AstraZeneca 3Q16 – Diabetes portfolio up 5% YOY to $606 million; Farxiga drives growth with $220 million in sales and outcomes studies in CKD and CHF planned; GLP-1 agonist Bydureon down 11% YOY to $145 million with auto-injector submission expected 1H17 – November 10, 2016

AstraZeneca (AZ) provided its 3Q16 earnings update early this morning in a call led by CEO Mr. Pascal Soriot. This report elaborates on our top 13 highlights from the company’s Q3 – scroll down for all the details on AZ’s diabetes products, its diabetes pipeline, and pooled analyses of SGLT-2 inhibitors, GLP-1 agonists, and DPP-4 inhibitors. You can also access the press release, webcast, and presentation slides.

Financial Highlights

1. AZ’s overall diabetes portfolio grew 5% year-over-year (YOY) as reported (6% operationally) to $606 million. Sequentially, total revenue fell 6% from $645 million in 2Q16. Management characterized its profitable diabetes portfolio as a particularly bright spot in AZ’s overall franchise, specifically highlighting its SGLT-2 inhibitor and GLP-1 agonist candidates (most notably Farxiga/Forxiga [dapagliflozin] and Bydureon [exenatide once-weekly]) as promising members of the fastest growing diabetes drug classes. The class is growing and also becoming more competitive; AZ had negative growth in GLP-1 year over year and sequentially, though this may be mostly timing as 2Q16 marked AZ’s highest GLP-1 revenue ever.

2. SGLT-2 inhibitor Farxiga/Forxiga (dapagliflozin) posted $220 million in sales, growing 63% YOY as reported (64% operationally) and surpassing DPP-4 inhibitor Onglyza (saxagliptin) as AZ’s leading diabetes product. With its incredibly strong performance, Farxiga was the sole driver of growth for the company’s diabetes portfolio among its major diabetes products, accounting for 93% by our calculations (we attribute the remaining 7% of growth to Symlin [pramlintide acetate] sales. Sequentially, sales grew 4% as reported against a tough comparison of 28% sequential growth in 2Q16.

3. Pooled revenue for the industry is interesting. By our math (which excludes Boehringer-Ingelheim), the SGLT-2 inhibitor class grew 33% YOY to just under $700 million in 3Q16, with Farxiga capturing 32% of the market by value and 42% by volume (as measured by share of total prescriptions [TRx]). AZ management emphasized during the call that Farxiga leads the class in TRx – according to the company’s presentation slides, it appears that J&J’s Invokana (canagliflozin) holds 27% TRx while Lilly/BI’s Jardiance (empagliflozin) holds 22% – Jardiance appeared to have a very strong upward trajectory. Invokana continues to lead the class by value, with a 47% share, while Jardiance holds 21% – we expect Invokana’s stronger position within the US and the comparatively higher drug costs in the US contribute to its greater share of the market by value, despite fewer overall prescriptions for Invokana compared to Farxiga globally. We reiterate again that without BI’s revenue included, Lilly’s revenue is underestimated.

4. Sales for AZ’s GLP-1 agonist Bydureon (exenatide once-weekly) reached $145 million, an 11% YOY decline as reported (falling 10% in constant currencies). Sequentially, sales fell 7% as reported, against a very challenging quarter (2Q16) in which AZ’s GLP-1 revenue hit a record $232 million. Management highlighted the promise of Bydureon as both a monotherapy in the fast-growing GLP-1 agonist class and as an excellent candidate for combination therapy. In support of this, the recently-completed DURATION-8 trial, a major highlight of EASD 2016, demonstrated improvement of glycemic control and of some cardiovascular risk factors with GLP-1 agonist/SGLT-2 inhibitor dual therapy consisting of AZ’s Bydureon and Farxiga vs. either drug as monotherapy. We hear amazing things about combo therapy of GLP-1/SGLT-2 for patients that can get it reimbursed. Management further highlighted the ongoing EXSCEL CVOT for Bydureon, expected to complete in 2018 – we look so forward to these results. The trial has enrolled approximately 15,000 subjects, with a primary endpoint of three-point MACE (cardiovascular death, non-fatal MI, non-fatal stroke). Such a big trial should allow for fascinating, statistically significant sub-group analysis.

