January 8-11, 2018; San Francisco, CA; Full Report – Draft

Executive Highlights

Earlier this month, our team attended the annual JP Morgan Healthcare Conference hosted at the Westin St. Francis in San Francisco. While downtown, we also swung by the Biotech Showcase and Health 2.0 Wintertech. We brought you three days of highlights, and we’ve now expanded our coverage (spanning all three meetings) into this full report! The content below is organized into write-ups on:

(i) technology/digital health companies;

(ii) drug companies;

(iii) health systems and payers; and

(iv) keynote sessions/additional topics. In particular, we include a full transcript of Mr. Bill Gates’ keynote address calling for more funding dollars allocated to diabetes and Alzheimer’s, and expressing high hopes for answers to be unlocked through microbiome research.

Titles highlighted in yellow were some of the most notable presentations, in our opinion, while blue highlighting indicates new coverage not included in our nightly JPM reports.

Detailed Discussion and Commentary

Technology & Digital Health Companies

Abbott: Expects Steady Build of “Significant” Payers Reimbursing Libre in 2018, Already Has Contracts; US Pediatric Indication “Hopefully” Sometime This Year

Robert Ford (Abbott, San Francisco, CA)

In Abbott’s breakout session, JPM’s Mr. Mike Weinstein grilled EVP of Medical Devices Mr. Robert Ford (a very highly regarded leader whom we’ve never seen break a sweat – yesterday was no exception) on US commercial reimbursement ­for FreeStyle Libre. Mr. Ford noted that Abbott already has contracts and expects a steady build of “significant” payers over the year. He indicated that payer conversations in the US have largely resembled those the company has had outside of the US – this was very positive news from our view since although Libre costs less than “traditional” CGM, it costs multiples more than traditional BGM. With national reimbursement achieved in France, Switzerland, the UK, and Japan in the past year, any comparison to international coverage decisions sound positive although it’s hard to know exactly the status and timing without more details. In both international and in the US, Mr. Ford said that payers “believe in the benefits of sensor-based technology, but needed to have it at a price point that makes sense to them in order to make it widely available.” Pricing and distribution dynamics should have a major influence on payer, provider, and patient choice between the various CGMs in the US market. Specifically, Mr. Ford said that payer conversations are going very well concerning patients who use insulin multiple times per day and check three-to-four times per day, while it’s a different conversation for “type 2” (not on insulin implied), “which requires more data and outcomes.” We are not aware of any FreeStyle Libre outcomes studies in patients not on intensive insulin therapy, though the real-world data set comprised of ~238,000 readers could hold some answers to payer questions. (However, we don’t believe Abbott has data on which therapies these patients are using – while it seems like it would not be too hard to figure out who is not on insulin, we aren’t sure that’s the case. We continue to believe CGM should be reimbursed for patients on SFUs as well as insulin.) Abbott is not yet ready to announce the payer contracts it already has under its belt, waiting to ensure that providers within the plans are up to speed prior to roll out. Lest anyone doubt Abbott’s progress on this front, Mr. Ford did say he expects other US payer decisions to come in “much faster” than they did outside of the US, where it took one to one-and-a-half years to secure positive reimbursement decisions, attributing the speed to greater adoption and awareness of CGM at baseline in the US. Time will tell and we look forward to hearing more on this front. Even without disclosed payer deals and many presumably to come, Mr. Ford said prescriptions are on pace with “internal targets”, and “we’ll see a ramp as the year progresses.” Indeed, CEO Miles White didn’t rule out $50-$100 million in 2018 US FreeStyle Libre on the 3Q17 call. As noted last week, Abbott’s US FreeStyle Libre website indicates encouraging private payer coverage: “most patients pay no more than $75 per month on eligible FreeStyle Libre prescriptions at major retail pharmacies” – that is saying a lot since traditional co-pays have become very high for many patients. Meanwhile, Medicare will reimburse FreeStyle Libre at ~$250/month, the same rate as Dexcom’s G5. This will undoubtedly change longer-term. Mr. Ford talked about connectivity in response to one of Mr. Weinstein’s many incisive questions and we’ll be very eager to hear more here since less has been announced relative to Dexcom.

• Mr. Ford said he hopes to see a pediatric indication for FreeStyle Libre sometime this year – many will likely use it off label in the meantime. The company is currently working with FDA and putting data together, which makes it sound like a new study in the US may not be necessary. This is great to hear, as we imagine many parents will love the smaller FreeStyle Libre form factor, simpler/less painful insertion, and factory calibration. Results from the SELFY study of Libre in children and adolescents (ages 4-17) after eight weeks of wear showed safety and efficacy (more time in range, lower A1c, less time >180 mg/dl). Though the study didn’t have a formal control group (comparing Libre metrics to a 14-day run-in), we assume it and other similar data would be sufficient to meet FDA’s bar. We’re not sure what age cutoff Abbott is pursuing in the US.
• Unsurprisingly, the Abbott device R&D division is hard at work trying to improve Libre (e.g., through minimization and extended wear), and the company is seeking additional partners. Mr. Ford reiterated that Abbott views Libre as a platform, specifically calling out the Bigfoot partnership as “part of that strategy.” He did not elaborate on the second-gen Libre with continuous communication that will integrate into the Bigfoot ecosystem. We’re still not sure if next-gen Libre will also launch as a standalone CGM system to compete more directly with Dexcom and Medtronic but we can’t imagine that this isn’t part of the grander plan.
• When asked about Medicare DME economics vs. Dexcom, Mr. Ford only said that he doesn’t know Dexcom’s policies, but Abbott’s strategy is to ensure consistent FreeStyle Libre pricing around the globe. Mr. Weinstein seemed to imply that because margins will be different – Abbott has lower costs, but the systems are reimbursed the same – DME supplier dynamics may be different for the two companies. Mr. Ford didn’t directly respond to this inquiry. We don’t fully know the dynamics of pricing in the Medicare DME channel, but see our comparative analysis here – we imagine over time Medicare pricing would come down.

Selected Questions and Answers

Mike Weinstein (JP Morgan, New York, NY): On Libre, where are you with the US launch – how’s it going in conversations with commercial payers?

Mr. Robert Ford (EVP, Medical Devices, Abbott): The objective of Libre was always to fulfill the promise of what CGM was always meant to be: ultimately to substitute for fingerstick testing. We had a product back in 2008, Navigator, a traditional CGM, and we realized it needed to be changed to fulfill that vision. Libre is the outcome. You’ve seen that uptake in EU. We weren’t surprised by [FDA] approval or by CMS timing, and we’re not surprised by some conversations we’re currently having with payers in the US. They are similar to those we’re having outside of the US – they believe in the benefits of sensor-based technology, but needed to have it at a price point that makes sense to them in order to make it widely available. We’re seeing the same things here. How are we doing? Well we got approval, and distribution in beginning of December. We’re making it available in pharmacies, so that’s a little different. Based on prescriptions, we’re on target to where we set ourselves. We’ll see a ramp as we progress through the year. Conversations are productive with payers.

Mr. Weinstein: Say I’m a payer with millions of patients … I spend $0.50-$0.75 per day on fingersticks. On Libre, its $4-$5 per day.

Mr. Ford: $0.50-$0.75 cents – that depends on the patient segment. Type 2, that’s a different conversation, which requires more data and outcomes. For patients using insulin multiple times per day, testing three to four times per day, those conversations are going very well.

Mr. Weinstein: When do you think commercial reimbursement in the US will come online?

Mr. Ford: Outside of the US, it took us about a year, one-and-a-half years for all of these conversations to come through – last year we saw positive reimbursement decisions in France, the UK, and even Japan – I expect that to be much faster in the US. Adoption and awareness of CGM are greater. Expect a steady build. We have contracts as of today – we’re not announcing them, we’re working with our field team to make sure physicians within the plans are aware, but we’ll see a steady build of significant payers over the year.

Mr. Weinstein: Talk about your Medicare strategy. You said you have a strategy and relationships in place to go after that market …What’s your DME strategy?

Mr. Ford: Our strategy is ultimately linked to the overall goal to make Libre available and accessible, and to ensure that adoption is done at rapid pace. There has been CMS reimbursement for quite some time for other systems, so our view was always to ensure we could get rapid adoption. The strategy doesn’t change from what we did in the EU to what we’re doing with commercial payers. It’s not any kind of different strategy. With DME, we don’t have our own, so we have to negotiate, make available to those DMEs, but it’s similar to what we’ve been doing across the world.

Mr. Weinstein: What are the economics with DME between Libre vs Dexcom?

Mr. Ford: I don’t know Dexcom’s economics. We try to stay consistent with our strategy so there’s no difference across the world.

Mr. Weinstein: I mean that reimbursement is the same, so is the DME making more money. Is that relevant?

Mr. Ford: I don’t know what Dexcom’s policies are. Our focus is to make consistent, global pricing.

Mr. Weinstein: Libre is currently indicated for ages 18+, how long will it take for pediatric approval?

Ford: We’re working on putting data together, working with FDA, we have approval outside of the US. Hopefully sometime this year.

Mr. Weinstein: You’ve had your hands full with launching Libre, but it’s not like your R&D team is standing still. 

Mr. Ford: You’re actually the first person to acknowledge that … We’ve been working on iterations of Libre since it launched in Europe in 2014. We’ve said it’s a platform product – you saw part of that strategy in the Bigfoot Biomedical announcement, with a new system that integrates pumps and pens. All I can say is we’ll continue to build on that, whether it’s wear-time extension, size … we’re continuously innovating, and we’re not going to be still with the platform we have.

Mr. David Kliff (Diabetic Investor): Medtronic said it’s entering the standalone CGM market, using price as a weapon to get there. How will that all play out?

Ford: That’s an interesting question. Just because it’s a lower price doesn’t mean you’re necessarily trying to buy share by sacrificing profitability. Our platform makes for a stable sensor, no need for calibration or transmitters, all those add up for cost. Our sensor provides similar benefit to other systems at a fraction of the cost, and that’s what’s resonating with payers. It’s not just them; patients are interested too. Libre is much easier to use, much easier to apply.

Q: It sounds like connected health is a big theme – how are you implementing it?

Mr. Ford: Yes, it’s definitely a trend, something we’re being intentional about. It’s difficult to do all across the board – Libre is definitely an area of focus. How do you take that information, make it more accessible, easier to digest? A product we launched in Europe was the Link app – you can use your phone to scan sensors, and also the LinkUp app to share data with followers. We’ve done work with data in the cloud for physicians, so you can send that swipe information straight to the cloud – we’re working on that. It’s important that while there’s a lot of data on connectivity, the real clinical and economic benefit, there are risks associated with that – be it cyber or something else – so we have in place a broad comprehensive system. We have a product group that looks at security … We’re exploring connectivity, it’s super-important, and we’re making sure that as we’re developing, the benefits of connectivity don’t come with unintended consequences.

BD: T2 Patch Pump (“Swatch”) & Smart Pen Needles to Launch October 2018-September 2019 with “Briight” app; Clinical Study of MiniMed Pro-Set Still Finishing, but in Active Dialogue with Medtronic

Vince Forlenza (BD, Franklin Lakes, NJ)

BD CEO Mr. Vince Forlenza called the company’s full-feature type 2 patch pump (“Swatch”) “one of the products we’re most excited about” and “one of the furthest along” (slated for October 2018-September 2019 launch); President Mr. Tom Polen added that a clinical study of the MiniMed Pro-Set with BD FlowSmart technology is “still finishing,” but there is active dialogue with partner Medtronic. We were a little surprised to hear so much optimism concerning the patch pump given that timing was pushed back slightly from “2H18” to October 2018-September 2019 (FY19) on the 3Q17 call, but Mr. Polen told us after the session that the delay is partially meant to time the launch with “Briight,” BD’s diabetes app – see the website here, which we just discovered. It seems that Briight will be a mix of a chat-based digital assistant (like Lark), diabetes data collection, education, recipes, food logging, and more. The app and website look very strong and very built out. The platform could greatly augment BD’s pump, making it competitive out of the gates with Insulet’s Lilly U500 (2019 launch) and U200 (2020 launch) Omnipods coming onto the market in the next two years. Management noted that payer talks regarding Swatch are going well, a clear positive in a market that has historically seen little payer progress on pumps for type 2 diabetes. As for development of the pump itself, a clinical study with saline completed last summer, and a study with insulin is beginning (not yet on Clinicaltrials.gov). The manufacturing line is up and running in Ireland, with “hundreds” of pumps being made per day. Mr. Polen didn’t go into much detail on the smart pen needle product when prodded, but indicated that BD is “still working on that” and that it will also likely launch with the Briight platform (we assume the latest estimate for an October 2018-September 2019 launch still holds). It was fantastic to hear such excitement and optimism about Swatch from top management, who must see a great opportunity in the very unpenetrated type 2 pump market. We did, however, find it odd that the smart pen needle wasn’t a hot topic of discussion. The market is arguably more expansive for injection dose capture and insulin titration, but we understand BD’s desire to hold their cards close as they likely explore various pricing structures, business and service models, and partners. That said, the lack of an update was not confidence-inspiring, especially against the backdrop of Companion Medical’s first-to-market launch, and competitive products in development at Lilly and Bigfoot, not to mention the rest of the burgeoning landscape.

• Mr. Forlenza characterized the MiniMed Pro-Set with FlowSmart as one of two “disappointing” delayed products in the medical segment and said the company is “still working on that, trying to finalize.” A clinical study in patients is still finishing as the company works on developing clinical evidence. No launch update was given – last we heard in early August, a launch was expected by this coming September. It was encouraging to hear that there is active dialogue with Medtronic, as the commercial fate of this set really rests in Medtronic’s hands. Medtronic’s recent updates have mentioned infusion set pricing pressures, and we wonder what the economics are on BD sets vs. Unomedical sets. But if Medtronic continues to push for outcomes-based reimbursement, the BD set, assuming patient concerns have been addressed. Relative to Unomedical sets, will Pro-set deliver better clinical outcomes?

• A vast majority of the presentation and breakout was devoted to the synergistic possibilities from the recently-completed acquisition of Bard. During his remarks, Mr. Forlenza pointed out that the merger will allow BD to play more in the diabetes complications market, as Bard has strong peripheral vascular disease and chronic kidney disease portfolios. He pointed out that patients with diabetes have an especially high risk of developing peripheral vascular disease, and that over half of people with chronic kidney disease also have diabetes. Of course, BD’s core diabetes business is aimed at preventing these complications in the first place, but the company is now in the position to treat them should they develop anyway. Remarkably, combined, BD and Bard have a ~$1 billion annual spend on R&D!

Byteflies: Sensor Dot Awarded CE Mark, Limited Launch in February; FDA Filing Expected in July

Hossein Safavi, PhD (Byteflies, Berkeley, CA)

Byteflies, whose Bluetooth-enabled Sensor Dot we first reported on at the Health 2.0 Fall Conference, anticipates launching in Europe some time in February. A CE Mark has already been obtained (ensuring user safety, adequate signal emission and power draw, etc.), and the team expects to file with FDA in July. The initial roll out will be in a limited fashion, though the company has attracted significant interest, mostly from pharmaceutical companies and researchers. As a reminder, every Dot can be configured to measure PPG (a measure of blood flow), ECG, respiration, motion, electrodermal activity, and EMG. The vision we reported on last fall was a B2B model of selling the sensor platform to accelerate timing to proof-of-concept – for instance, companies could quickly gauge the value of incorporating motion and other sensors into a CGM transmitter, before investing in the internal R&D to do so. Software Lead Dr. Hossein Safavi told us today the team is considering adjusting the device to be sterilize-able, thereby allowing Byteflies to sell to providers and health systems as a multi-capable professional diagnostic biometric sensor. Dr. Safavi told us people constantly ask about the possibility of also measuring blood pressure and glucose non-invasively – his answer was basically no on both fronts, since there is no great way to measure blood pressure at the moment (without a bulky, inflatable band or having to hold your arm at an inconvenient height), and the team doesn’t have electrochemical experience, so glucose would be a pipe dream. We think this is ultimately a good call, as the company should have plenty of runway with its existing sensing capabilities and flexibility in the B2B vein. At this point, the Byteflies Exploration Kit is selling for €2,500 (~$3,000) on pre-order, minus a 25% promotional discount (total $2,250). The “modular kit” starts at €900 (~$1,100) for the docking station and one Dot.

Dexcom: Reports Record Q4 Sales of $218M, Driven by 24% US Growth; G6 No-Cal US Launch in “2H18”; Verily in Late 2018/Early 2019; 2018E Sales of $830-$850M (+16%-19%); Push to Validate CGM in T2D in 2018

Kevin Sayer (Dexcom, San Diego, CA)

In a persuasive and poised presentation, Dexcom CEO Kevin Sayer shared serious optimism on the business leaving 2017, big excitement for a no-cal G6 expected to launch in 2H18, and confidence in the face of competitive and potential pricing headwinds. Download the slides here. Key highlights are below in more detail, including blowout record-high 4Q17 sales (~$218 million, +27% YOY), updated G6 no-calibration global launch plans (2H18), 2018 guidance ($830-$850 million in sales, growing 16%-19% YOY), updated Verily timing (first gen launch in late 2018 or early 2019), more than we’ve ever heard on type 2 diabetes programs (a big focus on reducing/optimizing medications, per the exciting UHC pilot in ~10,000 type 2s), comments on pricing (Dexcom is prepared for pressure), and other major strategic objectives in 2018 (including interoperability with insulin delivery devices, improving cash-based income, launching in Japan and Korea, and continuing the Medicare rollout). The US CGM market has never been more dynamic (see our Reflections piece), but Dexcom is set up to have an especially big pipeline year, while it continues to progress the business’ profitability, payer relationships, and expansion into type 2.

4Q17 and 2017 Sales

• Dexcom’s preliminary 4Q17 sales hit a record ~$218 million, up 27% year-over-year (YOY) on a tough comparison to 31% growth in 4Q16. This was the second straight record sales quarter, smashing the previous $185 million record in 3Q17. It was also Dexcom’s first time crossing $200 million in a quarter – a nice milestone.
  
  • US sales grew a strong ~24% YOY and an impressive 23% sequentially, driving ~77% of 4Q17 growth. The US commercial patient base grew more in 4Q17 than at any point in Dexcom’s history – a big achievement considering the competitive environment. Management emphasized this point in Q&A multiple times, despite all the “theoretical headwinds” and “noise” around competition (i.e., Abbott’s FreeStyle Libre US launch in Q4). Indeed, Mr. Sayer mentioned that some of Abbott’s radio ads for Libre actually resulted in some physicians prescribing Dexcom CGM – “Overall awareness [of CGM] didn’t hurt. It’s a helpful catalyst.” Though the Medicare contribution was not broken out, Mr. Sayer did say the hoped for ~$10 million in Q4 Medicare sales was not achieved; it was really the US commercial business that drove strength. OUS sales continued their momentum, rising >50% YOY for the third straight quarter. Germany continues to be a strong driver.
  • Full-year revenue was ~$715 million, a 25% YOY increase over 2016 – this just crossed the bottom of the guidance range ($710-$740 million), though came in ahead of the Street’s estimates. Dexcom also met its patient base goal to exceed 270,000 patients worldwide by the end of 2017, up ~35% from ~200,000 at the start of 2017 (outpacing revenue). 

• Dexcom expects 2018 sales in the range of $830-$850 million, a 16%-19% YOY rise over 2017. The business’ key indicators – sensor volumes, OUS revenues, and patient base growth – are expected to exceed 20% growth for the year, again outpacing revenue growth. This near-term outlook contemplates a number of 2018 variables, including the no-calibration G6 launch (see below) and continued Medicare and OUS expansion. Headwinds include the Animas departure and the impact of ongoing competition. Mr. Sayer emphasized the bigger access Dexcom has going into 2018, especially Medicare and Germany – in total, this is an incremental ~1 million patients.
  
  • The guidance also factors in choppy competitive waters and potential pricing headwinds: “We know it’s coming.” Mr. Sayer said some private payers are already approaching Dexcom and asking to move to a similar monthly subscription model as Medicare (~$250/month). Dexcom has not negotiated pricing for the G6 sensor yet, though the longer 10-day wear could give it more flexibility – “We have some room on the pricing front.” Dexcom also has electronics configurations “that will be less expensive than the current ones.” Though pricing is clearly a risk for Dexcom, the company seems quite prepared for where the market is heading. 
  • Dexcom aims to improve core cash-based operating income in 2018. Gross margins of 65%-68% are expected, with core GAAP operating expenses increasing slower (10%) than revenue growth (16%-19%). This spending guidance excludes investment in the non-intensive diabetes programs.

2018 Milestones

• The biggest milestone in 2018 will be approval and launch of the no-calibration G6 CGM globally – this is now more firmly expected in “2H18,” and if all goes well with the FDA, it could launch by “mid-year.” Relative to the 3Q17 call – which positioned a no-cal launch “sometime before the end of 2018”– today’s presentation moved up the timing quite a bit. It now sounds more likely that a G6 no-calibration launch will come straight out of the gate in the US, rather than as a follow-on supplement to the under-review one cal/day version; in the 3Q17 call, both options were presented. “Very active discussions” with the FDA continue, and Mr. Sayer shared only positive adjectives: “very, very cooperative,” “interactive,” “so far so good.” Notably, the word “globally” was used for the first time to refer to this 2018 G6 launch; previously, commentary only focused on the US. Dexcom is seeing nice uptake head-to-head against FreeStyle Libre OUS, though the no-cal G6 will provide even stronger competition.
  
  • In Q&A, Mr. Sayer added that “people underestimate the effect G6 will have.” Compared to G5, he said, starting on G6 is like “night and day…It’s a big one.” Much of this will likely come from the improved, less intimidating one-button sensor applicator, though we look forward to seeing how no calibrations, stable sensor performance, smaller transmitter, predictive alerts, and other features are received – especially for those new to CGM. We also wonder if Dexcom will maintain its two-hour warmup for the no-calibration G6 – relative to FreeStyle Libre’s 12-hour warmup, this could be a very meaningful product advantage. Management has not ever commented on warmup time for G6 no-cal.
• In 2018, Dexcom will also “accelerate the fully disposable product pipeline” with Verily. A first-gen “limited launch” is now expected in “late 2018/early 2019,” with a gen two launch to hopefully follow in 2020. This was a refreshingly more specific update than in 3Q17, when gen one Verily timing was unclear and depended on the G6 no-cal timing. Per the above, this also implies G6 no-cal discussions are going very well and there is good visibility ahead. Limited launch” was used for the first time we can recall, implying the initial Verily gen one product might roll out cautiously. Mr. Sayer emphasized that both systems are “the future of CGM,” with 14-day sensor wear, single-use disposable design, Bluetooth connectivity to the phone, and factory calibration. As in previous remarks, he emphasized that the second-gen system is the “key product” for driving costs down. 

