanofi will cover the remaining 60%. As far as ex-US marketing and commercialization of the product for type 1, Sanofi will likely be responsible for all of it. Phase 3 data for sotagliflozin as an adjunct treatment in type 1 diabetes has been positive overall – most recently, full results from inTandem3 were presented at EASD in Lisbon, Portugal (and were simultaneously published in the NEJM). While there are some concerns over elevated DKA risk with sotagliflozin therapy, thought leaders have largely expressed that this risk can be managed in the real world with diligent monitoring and strong patient education. More on this once Lexicon provides its 3Q17 update.

Table 2: Phase 3 Program for Sotagliflozin in Type 2 Diabetes

Table 3: Sanofi Diabetes Pipeline Summary

The table below reflects the latest updates, as far as we are aware, on Sanofi’s diabetes pipeline products. Items highlighted in yellow indicate notable changes to the pipeline in 3Q17.

Select Questions and Answers

Q: Looking at the 2018 picture, now that you have visibility on your US diabetes contracts, I wonder if you can talk about the positives and negatives that you see for 2018?

Mr. Olivier Brandicourt (CEO, Sanofi): As you know, we will provide formal guidance for 2018 in February. We are still going through the budgeting process for 2018, so it would be premature to be too precise on our overall expectation for this time period. That are many moving parts, and they are relative to our expectations from early 2015. Some parts of the business have performed ahead of targets, while some have been below. On the plus side, we have delivered cost-saving and efficiencies through our focus organization, and we did that more quickly than we originally envisioned.

Q: On the diabetes guidance, what are the variables that would play into such a wide range, given that you largely know your coverage for next year now? Do you expect a greater share of loss in diabetes in 2018 vs. 2017, given that you’re losing coverage in Part D and you can’t use co-pay assistance to retain patients there? Are you expecting to continue to fund your co-pay assistance programs in commercial channels for 2018?

Mr. Brandicourt: The departure point for the guidance we issued today is 2015, and 2015 exchange rates. That’s what we are using in that guidance, so there’s a potential exchange rate effect leading to variability. We are saying minus 6%-8%, that’s what you have to consider and to know, and understand, we are using currency exchange from the 2015 timeframe.

Mr. Stefan Oelrich (EVP of Diabetes & Cardiovascular, Sanofi): Let me just say that we still have ~7% of overall access in the US still pending formulary negotiations, so that adds some variability to our forecast. I’m happy to provide some precision around the Medicare Part D piece: On Part D, we have some wins and some losses for 2018. Yes, we’ve lost certain plans on CVS and we’ve retained others within CVS, but we’ve also gained compared to last year Aetna on Medicare Part D. If we net this all out, we come out with a loss of ~five million lives across these two plans, CVS and Part D. We think we still have very favorable overall access in Medicare Part D.

 Q: One product you haven’t told us much about in terms of access is Soliqua. Can you talk a little bit about that and your expectations, now that it’s been on the market for a little while?

Mr. Oelrich: On Soliqua, our access in the US is that we’re now covering 65% of commercial lives and ~25% of Medicare lives. In terms of uptake, we’re seeing some steady growth in TRx for Soliqua, even though it’s trending below expectations, and that’s linked to some inertia and some change in medical practice that we need to see in the category. It’s really about changing practice here, so we’re piloting some new peer-to-peer and medical education programs, to make it clear to physicians the benefit of our product.

Q: You have a biosimilar Humalog which you’re about to get to the market. Presumably, it’s too late to contract now, or can you with a biosimilar come in halfway through the year?

Mr. Oelrich: We’re looking forward to final approval in the coming months. Most contracts have been done for the coming stage, so this is definitely going to be more of an opportunity for 2019 vs. 2018.

Q: To return to the topic of Admelog, how are you going to deal with the fact that you also market Apidra, plus net prices for your rapid-acting insulin are already rock bottom?

Mr. Oelrich: Yes, I think you capture it. It’s accurate that the rapid-acting insulin market is mainly divided between Novo Nordisk and Lilly. Payer contracts are largely exclusive, because products are seen as largely interchangeable by the payer. However, we believe we can make a compelling offer with Admelog in this market. We’re assessing various options for doing so. You heard already that given the timing of the payer contracting cycle, we do not expect to have significant coverage in 2018, and we expect more progress in that area in 2019.

Q: Are you seeing any sort of pricing stability as you move out of 2017 into 2018? Some companies, maybe you guys as well, have talked about some moderation in price declines going forward. But in looking past 2018, is that realistic? Or are we going to see your diabetes business come in at the low end of your guidance? Assuming we one day get substitutable generic insulins in the US (multiple companies are pursuing this, as it’s a fairly easily peptide to manufacture), what are your thoughts on that? It seems like this may be low hanging fruit for FDA to offer interchangeability.

Mr. Brandicourt: On price stability, of course we’d love to see that happen. It’s hard to tell whether pricing pressure will be lower beyond 2018. At this point, we can’t speculate. If you ask us today, we’d probably say we forecast pricing pressure to continue over this timeframe.

Mr. Oelrich: We currently assume that there will be interchangeability of biosimilar insulins from 2020 onward.

Q: Is that a new position for you, or something you’ve maintained all along? How is that not a problem? Doesn’t that imply a remarkably higher level of pressure from 2020 beyond?

Mr. Brandicourt: Well, we never gave any strategic objectives or guidance beyond 2020, and this is something we have considered going beyond 2020 as a potential outlook for the basal insulin situation. Based on all the assumptions we had with three biosimilars on the market, in our long-term plans, we have certainly put that in as a risk. That’s what you’re hearing from us.

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