5. Sales for AZ’s GLP-1 agonist Byetta (exenatide twice-daily) fell to $61 million, a 15% YOY decline (as reported and in constant currencies). Sequentially, Byetta sales fell 20% as reported. This decreasing sales trajectory has persisted since 1Q14 as Byetta sales are cannibalized by Bydureon, AZ’s more convenient once-weekly exenatide formulation.

6. On a pooled basis, the GLP-1 agonist class generated nearly ~$1.3 billion in revenues in 3Q16. This represents a whopping 22% YOY increase as reported, according to our calculations (Lilly owns 100% of Trulicity, so unlike the SGLT-2 and DPP-4 classes, where BI revenue isn’t reported, this is not a problem here). Sequentially, the GLP-1 agonist market increased 2% as reported. As we learned in Novo Nordisk’s recent 3Q16 update, by total prescriptions (TRx), Novo Nordisk’s Victoza held 51% of the US GLP-1 agonist market share in 3Q16, Lilly’s Trulicity held 22%, AZ’s exenatide franchise (Bydureon and Byetta) collectively held 19%, and GSK’s Tanzeum held 8%.

7. Sales of Onglyza (saxagliptin) fell 17% YOY as reported (16% in constant currencies) to $169 million. Sequentially, revenue declined for the second consecutive quarter, this time by 12%.

8. On a pooled basis, the DPP-4 inhibitor class grew 2% YOY to $2.5 billion in 3Q16. Onglyza captured 7% of this by value, while Merck’s Januvia (sitagliptin) franchise continued to lead the class with 63%. Lilly/BI’s Tradjenta (linagliptin) franchise held 13% of the market by value, Novartis’ Galvus (vildagliptin) held 12%, and Takeda’s Nesina (alogliptin) held 5%. Overall, there was little shift in the share of market by value for each of these DPP-4 inhibitor agents from 2Q16 or 1Q16.

Pipeline Highlights

9. Excitingly, AZ announced two new phase 3 outcomes trials for Farxiga: one in chronic kidney disease and one in congestive heart failure. Wow! Notably, both trials will enroll both individuals with and without diabetes. While the ongoing DECLARE CVOT for Farxiga potentially  won’t report until 2019 (at the latest), the announcement of these two further outcomes trials is a clear sign of AZ’s confidence in positive results from DECLARE and the company’s confidence in a class effect for the impressive cardio- and renal-protective effects seen thus far for Lilly/BI’s SGLT-2 inhibitor Jardiance (empagliflozin).

10. In terms of upcoming regulatory movement, AZ shared that an auto-injector, suspension formulation of Bydureon is expected to be submitted in 1H17. This is a big deal.

11. A regulatory decision for the fixed-dose DPP-4 inhibitor/SGLT-2 inhibitor combination saxa/dapa (saxagliptin/dapagliflozin; approved as Qtern ex-US) is expected in 1H17 as well. This was a surprise delay and we believe this should help AZ’s diabetes sales once approved, though we have been concerned by potential payer reluctance to give people access to this combo (missing the forest for the trees).

12. AZ’s GLP-1 agonist/glucagon dual agonist MEDI0382 was advanced into phase 2. A phase 1/2 multiple ascending dose study is ongoing, with results expected in March 2017.

13. There were no other updates to AZ’s diabetes-related pipeline. See our pipeline table for a comprehensive overview of the company’s life cycle management and product development efforts.

Table 1. 3Q16 Financial Results for AstraZeneca’s Major Diabetes Products

Financial Highlights

1. Overall Diabetes Portfolio: 5% YOY Growth; 6% Sequential Decline

AZ’s overall diabetes portfolio grew 5% year-over-year (YOY) as reported (6% operationally) to $606 million. Sequentially, total revenue fell 6% from $645 million in 2Q16. By geography, US sales totaled $374 million and ex-US sales totaled $232 million. Management highlighted that AZ’s diabetes portfolio has experienced growth in all regions: 6% in the US, 19% in Europe, and 36% in Emerging Markets. The SGLT-2 inhibitor Farxiga (dapagliflozin) was cited as a major driver of growth in all three of these regions; by our calculations, Farxiga drove a staggering 93% of the overall growth of AZ’s diabetes portfolio in 3Q16.