• OUS expansion will continue in 2018, including additional direct markets and new geographies. Japan will launch in 1H18, while Korea will launch in 2H18. This is the first time in a long while that Dexcom has commented on Asia. EVP Steve Pacelli said Dexcom’s Japanese launch will be more of a “professional use, diagnostic model.” For context, FreeStyle Libre (real-time) has reimbursement in Japan, and FreeStyle Libre Pro is available there.
• This year, Dexcom also aims to confirm the value of CGM through its non-intensive type 2 diabetes programs. The exciting UHC pilot in ~10,000 type 2s with CGM+coaching (ramping up in the next 6-9 months) received several minutes of airtime. A few slides (copied below) showed the concept in more detail than ever. Mr. Sayer emphasized that 24/7 CGM is not feasible in non-intensive type 2 diabetes, so Dexcom is focusing on “programs” that offer coaching, education, and guidance. A point of emphasis was medication costs in type 2 diabetes, something Dexcom CGM + coaching might help payers with. (Dexcom may even share in these savings – a pretty compelling business model.) The goal of the UHC partnership is to develop analytics, data, and programs on how to effectively treat people with type 2. The slide showed a Dexcom G5 and Fitbit tracker, paired with software that educates and teaches skills – e.g., post-meal walking, diet and nutrition, medication optimization, and sleep. Combined with algorithms and predictive models, HCPs will get data on the “ideal” drug therapy, based on a particular patient. A following slide showed a highly compelling before-after CGM example from one of Dexcom’s type 2 studies: the user went from 28% to 79% in range (3x!), and from an average glucose of 212 mg/dl to 150 mg/dl! A third slide showed a nice mix of decision support that mixes patterns (e.g., “You’ve had a spike the last three days at 1pm”) and medication optimization (e.g., “Medication is best taken before bedtime”). It appeared like some gamification could be used too: “Post-meal walking skill unlocked!” This is very exciting and we cannot wait to see what kind of outcomes it can drive in non-intensive type 2 diabetes.
  
  • “We’re doing a pilot with UHC getting 10,000 patients on CGM. We’ll develop a model and analytics for those patients to improve care. What we’ve learned so far is that direct costs are very high in type 2 diabetes – payers care about lots of drugs. There are some simple recommendation we can give people with type 2 diabetes, who have received no coaching other than ‘you eat too much and move too little.’ With insights from CGM, patients can learn a tremendous amount. For instance, one patient learned that his sleep is a major reason his glucose is going too high. We’ve also learned that some of the drugs don’t do a whole lot. There is a lot of learning here, but we know this has be a very targeted program, with very specific cost parameters. It will have to provide returns much greater than what payers spend. Better outcomes, fewer costs.”
  • “The revenue model is still being developed. It’s not about numbers of patients using X numbers of sensors. It’s a value-based model. Together with UHC and other payers, to the extent we generate savings – e.g., taking out drug costs – we will share savings with partners and the healthcare system.”

• Following progress in 2017, this year will see continued focus on the rollout of Dexcom CGM in the Medicare population. Medicare did not get much airtime today, so we’re not sure how many more G5 systems were shipped in 4Q17, following the 4,000+ as of November’s call. Based on the sales commentary today, however, it didn’t sound like Dexcom shipped the “close to 20,000” Medicare patients still left in the pipeline (per 3Q17 call in November).
  
  • CEO Kevin Sayer was not surprised by the quick Medicare coverage decision for FreeStyle Libre (announced last week). “We knew that was coming. Once we had the category established, Medicare has a 90-day review. We weren’t surprised about that.” We hadn’t realized CMS review would be this quick once the part B benefit category for therapeutic CGM was in place – given all the administrative hassles Dexcom had in 2017, we’d have guessed it would go slower. This is definitely a positive for other therapeutic CGMs that might come to market.
• 2018 developments will also push further on connectivity, interoperability with multiple insulin delivery systems, and Dexcom’s open data architecture. One slide showed Dexcom CGM running on a phone at the center, surrounded by an unbranded smart pen with a screen, Tandem and Insulet pumps. The bottom of the slide showed Dexcom’s main AID partners in alphabetical order: Beta Bionics, Diabeloop, Insulet, Lilly, and Tandem. Of all the partners, Lilly was mentioned the most times in passing in Q&A – given the two-pronged goal for AID with a pump and insulin dose titration via smart pen. A second interoperability slide showed Dexcom’s app running on the Fitbit Ionic for the first time on a slide, alongside Apple and Android Wear watches. Mr. Sayer said Dexcom has “plans to integrate transmitter-to-Watch over time,” though he did not confirm whether the Apple Watch version of this is currently under FDA review – as a December NYT article reported. Glooko, One Drop, and Tidepool were the longstanding data partners shown on the slide, alongside a new partner, eClinicalWorks. The latter was mentioned for the first time as a data partner that can bring CGM data straight into the EMR – we look forward to learning more! 

• EVP Steve Pacelli speculated that Dexcom might have two main product platforms over time – mainly differentiated by software – and leveraging the same core sensor technology for intensive vs. non-intensive diabetes. While Dexcom has shared this bifurcated pipeline idea in the past, this is the first we can recall hearing that the focus would be on software differentiation between the pipeline – this makes a lot of sense for the business and hardware manufacturing simplicity. Mr. Pacelli added that Dexcom may be getting to the point of diminishing marginal returns for sensor accuracy – while there are plans to drive some additional accuracy improvements over G6, Dexcom will need to increasingly focus on building a software, data, decision support, and analytics ecosystem around its sensors.
• “We are currently addressing a focused market.” Dexcom estimates in the US and Europe, there are ~6 million intensive insulin users, with ~5%-7% on real-time CGM – the share is our estimate based on the slide below. We assume FreeStyle Libre is included in “BGM & Other,” as Dexcom consistently refers to it as not a real-time CGM. Zooming out further (second slide), there are ~60 million people with diabetes in the EU and US, with real-time CGM reaching just a tiny fraction of patients. In other words, there is tremendous runway here for many companies to succeed!

Healthimation: Partners on Digital Weight Management Program: Ascensia, BD, Others; Seeks $4M Series A; China + UAE Roll Outs Coming

Seavey Bowdoin (Healthanimation, Boston, MA)

Healthimation COO Mr. Seavey Bowdoin displayed a slide listing Ascensia, BD, and five Boston-area hospitals and health systems (including Atrius Health, Boston Children’s, and Partners) as collaborations over the past six months. We first learned of the Ascensia data integration at EASD, but the BD partnership was entirely new to us, and we’re not entirely sure what form it has taken. Given the nature of Healthimation’s digital weight management program – using animation, gaming, and leveraging Joslin’s Why WAIT program ­– and the fact that Healthimation and BD’s Digital Health unit are both situated in Boston, the relationship is not too surprise – and great to see BD thinking about weight loss via digital efforts! This could be a strong relationship for Healthimation moving forward, as BD could recommend the program through its own digital health offering (Briight app, type 2 patch pump, and smart pen needles) or help Healtimation go to market and approach payers. At this point, the Healthimation app is live on Apple iOS and Google Play, “hundreds” have gone through with “a lot of successes,” and a clinical trial is on tap with Ascensia and Atrius Health System. Outside of the US, the program will undergo clinical trials in China (where it has been translated into mandarin and will go to market with big banks), and the UAE ministry of health is “ready to go,” enabling launch in Abu Dhabi and Dubai (the app is also translated into Arabic). The opportunity in both China and the UAE is enormous, so we applaud early efforts in these markets.

• In early Boston-area pilots, management realized that activation was a hurdle, so it introduced a welcome kit/care package. “I can do engagement with Lena [the fit, young, quirky avatar that guides users through the course and the Hollywood magic] and all that stuff, but activation is really hard,” said Mr. Bowdoin. The engagement expertise comes from an entire team that shipped over from Warner Brothers. The big welcome box is quite delightful: When the recipient first opens the lid, Lena is on the inside to greet and “tell you how great this is going to be.” Enclosed are a Bluetooth scale, Bluetooth activity tracker, kitchen scale, resistance bands, measuring tape, stress ball, and a kitchen magnet. Mr. Bowdoin seemed confident that once an end user begins the program, the app can maintain attention over a long period of time – we’ll have to wait and see if persistence data backs up this assertion.
• The company is looking to raise $4 million in a Series A to get a sales force up and running and to market. The initial focus will be on providers and payers, though direct-to-consumer (DTC) will likely follow later. The website, Apple iOS, and Google Play currently have a DTC offer of $49.99/month, after a seven-day free trial, but it’s possible Mr. Bowdoin meant that marketing for DTC won’t ramp until payer/provider traction has increased. The model is subscription-based, and Healthimation shares revenues with partners – eventually, Mr. Bowdoin foresees moving to outcomes-based pricing.
• At this point, the program integrates with connected devices (BGM, scale), EHRs, and wearables (e.g., activity trackers) – the company is also “moving toward telehealth.” Passive data upload to minimize manual entry is a must for any digital health product, so we’re glad to see that’s a continued priority. As for telehealth, the Healthimation program already provides coaches, so perhaps the telemedicine piece would enable video chat or allow for more medical advice. We’ve wondered recently where the line separating lifestyle advice and medical advice is drawn – once diet or exercise are adjusted, changes to medication will be needed too.

IBM Watson Health: No Diabetes or Medtronic Mention in Remarks; No New Details Following Direct Diabetes Question; Bigger Focus is on Oncology

Deborah DiSanzo (IBM Watson Health, Cambridge, MA)

In a complete reversal from JPM 2017, we were somewhat disappointed with IBM Watson Health’s presentation from General Manager Deborah DiSanzo. Last year, she enthusiastically mentioned Medtronic Diabetes/Sugar.IQ five times; this year’s slide presentation had exactly zero mentions of diabetes, Medtronic, Sugar.IQ, Novo Nordisk, ADA, the under-the-radar work with Sanofi Diabetes (IDF 2017), or the WellDoc/Truven cost analysis announced last week. We asked directly about the diabetes strategy in the breakout session (transcript below), to which Ms. DiSanzo mostly repeated an answer shared last year – Medtronic is the company’s “principal” partner, with the focus on the Sugar.IQ app and cool potential in the hypoglycemia prediction feature. She did allude to the limited release data shared at DTM 2017 (focusing on Dunkin Donuts, not the actual study outcomes presented), and did confirm the Sugar.IQ app with Watson will launch with Medtronic’s Guardian Connect (expected by April 2018, per 3Q17, though Medtronic was more vague on Monday). Ms. DiSanzo’s answer kind of implied the hypoglycemia prediction feature will launch in this first gen of Sugar.IQ; per Medtronic’s Monday slides, however, “glucose prediction” will actually come in a future version of Sugar.IQ so we’d love to get more clarity on this. In a question on pharma partnerships, “Novo Nordisk” was mentioned as part of a longer list – “Pfizer, AZ, Novartis, Novo Nordisk” – but nothing else was shared on progress since that deal was announced two years ago. A big takeaway from this talk was IBM Watson Health’s far bigger focus on oncology, which we discuss in more detail below. Overall, there’s no question IBM Watson could make a tremendous difference in diabetes data, but thus far, we’re still waiting … we absolutely understand the major focus on cancer and hope the healthcare team can be expanded overall at IBM! Following the standing-room-only talk last year, Watson Health was upgraded to the conference’s largest ballroom, which was also fairly packed. There remains a lot of investor interest, with nearly all the questions were focused on the revenue model. We would think given all the concern on costs in diabetes and pre-diabetes and obesity, there would be a lot of potential in diabetes – perhaps it is just too relatively challenging compared to cancer.

Adam Brown (Close Concerns): Can you talk about the diabetes strategy and partnerships?  It was disappointing not to hear a single mention of diabetes in your prepared remarks, given the public health epidemic we’re facing. What’s happening with your diabetes partnerships? What’s your strategy?

Ms. DiSanzo: Our principal partner in diabetes is Medtronic. As I said last year, we have created an app with Medtronic, in conjunction with their Guardian CGM. When Medtronic releases Guardian, the Watson Health app will be released with it. Let me talk about it. We did something really important. We looked at 600 patients, then 2,000 patients, then 10,000 patients. We created an algorithm that could predict hypoglycemia onset within two to four hours. We then followed 250 patients – in the study to support FDA clearance – tracked when they exercised, they entered what they ate, etc. We also allowed them to “follow” what foods they ate, and they could also put in restaurants that they wanted to follow. The #1 restaurant they followed in the study was Dunkin Donuts. Good gracious! You’d think having Dunkin Donuts would certainly affect your glucose levels. What we found in the app, however, was that it helped people with type 1 diabetes stay in their target range 65% of the time. There is no reason I didn’t talk about diabetes. When you only have 25 minutes…

• In the latter half of this comment, Ms. DiSanzo was referring to the Sugar.IQ limited release data shared at D (n=256), which did indeed list “Dunkin Donuts” first in the list of “foods tracked.” At the time, baseline time-in-range data was not shared, so we’re not sure if the ~65% time-in-range was accurate. If so, it implies patients were doing very well already, in line with the additional 2% of the day spent in range after adding Sugar.IQ. Ms. DiSanzo’s comment implied Sugar.IQ drove the high time-in-range, which presumably was already true at baseline. We are betting most of these folks went to Dunkin Donuts for the coffee (which is very good).
• IBM Watson’s focus on oncology was crystal clear: (i) of the 13 core slides, oncology had three to itself; (ii) “Oncology and Genomics” is one of Watson’s five business verticals (the others are life sciences, government health and human services, imaging, and value-based care); (iii) Watson for Oncology is now trained in 13 cancers up from only four last year; and (iv) oncology studies and examples were Ms. DiSanzo’s go-to response to nearly every question that asked for more specifics. There has been lots of progress here – we’re going to think big and consider what we’d like to hear next year at JPM from IBM Watson on diabe
  
  • Ms. DiSanzo declined to break out how big the Watson Health business is, but did confirm Watson currently reaches 45,000+ oncology patients (5x growth over 2017), with an average price of $200/patient per study – the words “study” and “patient” were confusingly used interchangeably, implying a single “study” means Watson runs a single patient case and recommends treatment. If that 1:1 relationship is true, it implies revenue from oncology is only ~$9 million. Of course, this could be off in magnitude if oncology patients have multiple Watson studies done and each is compensated at $200.
• IBM Watson Health’s current 13,000+ clients have risen ~30% from 10,000+ at the start of 2017. Watson Health cognitive offerings now touch 115,000 people, up ten-fold from 9,000 last year; outside of the current 45,000+ in oncology, we’re not sure what vertical is serving the other 75,000. IBM has now fully integrated its four major Health data acquisitions one IBM Watson Health: Truven (claims data from 200+ million lives), Phytel and explorys (100+ million patient EHR records), Merge healthcare (30+ billion images). Combined, the entity has clinical and claims data from 210 million lives, with a remarkable 45% refreshed every quarter – this constantly updated, huge dataset is a critical advantage for AI/machine learning, since these algorithms need to be trained on huge data sets. Watson Health has 2,500 patents and 40+ peer reviewed publication, posters, and abstracts.
• Perhaps more than last year, there was an even greater focus on positioning Watson as “augmented intelligence” and a productivity booster – not a replacement for HCPs. We see strong potential here in diabetes, particularly for reading glucose traces, making graded therapy recommendations, and clinical trial matching. Watson does have some compelling applications, including cranking through hard-to-understand data (unstructured notes, images), incorporating far more data than any human can (EHR, clinical trials, etc.), rank ordering what is most important, and even bringing intelligence into rural areas where there aren’t enough healthcare providers (India, China).

Insulet: Begins Medicare Part D Formulary Talks for Jan 1, 2019 Coverage Start; Dash PDM Submitted to FDA, Limited Launch in 2H18; Horizon AID “Probably 2020 Timeframe”

Patrick Sullivan (Insulet, Billerica, MA)

Insulet CEO Patrick Sullivan shared an enthusiastic update (download the slides), headlined by detailed timing comments on the just-announced Medicare Part D coverage news: formulary negotiations will take place over the next few months (by April), enabling an official coverage start on January 1, 2019. Until 2019, patients that want Medicare coverage for the Omnipod can try to obtain a formulary exception, as we noted yesterday. The ~11-month gap between the announcement and actual coverage is longer than we had guessed when the news came through yesterday (We thought it would be a few months.) Still, Insulet has already laid the critical groundwork for pharmacy distribution – ~10% of its business is already running through the pharmacy, and it has already negotiated contracts with two of the largest PBMs that serve the US market (60 million covered lives). “Everything we needed to do we have already done. We’ve done tremendous planning. We’re ready to rock and roll.” Notably, half of Insulet’s 20-person managed care team has a pharmacy background. All this means when Insulet does go live with coverage next January, it shouldn’t have the logistical hassles Dexcom encountered – it sounds like the critical groundwork has already been laid. In line with the timing, a meaningful revenue impact from Medicare won’t come until 2019. Still, this could be very big for Insulet, given the estimated 450,000 US type 1s it will now have access to (Medicare + expanded Medicaid). Management also shared big enthusiasm for the pharmacy (Part D) channel over DME (Part B): more convenient patient access to supplies (pick up at pharmacy, just like insulin); likely lower patient out of pocket costs (part D is a copay, where most patients have lower out-of-pocket); a far easier prescribing process for physicians (just write a prescription instead of DME headaches), and less hassle for Insulet (no need to run a background benefits investigation). Notably, current pharmacy channel pricing for the Omnipod “is at or above the DME channel,” and these are the same carriers Insulet will negotiate with for Medicare Part D coverage over the next few months (“We know them and we have pricing already established”).

• In a long-awaited pipeline update, the Bluetooth-enabled Dash PDM and pod were submitted to the FDA “earlier this year,” with clearance expected in 2H18 followed by a “limited market release.” This is roughly on par with the 3Q17 goal to submit “around the end” of 2017. The slide (below) showed a nice graphic of the PDM, display app (user’s phone), and view app (caregiver phone). We like the iOS widget (lock screen), which showed insulin on board prominently and right under Dexcom’s G5 widget. Unlike the G5 transmitter (which can talk to a receiver and the smartphone app), the Dash pod will only talk to one device at launch – the Dash PDM. If a user’s own smartphone is not nearby, the app will display the most recently received data from the Dash PDM. Since the Dash PDM is a locked down Android phone, it will have WiFi, which presumably allows passive data upload to the cloud (Glooko?) and unlocks over-the-air software updates. Both will help Insulet stay competitive with Tandem’s t:slim X2 and Medtronic’s next-gen Bluetooth-enabled pumps.

• Ascensia separately announced today that the Insulet Dash-Ascensia Contour Next One development agreement is now a non-exclusive commercial agreement. Per Ascensia’s press release, Insulet will distribute the Bluetooth-enabled Contour Next One with the Omnipod Dash, allowing BGM readings to wirelessly flow into the Dash PDM’s bolus calculator. Recipients of Omnipod Dash will receive a meter and an unspecified number of test strips. Ascensia was not mentioned or shown in Insulet’s presentation today. Of course, Ascensia also provides its Contour Next meter as part of the Dexcom G5 Medicare bundle. (Meanwhile, Roche will exclusively provide the Bluetooth-enabled BGM for future Medtronic pumps.) Though Dexcom is quickly moving to the no-calibration G6 (see above), having a strong BGM partner will be essential for Insulet for a while – especially given the type 2 market.
• The Horizon Automated Glucose Control system (with Dexcom G6) is “probably 2020 timeframe” for launch, on the later side of 3Q17’s “end of 2019” or “early 2020” expectation. Horizon is now in its third IDE study (hotel trial), with a pre-pivotal to come next followed by a pivotal trial – this could mean a Horizon pivotal trial in 2018 is unlikely, possibly placing Insulet’s pivotal behind Tandem’s hybrid closed loop with TypeZero (pivotal expected this year) and Bigfoot/Abbott’s Loop system (pivotal expected to start this year). Notably, Horizon will go down to age two years, a very notable differentiator. Remarks also emphasized the pod’s built in Horizon algorithm and direct communication with Dexcom’s G6, meaning users will stay in closed loop even when the PDM is out of range. We agree this will be a very meaningful form factor differentiator from other systems. The excellent Horizon user interface also seems to have changed a bit since we last saw it, a clear sign Insulet continues to optimize the look and feel.

• The Lilly U500 Omnipod is still expected to launch in 2019 (data at ADA), while U200 is expected in 2020. A new slide broke down the market size for various insulin requirements, showing how these two products will likely double Insulet’s addressable market: Insulet estimates ~300,000 type 2 patients have a total daily dose <60 units (addressable with today’s Omnipod), while an estimated 1.2 million patients fall in the 60-200 units per day segment, and another ~200,000 take >200 units/day. These estimates were triangulated from a number of sources: NIH, CDC, dQ&A, BBC, JDRF Fact Sheet, DDC Diabetes Report Card 2012, and T1D Exchange.
• Like Dexcom, we’ve noticed that Insulet will soon drive innovation as much through software as with hardware. We appreciated this nicely-branded product pipeline slide, which emphasized the valuable innovation platform that will flow from Dash. The strategy has been brilliant to leverage the same pod size and now the same PDM hardware for these important, market-expanding products.

• Echoing the 2016 Analyst Meeting and recent calls, management reiterated the ambitious 2021 targets for $1 billion in revenue (20%+ CAGR), gross margins of 70%, and above-market profitability. The trajectory has indeed been strong under Mr. Sullivan’s leadership team: in 2013, Insulet’s revenue was $185 million, gross margins were at 48%, and the company was not close to operating profitability (-$27 million). Insulet’s 2017 guidance calls for sales of $456-$459 million and gross margins of ~60%. Insulet continue to expect EBIT positive results in 2018. Mr. Sullivan emphasized the topline improvements have come from better sales and marketing execution, while the bottom line has come from strong manufacturing improvements. From here to 2021, it’s all about execution: going direct in Europe starting this July 1, capitalizing on the Medicare and Medicaid opportunities, getting new products on the market (Dash in 2018, U500 in 2019, Horizon and U200 in 2020), and getting the new US manufacturing plant operational starting next year. Notably, “80%” of the company’s current employees were not there when Mr. Sullivan three years ago.

J&J: No Decision Yet on LifeScan, Though Management Sounded Lukewarm on the Business

Alex Gorsky (J&J, New Brunswick, NJ); Sandra Peterson (J&J, New Brunswick, NJ)

The big news from J&J’s breakout session was no news as far as LifeScan goes – Group Worldwide Chair Ms. Sandra Peterson told attendees that management is still in the process of deciding what to do with the business. In hallway chatter, we heard her say “we’ll see” when asked if there would be an update on the January 23^rd 4Q17 call, not ruling out the possibility – we believe on the call that management will avoid the topic unless specifically asked. CEO Mr. Alex Gorsky didn’t sound so neutral, calling Diabetes Care a “slower-moving” business and implying that SMBG and insulin pumps fall into the category of “areas where we don’t think we can make a meaningful difference … That doesn’t mean it’s a bad business, and it doesn’t mean it can’t be successful, but perhaps it would not be a priority in our hands.” This positioning doesn’t sound very encouraging for the fate of LifeScan as a J&J company, since its counterpart Animas closed last year – e.g., LifeScan is in the slower growth SMBG market with less upside than automated insulin delivery. Indeed, though J&J has previously expressed commitment to diabetes, it sounds like it is mainly committed to profitable patients, which there are fewer of with LifeScan by the day as more profitable patients (those who use a higher number of strips) move to CGM. In October, an unexpected J&J press release seemed to indicate more commitment to LifeScan, emphasizing that the OneTouch Reveal mobile app is “central” piece of One Touch and the #1 downloaded diabetes app in three countries. On the other hand, that announcement may have been a move to bid up the value of LifeScan prior to a sale – and indeed, though Reveal is certainly central to One Touch, J&J’s moves to date imply that it does not want to stay in this business. We have thought for some time that having the business P&L part of Medical Devices but having the management in Consumer did not demonstrate major commitment from J&J overall.