• Despite 3Q16’s positive YOY the growth, this was a more sluggish quarter than usual for AZ. For comparison, AZ’s diabetes portfolio has experienced double-digit YOY growth over the last year – 13% in 2Q16, 18% in 1Q16 and 4Q15, and 10% in 3Q15. In fact, 3Q16 marks only the second time AZ’s diabetes portfolio has dropped below double digit growth since we began tracking it in 2010 (the first time was 4Q14, with 8% YOY portfolio growth). We believe this reflects the increasing pricing pressure in the diabetes market as a whole. Certainly AstraZeneca is not the only company feeling the heat; we also reported rather subdued quarters in 3Q16 for Novo Nordisk and Sanofi with respective 3% and -2% YOY diabetes portfolio growth.
• Management characterized its profitable diabetes portfolio as a particularly bright spot in AZ’s overall franchise, specifically highlighting its SGLT-2 inhibitor and GLP-1 agonist candidates (most notably Farxiga/Forxiga [dapagliflozin] and Bydureon [exenatide once-weekly]) as promising members of the fastest growing diabetes drug classes.

Figure 1: Total Sales for AZ’s Diabetes Portfolio (4Q12-3Q16)

2. Farxiga/Forxiga (dapagliflozin): 64% YOY Growth to $220 Million; Now AZ’s Leading Diabetes Product

SGLT-2 inhibitor Farxiga/Forxiga (dapagliflozin) posted $220 million in sales, growing 63% YOY as reported (64% operationally) and surpassing DPP-4 inhibitor Onglyza (saxagliptin) as AZ’s leading diabetes product. Sequentially, sales were up 4% from a base of $211 million, against a tough comparison of 28% sequential growth in 2Q16. Farxiga was the sole driver of growth for the company’s diabetes portfolio among its major diabetes products, accounting for 93% by our calculations (we attribute the remaining 7% to Symlin [pramlintide acetate] sales). This has perhaps been a long time coming for the SGLT-2 inhibitor, which has experienced consistently high YOY growth since 2Q14, and which has been responsible for an increasing share of overall growth for AZ diabetes (37% in the full year 2014, 71% in the full year 2015, 69% in 1Q16, and 84% in 2Q16). Indeed, management forecasted that the SGLT-2 inhibitor class will continue to grow, highlighting Farxiga has a substantial bright spot both now and in the near-term future. Underlying class growth is likely to be a contributing factor for Farxiga’s recent commercial success (though growth of the SGLT-2 inhibitor class has been more sluggish than expected). That said, the drug’s ability to sustain small growth for AZ’s overall diabetes portfolio despite declining revenue from all other major diabetes products is nothing short of impressive. Farxiga revenue could very well reach $800 million for full year 2016. We also note that the drug fared just as well or better in 3Q16 than its direct competitors – J&J’s Invokana (canagliflozin) franchise declined 4% YOY and fell 14% sequentially (though, admittedly, from a base more than three times larger – Invokana revenue totaled $470 million in 3Q15 compared to Farxiga’s $135 million), while Lilly’s share of the BI-partnered Jardiance (empagliflozin) franchise nearly tripled YOY to $48 million but from a much lower base and as the only SGLT-2 inhibitor with published positive results from a cardiovascular outcomes trial (CVOT), EMPA-REG OUTCOME. On that note, the DECLARE CVOT for Farxiga is expected to complete in April 2019.

• By geography: US sales totaled $118 million, marking a 71% YOY increase as reported (78% in constant currencies). Sales in Europe totaled $136 million, which represents 58% operational growth. Sales in emerging markets more than doubled YOY to $92 million. AZ management highlighted these numbers to showcase Farxiga’s strong performance around the globe, without which, the company’s diabetes portfolio would have struggled in 3Q16.

Figure 2: Farxiga/Forxiga Sales (1Q13-3Q16)

3. Pooled Analysis: SGLT-2 Inhibitors Up 33% YOY to $692 Million; J&J’s Invokana Leads by Value; Farxiga Leads by Volume

The SGLT-2 inhibitor class grew 33% YOY to $692 million in 3Q16, with Farxiga capturing 32% of the market by value and 42% by volume as measured by share of total prescriptions (TRx). AZ management emphasized that Farxiga leads the class in TRx – according to the company’s presentation slides (in particular, the figure below), it appears that J&J’s Invokana (canagliflozin) holds 27% TRx while Lilly/BI’s Jardiance (empagliflozin) holds 22% (Jardiance appears to have had a strong upward trajectory). Invokana continues to lead the class by value, with a 47% share, while Jardiance holds 21%. We expect that Invokana’s stronger position within the US due to its first-to-market status, conflated with the comparatively higher drug costs in the US, contributes to its greater share of the market by value, despite fewer overall prescriptions for Invokana vs. Farxiga globally.

• While we’re happy to see a double-digit YOY rise for SGLT-2 inhibitors, class growth for 3Q16 is slightly underwhelming – both AZ and J&J management were staunchly positive about their SGLT-2 inhibitor franchises in 3Q16, but Lilly management did express some disappointment at lower-than-expected volume growth. Whole-market revenue dropped 3% sequentially (albeit, against a fairly tough comparison with 18% sequential growth in 2Q16). Moreover, 33% is the lowest quarterly YOY increase since launch of commercial SGLT-2 inhibitors, though a flattening of growth is not entirely unexpected for a new drug class now in its third year. On the other hand, many forecasted that the EMPA-REG OUTCOME data (which showed a CV benefit to Jardiance), alongside the possibility of a cardioprotective class effect, would catalyze a significant jump in SGLT-2 inhibitor uptake and sales. We’re curious if this relatively modest growth may be attributed to a degree of reluctance in the diabetes field to fully embrace the CV benefit found in EMPA-REG OUTCOME due to the uncertainty surrounding the mechanism of benefit. The FDA delayed a decision to include positive CV data on the Jardiance label by three months, to early December, and the vote at the Advisory Committee meeting was only narrowly (12-11) in favor of a label change – interestingly, all cardiologists on this voting panel supported the label revision, while endocrinologists seemed less comfortable with the lack of a clear mechanistic explanation. This divide in how cardiologists and endocrinologists view the results has been echoed at recent scientific meetings as well (most notably ESC 2016 and CMHC 2016). We imagine this discomfort (as well as the numerous, but largely manageable, safety concerns that have emerged in the wake of the class – DKA, bone fracture risk, acute kidney injury, and lower limb amputations) translates to fewer HCPs prescribing SGLT-2 inhibitors or recommending them whole-heartedly, despite the high number of patients who would greatly benefit from a drug that lowers glucose, promotes weight loss, and lowers risk for CV events. Having information about these benefits easily accessible on a drug label seems like an essential next step to increase adoption of SGLT-2 inhibitors – in the absence of regulatory action, uptake isn’t happening at the level we’d hope to see. Lilly management underscored the message that an expanded indication for Jardiance will revitalize the franchise and the class overall, and so our fingers remain tightly crossed for FDA approval of a revised Jardiance label. We look forward to findings from the DECLARE trial for Farxiga (scheduled to complete in April 2019) and the CANVAS trial for Invokana (scheduled to report at ADA 2017) as well.

Figure 3: Pooled SGLT-2 Inhibitor Sales (1Q13-3Q16)

Figure 4: SGLT-2 Inhibitor Class by Volume

4. Bydureon (exenatide once-weekly): Challenging Quarter Due to Competitive GLP-1 Agonist Market

Sales for AZ’s GLP-1 agonist Bydureon (exenatide once-weekly) reached $145 million, an 11% YOY decline as reported (falling 10% in constant currencies). Sequentially, sales fell 7% as reported. By geography, US sales accounted for the lion’s share of Bydureon revenue: $115 million, versus $30 million in ex-US markets. This decreasing sales trajectory reflects fierce competition in the GLP-1 agonist market, which is currently led by Novo Nordisk’s Victoza (liraglutide) and Lilly’s Trulicity (dulaglutide), which hold 61% and 19% of the market share by value, respectively, compared to Bydureon’s third place finish at 11% market share (more on that below!) Nevertheless, management optimistically highlighted Bydureon’s potential as a component in combination therapy, as illustrated by the DURATION-8 trial that made waves at EASD 2016, in which GLP-1 agonist/SGLT-2 inhibitor dual therapy consisting of AZ’s Bydureon and Farxiga produced greater improvement of glycemic control and cardiovascular risk factors than either drug as monotherapy.