On Animas, Ms. Peterson expressed that she was happy with patient transitions to “other providers in the marketplace,” and exiting was the right decision given the investments other pump manufacturers will continue to make. The use of plural “providers” was an easy way for J&J to imply it is helping patients more than it is; J&J designated Medtronic as the only alternative for patients and patients can only get old pumps, not the latest 670G (outside the US, of course, the 670G is not a choice for anyone as it is not yet approved – see above). They are also not able to get the latest sensors, and the older sensors compared to Dexcom have been quite trying to many patients. While Insulet and Tandem stepped up with their own upgrade programs, J&J didn’t present customers with an option to transition to multiple pumps as its Credo may have implied it would. Instead, Animas handed over the customer base to Medtronic (some have wondered if this would be a privacy problem), who then pursued an aggressive campaign (in our view) to move patients quickly onto the outdated MiniMed 630G. We would’ve found a pump-company-agnostic approach much more responsible and better for Animas’ ~90,000 customers. In line with the overall negative tone on the diabetes technology business, management didn’t mention the promising OneTouch Via bolus insulin delivery device, and Mr. Gorsky commented that diabetes is “still a space with a lot of unmet need” and that J&J will “continue to look for ways to contribute to diabetes,” though it has to be “differentiated” and “something we think will ultimately make a big difference for people with diabetes.” We hope that his many talented executives and team will be asked to contribute to this conversation since the ways in which J&J could address the unmet need are countless, which the right investments. We continue to hold out hope for One Touch Via, given the significant need for discreet and convenient insulin delivery – in the US alone, nearly 50% of people with diabetes are not in good control and fewer than 30% take insulin, and many of those only basal insulin.

• In his fireside chat with JPM’s Mr. Mike Weinstein, Mr. Gorsky had a number of interesting quotes on running a healthcare company and the general state of healthcare:
  
  • “Moving forward, we won’t necessarily consider ourselves healthcare/bio-pharmaceutical company, but a healthcare/bio-pharmaceutical/technology company. We’re using data to better understand the genome, biology, physiology; it’s informing minimally-invasive surgery, robotic surgery, even how we talk to consumers. Being digital, understanding how to use those tools, it’s hard to imagine a more exciting time.” We wonder if the right digital investment in LifeScan, including the WellDoc partnership, could help the brand return to growth – since it is divesting its technology businesses in diabetes since they are not profitable enough, becoming a “healthcare/bio-pharmaceutical/technology company” may be more challenging than it appears.
  • “How do you provide meaningful, value-add, data driven healthcare? It’s a challenge. I don’t think any of us in here should sit still for a moment thinking the pressures that payers and providers are going to experience have receded. They will only accelerate going forward.”
  • “Because of pressures, we should expect to see new players coming forward. Customers and providers coming together in unique ways. Everyone should be creating a crisis, then worry about how Amazon will disrupt our businesses. If we’re not, we run the risk of becoming too complacent. We should be driving that kind of change in a way that will ultimately help patients.”

Questions and Answers

Mr. David Kliff (The Diabetic Investor): I have a three-part question on diabetes. First, can you share a status update on the LifeScan divestiture? Second, can you explain the decision to shut Animas instead of sell? And then in light of these decisions, what are your future plans for Invokana?

Ms. Sandra Peterson (Group Worldwide Chair, J&J): I’ll speak to the decision around Animas. We decided the best thing for patients was to manage their transition to other providers in the marketplace, and we feel good about how we’ve handled that transition to other people in the industry. It was a decision we needed to make. It was the right thing for us to do given the kinds of investments others continue to make in that space. We’re still in the process of rolling this out, and we’re not ready to announce a decision on the rest of the portfolio. We’ll keep you posted as we move forward.

Mr. Alex Gorsky (CEO, J&J): Diabetes is still a space with a lot of unmet need. We’re trying to be more discerning: Where are the places in the portfolio where we should invest and can make a difference? Where are the areas where we don’t think we can make a meaningful difference? That doesn’t mean it’s a bad business, or that it can’t be successful, but perhaps it wouldn’t be a priority in our hands. SMBG is an example, as is the insulin pump business. Invokana – we still think it fills a very critical unmet need in diabetes treatment. That said, we had a label change in the past year, but we’ve continued to invest and we have other data showing clinical efficacy. We’ll continue to look for ways to make a difference in diabetes, but it’s got to be very highly differentiated.

Medtronic: Diabetes is “A Big Opportunity,” Double-Digit Growth Expected in FY19; Guardian Connect (US), 670G OUS, iPro 3 to Launch Between Now-April 2019

Omar Ishrak (Medtronic, Minneapolis, MN)

Medtronic CEO Omar Ishrak pointed to diabetes as one of two high-growth drivers for all of Medtronic (the other being emerging markets), maintaining 3Q17 expectations for double-digit diabetes growth in FY19 (May 2018-April 2019). This growth will be easier to achieve, of course, for Medtronic to achieve, coming off a disappointment FY18. Consistent with 3Q17, 2H FY18 diabetes growth is expected to accelerate, bringing “mid-to-high single digit” growth for all of FY18 (May 2017-April 2018) – this implies ~10% YOY growth in the current and upcoming quarter. This was the largest focus on diabetes growth we’ve ever seen in a Medtronic-wide JPM presentation, allaying investor concerns about very challenging performance in the first half of FY18 (see slide below) – that challenging performance is enabling more success in FY19 as the comparison is not as challenging. Notably, the diabetes pipeline timing was far less specific than that shared in the 3Q17 call. Three launches are now positioned for “FY18/FY19”: the Guardian Connect standalone mobile CGM+Sugar.IQ app in the US, the MiniMed 670G outside the US, and the iPro 3 outside the US. “FY18/FY19” means anytime between now and April 2019, a very wide window. That said, Medtronic could still be on track with the more specific 3Q17 timing, which expected Guardian Connect/Sugar.IQ (US) and 670G (OUS) to launch by this April (FY18), and then iPro 3 to follow by April 2019 (FY19). Of course, the broader timing shared today also leaves more leeway, and could imply 670G (OUS) or Guardian Connect (US) have slipped beyond the launch-by-April 2018 plan shared in November. Regarding the CGM sensor manufacturing constraints, Mr. Ishrak noted “incredibly strong demand” for the 670G, and though Medtronic has been “struggling” to keep up with manufacturing sensors, the team is “on the cusp of turning that around.” From our view, it is difficult to know whether higher-than-expected sensor demand is the only challenge or whether other manufacturing issues beyond demand are resulting in lower than expected yield. He confirmed that in F4Q18 (February-April 2018), sensor manufacturing “will not be supply constrained” (in line with 3Q17 comments). In Q&A, CFO Karen Parkhill mentioned that Medtronic is already seeing some revenue benefit from the Animas exit, with more expected over time. This does not surprise us, as Medtronic is the preferred partner and has been aggressive in email and phone communication with Animas users – we continue to believe this was quite poor decision-making in terms of helping patients since patients cannot access the 670G and should have at least information about other products enabled by J&J and Medtronic in our view, particularly since the average patient who chose Animas in the first place likely considered and rejected Medtronic to begin with. As he has in the past, Mr. Ishrak characterized the MiniMed 670G a “revolutionary” product that is “way ahead of the competition.” He clarified in Q&A that the team is “very confident” diabetes is going to make a “big difference” for the company’s accelerated growth in 2H FY18 – a notable statement, as diabetes is still only ~6%-7% of Medtronic’s total company-wide revenue. Can Medtronic deliver on the expectations? Growing on a lower-than-expected FY18 base will help.

• Medtronic remains disappointingly quiet about its next-gen pipeline. A section labeled “beyond” (i.e., after April 2019) mentioned five products: a redesigned next-gen sensor (a flat square-patch design), the Mio Advance all-in-one-set (which Unomedical showed at ATTD 2017), Sugar.IQ’s glucose prediction feature, next-gen CareLink, and advanced closed loop algorithms/new insulin delivery system. We’d guess Mio Advance, Sugar.IQ glucose prediction, and next-gen CareLink are the closest to market. One thing is clear, however: Medtronic is going to continue playing catchup on the CGM front – behind Abbott’s FreeStyle Libre and Dexcom’s G5/G6. Depending on when it gets a next-gen closed-loop out, however, it could be launching its advanced system right as others are coming to market (e.g., Tandem, Insulet, Bigfoot).

• In Q&A, one analyst wondered how Medtronic will compete with Abbott and Dexcom in the standalone US CGM market. Mr. Ishrak had two answers: a “competitive” product and “strong relationships with payers.” It will be fascinating to see how Medtronic does with Guardian Connect, once it is approved in the US and launched. On a feature-by-feature basis, it will be at parity or lag behind Abbott and Dexcom on most meaningful parameters – fingerstick calibration, sensor wear time, Android/Apple iOS/watch compatibility, on-body form factor, transmitter, ease of insertion, etc. However, the paired Sugar.IQ could be a differentiator, as could Medtronic’s payer relationships. Medtronic is still learning how to be a CGM company (e.g., manufacturing delays), so execution will need to be strong and success in the competitive US market is not a given.

 Diabetes-Related Q&A

Mike Weinstein (JP Morgan): Your reiterated guidance implies an acceleration in the back half of the fiscal year … Everybody sees the diabetes business is going to turn. How do you think about accelerating the company’s growth to 4-6%?

Mr. Ishrak: We’re very confident diabetes is going to make a big difference. [As a company], we saw acceleration in Q2, quite a bit over Q1. Some of that is from acquisitions. For instance, Heartware was inorganic, now it’s organic – we’re growing that business. We’ve had some real successes in the last year in new product introductions, which are only beginning to get traction.

Mr. Weinstein: If there is a business that we have the toughest time forecasting, it is diabetes. It’s hard to forecast what played out in the last few quarters, since we can’t see what’s going on inside the upgrade program, which caused some issues. Where are you on working down the upgrade program, especially since new patients means new pump sales? And how do you think about double digit growth in diabetes? I think diabetes is going to be well in double digits in that April quarter.

Mr. Ishrak: It will be well into the double digits. Exactly what we cannot say. But you’re right. We have all those priority access programs, but now it’s a more stable environment. There are fewer unknowns. We have demand, but we have been unable to supply it. But we’re not searching for demand. We’re ramping up manufacturing. By Q4, we will not be supply constrained. [Editor’s note – Medtronic will benefit from “upgrades” from J&J customers – they are giving them only basic products and will primarily benefit from having them in the system when they are ready to upsell them.]

Q: Over the last six months, J&J (Animas) has gotten out of the business. Can you talk about the transition program for those pump patients? You’ve tried to make it as easy as possible. When will you start to get some real revenue benefit and uptick from the installed base?

Karen Parkill (CFO): We’re already starting to see some of that benefit, and we’ll see more over time.

Q: In the CGM standalone market [in the US], Dexcom and Abbott Libre are ahead of you. How are you going to compete?

Mr. Ishrak: How do you compete? Products that are competitive or with features that are superior. And then relationships with patients and the paying entity. We have strong relationships with payers, and we can enter into many different arrangements. We’ll leverage that. We have a broad footprint in the US and we’ll leverage that. In the center, we have a competitive product. That together with added management tools, like Sugar.IQ, is a position we can work from.

PillTracker: Smart Blister Pack + Cellular Device for Tracking Medication Adherence; Co-Founded by Former Telcare CEO Dr. Jonathan Javitt

Jonathan Javitt, MD (PillTracker, Tel Aviv, Israel); Zachary Javitt (PillTracker, Tel Aviv, Israel)

At Biotech Showcase today, we enjoyed a brief pitch from PillTracker, an adherence tech startup co-founded by former Telcare CEO Dr. Jonathan Javitt and CEO Zachary Javitt (possibly his son, but we’re not sure). The approach uses a blister pack that slides into a dedicated cellular-enabled device – the electronic component looks similar to a first-gen iPhone. When a pill is taken out of the blister pack, the device logs the dose and send the information automatically to the cloud via cellular – similar to the Telcare BGM and without requiring Wi-Fi or Bluetooth. The device can also do fingerprint scanning and facial recognition. The cellular device reportedly costs <$120, and Mr. Javitt said it comes out to 1-5 cents per pill for pharma to deploy; the durable cost seems quite expensive, but perhaps feasible for the high-stakes pharma clinical trial setting. The initial focus is indeed on trials, but commercial availability is also a goal. Mr. Javitt emphasized that the approach doesn’t come with the manufacturing hassles that other adherence tech might require (e.g., Proteus) – the competitive landscape below was an interesting way to plot the field (Cost vs. pharma manufacturing integration), and we’d note how packed this landscape seems to be. Will any of these pill tracking products gain traction? According to PillTracker’s regulatory consultants, the cellular-enabled device and blister pack is class I, 510(k) exempt, which makes sense since no medication titration is happening. The company currently has a proof of concept device using only commercially available components, and a beta version will launch in March. The first clinical trials will occur this year with its partner, Target Health. PillTracker’s funding to date has been just $1.3 million (angel + R&D grants), and the team now aims to raise $2.5-$3.5 million to move the product ahead.

• A 2x2 competitive slide below (cost vs. pharma manufacturing compatibility) showed six other companies: Proteus (ingestible, pill-embedded sensor; now FDA approved embedded into Otsuka’s Abilify), etectRx (an ingestible sensor encapsulated with pills), DOSENTRX (touchscreen device with pills inside), TimerCap (pill bottle top with a digital timer, similar to original Timesulin), AdhereTech (smart wireless pill bottles), and cerepak (smart blister pack). This slide is obviously subjective and not completely comprehensive – e.g., related adherence solutions like PillDrill (smart vial scanned over a hub to log dose information), Pillo (home healthcare robot with medication dispensing), Vitality GlowCap (smart cap and bottle), Clever Cap (Smart pill bottle cap), and PillPack (non-digital packaging solution) are not listed. Still, it is great to see many startups working on better medication adherence – we hope to see multiple companies crack this enormous problem.

Roche: “Definitely Committed” to Diabetes, BGM, CGM, Closed Loop, and mySugr-Based Ecosystem; GE partnership for Clinical Decision Support – Diabetes Application?

Ronald Diggelmann (Roche Diagnostics, Basel, Switzerland)

Roche Diagnostics head Mr. Roland Diggelmann didn’t give any additional detail on the company’s Diabetes Care vision, but shared confidence in BGM, CGM, closed loop, and especially the mySugr-enabled ecosystem: “We are very well positioned in the strip business – that’s still the majority of the business. There are a lot of patients that will continue to be diabetic. There are 450 million [sic] today, and that number is expected to increase by 100 million over next 10-20 years. It’s a strong business to be present there, and it’s our responsibility to patients. At the same time, there is a shift to CGM – we’re investing, we have partnerships, distribution agreements, and of course building closed loop. But when you really look at diabetes management, it’ll come down to individual patients managing their diabetes through digital tools – we acquired mySugr last year, which allows patients to manage their status, interact with providers, caretakers. We’re looking at it as an ecosystem, and we’re definitely committed to that business.” We were hoping to hear more in the way of long-term vision – i.e. what the platform and business model will look like, who the primary customers will be, compatibility with non-Roche devices, timing, how the standard BGM/strip business will fit into the ecosystem – but we’re glad to hear management committed to diabetes and digital approaches. Notably, we learned from Frank Westermann (see below) that mySugr’s bundle – unlimited Roche strips + mySugr app + coaching – has “significant traction” with payers in Germany and mySugr expects to sign the first US payers in the first half of 2018. This is great momentum and would be a real win following the direct-to-consumer US launch last year. It will be interesting to watch how Roche and mySugr coexist, especially the extent to which Roche will add value and continue to innovate. Can Roche drive interoperability – e.g., will it apply for JDRF’s Open Protocol Initiative? Value-add through the nascent data ecosystem (connectivity, coaching, insulin titration, provider decision support) is a clear opportunity to differentiate and move toward population health management. Can Roche drive R&D in a meaningful way to create some truly great hardware and software experiences?

• mySugr CEO Frank Westermann shared the following with us: “We see a tectonic shift in how patients, payers and the industry think about diabetes management. mySugr becoming part of the Roche family is a great example of that. We continue to focus our efforts on creating an experience which “sucks less” for patients to manage their diabetes. The mySugr bundle includes therapy management through coaches, unlimited test strips, automated data tracking, and seamless integration with a growing number of medical devices. It has significant traction with payers in Germany, is sold directly to consumers in the US and we expect to sign the first US payers in the first half of 2018. As an open platform, we invite other partners to join us and help improve our product by adding more integrated devices and services.”
• On a separate note, Roche announced that it has partnered with GE to develop an “integrated digital diagnostics platform” – jointly-branded clinical decision support software. The platform will aggregate in-vivo data from GE’s medical imaging and monitoring imaging equipment, plus in-vitro data from Roche’s diagnostic/genomics portfolio. At this stage, the long-term partnership will focus on oncology and critical care treatment, through clinical decision support software and apps, though this investment is a signal that Roche could consider something similar in diabetes. We could imagine IBM Watson or Verily as potential partners here. More companies in diabetes are realizing the immense opportunity in decision support – both for patients and providers – though we aren’t aware of any gamechanging diabetes provider-facing tools being developed at Roche.

Sanofi: First Onduo Revenue Expected in “2018 and beyond”; “Very important” for Diabetes franchise in the US

Olivier Brandicourt (Sanofi, Paris, France)

Sanofi CEO Mr. Olivier Brandicourt remarked during the breakout that the first revenue from Onduo is expected this year – this is the first sales commentary we’ve heard on the joint venture with Verily. We imagine the revenue could come from the 1Q18 pilot with Blue Cross Blue Shield (announced in November 2017), the early 2018 pilot using Telcare, Voluntis, and Glytec (also announced in November 2017), and perhaps others like it. Will revenue come from generating positive outcomes/savings for payers? Sanofi/Verily announced their initial $500 million investment in Onduo back in September 2016, and the ~two-year turnaround time to generate revenue is fairly fast, given the goal to build a platform that curates a lot of products and drives digital health into type 2 diabetes. There’s no guarantee that early revenue will be high (we’d be surprised if it was since pilots are early and revenue is presumably split with Verily), but Mr. Brandicourt did state that “Onduo is going to be a very important support for our diabetes franchise in the US,” showing distinct confidence in the longer-term plan. These remarks lead us to wonder what the relationship between Sanofi’s core diabetes drug business and Onduo looks like…will Onduo support Sanofi’s US business (i.e., direct patients to Sanofi medications, exclusively, to boost sales) or take a more molecule-agnostic and digital approach that augments revenue? Presumably if Onduo can generate positive savings and outcomes, it will be paid regardless of what products it uses. It’s great to see this news come across, implying Onduo has big visibility at the very top of Sanofi.

Teladoc: Diabetes is Not a Priority

Jason Gorevic (Teladoc, Purchase, NY)

Teladoc CEO Mr. Jason Gorevic indicated that diabetes is not a current priority for the company. Instead, he highlighted increased focus on and commitment to dermatology and STI/HIV testing. Mr. Gorevic did not specify whether diabetes has been deprioritized for now, the near-term, or for a longer-term. There’s no way around it – this is discouraging news – especially considering a previous S-1 filing by Teladoc (in 2015) suggested plans to expand on the diabetes front. Telehealth has largely focused on acute diagnosis and treatment, as it arguably lends itself better to as-needed interactions, but we’ve also seen the technology applied successfully to ongoing interactions (e.g. counseling). The potential impact to be had in diabetes is immense, and we’d love to see Teladoc leverage its resources and expertise in telehealth (the company controls 75% of the market) toward both diabetes and obesity to improve patient engagement and lower long-term costs. Teladoc has increased its revenue by 74% since 2014 and worked to expand its footprint to include 35+ health plans, 200+ hospitals and health systems, and a wide range of global financial services, giving the company significant access to patients who could benefit from diabetes-focused treatment. We of course understand the additional challenge of providing remote, chronic care vs. a one-time or shorter-term treatment plan, but we’d love to see companies double down on efforts into figuring out telehealth solutions that work for diabetes rather than focusing telehealth elsewhere. After all, lower-cost remote care that helps patients with diabetes could be very high reward, helping a high number of people (given the size of the epidemic, and the concentration of the disease in low-income, harder-to-reach areas), and making a more meaningful dent in terms of cost-savings.

Welkin Health: Partners with Roche to Enable Diabetes Coaching Services

Chase Hensel (Welkin Health, San Francisco, CA)

Welkin Health CEO Mr. Chase Hensel shared that his company’s patient services/case management platform touches over 200,000+ lives, has 1,300+ field and contact center users, and 18 enterprise customers – one of those is Roche, who is using reportedly using a Welkin platform to enable diabetes coaching services. We were aware of the Welkin-Common Sensing partnership, but the Roche arrangement is news to us, and provides a window into Roche’s potential coaching/remote care plans for diabetes (note: it is unclear if the platform is live at this point). Roche has discussed at length its “integrated diabetes ecosystem” in recent months (recently on the 3Q17 call), and despite a stated interest in prevention programs, early diagnosis, decision support, and value-based payment models, we haven’t heard much on how it plans to make this happen. It has the backbone in its BGM business, pumps (outside of the US), CGM (Senseonics Eversense, once it ramps), and mySugr, but how will it tie this all together, support users, and show outcomes? Based on Mr. Welkin’s diabetes-based demo, the answer might be Welkin. In the demo, he explained that the platform centralizes all data, overlays “if-then” rules on top to provide actionable steps for healthcare providers/staff, compiles and facilitates communications (phone, SMS, video, fax, etc.), and augments business intelligence. In the inbox of a given provider – which we’re picturing a Roche in-house educator/coach – rules can be customized, e.g., a dashboard could contain stratified lists of inactive patients (those who should be re-engaged), hypoglycemia alerts, scheduled calls, and people who were recently active. From there, a coach can click on a profile, see food and glucose logs, initiate communication with a patient, send educational materials, schedule future calls, etc. This feature set makes a lot of sense for Roche’s vision, and for any company moving toward outcomes by leveraging human coaches and technology.

• In a Bay Area pilot with community-based clinics focused on addressing social determinants of health, Welkin was very popular in a survey: 79% of provider users said Welkin makes their jobs easier, 79% said Welkin improves the quality of their work, and 89% said Welkin is easy to use. Over the pilot’s duration, 700 patients received an intervention across 10 sites, and 60% of eligible patients received ≥0ne phone call from a community health worker to coordinate care.

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WellDoc: WellDoc & Voluntis to Integrate; 1Q18 Samsung BlueStar C launch; WellDoc Enters in India in 2017, Funded by World Bank; Expanding into T1, Hypertension, COPD, CHF in 2018

Kevin McRaith (WellDoc, Columbia, MD)

WellDoc CEO Mr. Kevin McRaith provided a slew of updates concerning the type 2 diabetes management software, BlueStar: Most notably, (i) A commercial agreement with insulin dose titration provider Voluntis (announced this morning); (ii) a 1Q18 Consumer BlueStar C launch on US Samsung phones through Samsung Health; and (iii) a launch last year in India with Max Healthcare funded by a grant from the World Bank. The combining of Voluntis’ basal insulin titration technology with WellDoc’s platform is great to see – the two companies plan to approach health systems and health plans as soon as late 1Q18, though rollout will be phased. We’re not sure what the integration will look like, but it seems most logical to incorporate Voluntis’ dose titration algorithms directly into BlueStar Rx. BlueStar Rx already has a bolus calculator to complement Voluntis’ FDA-cleared basal insulin titration – the other versions of BlueStar do not require a prescription and seem unlikely to incorporate basal titration. The addition of Voluntis’ Insulia software promises to boost outcomes from use of BlueStar, which has already shown meaningful A1c impact in several publications and posters. Voluntis, who establishes it’s fifth publicly-disclosed partner (in addition to Livongo, Ascensia, Sanofi, and Onduo), adds another revenue channel. We wonder if non-compete clauses or other factors prevented WellDoc from going with Amalgam Rx, whose founders, Mr. Ryan Sysko and Dr. Suzanne Clough, are former WellDoc executives.