• Bydureon stands to gain some momentum in the GLP-1 agonist arena if the ongoing EXSCEL CVOT (expected to complete in 2018) produces positive results. Initiated in 2010, the trial has enrolled a whopping 14,000 subjects, with a primary endpoint of three-point MACE (cardiovascular death, non-fatal MI, non-fatal stroke).

Figure 5: Bydureon Sales (3Q12-3Q16)

5. Byetta (exenatide twice-daily): Sales Continue to Decline in Favor of Bydureon

Sales for AZ’s GLP-1 agonist Byetta (exenatide twice-daily) fell to $61 million, a 15% YOY decline (as reported and in constant currencies). Sequentially, Byetta sales fell 20% as reported. This decreasing sales trajectory has persisted since 1Q14 due to the company’s greater focus on Bydureon, AZ’s more convenient once-weekly exenatide formulation. Although management did not address this in the call, we know from the company’s 2Q16 update that Byetta is the subject of two patent infringement lawsuits. AZ filed lawsuits against Teva Pharmaceuticals and Amneal Pharmaceuticals, both of which have proposed launching exenatide products of their own. AZ shared that Teva agreed to settle in June and will withhold the launch of its proposed exenatide product until October 15, 2017. The trial with Amneal Pharmaceuticals is set to begin in December 2017.

• Cumulative revenue for AZ’s exenatide franchise (once-weekly Bydureon and twice-daily Byetta) totaled $206 million in 3Q16. Of this Bydureon’s $145 million accounts for 70% and Byetta’s $61 million accounts for 30%.

Figure 6: Byetta Sales (3Q12-3Q16)

6. GLP-1 Agonist Market: Revenues Increase 22% YOY to ~$1.3 billion, with Victoza Leading by Value and TRx

Overall the GLP-1 agonist class grew 22% YOY in 3Q16, generating nearly ~$1.3 billion in revenue, with AZ’s exenatide franchise accounting for 16% of the market by value. Sequentially, the GLP-1 agonist market increased 2% as reported. As we have been forecasting, this market is growing substantially, and should surpass $5 billion by the end of 2016. The 22% growth of the class represents a slight dip from the first half of 2016 (26% class growth in 1Q16 and 29% in 2Q16), but remains strong overall. The substantial underlying volume growth for the class continued in 3Q16 as well, with ~32% YOY growth in TRx, according to Novo Nordisk’s 3Q16 update. According to Novo Nordisk management, GLP-1 agonists now account for 11% of the total diabetes market by value and for 30% of all diabetes drug prescriptions.

• In 3Q16, Novo Nordisk’s Victoza (liraglutide) held 61% market share by value within the class, Lilly’s Trulicity (dulaglutide) held 19%, AZ’s exenatide franchise held a collective 16% (11% for Bydureon, 5% for Byetta), GSK’s Tanzeum (albiglutide) held 3%, and Sanofi’s Lyxumia (lixisenatide) held <1%. As we learned in Novo Nordisk’s recent 3Q16 update, by total prescriptions (TRx), Novo Nordisk’s Victoza held 51% of the US GLP-1 agonist market share in 3Q16, Lilly’s Trulicity held 22%, Astra Zeneca’s exenatide franchise (Bydureon and Byetta) collectively held 19%, and GSK’s Tanzeum held 8%.
• Both value and volume growth of the GLP-1 agonist class has been rebounding for some time, catalyzed in part by the launch of Lilly’s once-weekly, patient-friendly Trulicity. Furthermore, the positive LEADER results may be additionally bolstering sales for both Victoza and the entire GLP-1 agonist class. We expect that a label update for Victoza reflecting cardioprotective benefit would result in further upswing. We see additional market potential for GLP-1 agonists in the upcoming once-weekly injectable and oral formulations of Novo Nordisk’s next-generation GLP-1 agonist semaglutide, which offer greater potency and convenience. We also forecast that Intarcia could meaningfully expand the GLP-1 agonist market with its ITCA 650 implantable exenatide mini-pump. Future quarters will reveal how ITCA 650 and Novo Nordisk’s injectable and oral semaglutide affect the competitive landscape for GLP-1 agonists. Intarcia has suggested that ITCA 650 will be competitively priced, at a per-day discount to current GLP-1 agonist options, while the injectable formulation of semaglutide has strong support in data from the SUSTAIN 6 trial.