• We are excited to hear that a consumer-facing launch with Samsung is within sight (this quarter), since the longstanding relationship began in 2014 and the integration agreement was announced April 2017. Per the agreement, BlueStar C – the non-regulated consumer version of the BlueStar app for type 2 diabetes – will be integrated with Samsung Health and Samsung gear (e.g., smart watches, fitness trackers). Last we heard, a price had not been set for the integrated offering – Samsung Health is a free app, so we could envision a “freemium” model, whereby people download the app and then pay a monthly subscription cost for BlueStar C. Alternatively, we wonder if payers would pay for certain members to have the app. The opportunity here is big, as Samsung was the market leader in smartphones shipped in the first three quarters of 2017, capturing 20%+ of the market in each (83.3M units shipped in 3Q17 alone). Samsung also has a partnership with Medtronic, but we’ve not heard an update on it since MiniMed Connect Android came out a while ago. We hope the WellDoc Samsung app gets a lot of play, especially in prevention and prediabetes!
• BlueStar has been in the US and Canada for some time, entered India in 2017 with Max Healthcare (funded by a World Bank grant!!), and is looking to expand with partners in 2018. India represents another huge potential market opportunity for WellDoc, as >60 million are expected to develop diabetes in the next >30 years. It is impressive that the World Bank enabled this maneuver, both because we assume WellDoc survived a rigorous application process, and because it shows a strong interest in diabetes from the Group, which focuses on “international development, poverty, and sustainability.”
  
  • In other partner news, Mr. McRaith said the LifeScan partnership is progressing despite potential that J&J will sell the business. This makes sense for LifeScan, as the WellDoc partnership is a valuable asset, and for WellDoc, Verio Flex BGM sales will likely continue if the LifeScan business is sold to someone. The other big partner update is that Solera (a DPP curator, of sorts) will feature WellDoc (curiously, not a DPP, showing Solera is branching out). Human API and AADE were also listed as WellDoc partners.
• Mr. McRaith presented engagement data from two short pilots of BlueStar – one in India, and the other in Medicare patients. In the 10-week India pilot (n=117; average age 52 years-old), people engaged on average 13 times per week (nearly two times per day). 56% of engagements were via mobile, and 44% were web-based. Notably, there were two-times more food entries recorded per week than the next top item logged, blood glucose. In the eight-week Medicare pilot (n=162; average age 72 years-old), patients engaged 21 times per week (three times per day) – Mr. McRaith emphasized that 65% of users were primarily using the web interface of BlueStar and that elderly people are not necessarily tech averse, as many believe. (Something Omada has also emphasized in its work.) While WellDoc management says that engagement is one metric that payers care about, we are reminded of Onduo CEO Dr. Josh Riff’s catchy quote from last March: “Engagement is for Angry Birds; outcomes are for healthcare companies.” This is also a soapbox issue for Livongo’s Glen Tullman, who consistently argues that patients want to be less engaged and spend less time on their diabetes. WellDoc has previously demonstrated outcomes in both controlled studies and the real-world setting, which will need to be married to strong, sustained engagement that doesn’t rely on too much manual entry.
• Last year, WellDoc published a paper in JMIR Research Protocols detailing the best practices for creating digital therapeutics to treat chronic disease; today, Mr. McRaith announced that the company would be expanding into type 1 diabetes, hypertension, COPD, and congestive heart failure (CHF) in 2018. Because the framework is already established, Mr. McRaith called the move “more of a content and regulatory play,” implying that the general formula will be essentially true to that of the type 2 app. We’re of course most intrigued by the move into type 1 – we imagine this could resemble aspects of what others are aiming to do (e.g., mySugr, Glooko, Livongo, One Drop) with logging, bolus calculation, basal insulin titration courtesy of Voluntis, and gamification. It would also make sense – since type 2 diabetes is so highly comorbid with hypertension, CHF, and poor COPD outcomes – for WellDoc to allow patients/HCPs to select the conditions they have, and tailor the intervention accordingly.
• Management is proud of the recent health economics analysis it published with Truven Health Analytics (an arm of IBM Watson Health), and shared that a jointly-authored white paper will be coming at some point this quarter. This partnership has the potential to yield reimbursement- and uptake-promoting data cuts.  
• The newfound Medicare reimbursement for remote patient monitoring is a “sweet spot” for WellDoc – providers can now be paid for reviewing the BlueStar SMART Visit Report. This is a big win for WellDoc as it looks to drive HCP adoption.

Diabetes & Obesity Pharma Companies

AbbVie: Silent on Nephropathy Candidate Atrasentan; Phase 3 SONAR Trial Expected to Complete in April 2020

Richard Gonzalez (AbbVie, Chicago, IL)

AbbVie CEO Mr. Richard Gonzalez made no comment on phase 3 atrasentan for diabetic nephropathy, which has become par for the course on the pharma giant’s earnings calls. The phase 3 SONAR study for atrasentan was initiated in March 2013, and recruitment was notably slow, likely due to the trial’s unique enrollment criterial: All participants receive atrasentan for six weeks to exclude non-responders prior to randomization. According to ClinicalTrials.gov, recruitment is now closed and SONAR is expected to complete in April 2020. Atrasentan was once the most advanced candidate in the diabetes-related nephropathy competitive landscape, but SONAR is now behind the DERIVE trial for AZ’s SGLT-2 inhibitor Farxiga (completed November 2017), the CREDENCE trial for J&J’s SGLT-2 inhibitor Invokana (expected to complete in June 2019), a phase 3 study of allopurinol (also expected to complete in June 2019), and phase 3 trials of Bayer’s finerenone expected to complete in October 2019 and February 2020. We hope AbbVie’s silence on atrasentan doesn’t indicate a lack of commitment. We won’t read too much into it, as we understand the company has a broad portfolio to discuss on earnings calls and at JPM, and we think management may likely have no news to offer as the trial progresses. That said, diabetes-related nephropathy is an area of particularly serious unmet need, and we’re eager to see forward progress from AbbVie/atrasentan. Of note, SGLT-2 inhibitors also hold promise in this area and could be the most imminent advance in nephropathy treatment since they’re already on the market for type 2 diabetes. To this end, AZ has also launched a study of Farxiga in patients with chronic kidney disease (CKD) with or without diabetes (expected to complete November 2020), and Lilly/BI will launch a similar CKD outcomes trial for Jardiance in 2018.

• Although management expressed interest in NASH on AbbVie’s 1Q17 earnings call, we’ve yet to see a formal foray into this robust competitive landscape. In other words, no NASH candidates have been officially added to the company’s pipeline. We hope AbbVie is continuing to evaluate possible candidates, and we understand that identifying a promising and differentiated drug target doesn’t happen overnight (or even over a few financial quarters).

Allergan: Confidence in Candidates to Treat NASH and Diabetes-Related Gastroparesis

Brent Saunders (Allergan, Campbell, CA)

Allergan CEO Mr. Brent Saunders highlighted several pipeline opportunities pertaining to metabolic disease. The company plans to advance ghrelin agonist relamorelin (acquired in October 2016 from Motus, a subsidiary of Rhythm) into phase 3 for diabetes-related gastroparesis, an often overlooked complication (even well-trained endocrinologists aren’t always aware), with debilitating symptoms and an unfortunate lack of current therapy options. In addition, Mr. Saunders discussed Allergan’s NASH pipeline, headlined by Novartis-partnered cenicriviroc (CVC). Allergan/Novartis launched the phase 3 AURORA trial comparing CVC vs. placebo in April 2017 (expected to complete July 2024) and the candidate has been generating a great deal of buzz among NASH thought leaders – most recently, it was called a “trailblazer” at the recent NASH Summit Europe. Through this partnership, Novartis will also investigate combination therapy for NASH with CVC and one of its FXR agonists in development. Allergan’s pipeline includes several FXR agonists gained in the acquisition of Akarna Therapeutics in September 2016; phase 2 AKN-0831 is the most advanced of these. Allergan’s significant investment in these areas of very high unmet need – both gastroparesis and NASH – is certainly noteworthy.

Amgen: New CV Label Update for Repatha, Continuing Focus on Payer Negotiations to Improve Accessibility

Bob Bradway (Amgen, Thousand Oaks, CA)

Amgen CEO Mr. Bob Bradway touted Repatha’s recent label update for the prevention of CV events, reiterating that this should bolster the company’s ongoing efforts to improve reimbursement for the PCSK9 inhibitor (evolocumab). The FDA expanded Repatha’s label to include the prevention of heart attack, stroke, and coronary revascularization in early December 2017, on the basis of the FOURIER trial, in which Repatha reduced risk for the composite primary endpoint (CV death, non-fatal MI, non-fatal stroke, hospitalization for unstable angina, or coronary revascularization) by 15% (p<0.0001 vs. placebo) and for the key secondary endpoint of three-point MACE (CV death, non-fatal MI, or non-fatal stroke) by 20% (p<0.00001). Access remains the defining hurdle for Repatha and the PCSK9 inhibitor class as a whole, with poor reimbursement translating to low prescription volume. Mr. Bradway expressed hope that this label update – the first indication of its kind for a PCSK9 inhibitor – will improve the product’s value proposition in payers’ eyes since it shows Repatha’s benefit on concrete, costly outcomes like heart attack, stroke, and ensuing hospitalizations. Negotiating with payers to improve Repatha reimbursement is a much-discussed “top priority” for Amgen, so the company’s intention to leverage this new CV indication in these efforts comes as no surprise. When pressed during the breakout session about the progress of these payer negotiations, Mr. Bradway cited that the utilization management criteria for insurers under CVS Health have fallen from 45 questions down to 12 (in effect, providers have to jump through 33 fewer hoops to get Repatha covered for their patients). The ODYSSEY Outcomes trial for Sanofi/Regeneron’s Praluent (alirocumab), the only other PCSK9 inhibitor on the market, is expected to read out by the end of 1Q18, and positive results here could be another key piece of leverage in these payer negotiations, underscoring compelling cardioprotective benefits for the class as a whole.

• As has been the trend among pharma CEOs, Mr. Bradway expressed enthusiasm for recent US tax overhaul, characterizing the corporate tax cuts as “appropriate, and in fact, overdue.” In the breakout session, Amgen management cited this as a major boon for R&D but provided no specifics on how exactly this extra cash will be allocated among the company’s development programs. We expect to learn more about this during 4Q17/full-year 2017 earnings season, and we hope this cash influx will be invested where it makes impact for patients.

Questions and Answers

Q: What are your expectations on Repatha post-label update? Where are you now in your conversations with payers relative to when the CVOT data first came out?

Mr. Tony Hooper (EVP of Global Commercial Operations, Amgen): We spent 15-20 years changing clinical practice to bring statins to the market, bending the curve on CV disease. We’ve maxed out the ability to change the course of that disease with statins, but Repatha on top of statins produces dramatic improvements, as we saw in FOURIER. All 2018 contracts with payers are signed. With CVS Health, our utilization management criteria are down to 12 questions from 45, so things are moving in the right direction. We continue to work on this and are also working aggressively to get the message out to cardiologists. We held 213 speaker programs in between the label update (December 1) and Christmas, which must be a record! We’re looking forward to continued progress in 2018.

Q: How does the pending ODYSSEY data for Praluent affect your outlook?

Mr. Bob Bradway (CEO, Amgen): It would be good for the class and not to mention good for medical practice and standard of care to see a result from Sanofi/Regeneron that’s consistent with ours.

Arena: Continues to De-Emphasize Obesity Drug Belviq in Business “Reset”

Amit Munshi (Arena, San Diego, CA)

Arena CEO Mr. Amit Munshi did not mention Belviq (lorcaserin) during the company’s JPM presentation, reinforcing a continued trend of de-prioritization for the Eisai-partnered obesity drug. Mr. Munshi joined the Arena management team as CEO in May 2016, and he described “resetting and restructuring the business” as his top priority over the past 18 months. At JPM 2017, Mr. Munshi specifically defined this reset in terms of divestment from the “cost burdens” of Arena’s obesity franchise. This strategy dates back to 2Q16, when Arena released a statement outlining a shift in operating costs in order to allocate greater resources toward the development of non-obesity pipeline products (namely, phase 3 relinepag for pulmonary arterial hypertension and phase 2 etrasimod for ulcerative colitis). Arena’s decision to de-emphasize Belviq, though disappointing, doesn’t come entirely as a surprise given the steep challenges in the obesity market, including under-diagnosis, under-treatment, and poor reimbursement. Due to these forces, and presumably a lack of active Belviq marketing, Arena’s share of quarterly sales for this product have fallen almost consistently since 1Q16. Most recently, Arena’s recorded Belviq revenue declined 6% YOY in 3Q17, 51% YOY in 2Q17, and 23% YOY in 1Q17. Belviq currently trails the obesity market as a whole, capturing only 6% of the $139 million market in 3Q17, neck-and-neck with Vivus’ Qsymia (7%) and substantially behind Orexigen’s Contrave (14%) the Novo Nordisk’s Saxenda (73%, the clear frontrunner, although volume actually lags behind Contrave). Given Arena’s lack of emphasis on Belviq, we doubt the drug will make a substantial comeback, which is an unfortunate loss for the many people with obesity who could benefit. On the other hand, major diabetes companies are starting to invest more in obesity, which seems promising – see our coverage of Sanofi’s and Lilly’s JPM presentations from day #2.

Astellas: Mitochondria Research Platform Could Lead to New Treatments for Diabetes, Obesity, NASH; No Update on Type 1 Partnership Kanyos Bio

Yoshihiko Hatanaka (Astellas, Tokyo, Japan)

Astellas CEO Mr. Yoshihiko Hatanaka emphasized mitochondria research as a major focus for future pipeline expansion. Astellas’ mitochondria research platform holds potential to improve various health conditions, including NASH, diabetes, and obesity (among dozens of others). Mr. Hatanaka also highlighted the company’s commitment to the advancement of regenerative medicine, evident in its exclusive license agreement to research and generate new cell therapies in partnership with Universal Cells – we’re curious about potential implications in type 1 diabetes. We heard no update on Kanyos Bio – the company Astellas formed with Anokion to create immune tolerance treatments for type 1 diabetes and celiac disease – or Astellas’ SGLT-2 inhibitor Suglat (ipragliflozin).

Bayer: Mr. Dieter Weinand on Eylea & Glucobay as Staples of the Pharmaceutical Business

Dieter Weinand (Bayer, Leverkusen, Germany)

In a packed fireside chat-style session, Bayer’s Head of Pharmaceuticals Mr. Dieter Weinand briefly touched on the company’s staple diabetes products, Glucobay (alpha-glucosidase inhibitor acarbose) and Eylea (intravitreal aflibercept), marketed by the company ex-US. Both drugs have shown solid growth recently, and make up a solid chunk of Bayer’s overall pharmaceutical business. Eylea is the company’s second best-selling drug, and that’s only OUS sales (Regeneron markets Eylea in the US). Mr. Weinand estimated that one-third of Bayer’s global revenue comes from emerging markets, with growth driven by products including Glucobay (especially in China, the leading market for acarbose), though he predicted a shift toward more innovative products, especially as China reforms its regulatory processes. JPM’s Mr. Richard Vosser pointed out that Eylea is driving significant margin expansion within Bayer’s pharmaceutical business while the company is also increasing R&D from a higher base. Bayer’s pipeline includes phase 3 finerenone, a mineralocorticoid receptor antagonist for diabetes-related nephropathy, as well as a phase 2 Regeneron-partnered co-formulation of Eylea with anti-angiopoietin2 antibody nesvacumab for DME (diabetic macular edema).

Conatus: Four Phase 2 Readouts for NASH Candidate Emricasan Expected in 2018 & 2019; Clinical Program Enrolls Widespread Patient Population across Multiple Stages of Liver Disease

Steve Mento, PhD (Conatus, San Diego, CA); Keith Marshall, PhD (Conatus, San Diego, CA)

At the Biotech Showcase, the Conatus management team – CEO Dr. Steve Mento and CFO/COO Dr. Keith Marshall – discussed emricasan, a Novartis-partnered potential first-in-class oral pan-caspase inhibitor for NASH. Drs. Mento and Marshall announced that Conatus expects four phase 2 readouts for emricasan in the next two years, marking 2018 and 2019 as a pivotal time for the company. These ongoing phase 2 trials are differentiated by the NASH patient population they enroll, as outlined below:

	Patient Population	N	Results Expected
POLT-HCV-SVR	People with liver fibrosis or cirrhosis following liver transplantation for Hepatitis C	60	2Q18
ENCORE-PH	NASH cirrhosis with severe portal hypertension	240	2H18
ENCORE-NF	NASH fibrosis stage 1-3	330	1H19
ENCORE-LF	NASH cirrhosis with impaired liver function	210	2H19

• A major theme in NASH drug development is the difficulty of anticipating regulatory behavior, given that no approved therapies currently exist on the market for this disease. One aspect of this uncertainty is the question of what constitutes a “treatable” NASH patient and which stage of this progressive disease represents the best opportunity for intervention. Given this, we see it as a smart strategic move on Conatus’ part to collect data on emricasan in such a wide spectrum of NASH patients. Indeed, the management team highlighted this as a “key differentiator” for emricasan, especially in the context of a robust NASH competitive landscape. Notably, Conatus is the only company collecting data on a NASH candidate in people with cirrhosis, the most advanced stage of NASH, and emricasan boasts FDA Fast Track designation for NASH cirrhosis with severe portal hypertension (the patient population in the ENCORE-PH trial).

Gilead: Shines a Light on NASH Pipeline – Three Candidates Spanning Three Different Drug Classes

John Milligan, PhD (Gilead, Foster City, CA)

Gilead CEO Dr. John Milligan positioned liver disease as one of the most promising areas for future growth in the company’s broad pharmaceutical pipeline, which includes three NASH candidates. He called particular attention to the recent readout of positive phase 2 results for ACC inhibitor GS-0976. This 12-week study (n=126) investigated two doses (5 mg and 20 mg) of GS-0976 and was the first RCT of an ACC inhibitor in NASH patients with fibrosis stages F1-F3 (a less advanced form of NASH). The higher dose of GS-0976 (a once-daily oral formulation) was associated with significant reductions in hepatic steatosis (fat buildup, as measured by MRI) and a noninvasive marker of fibrosis (TIMP-1) vs. placebo. Other measures of liver stiffness and markers of fibrogenesis were not significantly improved. Dr. Milligan also highlighted the ongoing phase 3 STELLAR program for the company’s leading NASH candidate, ASK-1 inhibitor selonsertib. STELLAR 3 (n=~800, expected to complete October 2023) will study the candidate in people with NASH and F3 bridging fibrosis while STELLAR 4 (n=~800, expected to complete October 2023) will enroll patients with more severe F4 cirrhosis of the liver due to NASH. Dr. Milligan additionally highlighted the company’s FXR agonist GS-9674, currently in phase 2 development with a study expected to complete this month, though we’ll have to wait until later in 1H18 for the full data readout. Overall, we remain impressed by Gilead’s investment in NASH. With three promising drug candidates spanning three separate drug classes (ACC inhibitor, ASK-1 inhibitor, and FXR agonist), Gilead is well-position to investigate unique combination therapy approaches with two or even all three of these agents. This is certainly an area for NASH enthusiasts to keep an eye on. See our NASH competitive landscape for a complete overview.

GSK: CEO Ms. Emma Walmsley Shares Her Take on Diversity in the Pharmaceutical Industry

Emma Walmsley (GSK, Brentford, UK)

While GSK has moved on from GLP-1 agonist Tanzeum (albiglutide), discontinued last year in an overall restructuring, and while the company’s commitment to and interest in diabetes is smaller than it was in the Avandia days, we very much relished the opportunity to see CEO Ms. Emma Walmsley in action. At a conference where female presenters comprise <4% of the 540 people speaking, Ms. Walmsley is high profile not only in her leadership of one of the world’s pharmaceutical giants, but also as one of a handful of women to take the stage in the Grand Ballroom. After Ms. Walmsley’s presentation on GSK’s sharpened focus in HIV, respiratory, and infectious diseases, one attendee closed the breakout session by asking for her thoughts on diversity. Ms. Walmsley replied eloquently, “This is obviously a really important question, and I welcome the transparency being brought. These jobs come with an enormous privilege and tremendous responsibility, which is all about the discovery, development, and distribution of truly differentiated medicine – and then there’s a responsibility to our shareholders. I tend to define myself by my ability to deliver on those points, but I also recognize myself as a certain leader and I want to represent diversity in that sense, and it’s clearly needed in this industry. But that’s not the only point of diversity that needs to be represented; I’m just as focused on representation of LGBTQ people, race, and even personality. You cannot be a modern employer in an industry that should be much more aggressively future-facing without being demanding on this topic. One job as a CEO is to set the tone of what you expect, and I do think part of our Trust priority is being a modern employer. We should all be much more proactive about supporting all types of diversity.” It’s disappointing that we haven’t heard a male CEO receive a question about diversity, but we were nevertheless impressed by Ms. Walmsley’s perspective.

Ionis: CEO Dr. Stanley Crooke Briefly Mentions Two NASH Candidates; Company Stagnant & Silent on Glucagon Receptor Antagonist

Stanley Crooke, MD (Ionis, Carlsbad, CA

Ionis was noticeably upgraded to a much larger room at JPM this year (the Grand Ballroom, from California West), but CEO Dr. Stanley Crooke devoted very little air time to the company’s diabetes and NASH candidates, focusing instead on the late-stage pipeline and recently-accepted NDAs. Dr. Crooke did briefly highlight IONIS-DGAT2Rx, a DGAT2 inhibitor in phase 1, which he described as an “interesting entry” into the NASH landscape. A phase 1 dose escalation study wrapped up in November 2016, and Dr. Crooke listed a phase 2 readout as an expected milestone in 2018. His slides also noted the expected completion and readout of a phase 1/2 study for ANGPTL3-LRx, an angiopoietin-like protein 3 inhibitor under investigation for dyslipidemia. On ClinicalTrials.gov, expected completion is listed as August 2017, even though the study is still actively recruiting, but the page hasn’t been updated since May 2017 – we’ll thus be on the lookout for this data in 2018 per Dr. Crooke’s JPM presentation. Interestingly, we also found a new phase 2 trial (n=144) of ANGPTL3-LRx in patients with type 2 diabetes, hypertriglyceridemia, and NASH posted on ClinicalTrials.gov in December 2017. This study is expected to complete in May 2019, and we’ll have our ears peeled for any mention of it on Ionis’ 4Q17 earnings call.

• There was no mention of glucagon receptor antagonist IONIS-GCGRRx during the presentation or breakout. Most recently (back in 2Q16), Ionis announced positive interim data from a phase 2 dose-ranging study, which now appears to be delayed (ongoing according to ClinicalTrials.gov, despite an expected completion date of March 2017).

J&J: CEO Mr. Alex Gorsky Says Next to Nothing on Invokana or Diabetes; Vague, Broad-Sweeping Commentary on Healthcare Landscape

Alex Gorsky (J&J, New Brunswick, NJ)

Like last year, J&J CEO Mr. Alex Gorsky participated in a fireside chat in lieu of a traditional JPM company presentation, and once again, he shared no concrete updates. SGLT-2 inhibitor Invokana (canagliflozin) came up once during the breakout session, in response to a three-part question on diabetes: (i) Can you share a status update on the LifeScan divestiture? (ii) Can you explain the decision to shut Animas instead of sell? (iii) In light of these decisions, what are your future plans for Invokana? Indeed, the SGLT-2 inhibitor was once a saving grace for J&J Diabetes, a bright spot to balance out sluggish sales on the device side, but Invokana franchise revenue fell steeply in 2017 (-13% YOY in 1Q17, -23% YOY in 2Q17, -19% YOY in 3Q17). Mr. Gorsky acknowledged the unfavorable effect of the FDA label update adding a black box warning for lower limb amputations to all canagliflozin products. “We’ve continued to invest despite this, and we have other data showing clinical efficacy,” he stated, alluding to positive CV outcomes data from CANVAS (J&J filed with the FDA for Invokana’s CV indication in October, but there was no mention of this at JPM). We were glad to hear a passing mention of Invokana and possible growth opportunities, however vague. Management’s general commentary on diabetes (which was extremely limited to begin with) was lukewarm at best – in Mr. Gorsky’s words, “we’ll continue to look for ways to make a difference in diabetes, but it’s got to be very highly differentiated.” This doesn’t inspire much confidence for near-term movement in Janssen’s diabetes pipeline, which includes a phase 1 glucagon/GLP-1 dual agonist, canagliflozin for type 1 (phase 2 results reported at ADA 2016), and canagliflozin/phentermine co-administration for obesity (phase 2 results reported at ADA 2016). We also suspect that the planned CVOT of Invokana in prediabetes has been put on hold (perhaps until the company’s SGLT-2 revenue stabilizes in the wake of amputation-related concerns – we do hope this project moves forward eventually, as a prediabetes CVOT could be game-changing in how we approach and manage hyperglycemia). To be sure, there are potential tailwinds ahead for the Invokana business: An FDA decision on the CV indication is expected in late 3Q18 or early 4Q18, and Invokana is preferred over Lilly/BI’s Jardiance (empagliflozin) on the CVS Health national formulary in 2018. That said, we continue to be disappointed in J&J’s commitment to diabetes as a therapeutic area overall. Ultimately, diabetes received little air time, even as management skirted specific questions and didn’t offer substantive discussion of any J&J division.

• CFO Mr. Dominic Caruso expressed a positive view on corporate tax reform in the big picture, but didn’t comment explicitly on how this will affect J&J or company strategy. New policy has decreased the tax companies must pay on ex-US sales and assets, thereby freeing up “previously untapped OUS cash” (approximately $16 million for J&J). Mr. Caruso elaborated that this allows for more financial flexibility, it incentivizes doing business in the US, and it creates more jobs in the US. “This reform will make us more competitive on a global scale,” he claimed, though when pressed, he provided no specific details on how J&J’s capital allocation may change as a result.

Questions and Answers

Mr. David Kliff (The Diabetic Investor): I have a three-part question on diabetes. First, can you share a status update on the LifeScan divestiture? Second, can you explain the decision to shut Animas instead of sell? And then in light of these decisions, what are your future plans for Invokana?

Ms. Sandra Peterson (Group Worldwide Chair, J&J): I’ll speak to the decision around Animas. We decided the best thing for patients was to manage their transition to other providers in the marketplace, and we feel good about how we’ve handled that transition to other people in the industry. It was a decision we needed to make. It was the right thing for us to do given the kinds of investments others continue to make in that space. We’re still in the process of rolling this out, and we’re not ready to announce a decision on the rest of the portfolio. We’ll keep you posted as we move forward.

Mr. Alex Gorsky (CEO, J&J): Diabetes is still a space with a lot of unmet need. We’re trying to be more discerning: Where are the places in the portfolio where we should invest and can make a difference? Where are the areas where we don’t think we can make a meaningful difference? That doesn’t mean it’s a bad business, or that it can’t be successful, but perhaps it wouldn’t be a priority in our hands. SMBG is an example, as is the insulin pump business. Invokana – we still think it fills a very critical unmet need in diabetes treatment. That said, we had a label change in the past year, but we’ve continued to invest and we have other data showing clinical efficacy. We’ll continue to look for ways to make a difference in diabetes, but it’s got to be very highly differentiated.

Lilly: CEO Mr. Dave Ricks Highlights Trulicity + Next Steps for Innovation in GLP-1 (High-Dose, GLP-1/GIP, Oral); Continued Confidence in Jardiance Despite Steglatro Entry and in Humalog Despite Biosimilar Competition

Dave Ricks (Lilly, Indianapolis, IN)

GLP-1 agonist Trulicity (dulaglutide) was once again a primary focus of Lilly’s JPM presentation and breakout, and CEO Mr. Dave Ricks discussed next-gen opportunities in GLP-1 as well. Lilly provided its 2018 financial guidance last month, maintaining projections for ~5% annual growth between 2015-2020. Mr. Ricks positioned Trulicity as a significant growth driver underlying this guidance. Notably, he expressed very high confidence in diabetes in general, which is now the most profitable portfolio for Lilly. According to Mr. Ricks, Lilly also passed Merck in terms of total diabetes revenue in 3Q17 ($2 billion vs. $1.5 billion) and is now in second place for overall diabetes sales (presumably, following Novo Nordisk with ~$3.5 billion in 3Q17). He explained that Trulicity’s commercial success has come almost entirely from market expansion rather than stealing share from other GLP-1 agonists. Most new therapy starts are in primary care, and he highlighted that Trulicity is an easy-to-prescribe product for PCPs given its once-weekly dosing, low hypoglycemia risk, and convenient device. He added that the IDEO-designed pen has been extremely popular with patients (we’ve definitely heard positive feedback), particularly since the needle remains invisible throughout injection. Lilly is thus unconcerned about upcoming competition from Novo Nordisk’s once-weekly Ozempic (semaglutide), Mr. Ricks affirmed, because that product should also grow the class. Of every three type 2 diabetes patients requiring an injectable therapy (after A1c remains above goal on oral medications), only one takes a GLP-1 agonist instead of basal insulin. “That number could double,” Mr. Ricks argued, emphasizing that “there’s a lot of headroom for growth.” We certainly agree and were glad to hear that Lilly’s priority is expanding the GLP-1 market rather than focusing on in-class competitors. A Diabetes Care article published last Fall reported that only ~7% of second-line diabetes prescriptions in the US go to a GLP-1 agonist – it’s clear that so many more patients could be benefiting from one of these products and the associated A1c-lowering, weight loss, and possible cardio- and renal protection. There was no mention of upcoming CVOT data on Trulicity, though Lilly management shared a positive outlook during the recent 2018 financial guidance call. Topline REWIND results are expected by year-end. Moreover, Mr. Ricks did not address SUSTAIN 7 which found semaglutide to be superior vs. dulaglutide on A1c and weight loss. That said, only topline data has been announced so far, and understandably, management may be waiting for full results before commenting on the implications.

• Moving forward, Mr. Ricks described how Lilly will continue to innovate in GLP-1. First, with high-dose dulaglutide at 3 mg or 4.5 mg once-weekly. Phase 3 studies in type 2 diabetes are slated to begin in 2018, and the positive phase 2 data will also be presented at a scientific meeting this year. Next, he mentioned the company’s GLP-1/GIP dual agonist. A phase 2 trial is expected to complete in May 2018, and Lilly is keenly interested in the weight loss findings. As Mr. Ricks put it, “we want to have successors to Trulicity that beat semaglutide particularly in regard to body weight reduction.” Certainly, weight loss is one of the key benefits to GLP-1 therapy, and it’s a key outcome beyond A1c with spillover effects on adherence, patient satisfaction, and quality of life. “Of course, everyone is wondering, what about oral?” Mr. Ricks acknowledged during the breakout session. He reviewed Lilly’s approach to its preclinical oral GLP-1 candidates, explaining that step no. 1 is looking at ways to improve bioavailability, which would in turn bring down cost of goods (“we don’t want just 1%-2%”).
• Lilly/BI’s market-leading SGLT-2 inhibitor Jardiance (empagliflozin) received less air time during Mr. Ricks’ fireside chat, but the CEO did highlight the ongoing program in heart failure and the upcoming study in CKD. The dedicated kidney outcomes trial is scheduled to begin something this year, following Lilly’s press release announcement last June. A question on Merck/Pfizer’s new market entry Steglatro (ertugliflozin) came up during the breakout, but Mr. Ricks showed no sign of concern. “We have a unique benefit, a mortality benefit, and no one else does,” he argued, referring to Jardiance’s CV indication (added to the label in December 2016). Notably, the list price for Steglatro is significantly lower than the list price for Jardiance and other existing SGLT-2s ($8.94/day vs. ~$17/day), and we expect this will be a competitive advantage for Merck/Pfizer, even as the newest entry. Mr. Ricks didn’t address these pricing dynamics (we understand time is limited at JPM), but we’ll be very curious in watching these unfold after Steglatro is launched this month.
• Similarly, Mr. Ricks was not worried about competition for Humalog from Sanofi’s new biosimilar insulin lispro (Admelog). As we’ve heard from Novo Nordisk and Sanofi management as well, Mr. Ricks cited the high frequency of exclusive 1:1 contracts in the rapid-acting insulin category. Payers view products in this class as highly-interchangeable, and as a result, they restrict patient choice to one preferred drug, excluding the other options. Mr. Ricks suggested that Sanofi will face reimbursement challenges in 2018 (Sanofi management has acknowledged this, too, and has shared expectations for Admelog to be more of a growth driver in 2019 instead). Further, he explained that pricing pressure is so intense around mealtime insulins that Humalog and NovoLog are “already on the floor, with some of the lowest pricing in the market.” This is what distinguishes the Humalog/Admelog story from the Lantus/Basaglar story, in that Humalog may already be priced competitively and may be able to maintain its current reimbursement status. In contrast, the decline in Lantus sales was greatly accelerated by exclusion from the CVS Health and UnitedHealthcare formularies in 2017.
• In the breakout, Mr. Ricks reaffirmed the pharma giant’s commitment to diabetes technology and digital health, and he explained the rationale behind opting to build a pump from scratch: “We have a very different idea on this system compared to what people experience today. We want to harness cloud computing and digital experience to create a self-managed system. That’s the vision we’re pursuing – not just to make a pump, but to make a solution that doesn’t exist today. We saw building as a much more attractive option, and a much less expensive option. We’re doing it with partners.”
• We’d be remiss not to mention Mr. Ricks’ resounding call-to-action around rising cost of prescription drugs. While industry players have taken steps in the right direction, with position statements and transparency reports, he advocated for more dramatic and more rapid change – “2018 is the time for action.” Specifically, Mr. Ricks discussed the promise of value-based pricing and rebate pass-through, wherein the money returned from manufacturers to payers/PBMs makes it way to the consumer, reducing a patient’s out-of-pocket payments. We appreciated that Mr. Ricks carefully considered what more industry can do, rather than pointing the blame at PBMs, even if it’s deserved.
• Lastly, on tax reform, Mr. Ricks suggested that the policy changes won’t impact Lilly’s capital allocation strategy all that much (“our goals remain the same”). He announced that more specific effects of tax reform on company structure and procedures will be disclosed on Lilly’s 4Q17 earnings call at the end of the month (January 31).

Questions and Answers

Q: I want to start with a question on Jardiance. You’ve gained a lot of share from J&J, but are you happy with the overall category growth? At what point do you pivot toward market growth instead of share growth? And what are your expectations now that there’s a new player coming into the market?

A: I’d say we’re pleased, but we’re not satisfied with SGLT-2 class growth. SGLT-2 inhibitors account for roughly 6% of the oral diabetes market right now, and that is multiples too low. It’ll take a big education effort to broaden and deepen prescribing. We’ll continue to work with our payer friends to improve access. Steglatro doesn’t change our plans. We have a unique benefit, a mortality benefit, and no one else does. Jardiance is easy to use, and we have broad access.

Q: You mentioned building on Trulicity, perhaps with oral GLP-1 or with a higher-dose of dulaglutide. Where are we with that? Can you speak to timelines?

A: Trulicity is very beneficial. It has a high ability to reduce A1c and body weight, it’s simple to use, and patients like the device because they don’t see the needle. Real-world evidence suggests that patients prefer Trulicity. We’ve also titrated Trulicity into higher doses to achieve even more A1c decline, even more body weight loss – we’ll present those data later this year, as the studies have been completed. What we want to do is have successors to Trulicity that beat semaglutide particularly in regard to body weight reduction. Our next agent in this space is a dual agonist of GLP-1/GIP in phase 2. We’ll get the data later this year to see if we can achieve more body weight reduction. Of course, everyone is wondering, what about oral? We know Novo Nordisk’s oral semaglutide will read out in 2018. We are focused on looking into various options to improve bioavailability, because we don’t want just 1%-2%. Bioavailability will have to be much higher to reduce cost of goods. We also haven’t given up on the small molecule approach to a GLP-1 agonist.

Q: You listed diabetes, dermatology, and pain management as contributing a lot to your success. Are they roughly the same size for you in terms of opportunity?

A: Migraine’s in front of us; we haven’t launched yet in migraine. We’ve been in diabetes for 95 years. We have ambitions to grow that. As you know, there’s a lot of suffering for tens of millions of Americans with this chronic disease, and we hope to help them.

Q: There have been many rumors that amazon is going to come into the pharmaceutical supply chain as a distributor. Have you had any discussions with potential new entrants into the distribution of pharmaceuticals?

A: It’s hard to deal with hypotheticals. If we were having private discussions with entities, we probably wouldn’t disclose that in a setting like this. We’re all for competition in all areas of the business – the more actors the better. If a non-traditional player wanted to enter the supply chain, we’d welcome it, and we’d sit down and talk to them. We’re here to innovate. However that innovation gets to patients, I’m sort of agnostic to that. The exception being, if distribution ends up distorting value and doesn’t allow patients to access medications, I’d like to change that, and that sometimes happens in our current system.

Lilly: Dr. Brian Bloomquist Outlines Company’s Approach to Obesity – Launching in Diabetes First, Given More Established Regulatory Pathway

Brian Bloomquist, PhD (Lilly, Indianapolis, IN)

Over at the Biotech Showcase, Lilly Senior Director Dr. Brian Bloomquist shared that obesity is a priority, but that the company will always go after a diabetes indication first. “We’re definitely looking for glucose+, though we’d still focus on diabetes because the regulatory pathway is more defined. We wouldn’t launch for obesity off the bat, but we’d develop in this area and also in NASH following a launch in diabetes – potentially very aggressively.” This was a fascinating and somewhat unexpected statement. Historically, Lilly has shown laser focus on type 1 and type 2 diabetes rather than obesity. As recently as 4Q17, the company said it would advance high-dose dulaglutide into phase 3 for diabetes instead of obesity; although high-dose GLP-1 has shown tremendous value as an obesity drug (Novo Nordisk’s Saxenda), Lilly has said firmly in the past that it is a company focused on diabetes, not obesity or prevention. Now, it appears that Lilly plans to build obesity indications into the label of existing diabetes products. High-dose dulaglutide would be a prime candidate for obesity after the type 2 diabetes studies; could Lilly eventually seek an obesity indication for its phase 2 GLP-1/GIP dual agonist as well? CEO Mr. Dave Ricks did emphasize the weight loss benefit of GLP-1 agonist agents, including the combination with GIP, during his JPM presentation (see above). Dr. Bloomquist asserted that “obesity is very important to Lilly,” that “great advances are coming in obesity treatment,” and that “these developments could make a huge difference for metabolic syndrome overall.” With extensive clinical and commercial expertise (95 years in diabetes!), Lilly could drive serious innovation in obesity care once it starts investing meaningfully – we look forward to those days, which now seem closer than previously expected.

• Dr. Bloomquist was on a panel of industry leaders discussing major barriers in diabetes drug development, focusing especially on regulatory requirements. Dr. Harith Rajagopalan, Co-Founder and CEO of Fractyl, described the “steep pre-approval burden” on diabetes therapies. FDA is asking for hard outcomes before approving a new drug (the 2008 CVOT guidance is one example), and the clinical process for collecting these is time consuming, expensive, and generally resource-intensive. For a smaller company, diabetes drug development is thus an intimidating proposition. Metacrine CEO Dr. Ken Song elaborated on the downstream effects of this steep pre-approval burden: “Here’s the rub. If you’re trying to develop a diabetes drug, investors are not going to touch you, because you’ve got a very conservative division within FDA requiring extensive safety studies. VCs are not investing in early-stage diabetes companies. Investors and bankers don’t want to hear about diabetes. The tide may turn given the size of the epidemic, but for now, if you’re an early-stage diabetes company, it’s going to be a difficult road without partnering.” These challenges extend to NASH as well, where the regulatory environment is especially uncertain, since no drugs have been FDA-approved yet. And, they extend to prediabetes. One audience member criticized treatment inertia, and argued that we’re waiting too long to treat a diabetes diagnosis when we could be catching hyperglycemia earlier on. Of course, capturing hard outcomes will be even more time consuming, expensive, and resource-intensive in a prediabetes population – Dr. Bloomquist provided this quick response to a “complex question.” Having therapies in use for prevention could make a sizeable dent in the diabetes epidemic, reducing rates of diabetes complications and ultimately saving the healthcare system substantial amounts of money (according to IDF’s 2017 Atlas, one in eight global healthcare dollars is spent on diabetes, for a sum of ~$727 billion, and that figure only includes direct costs). Unfortunately, as we’ve heard repeatedly on the conference circuit, FDA has been reluctant to consider a prediabetes indication for metformin, which is probably the drug with the most support from thought leaders and the most empirical evidence showing prevention efficacy.

Lexicon: CEO Mr. Lonnel Coats Shares New Placebo-Adjusted DKA Data on Sotagliflozin in Type 1; FDA Submission Slated for 1H18; Marketing Will Target Endos Rather Than PCPs

Lonnel Coats (Lexicon, The Woodlands, TX)

With a Sanofi-led filing of SGLT-1/2 dual inhibitor sotagliflozin planned for 1H18, Lexicon continues to prepare strong clinical data. In his JPM remarks, Lexicon CEO Mr. Lonnel Coats presented a new analysis of placebo-adjusted DKA rates from inTandem vs. DEPICT 1, suggesting numerically fewer DKA events with sotagliflozin vs. dapagliflozin in type 1 diabetes. Notably, Lexicon has been commenting extensively on AZ’s program for SGLT-2 inhibitor Farxiga (dapagliflozin) in type 1 diabetes since DEPICT 1 reported at EASD 2017. In this latest analysis, placebo-adjusted DKA rates were 0.6% and 2.4% with high- and low-dose sotagliflozin vs. 1.7% and 2.5% with corresponding doses of dapagliflozin in DEPICT 1. To our understanding, this calculation reflects the fact that some participants experienced multiple events, and it could provide some reassurance for those who balked at the ~3% DKA rate associated with 400 mg sotagliflozin in inTandem1 and inTandem3. Looking ahead to an Advisory Committee meeting, DKA is the primary concern we anticipate from FDA, and although we continue to believe that this risk should be manageable in the real world, based om extensive discussion with highly-respected clincians, we do think showing FDA the specifics of what “management” means will be important – this is an addressable issue, but it’s also true that many patients have no idea what ketones ever are, do not know how to test them, or what the levels should be. Addressing and recovering from DKA itself is also not intuitive. Making sure that there is appropriate HCP and patient education will be critical. While inTandem trials and DEPICT 1 shouldn’t be overtly compared due to differences in study design/protocol, the overarching message from both is one of manageable risk – the companies now need to show that this can be provided in the “real world”. The sense we get from Lexicon is that sotagliflozin will come with detailed care instructions around DKA risk mitigation, and we expect the company will work closely on these with Sanofi and with FDA. Clearly, it is also true that if the drug is not approved, many type 1 patients will still take it off label and arguably will be at greater risk of DKA. Mr. Coats further emphasized that trial participants who discontinued due to DKA often returned to the study drug. While inTandem had low discontinuation rates due to DKA (generally <0.1%, but 1.6% for inTandem3), Mr. Coats commented that many of these patients resumed therapy (which says something about treatment satisfaction, at the very least). Ultimately, this underscores the favorable risk-benefit profile of sotagliflozin for patients with type 1 diabetes. Pooled CGM data from inTandem1 + inTandem2 showed 1.3 and 2.8 additional hours per day in range with 200 mg and 400 mg doses of sotagliflozin, respectively. We imagine this will be the biggest draw for patients, more so than a ~0.4% A1c reduction, and the importance of time-in-range as a glycemic outcome should not be understated. Lexicon management has commented multiple times that they’re working around the clock to shorten the timeline for submission as much as possible. If the filing comes on time (1H18), the first oral adjunct therapy for type 1 diabetes could be on the market by 2019.

• Mr. Coats also discussed weight loss data from inTandem3, which featured a “real-world” design with no insulin optimization period. Noting that sotagliflozin’s weight loss curve hadn’t leveled off at week 24, he expressed excitement for longer-term weight benefit. After 24 weeks, mean weight loss with 400 mg sotagliflozin was 4.9 lbs. This finding suggests that sotagliflozin may provide better weight loss than SGLT-2 inhibitors, though it’s unclear whether that potential difference would be due to the dual inhibition or the population being studied. To this end, we’re interested to see weight loss data from Sanofi’s extensive phase 3 program for sotagliflozin in type 2 diabetes (first readout in 2019). To be sure, many people with type 1 diabetes stand to benefit from weight loss; 25% of people with type 1 >25 years-old are affected by obesity, and many more are affected by overweight.
• “This is not a GP product.” During the breakout session, management explained that sotagliflozin will be marketed to endocrinologists rather than general practitioners. With this decision, there’s a chance that Sanofi/Lexicon could initially miss a huge chunk of the type 1 population, people who only see a PCP. Endos are in increasingly short supply. On the other hand, the cost-benefit ratio of targeting PCPs would be extremely high, and Lexicon plans to use no more than 100 reps to target endocrinologists. Moreover, we think Lexicon could lead a concerted effort (e.g. through social media) to get the tight-knit type 1 diabetes community on board – certainly, many are already taking SGLT-2s off-label. Access and trust will only increase with an agent indicated for type 1 diabetes. As background, Lexicon announced in 2Q17 that it will exercise its co-promotion option in the US, which means the company will take on 40% of commercialization costs (and responsibility) stateside; Sanofi will contribute the remaining 60%. With this move, Lexicon has once again shown fierce commitment to making sotagliflozin a commercial success. As management stated on the 2Q17 earnings call, “the best way to ensure that you commercialize a product well is to participate in it, particularly if you have royalties at risk.”
• We asked Lexicon how FDA is approaching this first-in-class therapy, and Mr. Coats was distinctly positive about the company’s experiences with regulatory agencies in the US, EU, and Sweden. In fact, he shared that some folks at Sanofi were surprised about how “open, frank, and helpful” FDA has been, having assumed there would be resistance. In particular, we were excited to hear news of ongoing conversations about outcomes beyond A1c. We do think the time-in-range results will be critical in demonstrating sotagliflozin’s value to patients, and it would be a shame if FDA overlooked the CGM data. Of course, when we asked about CDER’s stance on CGM data, Mr. Coats tempered his response: “There’s still a divide between openness and a real pathway.” While advocacy from patients has led to openness among US regulators, there’s still a question of how to create the pathway. Because of the high degree of off-label use, FDA knows patients are going to keep using similar agents, and that makes it all the more important to help people understand how to maximize benefit and minimize risk.
• Not forgetting the early-stage pipeline, Mr. Coats expressed particular optimism for phase 1 SGLT-1 inhibitor LX2791. Phase 1a is complete, and phase 1b data is expected in 1H18. This candidate has been shown to cause no significant urinary glucose excretion, which is exciting due to the unfortunate genital mycotic infections commonly seen with SGLT-2 inhibitors. Mr. Coats also pointed out that the GI specificity offers multiple options for pairing the compound with other agents that act in the gut; while he didn’t name any specific potential pairings, we’re excited to see where this candidate goes.