Figure 7: GLP-1 Agonist Sales (1Q06-3Q16)

7. Onglyza (saxagliptin): Down 16% YOY to $169 Million

Sales of DPP-4 inhibitor Onglyza (saxagliptin) fell 17% YOY as reported (16% in constant currencies) to $169 million. Sequentially, revenue declined for the second consecutive quarter, this time by 12%. US sales totaled $304 million, marking a 17% YOY decline as reported (6% in constant currencies), while sales in Europe totaled $102 million, representing a 5% YOY decline in constant currencies. The DPP-4 inhibitor saw somewhat stronger sales in ex-US emerging markets, where revenue increased 3% YOY operationally to $110 million. Notably, Onglyza is no longer AZ’s leading diabetes product, as SGLT-2 inhibitor Farxiga (dapagliflozin) pulled ahead in 3Q16 by posting $220 million in sales. While there was no commentary on Onglyza during the 3Q16 call, management mentioned in 2Q16 that the company has noticed a shift in diabetes medicine, with DPP-4 inhibitors on the decline and SGLT-2 inhibitors on the rise. One of AZ’s strategies in diabetes was thus described as making Farxiga the preferred option for patients looking to switch from a DPP-4 inhibitor to an SGLT-2 inhibitor, which suggested to us that the company is willing to cannibalize some Onglyza sales to bolster Farxiga. We’ll be curious to see how these two drugs are positioned within AZ’s diabetes portfolio in quarters to come. While we see tremendous therapeutic value in SGLT-2 inhibitors and are thrilled to see the Farxiga franchise growing worldwide, we can’t forget the favorable safety/tolerability profile of DPP-4 inhibitors like Onglyza, not to mention patient/provider familiarity with these agents. Such factors cement the importance of DPP-4 inhibitors as diabetes medications (even more so for vulnerable patient populations, including the elderly and individuals with renal impairment) – ideally, industry and HCPs will continue to prioritize these agents alongside the advancement of newer diabetes drugs like SGLT-2 inhibitors and GLP-1 agonists.

• As in 2Q16, there was no mention of the FDA-mandated heart failure warning added to the label for Onglyza (along with Takeda’s Nesina) in April. Thought leaders including Yale University’s Dr. Silvio Inzucchi, whose view is highly-respected when it comes to CVOTs, have expressed doubts that these agents inherently increase risk for heart failure hospitalization. But in the same way that a Jardiance label update incorporating positive CV data would boost SGLT-2 inhibitor sales, we expect this heart failure warning is negatively impacting the Onglyza franchise – after all, the largest DPP-4 inhibitor franchise by far (Merck’s Januvia [sitagliptin]) demonstrated resoundingly and reassuring neutral cardiovascular effects in the TECOS trial. 

Figure 8: Onglyza Franchise Sales (4Q12-3Q16)

8. Pooled Analysis: DPP-4 Inhibitors up 2% YOY to $2.5 Billion

The DPP-4 inhibitor class grew 2% YOY to $2.5 billion in 3Q16, of which Onglyza captured 7% by value. Merck’s Januvia (sitagliptin) franchise continued to lead the class with 63% of the market share. Lilly/BI’s Tradjenta (linagliptin) franchise held 13% of the market by value, Novartis’ Galvus (vildagliptin) held 12%, and Takeda’s Nesina (alogliptin) held 5%. Overall, there was little shift in the share of market by value for each of these DPP-4 inhibitor agents from 2Q16 or 1Q16. That said, 3Q16 witnessed varying degrees of success from various products in the class: On one end of the spectrum, Tradjenta revenue grew 25% YOY as reported and 22% operationally, driving 10% of growth in Lilly’s overall diabetes portfolio. On the other, Nesina sales declined 7% YOY operationally and Onglyza sales fell 16% operationally. Merck management expressed no concerns over the 1% YOY decline for Januvia, explaining that a large buy-in occurred in the US in 3Q15, setting the drug up for a tough comparison in 3Q16. Novartis management was similarly optimistic about 9% YOY growth for Galvus, especially because of the company’s clear strategy to promote the drug in specific pockets of the diabetes patient population – the elderly, those with renal impairment, and all people with type 2 diabetes earlier in the course of their disease. These areas may very well be the future direction for DPP-4 inhibitors as competition intensifies with the growing popularity of the SGLT-2 inhibitor and GLP-1 agonist classes. We see DPP-4 inhibitors potentially finding a niche within the commercial landscape as an option for more vulnerable patients as well as newly-diagnosed patients looking for a more familiar option with a benign safety/tolerability profile. For the foreseeable future, their position within the diabetes drug market seems relatively secure and steady, with 2% YOY growth in 3Q16 coming on the heels of single-digit growth in 1Q16 and 2Q16 as well. Casting our gaze much further ahead, we imagine these agents will be incredibly popular once they go generic – they would certainly a much more preferable alternative to sulfonylureas as a low-cost oral option.

Figure 9: Pooled DPP-4 Inhibitor Sales (1Q07-3Q16)

Pipeline Highlights

9. New Outcomes Studies of Farxiga in Chronic Kidney Disease and Congestive Heart Failure Announced

Excitingly, AZ announced two new phase 3 outcomes trials for Farxiga: one in chronic kidney disease (CKD) and one in congestive heart failure (CHF). Both trials will enroll both individuals with and without diabetes. While the ongoing DECLARE CVOT for Farxiga potentially  won’t report until 2019 (“at the latest,” according to management), the announcement of these two further outcomes trials is a clear sign of AZ’s confidence in positive results from DECLARE and the company’s confidence in a class effect for the impressive cardio- and renal-protective effects seen thus far for Lilly’s SGLT-2 inhibitor Jardiance (empagliflozin). The decision to investigate the impact of Farxiga on these indications is almost certainly influenced by the recent impressive cardiovascular and renal benefits demonstrated by Lilly/BI’s SGLT-2 inhibitor Jardiance (empagliflozin) in the EMPA-REG OUTCOME CVOT. Indeed, both the cardiovascular data on heart failure specifically and on renal outcomes were included in the data submission package to the FDA seeking an expanded indication for cardiovascular death based on the EMPA-REG OUTCOME results. However, FDA Advisory Committee panelists felt that the data on heart failure and renal outcomes was not strong enough to support an indication, as they were secondary endpoints (though the panel voted in favor of an expanded indication for cardiovascular death overall – the final FDA decision on this was delayed three months and we eagerly await an answer in December 2016.) Lilly has also announced that it will conduct two trials of Jardiance in patients with heart failure with and without diabetes – one of the trials will evaluate its impact on patients with reduced ejection fraction while the other will evaluate its impact on preserved ejection fraction. J&J is similarly confident in both the cardiovascular and renal effects of its own SGLT-2 inhibitor, Invokana. The company already has two ongoing trials on the renal outcomes associated with Invokana (CREDENCE, expected to completed in June 2019, and CANVAS-R, expected to complete in February 2017). During J&J’s 3Q16 update, management was extremely optimistic about the potential CV benefit demonstrated by CANVAS, which is scheduled to report at ADA 2017. Furthermore, the company announced plans to conduct a CVOT for Invokana in a prediabetes population – clearly all three SGLT-2 inhibitor companies are optimistic about the potential for beneficial effects on cardiovascular outcomes regardless of diabetes status. None of the companies have offered details on when these additional outcomes trials are expected to initiate.

10. Regulatory Submission for Auto-injector Formulation of Bydureon Expected 1H17

In terms of upcoming regulatory movement, AZ shared that an auto-injector, suspension formulation of Bydureon is expected to be submitted in 1H17. This new iteration of Bydureon would support once-weekly dosing, as the current formulation does. However, Bydureon currently requires a somewhat complex and fairly lengthy reconstitution process before injection, with this auto-injector formulation eliminates the need for. Bydureon’s complicated administration has been a significant drawback for the product, considering the rave reviews its competitor Trulicity (Lilly’s dulaglutide) has received for its easy-to-use, extremely patient-friendly auto-injector pen. A Bydureon pen that eliminates the need for reconstitution has been long-awaited – years in the making – and we’re glad to see this formulation come to fruition. On the other hand, we expect the GLP-1 agonist competitive landscape to become increasingly challenging for AZ (despite the overall positive growth of the class) – Novo Nordisk’s Victoza (liraglutide) and upcoming once-weekly semaglutide have both demonstrated impressive cardioprotective effects and upcoming advances in GLP-1 agonist administration (Intarcia’s implantable ITCA 650 [exenatide mini-pump] and Novo Nordisk’s oral semaglutide) may make even one-touch weekly injection not quite convenient enough for many patients.