Merck: Ertugliflozin/Sitagliptin Fixed-Dose Combination Will Mitigate Januvia’s Loss of Patent Exclusivity

Ken Frazier (Merck, Kenilworth, NJ)

Merck CEO Mr. Ken Frazier assured investors that the company is prepared for Januvia’s (sitagliptin) patent expiry, because the fixed-dose combination of sitagliptin with recently-approved SGLT-2 ertugliflozin will sustain this business. Januvia leads the DPP-4 inhibitor class in sales, capturing 61% of the market by value in 3Q17 and generating >$6 billion in annual revenue. It also happens to be the highest-prescribed branded diabetes drug today – but the first of Merck’s patents on sitagliptin expired in April 2017, which means that generic Januvia is around the corner, likely coming to market in the next ~four years or sooner. From this view, the Pfizer-partnered ertugliflozin franchise seems to be arriving in perfect time – although from our view, the fact that it will likely be a better medicine for many patients is an equal if not bigger reason to express excitement about it. We are thrilled with the pricing decisions on Steglatro (standalone ertugliflozin) and Steglujan (ertugliflozin/sitagliptin),, which will both be launched in US pharmacies this month, following FDA approval last month. Segluromet (ertugliflozin/metformin) was also FDA-approved and is scheduled to launch in February. If Merck/Pfizer follow through on their plans to invest heavily in commercializing these new products, the drugs could gain traction in the next ~four years, reimbursement will improve, ertugliflozin will become a more familiar agent in the diabetes community, and HCPs will become more comfortable prescribing the SGLT-2 inhibitor and its combinations, particularly since the DPP-4/SGLT-2 inhibitor Steglujan will be priced the same as other SGLT-2 standalones. All this will coincide with new generic competition for Januvia and Janumet (sitagliptin/metformin), but ertugliflozin will still be branded and we expect it could bring in substantial revenue for Merck Diabetes if combination therapy begins to be marketed more aggressively, using the impressive data.

• “Januvia is going off-patent. That’s an important issue for us, but the combination with ertugliflozin will mitigate loss of exclusivity.” This was interesting word choice – “mitigate” – and Mr. Frazier’s optimism was somewhat measured. Notably, his outlook didn’t include major sales growth for Merck’s diabetes business but rather a balancing of the Januvia patent expiry. We won’t read too much into this for now, as we still see significant potential for ertugliflozin to grow the SGLT-2 class and to expand Merck’s diabetes portfolio, making the company an even bigger player in diabetes. We believe Merck/Pfizer can grow the class and help more patients over time, as DPP-4 inhibitors alone won’t show the same results as the combo. Mr. Frazier acknowledged that a lot rides on CV outcomes data. The bar continues to rise for new diabetes therapies, and this is especially true in the SGLT-2 class, where Jardiance and Invokana have already demonstrated significant CV benefit. To this end, the VERTIS CV trial for ertugliflozin is expected to complete in October 2019.
  • Mr. Frazier didn’t comment on pricing. We imagine Merck/Pfizer’s pricing strategy could boost early uptake, since Steglatro is priced much lower than existing SGLT-2 inhibitors ($8.94/day vs. ~$17/day) and Steglujan is also priced at a meaningful discount to Lilly/BI’s Glyxambi ($17.45/day vs. ~$22/day). List price only means so much without considering patient discounts, formulary status, and insurance coverage, but lower list prices could definitely play to Merck/Pfizer’s advantage in payer negotiations and marketing to patients/HCPs. We’ll be curious to see how ertugliflozin affects market dynamics for the SGLT-2 inhibitor class in 2018 and beyond. We wonder how formularies will change in the next cycle (2019) and if other SGLT-2 manufacturers will respond with list price changes.
• Most CEOs of major pharmaceutical companies addressed tax reform in their JPM remarks, and Mr. Frazier was no exception. He emphasized greater financial flexibility, but suggested that the reform won’t change Merck’s capital allocation strategy all that much, since the company has always had sufficient cash and resources to design ideal clinical/commercial development programs.
• In response to a question on pricing pressure, Mr. Frazier shared some rare optimism. Approximately 30% of profit on every branded pharmaceutical is “rebated back into the supply chain,” according to Mr. Frazier. Per a JAMA article published last year, 27% of pharmaceutical sales in 2015 were returned to payers/PBMs in the form of rebates – this amounted to $115 billion in total. But Mr. Frazier pointed to a small silver lining in that policymakers are well-aware of this issue by now. He argued that slowly but surely, pricing pressure will abate. “The good news is, though incremental pressure will continue on price, I don’t think we’re going to see any significant jump in that pressure through public or private payers.”
• Of note, Merck did not host a breakout session because the presentation itself was structured as a fireside chat with Q&A. Mr. Frazier spoke to specific products and provided a level of detail in line with a traditional JPM company presentation. That said, we do wish we’d had an opportunity to find out more about Steglatro and Steglujan pricing during a breakout…

Mylan: “We Are Active and Engaged” for FDA Approval of Biosimilar Insulin Glargine Despite Patent Lawsuit from Sanofi; Extensive Commentary on US Pricing Environment, How Mylan Copes

Heather Bresch (Mylan, Canonsburg, PA)

In a fireside chat, Mylan CEO Ms. Heather Bresch underscored that the company is “as active as we can be and as engaged as we can be” to get FDA approval for its Biocon-partnered biosimilar insulin glargine. Mylan submitted a long-awaited NDA for this candidate in mid-September 2017, but this was swiftly met by a patent infringement lawsuit from Sanofi over originator product Lantus (insulin glargine). Ms. Bresch did not elaborate on the timeline for this litigation, but if it follows a similar process as Sanofi’s patent lawsuit against Lilly/BI for Basaglar, it could be settled in one of three ways: (i) Mylan and Sanofi reach an agreement, (ii) a court decides in favor of Mylan, or (iii) 30 months elapse since the lawsuit was filed (pushing the timeline for US launch to ~Spring 2020). Our sense is that new biosimilar basal insulins are coming, and that like Basaglar, they’ll continue to shake up the market – if not Mylan/Biocon’s candidate, Merck’s Lusduna Nexvue (biosimilar insulin glargine) has received tentative FDA approval pending resolution of yet another patent infringement lawsuit from Sanofi. That Ms. Bresch reaffirmed Mylan’s commitment to insulin glargine in light of the legal disputes is notable, even if she didn’t comment explicitly on discussions with Sanofi or commercialization plans. We anticipate that Mylan/Biocon may eventually run into obstacles related to their lack of experience in insulin manufacturering, either at the regulatory stage with FDA voicing concerns or further down the line with patient/provider reluctance in the real world. In contrast, Lilly has built a reputation of excellence in insulin manufacturing over nearly a century, and Merck has strong experience in diabetes with DPP-4 inhibitor Januvia (and now with SGLT-2 inhibitor Steglatro). All this said, biosimilar basals are something to look out for, and presumably we can still expect an FDA decision on Mylan/Biocon’s glargine formulation in 2H18, though it may be a tentative approval at best until the companies reach a resolution with Sanofi.

• Throughout the fireside chat and subsequent breakout, discussion frequently turned to the challenging US pricing environment. This is an especially relevant topic for Mylan in the aftermath of the very high-profile EpiPen pricing scandal. Ms. Bresch repeated several times in her remarks and responses that pharma is a “chaotic” and “unpredictable” industry – comments we found less-than-informative and highly unproductive overall, particularly given Mylan’s contributions to this. Ms. Bresch also made the surprising assertion that Mylan doesn’t need to think about the pricing environment as strategically as other pharmaceutical companies due to its unique business model, owing to the company’s colossal magnitude and scale. We doubt all their investors would agree with this. Mylan has more than 7,000 products (!) and >50% of its revenue comes from ex-US markets. Ms. Bresch elaborated that this allows the company to absorb unpredictability: If challenges arise for one product, others are likely doing well; if the pricing environment becomes difficult in a particular geography, other markets are likely to have favorable conditions. She closed the session by noting “our message for 2018 is to think of Mylan as a global house, rather than a US generics house.”

Novartis: Highlights Entresto & Lucentis

Paul Hudson (Novartis, Basel, Switzerland)

Mr. Paul Hudson, CEO of Novartis’ pharmaceutical division, positioned heart failure drug Entresto as a leading priority for the company. He described Entresto as the “backbone” for the cardiometabolic business: Because Novartis can rely on Entresto sales growth (as reported, revenue more than doubled YOY in 3Q17 to $128 million), management can confidently invest in new medicines. “Marginal investment will decline, and we’ll become increasingly more profitable while breaking new ground for patients, payers, and stakeholders.” We started to track Entresto sales following a post-hoc analysis of PARADIGM-HF focused on participants with diabetes: The drug showed a statistically significant A1c benefit vs. enalapril and also reduced risk for new initiation of insulin therapy over three years (Dr. Jelena Seferovic presented these findings at ACC 2016). We’ll be curious to see if Novartis considers a dedicated investigation of Entresto in diabetes, a sort of reverse move to Lilly/BI and AZ investigating their SGLT-2 inhibitors in heart failure, but this is only our speculation, as there hasn’t been any signal from management that a diabetes study is on the table.

• During the breakout, Mr. Hudson emphasized Novartis’ commitment to Lucentis and to continued innovation in eye disease despite intense commercial competition from Eylea (marketed by Regeneron in the US and by Bayer ex-US). He recognized that Eylea’s launch has had an adverse effect on the Lucentis business ex-US (Roche markets Lucentis in the US), and acknowledged that regaining market share will be critical, particularly in Europe. Novartis is collecting real-world evidence to show superior efficacy with Lucentis (intravitreal ranibizumab) vs. Eylea (intravitreal aflibercept) at the same injection frequency. The company also has brolucizumab (RTH258) in phase 3 for neovascular age-related macular degeneration, and management has stated previously that Novartis will further investigate the drug in DME (diabetic macular edema) and other indications. Mr. Hudson shared a very positive outlook on RTH258 based on results announced to-date. He outlined Novartis’ goal – that brolucizumab will compete with Eylea and will swiftly become the market leader.
• Both the CEO’s presentation and the breakout were jam-packed for Novartis. We’re left wondering about the NASH pipeline (which received a lot of attention at JPM 2017), about the status of Novartis’ partnership with Verily to develop a glucose-sensing contact lens (both companies are always tight-lipped about this, and we haven’t heard any real updates since 2015), and about Novartis’ other partnerships with Parvus (nanotechnology-based treatment for type 1 diabetes) and Qualcomm (digital medicine). Of course, we understand the vast size and scope of this company, and the limited amount of time to cover it all.

Questions and Answers

Q: There are essentially three large distributors and two large retailers in the US right now. Do you expect to see a new entrant into the US distribution model for drugs? Will that change how you deal with distribution? Have you had any discussions with potential new entrants?

A: Like most pharmaceutical organizations, yes, we’ve had conversations with potential new entrants. There’s a lot of talk about Amazon’s plans and what that could mean. Clearly, their ability to distribute and manage big data is exciting, so we have to be open-minded about it. They’re not a PBM and they’re not an insurer, so you wonder where vertical integration could go – are they only going to be a distributor or online specialty pharmacy? You saw the recent CVS play – is that to drive foot traffic into CVS stores, or to offer instant prescriptions on basic, low-cost medicines? I don’t think any of us know yet. We’re not worried at Novartis, because we have great medicines and we offer great value propositions. We’re open to talk to distributors – that’s one of the things we do at meetings like this. We’re a big business globally, and it’s hard for new entrants to do anything without considering having us at the table.

Q: Can you talk a little more about commercial competition from Eylea?

A: We were caught by surprise with the speed of the Eylea launch. Even though both Lucentis and Eylea require four-five injections/year, the perception is that you can use Eylea less frequently, and that suggests better efficacy. People have taken a leap of faith around that suggestion, and we lost share too fast. Now, we’re correcting that with new data and real-world evidence. We’re showing that Lucentis can be more effective with the same number of injections as Eylea. It’s important for that team to get back decent market share, particularly in Europe, because with RTH258 we plan to go after Eylea. With Lucentis, keep in mind that it’s indicated for retinopathy without DME in the US, which the other drugs don’t have. When we bring RTH258 to market in the US, we’ll also be bold. All bets are off. We’re committed to be the market leader.

Pfizer: R&D President Mr. Mikael Dolsten Makes No Mention of Merck-Partnered, Recently-Approved SGLT-2 Inhibitor Steglatro (Ertugliflozin); Briefly Touches on NASH Candidates

Mikael Dolsten (Pfizer, New York, NY)

Pfizer’s presentation and breakout featured no mention of diabetes, not even of the recent FDA-approval of Merck-partnered SGLT-2 inhibitor Steglatro (ertugliflozin). R&D President Mr. Mikael Dolsten focused his remarks on the company’s pipeline and cancer portfolio. This is understandable, given that ertugliflozin is Pfizer’s only current foray into diabetes (a partnered one at that). Still, we can’t help but be a bit disappointed at the lack of air time for the new franchise, which also includes fixed-dose combinations with Merck’s DPP-4 inhibitor Januvia (branded Steglujan) and with metformin (branded Segluromet). Merck/Pfizer have listed a price on Steglatro of $8.94/day, compared to ~$17/day for existing SGLT-2 inhibitor options, and we were certainly hoping that management from both companies would provide a strategic explanation for this decision at JPM (see our coverage of Merck above). Although list price only means so much without considering patient discounts and payer coverage, the Steglatro discount vs. other SGLT-2s (and Steglujan is also listed at a discount vs. Lilly/BI’s Glyxambi) could be great news for patients. Further, we hope Pfizer’s limited discussion of Steglatro/diabetes has no bearing on how the company will prioritize its new SGLT-2 inhibitor business going forward.

• Mr. Dolsten did briefly mention the company’s ACC inhibitor candidate for NASH, advanced into phase 2 in 3Q17. In his slides, Mr. Dolsten also alluded to an oral small molecule GLP-1 agonist for NASH, but no such molecule is yet listed on the company’s pipeline page.

Regeneron: Focused on Retinopathy w/o DME Indication for Eylea (to Compete with Roche’s Lucentis); Commentary on Praluent + ODYSSEY Outcomes Results Expected 1Q18

Leonard Schleifer (Regeneron, New York, NY)

PCSK9 inhibitor Praluent (alirocumab), Eylea (intravitreal aflibercept), and tax reform were three major talking points during Regeneron’s presentation and breakout. Results from the ODYSSEY Outcomes CVOT are expected in 1Q18. This data is very highly-anticipated, as positive findings would make Sanofi-partnered Praluent the second PCSK9 inhibitor with demonstrated cardioprotection (Amgen’s Repatha now has a CV indication on its label, on the basis of FOURIER). Regeneron President and CEO Mr. Leonard Schleifer declined to comment on the company’s commercial plans for Praluent post-ODYSSEY Outcomes readout. Humorously, he remarked, “so your question is, based on our data, would we be willing to share our strategy with Amgen?” Then he added more seriously, “we’ll be looking closely at the data with Sanofi, and we’ll be working with HCPs and payers to see how ODYSSEY Outcomes should impact our strategy.” Following the recent approval of Praluent in Japan, Mr. Schleifer affirmed that Regeneron is committed to exploring all Asian markets with Sanofi, investing its own financial resources where appropriate. Amgen presents tomorrow (Tuesday) at 8:30 AM in the Grand Ballroom, and we certainly expect commentary on Repatha, the new CV indication, and progress in the PCSK9 class as a whole (including Praluent and ODYSSEY Outcomes, which have been mentioned on all of Amgen’s recent earnings calls). We were slightly disappointed not to hear more concrete updates on PCSK9 from Regeneron, and we’ll have our ears peeled for any news on Praluent during Sanofi’s presentation tomorrow as well, at 9:30 AM in the Grand Ballroom. Poor reimbursement remains a huge barrier to uptake for PCSK9 inhibitors, and we’re eager to learn Amgen’s, Sanofi’s, and Regeneron’s plans to improve payer coverage of these highly-effective (albeit expensive) lipid-lowering therapies.

• Regeneron markets Eylea in the US, and getting the drug indicated for diabetes-related retinopathy without DME is a key company priority. Roche received this new indication for Lucentis (intravitreal ranibizumab) in April 2017, and Mr. Schleifer suggested that a similar label update could be critical for Eylea in order to compete. Regeneron initiated the PANORAMA trial aimed at this indication in April 2016, and the study is expected to complete in January 2019 according to ClinicalTrials.gov. Retinopathy without macular edema is a common diabetes complication, and retinopathy/blindness are among the most commonly-cited fears for people with diabetes. Given this, we’re pleased to note Regeneron’s efforts to expand the Eylea business within the diabetes patient population (Eylea is also prescribed for other eye-related indications, outside the context of diabetes).
• Mr. Schleifer called US tax reform “a positive message” for Regeneron. He used Eylea as an illustrative example: The product is owned exclusively by Regeneron in the US, and it’s highly-profitable for the company, but those earnings have been taxed at a very high rate until the policy changes went into effect on January 1, 2018. Tax reform is going to reflect in higher earnings on Eylea – Mr. Schleifer suggested this is something to look out for in Regeneron’s next earnings call, and in the 4Q17/full-year 2017 earnings season in general. We’ll be most interested to figure out how cost on pharmaceuticals is shifting toward or away from patients – it may take some time for these effects to show up in full, but we’ll certainly be monitoring these dynamics throughout 2018.

Questions and Answers

Q: What are the barriers to treatment with Eylea?

A: I think DME is a more natural market to penetrate. For patients with clinically-significant DME (i.e. vision impairment), treatment with anti-VEFG therapy makes perfect sense. There’s still under-use, mostly driven by the bias against wanting to get injections in the eye. Notably, we’ve given millions of injections, so there’s a pretty good track record there for safety. In the population with diabetic retinopathy without DME, there’s two types of people: Those with proliferative disease – that means you’re on the cusp of vision-threatening events – feel a need to treat that, and the standard of care has been laser up until now, but Eylea has out-performed laser head-to-head on many critical endpoints including the primary vision endpoint. In those without proliferative disease, there may be more hesitation to Eylea. That’s harder to penetrate, so we need more education there, helping people feel more comfortable with this approach to eye care. We need to show that early treatment is better than late treatment in terms of your overall vision outcomes.

Q: You’ve mentioned Roche’s Lucentis, but can you comment on competition from Avastin (Genentech)?

A: Yes. In the Protocol T study, Avastin was inferior to Eylea in DME (diabetic macular edema). That was pretty solid evidence, and keep in mind that it was sponsored by the government, so independently-conducted. Eylea should be preferable to Avastin. The most important outcome was best-corrected visual acuity, and the results showed almost a double improvement with Eylea vs. Avastin – that’s almost two lines on an eye chart. Vision is so precious, I think it’s not good medical practice to treat people with Avastin instead of Eylea based on the head-to-head data we have.

Q: Praluent was recently approved in Japan. On the heels of that, are there any future plans for establishing or investing in Japan?

A: I’ll expand your question to include the rest of Asia as well. We have a global partnership with Sanofi, and we’re looking carefully at various ways to optimize that in Asia. You’ll see us investing in those geographies with Sanofi, either having them do it or partnering and investing ourselves if it’s appropriate. We view those markets as very important.

Q: On Praluent, since you have CV outcomes data coming up, would you consider a relaunch of the product or a change in pricing based on what you experienced in the past launch?

A: So your question is, based on our data, would we be willing to share our strategy with Amgen on what we’re going to do? No, we’re not going to share our strategy here. But, we’ll be looking closely at the data with Sanofi, and we’ll be working with HCPs and payers to see how ODYSSEY Outcomes should impact our strategy.

Saniona: Phase 3 Study of Tesofensine for Obesity Could Be Complete by End of 2018

Jørgen Drejer, PhD (Saniona, Ballerup, Denmark)

Presenting at the Biotech Showcase, Saniona CEO Dr. Jørgen Drejer highlighted the company’s phase 3 obesity drug, tesofensine. This is Saniona’s most advanced product and a potential first-in-class triple monoamine reuptake inhibitor. Dr. Drejer reiterated the company’s April 2017 announcement that a phase 3 study will be conducted in Mexico in partnership with Medix. He noted that recruitment is underway and that the study will likely be completed “less than a year from now” – this is quite a bit faster than Saniona’s original expectation that the trial would complete within two years of study start. The three-arm trial will randomize adults with obesity (n=372) across two sites in Mexico to receive tesofensine 0.25 mg (n=124), tesofensine 0.5 mg (n=124), or placebo (n=124) once-daily. The primary endpoints are absolute and percent change in body weight over the 24-week treatment period. Secondary endpoints include the proportion of patients achieving ≥5% and ≥10% weight loss, A1c, and quality of life. Dr. Drejer pointed out that Medix currently holds about half of the Mexican obesity market, which bodes well for the market potential of tesofensine if it is ultimately approved. That said, even highly-competitive obesity products face an uphill battle with poor reimbursement, stigma against medical management of obesity, and under-diagnosis. Notably, tesofensine is one of just two phase 3 candidates in the obesity drug competitive landscape, alongside Rhythm’s MC4R agonist setmelanotide, currently in development specifically for the rare genetic obesity condition POMC deficiency obesity.

• Independently, Saniona is developing tesomet (a fixed-ratio combination of tesofensine and beta blocker metropolol) for type 2 diabetes and the genetic obesity condition Prader-Willi syndrome. Phase 2 studies for both indications were recently completed, though Dr. Drejer provided no update on future development plans.
  
  • Topline data from a small phase 2 trial of tesomet in Prader-Willi syndrome showed clinically meaningful weight loss over three months. After eight weeks, patients lost a mean 5% body weight on tesomet vs. 0.5% on placebo, and this increased to nearly 7% by 13 weeks vs. 0.75% for placebo. Tesomet also reduced self-reported food cravings (from an average score of 10 to 1, where 0 corresponds to no cravings and 10 corresponds to intense cravings). It’s important to bear in mind that this trial included only nine participants, given the small Prader-Willi population, but these results certainly support the further investigation of tesomet in larger studies.
  • Topline data from January 2017 showed that tesomet achieved its (rather unconventional) primary endpoint of significant reduction in heart rate in participants with type 2 diabetes (n=58). The agent was additionally associated with reductions in the key secondary endpoints of body weight and waist circumference, though glycemic secondary endpoints did not meet statistical significance. The lack of A1c-lowering efficacy could be due to the short study duration (12 weeks), and it’s unclear whether Saniona will continue to pursue the type 2 diabetes indication.