11. FDA Decision for Fixed-Dose DPP-4 Inhibitor/SGLT-2 Inhibitor Combination Saxa/Dapa Expected 1H17

Management affirmed that an FDA decision is expected in 1H17 for fixed-dose DPP-4 inhibitor/SGLT-2 inhibitor combination of saxagliptin/dapagliflozin (approved as Qtern ex-US earlier this year). This is a slightly more generous timeline than the 1Q17 expectation shared in AZ’s 2Q16 update. The FDA issued a Complete Response Letter (CRL) for saxa/dapa in October 2015 that, in part, requested more clinical data “to support various dosing regimens” according to management – this was very disappointing and we hope the approval this time around is swift. AZ previously emphasized that the CRL was not due to concerns about heart failure or DKA. In its 4Q15 update, AZ shared that the resubmission would include data from a new trial and that the company has been in close contact with the FDA, expressing strong confidence that the resubmitted application would be approved. Qtern would be the second DPP-4 inhibitor/SGLT-2 inhibitor combination to join the US market, after Lilly/BI’s Glyxambi (linagliptin/empagliflozin; approved February 2015). Qtern was the first such combination to each the EU, following its approval in July. Despite its second-to-market status, we expect Qtern could do very well in the US if AZ invests well in promotion, marketing, and access for the product, given the favorable clinical profile of this particular combination. Sales and uptake of Glyxambi have been sluggish at best since its approval and Lilly/BI certainly don’t have a corner on the market as of yet. In its latest 3Q16 update, Lilly management acknowledged that it largely has not devoted resources toward promoting Glyxambi and that its focus is on establishing Jardiance as a standard-of-care product. Lilly clearly has a broad diabetes portfolio with several newly-launched products demanding its resources (GLP-1 agonist Trulicity, SGLT-2 inhibitor Jardiance, biosimilar insulin glargine Basaglar to name a few), plus it faces an increasingly challenging insulin pricing environment that threatens its flagship Humalog (insulin lispro) business, and its reasonable that its focus is turned to products other than Glyxambi at the moment. Given AZ’s smaller diabetes portfolio – of which Farxiga is clearly the bright spot – we expect the company has more time, capacity, and resources to devote to promoting Qtern.

12. GLP-1/Glucagon Dual Agonist MEDI0382 Advanced to Phase 2

Notably, we noticed that AZ’s GLP-1/glucagon dual agonist MEDI0382 for diabetes and obesity has been advanced into phase 2 on its pipeline page. The first phase 1 trial of MEDI0382 in healthy volunteers completed in August 2015. A phase 1/2 multiple-ascending-dose study (n=75) in patients with type 2 diabetes and a BMI >27 kg/m2 is currently recruiting participants and expected to complete in March 2017 (a slightly accelerated timeline from the previous April 2017 expectation). Several other companies are currently developing early-stage GLP-1/glucagon dual agonists as well, though AZ’s candidate is only the second to enter into phase 2 development. The most advanced candidate in the pipeline, OPKO Health/Transition Therapeutics’ TT401 met its primary endpoint in phase 2 trials but Transition Therapeutics’ partner Lilly declined to advance the candidate into phase 3 because the results did not meet its (presumably very high) internal bar for efficacy and safety. We’re eager to see how AZ’s candidate fares in phase 2 trials – GLP-1/glucagon dual agonists (and polyagonists in general) are incredibly promising, as evidenced by the excitement over the concept at the Keystone Symposia for New Therapeutics in Diabetes and Obesity earlier this year. For a closer look at the progress of this class, see our GLP-1/glucagon dual agonist competitive landscape.

13. Other Diabetes Pipeline: No Major Updates

There were no other updates to the other products in AZ’s diabetes-related pipeline. AZ is engaged in a number of lifecycle extension projects for Farxiga and Bydureon and maintains a fairly robust mid- to early-stage pipeline of products for diabetes, obesity, and NASH. The table below contains a comprehensive overview of AZ’s public pipeline efforts.

Table 2: AZ’s Diabetes Pipeline

-- by Abigail Dove, Payal Marathe, Helen Gao and Kelly Close