Sanofi: Highlights Several Key Assets in Diabetes – Sotagliflozin Filing for Type 1 in 1H18, Once-Weekly GLP-1 Efpeglenatide w/ Milder GI Profile, Filing for Praluent’s CV Indication in 2H18, Onduo as “Very Important Support” for US Diabetes Business

Olivier Brandicourt (Sanofi, Paris, France)

Sanofi CEO Mr. Olivier Brandicourt delivered wide-ranging remarks on the company’s pharmaceutical business, and emphasized that even though time didn’t permit a discussion of every disease area, he wasn’t going to neglect diabetes. Despite substantial headwinds against Sanofi’s diabetes portfolio in 2016 and 2017, Mr. Brandicourt set an optimistic tone for 2018 and 2019. From the pipeline, he called out once-weekly GLP-1 agonist efpeglenatide: Phase 3 was initiated in early December, and we learned during Sanofi’s recent Analyst Day that the company has already developed a proprietary autoinjector for the drug. During the breakout session, Sanofi’s EVP of Diabetes & Cardiovascular Mr. Stefan Oelrich highlighted milder, shorter-lasting GI side-effects with efpeglenatide compared to existing GLP-1 agonist options, and he alluded to models predicting equivalent efficacy to Novo Nordisk’s semaglutide (Ozempic). Mr. Brandicourt also mentioned best-in-class potential for Sanofi’s GLP-1/glucagon dual agonist candidate (SAR425899). A large phase 3 program in obesity and a proof-of-concept study in NASH will both be launched in 2018. In phase 2, the agent stimulated >3.5 kg (~8 lbs) weight loss after four weeks, and while “cross-trial comparison can be misleading,” Mr. Brandicourt suggested that this level of weight loss is at least as good if not better than what’s achieved with liraglutide (Novo Nordisk’s Victoza) or semaglutide. Speaking of dangerous cross-trial comparisons, Sanofi’s model pitting phase 2 efpeglenatide data vs. a broader range of semaglutide data should also be interpreted with caution – equivalent efficacy is a bold claim to make at this stage before any real head-to-head studies, but we are excited to see clinical (and hopefully, commercial) progress for another once-weekly GLP-1 agonist given that this class is still vastly under-utilized. As the bar rises for new diabetes therapies, efpeglenatide will likely have to show cardioprotection in order to compete on the market (we await CVOT details) and will have to differentiate itself within the GLP-1 market in some way: Newly-approved semaglutide promises stronger potency, AZ will launch a patient-friendly autoinjector for Bydureon (exenatide once-weekly) in 1Q18, and Sanofi seems to be promoting efpeglenatide with claims of superior efficacy + greater tolerability.

• Mr. Brandicourt highlighted planned regulatory filings in 2018 for SGLT-1/2 dual inhibitor sotagliflozin (partnered with Lexicon) and PCSK9 inhibitor Praluent (partnered with Regeneron). Lexicon led the inTandem program investigating sotagliflozin in type 1 diabetes, and Sanofi will now submit an NDA in 1H18. Mr. Brandicourt lit up with excitement talking about mechanism here – by also inhibiting SGLT-1 in the gut, sotagliflozin reduces postprandial excursions and can thus have a greater overall glucose-lowering effect compared to SGLT-2 inhibitors, which work primarily via glucose excretion in the kidneys. He mentioned the “broad phase 3 program underway” for sotagliflozin in type 2 diabetes as well, with the first readout expected in 2019. Sanofi has high hopes for sotagliflozin in patients with renal impairment, and thus many participants with CKD will be enrolled in the type 2 trials. For more on sotagliflozin, see our coverage of Lexicon’s JPM presentation below.
• On Praluent (alirocumab), Mr. Brandicourt confirmed plans to file for a CV indication in 2H18 based on ODYSSEY Outcomes data (expected in 1Q18). He implied that this CVOT could be a game-changer. CV outcomes are expected to be positive, in line with FOURIER for Amgen’s PCSK9 inhibitor Repatha (evolocumab), and because aggressive lipid-lowering should reduce CV risk (in other words, the biological mechanism for cardioprotection is already quite clear). But even if the field is anticipating CV benefit from ODYSSEY Outcomes, having a second positive CVOT on the books will be very meaningful in payer negotiations and for guidelines. According to Mr. Brandicourt, PCSK9 inhibitors have yet to be firmly established within treatment algorithms. He argued that HCPs need better guidance on when to prescribe a PCSK9 agent. During Q&A, he acknowledged the role Sanofi must play in educating cardiologists, as this community is not accustomed to prescribing injectables. The high cost of these drugs, coupled with abysmal reimbursement, has been another commercial hurdle for the PCSK9 class. But avoiding CV complications and hospitalizations signals cost-savings, and ODYSSEY Outcomes + FOURIER will hopefully provide a combined dataset that really motivates payers. For more on Praluent, see our coverage of Regeneron’s JPM presentation from day #1.
• Although “delivering outstanding launches” is one of four strategic pillars on Sanofi’s roadmap for 2020, Mr. Brandicourt admitted that the Soliqua launch has been a bit of a disappointment (that’s an understatement, in our view). The basal insulin/GLP-1 fixed-ratio combination (insulin glargine/lixisenatide) became available in the US around this time last year. Sales in the past 12 months have trended below expectations (only $9 million in 3Q17, Soliqua’s third quarter of recorded revenue). Mr. Brandicourt addressed the surrounding issues in more detail during Q&A. He explained that Soliqua was launched with essentially zero payer coverage – like with Admelog (biosimilar insulin lispro), Sanofi missed contracting season for 2017. The Soliqua commercial team has been on the grind to establish better reimbursement status for 2018, and the drug is now covered for 65% of commercial lives and for 25% of Medicare Part D lives (Mr. Brandicourt pointed to room for improvement in this segment). Besides reimbursement, provider-facing education efforts will also be critical to Soliqua’s success. HCPs are unfamiliar with the concept of a fixed-ratio combination, and in diabetes care especially, tend toward sequential rather than simultaneous drug delivery. Mr. Oelrich spoke to these challenges in the breakout, confirming the message we’ve heard from management on recent earnings calls: The company remains confident in Soliqua, but uptake will be gradual given that Sanofi must “fundamentally change” the way providers treat diabetes. To Sanofi’s credit, the company has launched peer-to-peer and medical education efforts to promote Soliqua. Novo Nordisk also markets a stellar basal insulin/GLP-1 combo Xultophy (insulin degludec/liraglutide), but has de-prioritized it in favor of standalone degludec (Tresiba) and standalone liraglutide (Victoza). Ideally, both companies would work side-by-side to shift paradigms in diabetes management toward combination therapy.
• Mr. Brandicourt remarked during the breakout that the first revenue from Onduo is expected in 2018 – this is the first sales commentary we’ve heard on the joint venture with Verily. We imagine the revenue will come from the pilot with Blue Cross Blue Shield (announced in November 2017) and others like it. Sanofi/Verily announced their initial $500 million investment in Onduo back in September 2016, and the ~two-year turnaround time to generate revenue is fairly fast, given the goal to build a platform that curates a lot of products and drives digital health into type 2 diabetes. There’s no guarantee that early revenue will be high (we’d be surprised if it was since pilots are early and revenue is presumably split with Verily), but Mr. Brandicourt did state that “Onduo is going to be a very important support for our diabetes franchise in the US,” showing distinct confidence in the longer-term plan. For more on this Onduo update, see our diabetes technology highlights above.

Questions and Answers

Q: You invested a lot of money with Verily Life Sciences in diabetes back in 2016, and we haven’t seen anything concrete yet. Can you tell us when we will see something? What are your expectations for Onduo?

Mr. Olivier Brandicourt (CEO, Sanofi): On Verily, we’re progressing very nicely. As you know, when we announced this endeavor, we had everything left to do – developing devices, hiring the appropriate talent, etc. Now we’re at the stage where we are operational, and you should see the first revenue from Onduo in the coming year and beyond. I can assure you that we didn’t waste any time here. Onduo is going to be a very important support for our diabetes franchise in the US.

Q: And a follow-up on diabetes: Can you comment on the biosimilar rapid-acting insulin?

Mr. Brandicourt: We have our registration, but we missed the payer contracting period for Admelog. We’ll be on the market in 2018, we will have some sales, but the real kick I think will come in 2019, after we have a chance in 2018 to negotiate our contracts.

Q: What are your plans for once-weekly GLP-1?

Mr. Stefan Oelrich (EVP of Diabetes & Cardiovascular, Sanofi): Yes, I can comment on efpeglenatide. We started phase 3 trials in 4Q17, so we’re well on track to deliver a once-weekly GLP-1 agonist and we’ll compete on efficacy with what is by then the leading molecule in the class (semaglutide). This is one of the most dynamic classes in diabetes right now – weekly GLP-1 specifically – and we’ll have a molecule that’s extremely competitive on efficacy with potential to have a better gastric profile than what’s currently on the market. We’re extremely excited about this opportunity.

Q: You mentioned Soliqua only briefly, admitting that launch was underwhelming. How are you thinking about uptake in 2018?

Mr. Brandicourt: By definition, we didn’t have any access when we launched Soliqua. We negotiated access in 2017 for 2018, and now we cover 65% of commercial lives and 25% of Medicare Part D lives (that can be improved). It’s a challenging paradigm – physicians in the US are not in favor of fixed combinations. We believe we’ll see gradual Soliqua uptake over time, but it needs a lot of education in order to get there. That’s the reason we’re disappointed by the numbers so far, but we feel optimistic about Soliqua overall.

Mr. Oelrich: HCPs are used to sequencing one product after another in diabetes management, so they’re slow to take up a fixed-ratio combination. Physicians tend to move when patients lose control, and what we’re proposing with Soliqua is that they use a different approach, and that’s taking some time in terms of fundamentally changing the way providers treat diabetes.

Q: You touched on Praluent and the ODYSSEY Outcomes study that’s coming. What are your hopes for that trial? What can it do for the commercial situation?

Mr. Brandicourt: We’re hoping to get results by the end of 1Q18. If everything goes well, guidelines should be updated – not immediately, mind you. It will take some time, but after a little while, both FOURIER results and our results should be incorporated into the guidelines, and we should be very clearly positioned in the treatment pathway. That’s what’s missing today. ODYSSEY Outcomes should be a new kick-start for Praluent. At the end of the day, alirocumab is one of the most phenomenal discoveries in CV medicine. In a sophisticated society like the one we have in the US, at one point or another, people are going to want access to it.

Q: But what about the apathy of cardiologists? These doctors don’t just change what they’ve been doing for the past 30-40 years. How do you break through that?

Mr. Brandicourt: It has to be education. It’s us doing our jobs, Regeneron doing its job, and frankly, our competitor (Amgen) also doing its job to break that apathy. The strength of data will make a difference.

Q: Are you looking to do more in digital health, beyond Onduo?

Mr. Brandicourt: We’re looking at digitalization across all work streams – research, development, medical, manufacturing, etc. We have real-world evidence studies on a very sophisticated platform. You’re going to see data generated from this RWE database relatively soon, and you’ll start seeing more and more. We’re going to use digital in commercial activities across the world, including in China, and we’ll be doing that more and more which means less and less of the traditional face-to-face marketing model. That’s what we’re exploring, with pilots everywhere.

Takeda: No Mention of Diabetes or DPP-4 Inhibitor Nesina

Christophe Weber (Takeda, Osaka, Japan)

Takeda’s JPM presentation didn’t offer any commentary on DPP-4 inhibitor Nesina (alogliptin). Recent sales of the DPP-4 inhibitor have been fluctuating in accordance with trends seen for the overall class. More specifically, Nesina sales in Japan have been falling steadily since 2014, as ex-Japan revenue has climbed – this is notable, since DPP-4 inhibitors are among the highest-prescribed diabetes drugs in Japan. TAK-272, a phase 2 direct renin inhibitor for “early-stage” diabetic nephropathy, is under development at Scohia Pharma and was briefly highlighted in presentation slides. However, we could find little information about the candidate and no ongoing trials are listed on ClinicalTrials.gov.

Teva: CEO Outlines Cost Reduction Plan to Save $3 Billion; Company Expects to Close 20 of 80 Global Sites in Next Two Years

Kåre Schultz (Teva, Petach Tikva, Israel)

Teva – the company to file the first ANDA for generic liraglutide (Novo Nordisk’s GLP-1 agonist Victoza), in February 2017 – used its time at JPM to present a $3 billion cost reduction plan to alleviate debt, a significant hurdle to the company’s success in the generics industry. CEO Mr. Kåre Schultz centered his presentation on internal initiatives to increase profitability. As part of what Mr. Schultz called a “realistic, firm plan,” the company expects a 25% reduction of its 80 global sites over the next two years and an ultimate loss of 14,000 staff (see STAT’s recent report on the potential real-world impact of this move). The company will also reconsider its cost-effectiveness and sustainability margins by either discontinuing or decreasing the availability by 10% of certain generic, cash negative medications. While we can’t help but be disappointed at any decrease in availability of affordable medications, whatever the indication, we do hope that Teva – as one of the world’s largest generics manufacturers – can stay afloat and continue to meet the demand for generics. In 2018, Teva hopes to realize cost synergies and make divestments while also continuing to provide 200 million patients with substantial daily quantities of high-quality, affordable drugs. Notably, Teva does have its own specialty pipeline of late-stage respiratory and neuro-focused candidates, garnering six US approvals in 2017; while these represent potential new revenue streams, they also represent both commercialization and development costs, but Teva seems committed to maintaining both its specialty and generic supply streams. Despite recent commercial/financial obstacles, the company remains an influential player in the generics market. Back in 2015, Teva purchased Allegan’s generics business for $40.5 billion.

• Mr. Schultz was previously a member of Novo Nordisk’s Executive Management team. In recent years he has become associated with the high prices of certain medicines – ironic, given he’s the leader of a generics giant. Our understanding is that after 26 years with Novo Nordisk, Mr. Schultz became President and CEO of Lundbeck in May 2015 (notably, before the approval of Tresiba), where he stayed until Teva offered him a $52 million package in September 2017. While Teva believes Mr. Schultz will improve the company’s bottom line, we’re a bit wary of his ability to reverse the financial, strategic, and structural instability at Teva.

ViaCyte: Unveils Third-Gen Cell Therapy for Type 1 Diabetes – Immune-Evasive PEC-QT; Exclusive Interview with CEO Dr. Paul Laikind

Paul Laikind, PhD (ViaCyte, San Diego, CA)

At the Biotech Showcase, ViaCyte CEO Dr. Paul Laikind unveiled plans for third-generation PEC-QT, an immune-evasive beta cell replacement therapy to complement the company’s first-generation PEC-Direct (stem cell-derived beta cell replacement involving immunosuppression) and second-generation PEC-Encap (stem cell-derived beta cell replacement with an updated device that eliminates the need for immunosuppression). PEC-QT would hinge on the development of genetically engineered, immune-evasive stem cells which, once differentiated into mature beta cells, would not trigger an immune response upon implantation (a major challenge of any beta cell replacement therapy). ViaCyte recently announced a $1.4 million grant from the California Institute for Regenerative Medicine (CIRM) to begin work on the development of such stem cells, using ViaCyte’s existing CyT49 pluripotent stem cell line as a starting point. We were excited to hear of this exciting new endeavor in stem cell research when the grant was first announced in December, and we’re even more enthusiastic to now learn that this is in fact the basis of a full-fledged new therapy for ViaCyte.

• “This third-generation strategy is where the type 1 cures field will go,” forecasted Dr. Laikind in a separate interview with our team. He characterized the CyT49 stem cell line as perhaps the “most-studied and best-tested stem cell line in existence.” Importantly, ViaCyte’s PEC-Direct and PEC-Encap already involve inducing beta cell differentiation and implanting cells into the body – Dr. Laikind thus explained that once gene editing techniques render the line less immunogenic, the rest will be relatively easy. We asked about the split of investments between type 1 cures and treatment-oriented approaches like closed loop. Dr. Laikind noted, “I think the field is still hungry for that cure – and we’re excited to be in a position to deliver it.” As he put it, advancements in type 1 diabetes care over the past 100 years have been all about insulin, and while there have been some remarkable improvements, ViaCyte wants to be at the forefront of a paradigm shift in disease management. We note that a type 1 cure is still a challenging scientific proposition, and that all three generations of ViaCyte’s candidate remain early-stage, but we were inspired by Dr. Laikind’s vision for the next wave of disruption in type 1 diabetes.
• Phase 1/2 PEC-Direct is the most advanced and highly-prioritized project in ViaCyte’s pipeline. This therapy involves the use of stem cell-derived beta cells placed in a small encapsulation device that is surgically implanted into the body, where it eventually vascularizes and supports fully-functional insulin- and glucagon-producing islets. The first in-human trial of PEC-Direct is currently ongoing (completion expected in December 2020, with completion of enrollment expected in December 2018), and only last week hit a major milestone with the first patients receiving a therapeutic dose of the islet cell therapy. The major downside of PEC-Direct is the need for chronic immunosuppression to avoid an immune reaction to the implanted stem cell-derived beta cells; given this trade-off, the therapy has been reserved to-date only for a small subset of people with severe hypoglycemia unawareness or other complications of type 1 diabetes (ViaCyte places this estimate at about 10% of the type 1 population). However, if phase 1/2 results are positive, Dr. Laikind suggested that PEC-Direct technology could be expanded to the population of people with diabetes (type 1 and type 2 alike) who have undergone kidney transplants as a treatment for end-stage renal disease, as they are already on immunosuppressive therapy so the use of this to support PEC-Direct would pose no additional risk.
• ViaCyte’s second-gen PEC-Encap is distinguished from PEC-Direct by an encapsulation device that fully encloses the stem cell-derived beta cells, thereby circumventing the trade-off of chronic immunosuppression and making the therapy palatable to anyone with type 1 diabetes (rather than just the 10% with severe complications). However, results with PEC-Encap engraftment have not been as robust or reproducible as expected, related to technical challenges around Foreign Body Response (FBR) to the implant. Dr. Laikind explained that after surgical implantation macrophages hone in on the surface of the PEC-Encap device; they lay down a layer of cells that interfere with the vascularization required on the surface of the device, thus depriving the cells inside of oxygen and nutrients, leaving them unable to thrive. (FBR occurs with the PEC-Direct device as well, but it has no impact on the viability of the beta cells within since the device’s open channels allow easy and direct vascularization of the implanted cells in the device.)  He noted that this finding was not unexpected and clinical work was required to determine how aggressive the response would be. To circumvent this, ViaCyte has teamed up with the materials science company W.L. Gore to develop an improved encapsulation device that has a reduced foreign body response and promotes better vascularization of the encapsulated cells. Dr. Laikind expressed optimism about the progress of this collaboration during our interview. Prototypes in animal models have shown a reduced foreign body response, but the timing for an improved version of PEC-Encap remains unspecified.
• If ViaCyte’s effort to develop immune-evasive stem cells is fruitful, PEC-QT could very well rise to the top of the company’s agenda as an approach to beta cell encapsulation that is both applicable to a wide range of patients and free of the complications of immunosuppression. Indeed, for combining the best of both worlds from PEC-Direct and PEC-Encap, Dr. Laikind predicted that “in the long-term, third-gen PEC-QT will be the last generation” in ViaCyte’s type 1 cure efforts.

Zucara: Outlines Development Plan for Preclinical Somatostatin Antagonist for Nocturnal Hypoglycemia Prevention; Company Recently Received $5 Million Grant from JDRF

Michael Midmer (Zucara, Vancouver, Canada)

Zucara CEO Mr. Michael Midmer presented at the Biotech Showcase, highlighting the company’s potential first-in-class somatostatin type 2 receptor (SSTR2) antagonist for hypoglycemia prevention. Notably, this is not a candidate to treat hypoglycemia, but to prevent it. The SSTR2 antagonist would be given to people with diabetes to sustain the body’s endogenous glucagon response, which counters hypoglycemia. Zucara’s technology is based on the work of leading diabetes researcher Dr. Michael Riddell (York University, Toronto, Canada). The mechanism involves blocking the glucagon-inhibiting somatostatin receptors on pancreatic alpha cells. According to Mr. Midmer, Zucara hopes to position this candidate as a bedtime injection to prevent nocturnal hypoglycemia in particular. Given the stress and worry associated with hypoglycemia overnight (for people with type 1 diabetes and their families/caretakers), this seems like an apt first focus for Zucara’s candidate. Mr. Midmer outlined the company’s strategy for clinical development: (i) a phase 1 safety and PK/PD study in healthy volunteers, with duration <one year (n=21), (ii) a phase 1/2a safety and PK/PD study in people with type 1 diabetes, first in single doses and then following controlled, insulin-induced hypoglycemia (n=36), and (iii) a one-year study in people with type 1 diabetes on CGM (n=135). If results are positive, Mr. Midmer implied that later-stage trials may expand into the type 2 diabetes population and/or the pediatric population. He also mentioned potential use of the drug in closed loop devices down the line. Mr. Midmer didn’t share a timeline for any of these studies, and we imagine some of this depends on fundraising. To date, Zucara boasts $2 million in seed funding and $5 million in additional financing from JDRF (when this investment was announced in September 2017, JDRF didn't specify an amount). Although these are certainly early days for Zucara and for the prospect of hypoglycemia prevention (an ambitious therapeutic proposition), preclinical data on the SSTR2 antagonist has been strong: Pre-treatment with this agent resulted in little to no hypoglycemia after a stimulated insulin overdose in rodents models of type 1 diabetes. We can only imagine the massive improvement in quality of life, peace of mind, and time-in-range for people with diabetes if these results can be replicated in the upcoming in-human studies although overall we believe there is a lot to prove on this front. Zucara’s product could fill a major unmet need in diabetes care, as glucagon is the only therapeutic treatment available today for hypoglycemia, and it’s reactive rather than preventative – that said, CGM and automated insulin delivery fill needs for most patients. Current glucagon products are also extremely cumbersome and error-prone, although next-gen, patient-friendly formulations (Zealand’s soluble dasiglucagon, Lilly’s nasal glucagon) are coming soon. Still, we imagine Zucara’s product could be easily differentiated based on the prevention approach.

• Mr. Midmer estimated the market potential for a nocturnal hypoglycemia prevention treatment at $1-$2 billion/year. This is based on a conservative estimate of three-six million patients (out of 21-42 million people with type 1 diabetes worldwide, not to mention people with type 2 diabetes on insulin) paying $6,000/year for the therapy (comparable to the cost of GLP-1 agonists and SGLT-2 inhibitors today). Given the high cost of hypoglycemia to the healthcare system (nearly $2 billion in 2009 and growing), we could possibly imagine a potentially attractive value proposition in Zucara’s product if it reaches the market though there is a lot of competition on the tech side in our view.

Health Systems and Payers

Baylor Scott & White Health: Overview of Strategies & Mission – Push Toward Value-Based Care

James Hinton (Baylor Scott & White Health, Dallas, TX); Peter McCanna (Baylor Scott & White Health, Dallas, TX); LaVone Arthur (Baylor Scott & White Health, Dallas, TX)

The largest non-profit healthcare system in Texas, Baylor Scott & White Health used its time at JPM to highlight the full scope of the company’s work, including overall strategy, specific past initiatives, and future focus areas. According to CEO Mr. James Hinton, the company relies on a multi-sectorial strategy of affordability, alignment, growth, experience, and health to achieve its mission of transforming into a leader in value-based health outcomes. In 2017, Baylor Scott & White Health saw impressive outcomes: With a team of 48,000+ employees and operating revenue of $9.1 billion (vs. $6.2 billion in 2013), the company effectively served >2.1 million patients. The health system is currently working to expand its Baylor University transplant program – which was established in 1984 and was the site of the first-ever successful liver transplant – to North Texas, Central Texas, and Austin. Baylor Scott & White Health also plans to execute its growth efforts in 2018 by investigating innovative technologies such as vital and weight devices that automatically sync to Epic as well as online scheduling and pre-consultation forms.

Geisinger: Fresh Food Farmacies Spur ~2% Mean A1c Decline; Average A1c for Type 2 Patients Facing Food Insecurity is All-Too-High at 13%

David Feinberg, MD (Geisinger, Danville, PA)

Access to a Fresh Food Farmacy is associated with a ~2% A1c drop for patients within the Geisinger Health System (13 hospital campuses in Pennsylvania and New Jersey, serving ~560,000 people). For comparison, Geisinger CEO Dr. David Feinberg explained that taking two FDA-approved diabetes drugs leads to a mean ~1% A1c decline. Geisinger presented on the top floor of the Westin St. Francis as part of the non-profit track at JPM, and the session was standing-room-only. Diabetes and food insecurity are two massive, overlapping public health problems, and both are unavoidable for Geisinger HCPs. According to Dr. Feinberg, the average A1c for a Geisinger patient with diabetes facing food insecurity is 13%. A prescription for healthy eating goes a long way: For this particular patient population, it has double the glucose-lowering effect of pharmacotherapy and reduces monthly healthcare expenditures by 78%, from $18,000 down to $4,000. These numbers make a compelling case for the value of healthy food access and education on healthy diet and lifestyle. We hope that policymakers and city planners are paying attention to figures like this. Eliminating food insecurity and food deserts should be high on the policy agenda at the local, state, and national level, as this could have a dramatic beneficial impact on diabetes, prediabetes, and obesity rates, also cutting down healthcare spending. We’d also love to see more health systems incorporate healthy food stores to ensure access – Geisinger has shown this to be cost-saving, and given that most diabetes therapies are indicated as adjunct to diet/lifestyle modification, healthy food access seems critical to optimize diabetes care. Dr. Feinberg shared three stories to show that patients and families are at the center of all of Geisinger’s health services. He underscored that quality of life is one of the most crucial outcomes in healthcare, and his presentation was a fantastic overview to Geisinger’s integrated health services model.

Humana: Focused on Home Care and Remote Monitoring to Help People with Diabetes, Other Chronic Diseases

Bruce Broussard (Humana, Louisville, KY)

Humana CEO Mr. Bruce Broussard highlighted the company’s commitment to home healthcare and remote monitoring services as a means of alleviating chronic health conditions like diabetes. Notably, the company has partnered with Kindred at Home, the largest home health provider today, to provide home-based treatment that encourages patient engagement and also lowers the final cost of insurance. Mr. Broussard posited that the current healthcare system is simply unequipped to administer chronic care. He further emphasized the urgency of healthcare provisions for people with diabetes in particular when he stated that the typical $800-$1,000 per-treatment fee increases four-fold when a diabetes patient does not receive sufficient early healthcare. According to Mr. Broussard, this fee excess is due to complications, namely amputations and blindness, that result from inadequate care. Both of these complications are avoidable with diligent monitoring and patient education around foot care and eye care, so it’s particularly disappointing that these negative outcomes persist – and it underscores the critical need for earlier intervention and better secondary prevention strategies, in terms of cost-savings and patient wellbeing. That Humana is focused on this patient population, calling out diabetes specifically in its JPM presentation, is noteworthy (though not surprising, given this is the biggest public health problem affecting US payers, providers, etc.). We heard no commentary from Mr. Broussard on Humana’s $5 million equity investment to Livongo in 2016, a contribution that increased Livongo’s Series C to $49.5 million. As background, Humana initially established Livongo in October 2015 to connect diabetes educators to people with diabetes. We are pleased to see Humana’s dedication to providing more extensive, patient-centered services for individuals living with chronic conditions.

Northwell Health System: Emphasis on Telehealth; Mission to Reduce Healthcare Costs

Michael Dowling (Northwell Health System, Great Neck, NY)

Northwell Health CEO Mr. Michael Dowling presented the strategies and telehealth initiatives ongoing within this largest healthcare provider in the New York metro area (with an annual average of 4.3 million patient visits). Northwell Health is also the first integrated health system in New York. Mr. Dowling described Northwell Health’s focus as the advancement of clinical care delivery, education, research, population health, community health, and ventures in order to attain its primary goal – decrease in the cost of care. Among the company’s numerous innovations are The Fin, the first 3D printed prosthetic limb for both water and land use, as well as NeuroGuard, a device that signals the simulation of uterine contraction-monitored pathways. Northwell also launched “The Well” this month (after JPM 2018 had wrapped), a consumer-focused digital health and wellness website – this platform speaks to the company’s commitment to “future care” that is more proactive rather than reactive, improving people’s quality of life and also reducing overall healthcare costs. Northwell Health hopes to advance bioelectronic medicine and paralysis research with various partners in the healthcare industry. Senior Vice President Dr. Martin Doerfler spoke to the company’s pursuits in telehealth delivery. He first highlighted the overwhelmingly positive impact the telehealth industry has made; as demonstrated in the presentation, Emergency TelePsychiatry has resulted in an 88% decrease in consultation time. Mr. Doerfler also stated that the expansion of telehealth – particularly with respect to the development of novel data intelligence – will be a priority for the company in the future. We are encouraged by telehealth’s influence thus far and remain excited to see the opportunities that this industry will create for people living with chronic conditions like diabetes. That said, as you’ll read in our coverage of Teladoc at JPM above, telehealth endeavors specific to diabetes (and more broadly, chronic disease) have been less-than-successful. We of course understand the additional challenge of providing remote, chronic care vs. a one-time or shorter-term treatment plan, but we’d love to see companies double down on efforts into figuring out telehealth solutions that work for diabetes rather than focusing telehealth elsewhere. After all, lower-cost remote care that helps patients with diabetes could be very high reward, helping a high number of people (given the size of the epidemic, and the concentration of the disease in low-income, harder-to-reach areas), and making a more meaningful dent in terms of cost-savings.

Keynote Sessions/Additional Topics

Mr. Bill Gates Argues for More Investment in Diabetes & Alzheimer’s, Shares Excitement for Microbiome Research (and What It Could Mean for Understanding Obesity); Interview with Dr. Sanjay Gupta on Investment+Philanthropy Model of Bill & Melinda Gates Foundation; Full Transcript

Bill Gates (Bill & Melinda Gates Foundation, Seattle, WA)

Mr. Bill Gates drew overwhelming and impressive crowds to his lunchtime keynote, though the real highlight for us came when Dr. Sanjay Gupta joined onstage and Mr. Gates discussed the disappointing state of funding for diabetes. Dr. Gupta questioned whether all diseases should have a cure, as death is inevitable. He called out Mr. Gates’ personal commitment of >$100 million to Alzheimer’s research, and asked how he chooses where to focus his efforts. “There’s been a huge emphasis on orphan diseases and you can argue that diabetes and Alzheimer’s should have even more of the research dollars than they do,” Mr. Gates said in response. “Through an economic lens, the cost to the US taxpayer of diabetes and Alzheimer’s are growing over time and it’s fairly dramatic: The person at CMS who spends that money should make sure more money is going into these areas.” The disconnect between diabetes-related healthcare costs and investment is not exactly news to us (according to IDF’s 2017 Atlas, one in eight global healthcare dollars is spent on diabetes – that’s $727 billion in direct costs alone). Nevertheless, it’s so crucial for this message to spread, and we were so glad to hear it from such a respected voice in healthcare on such a prominent stage. The connection between diabetes and Alzheimer’s disease is also receiving more attention of-late (GLP-1 agonist liraglutide is currently being investigated in Alzheimer’s). Still, Mr. Gates emphasized that as long as HIV, malaria, and TB exist (infectious diseases), he won’t be satisfied. He explained how the returns are much higher when you focus on the health of the global poor (while diabetes/obesity also disproportionately affect low income populations, it is the view of the Gates Foundation that the current players invested in diabetes should be able to address these areas and that other diseases are more appropriate for Gates Foundation investments).

• The Bill & Melinda Gates Foundation is funding work to better understand the microbiome, and this could definitely have implications for next-gen diabetes/obesity treatments. Mr. Gates highlighted microbiome research during his keynote, suggesting that this could be the Foundation’s most impactful area. As he put it, “there’s almost no disease someone isn’t trying to help with the microbiome,” so unraveling answers here could have far-reaching benefits to health, across diverse diseases states. Mr. Gates discussed the microbiome’s interplay with both over-nutrition and malnourishment. “Scientific insights that help solve the problems of obesity and malnutrition are likely to have a lot in common” – we were intrigued by this assessment from Mr. Gates. Microbiome research can sometimes feel slow in the diabetes/obesity world, with lots of talk around basic science but few developments that will directly benefit patients. On the contrary, this keynote offered inspiration that real progress and new therapies are indeed coming from a sharp scientific focus on the microbiome.
• Mr. Gates outlined the Foundation’s philosophy of simultaneously targeting areas of greatest need and areas of greatest potential impact – the “low-hanging fruit” – by directing innovation and product development toward global health. He underscored that great progress has been made in improving global health, but that there’s still a long way to go. Since 1990, global under-five mortality has been cut in half, but Mr. Gates aspires to halve the remaining five million deaths per year again in the next 15 years – to a 2% mortality rate. As all population growth to 2050 is projected to occur in Asia and Africa – and as poverty is concentrated on those continents – the Foundation has focused efforts on stabilizing these markets, promoting health, but also sanitation and better agriculture. Meanwhile, the largest Foundation initiative in the US is focused on education. Interestingly, Mr. Gates characterized some progress as precarious: While governments stepped up to confront the HIV epidemic, he argued that we’re only holding the line with prophylaxis and good treatment, but without continued breakthroughs and generosity, infection levels and mortality could spike again. In this vein, Mr. Gates characterized vaccines as the Foundation’s greatest area of success. He noted progress in new vaccines (e.g. pneumonia) as well as progress made in establishing infrastructure to distribute vaccines; moreover, the Foundation has incentivized vaccine manufacturing by promoting new technologies (e.g. mRNA vaccines) that drastically shorten development time and reduce cost.

Full Transcript

Global health is the key priority for the Gates Foundation. For the last eight years, my full-time work has been making sure we’re doing the best we can to drive forward big progress. The exciting thing is that it is going extremely well – and it’s going well in developing countries. Since 1990, childhood mortality has been cut in half worldwide; we’ve made progress with new vaccines, getting them out there for pneumonia, and on malaria, with bed nets and new drugs. This is a phenomenal story and in the next 15 years we want to cut the remaining five million yearly deaths under age five in half again – to a 2% mortality rate, which is still too high.

HIV is no longer a death sentence. Tens of millions are under treatment, partly because of great generosity from governments like the United States financing drug access. On neglected diseases – not really neglected anymore – we have great new tools and new hopes to eliminate disease. There’s a lot of positive momentum, but more still to be done. And what we need is more innovation.

I’m here to talk about models, and how we can partner more smartly with universities, startups, and pharma to lead to even more progress. Getting medicine and vaccines out is about the financing and delivery system. Today, the bottleneck is very much on the innovation side, but the tools and discoveries your companies are working on can help save millions of lives.

On a basic level, funding research is a key element. In the US, the NIH is phenomenal in terms of the funding it receives. Research dollars are growing in the US – and they should grow more – but also in Europe and now in China, who are putting money toward diseases of the poor. Philanthropy also comes in. When it comes to backing high-risk science, philanthropy plays a huge role and compliments public funding. But really, it’s the private sector that has the skills and capacity to turn things into viable products. Just having insights at an academic level isn’t going to get us there. We need people to understand all stages, from manufacturability to cost reduction, and the best of both worlds is brought together in the biotech sector.

We focus on poor countries, mostly in Asia and Africa. The population in Africa is expected to go from 1.25 billion people today to 2.52 billion in 2050. Most of the global increase is happening in Asia, and the rest is literally all in Africa. From a strategic point of view, with regard to stability and tapping into potential markets, these developing countries will be, by far, the target patient pools in the world. We also work on sanitation and agriculture, and here in the US on public education. Most of our work is through grants, including more than $12 billion over the last five years to a variety of organization and institutions, but we also invest and drive innovation in the private sector through a variety of partnerships.

We’ve really accelerated the introduction of vaccines – I think this is definitely where we’ve had the greatest success. Other exciting areas include long-lasting contraception (where we’ve funded a low-cost three-month tool), and we’re now changing first-line antiretroviral treatment to a protease inhibitor that’s far less likely to lead to disease resistance. We have partnerships with regulatory entities: We work closely with the WHO, but we’re also working with regulators in China and Africa. Historically, they’ve worked fairly slowly – the registration process is four-seven years in low-income countries. But now China is willing to consider evidence from trials conducted outside the country, which should significantly speed things up and is very valuable in pulling them in as a market participant and contributor to innovation.

Look at the research agendas in biotech and pharma. There’s convergence in some of these things. Probably the best example is harnessing the immune system to tackle cancer, which is also related to infectious diseases. In the area of the microbiome, we care immensely about malnutrition and understanding the pathway of gut inflammation, which causes oral vaccines to stop working, as well as wasting and stunting. Understanding those mechanisms in the microbiome is important to us. Then there’s the whole idea of cognitive development and how you measure that. Scientific insights that help solve the problems of obesity and malnutrition are likely to have a lot in common. Literally, the discoveries in your lab could help save millions of lives. There was a recent article in the Wall Street Journal with the heading “How HIV Became a Cancer Cure” – researchers have been able to apply breakthroughs in HIV to work on cancer. I hope the headline will go the other way, “Immuno-oncology Helps Cure HIV.” We’re sort of holding the line in HIV with some prophylaxis and good treatment, but without breakthroughs and continued generosity, things could go back to levels of peak infection and death. We hope immunotherapy research with cancer will give us the ability to cure and treat all these diseases.

A great example is an effort put together with some venture capitalists who helped raise over $500 million for Vir Biotechnology, with a focus to discover and develop treatments for infectious diseases. We’ve also invested in Immunocore, which is using T cell technology to help stimulate the immune system – they originally targeted cancer, but this technology can also be applied to infectious diseases. There are also companies using mRNA for vaccine development, with clinical programs in malaria, flu, and Zika, which are all very important for global health. mRNA vaccines are likely to be cheaper, faster to develop, and thermostable, so these mRNA approaches could shorten development time to months. If we have a fast-moving airborne pathogen, getting that number down could make all the difference.

Another problem is health within the first 30 days. Although we’ve seen a huge reduction in childhood mortality, almost half of the five million annual deaths in children under five occur in the first 30 days, due to a variety of causes. There’s a lot we don’t understand about the vulnerabilities of newborns in poor countries. Understanding what drugs or treatments would make a difference is a big hurdle. What we’ve done is create a new type of minimally invasive autopsy – we take a few biological samples that don’t deform the body and we get a high percentage of parental permission. We look at them with diagnostic tools and the best pathologists to get insight on what exactly is the etiology of death in the first 30 days. Is it a matter of maternal vaccination? Keeping the child warm? How do we get the same reduction there? We do know that preterm birth is one critical element; it explains over half of newborn deaths, and also worse lifelong outcomes. So little research is being done on preterm birth, and even in rich countries it remains a significant challenge – can you predict preterm birth and intervene? We’re just getting the first blood-based diagnostics for this, but we also need to understand more about biology to understand what interventions can help a mother during pregnancy. There’s a strong correlation between selenium deficiency and preterm birth. We’re funding a cheap intervention study and hopefully that supplement will reduce incidence of preterm birth, which is far more common in developing countries.

The gut microbiome is exciting due to its interplay with nutrition. There’s almost no disease someone isn’t trying to help with the microbiome. Malnourishment seems to involve getting into a state where you can’t absorb nutrition, which hurts physical and mental development. This could be, perhaps, more impactful than anything we’ve done on disease. Super sterile development seems to make people susceptible to all sorts of diseases later in life; pure dietary interventions can make a difference. We’re using everything from probiotics to locally-available nutritional foods, and even fecal transplants.

We need to be able to track development and understand where kids fall behind. You can look at longitudinal records and figure out where the problem is, what’s going on, and if you can ever catch up. 250 million children under the age of five don’t fully develop cognitively or physically. We’d love a low-cost tool to look at this – stunting doesn’t really get at what’s going on in brain. There are now amazing imaging tools we hope to use in trial settings, and early data shows real promise with these.

Free markets plus some governmental and philanthropic support can really help to accelerate the progress we’ve seen. Things like, for example, using gene editing to create an HIV cure is not going to happen soon, but we can invest millions in that if it’s a promising approach. We can help provide more predictability to companies interested in entering markets by making volume and price guarantees. We can take risks and create large demand out of developing countries. It’s possible to be very optimistic – imagine a world where tuberculosis is not killing 1.5 million people a year, where treatments for HIV can be brought to a close. The last 25 years have been great; let’s accelerate and see double that in the next 15. Achieving health equity in a lifetime is not just a possibility – it’s almost an imperative. Everyone deserves a chance to live a healthy and productive life.

Dr. Sanjay Gupta: We’ve talked about relationships with private companies and looking for promising technologies to translate to global health issues. Does that ever not work? What are your greatest successes?

Mr. Gates: It has worked a high percentage of time. We did an advance market commitment for a pneumococcus vaccine if they would adapt serotypes for the developing world environment and bring the cost down, and now it’s getting to most countries in the world. One that hasn’t paid of yet? We helped fund a company that looked like it could make a low-cost malaria drug and get rid of vulnerability and high cost, and we’ve been partners in trying to get yields up. There’s still promise. Anacore Pharmaceuticals was working on drugs that use boron, which we thought promising because those classes had historically high success rates – Pfizer bought them so it was a commercial success at least.

Dr. Gupta: In the scientific world, you know what’s promising – you go through trials and verify early results. When you do things early on, how do you find something promising?

Mr. Gates: Everybody’s trying to come up with some assay or test to make decision about whether something will work early on. We’re funding this mouse that has part of the human immune system. For some of our disease areas, like malaria, we have a human challenge model: People volunteer, take our intervention, and they get their arm bitten by carrier mosquitoes – and we literally see who develops malaria. If you’re smart, you find the thing that is risky, and before phase 1 or 2 you have an understanding of what’s going to work. We’re no different – we have a huge number of failures. But there is a lot of low hanging fruit out there. For many of these diseases, there just hasn’t been that much work done. If we can get the latest tools involved, there’s a good chance of success.

Dr. Gupta: Things may not always be profitable, even with price guarantees. With this group, what is the incentive for them to get in?

Mr. Gates: Not many here would go directly after malaria, but maybe they would do vaccines. If we see that a vector or adjuvant may be applicable in a malaria vaccine, and we can come in with not just money but with scientists who understand vaccinology and be a sophisticated long-term advisor to the company. We have a bias towards the technology being very low cost. You often end up with tiered pricing where the developing world is partitioned off, and we negotiate an access agreement for them.

Dr. Gupta: Public funding helps unlock the private sector’s ingenuity. Public funding has been flat over the last few years; they wanted to cut the NIH by 22% last March. How worried are you about public funding?

Mr. Gates: I thought it was impressive that Congress didn’t really consider it at all, and with the 21st Century Cures Act they went in the other direction. The US has borne a high percentage of basic science funding in biology, but over time more countries will become significant. I was one person, of many, going to congress saying how crazy it would be to cut the funding. And I don’t think it’s a big risk. Funding is growing in the UK and Germany, and China has the most new stuff going on.

Dr. Gupta: China’s funding over the last 10 years increased 33%. By 2022, it’s expected to surpass the US.

Mr. Gates: That’s a goofy way of doing the measurement. They don’t partition public funding and funding to companies, so it’ll be longer either way…but the red scare is fine if it causes us to raise our NIH budget.

Dr. Gupta: Whether a decade or five years, we consider ourselves the world leader in biomedical research. Should we feel threatened?

Mr. Gates: Well I’m glad people think of it like football, with one winner and one loser. If I have cancer and there’s a pill that comes from China, I’m very happy. We should tune up our game with more young scientists, big data, and AI. With the US and computer science, the whole thing in the 1980s was that we thought Japan was doing all this great stuff, but it was a complete mirage. Still, it got us to think about DARPA funding and led to an incredible period of US leadership. In biology, it’s a game where you want more people to play. The Alzheimer’s budget alone in the US is five times what all Europeans are putting in. We’re still in a strong position in terms of quantity and quality.

Dr. Gupta: Is there an obligation to make sure money trickles back into the government if public funding leads to a commercially successful product?

Mr. Gates: There’s a line between the competitive stage of building proprietary assets and just basic science research. When public funding is given, the current system I think works very well. Drug pricing is a tough area, and we’re not sure what the algorithm should be. It’s very hard work, and we need to do more work. It’s not easy to come up with a right answer.

Dr. Gupta: Immunology and immunotherapy have recently gained approval for cancer. That story is 100 years in the making. It took a long time to go from bench to bedside. Do lessons in your principles of innovation apply?

Mr. Gates: The cycle of innovation in the digital space is really very quick, and it creates envy in any other industry. We’re working with FDA on innovative trial design. Tuberculosis is a triple drug regimen and benefits come from that makeup. The idea of individually trying each of those drugs would take so long and would be incredibly expensive. We need the gold standard regulators to be open-minded about new approaches and more dynamic trials, and we’re getting some receptivity. Even with a perfect reform, we might get a 20%-30% reduction in the amount of time involved, unless someone comes up with a flawless side-effect prediction model. We’re envious of the speed at which new drugs get approved in energy technology. Each industry has a different cycle. Middle income countries like China, Brazil, and India have a need for innovation. In many areas, they have duplicated what high income countries did. In Medicare though, they can’t afford the same medical costs – so they’re forced to innovate. It will be interesting to watch; it’s likely they’ll try new things.

Dr. Gupta: You committed at least $100 million to Alzheimer’s, outside of the Foundation. I don’t want to sound dark, but should all diseases have a cure? Death is still going to come to all of us. How do you decide what to focus on?

Mr. Gates: There’s been a huge emphasis on orphan diseases and you can argue that diabetes and Alzheimer’s should have even more of the research dollars than they do. Through an economic lens, the cost of diabetes and Alzheimer’s to the US taxpayer is growing over time and it’s fairly dramatic. The person at CMS who spends that money should make sure more money is going into these. Alzheimer’s is so widespread – you just can’t argue against more resources. There are some people who want to extend life, some here in Silicon Valley, but as long as you have HIV, malaria, and tuberculosis I think it’ll take the rest of my life before I can say we’ve made so much progress on infectious disease that I can turn fully to something else. There are just super high returns on focusing on the health of the poor right now. In 20-25 years, if we’re down to 1% under-5 mortality, that’ll match the US in 1980.

Dr. Gupta: Now I have some rapid-fire questions. What do you do in the first hour of your day?

Mr. Gates: I don’t eat breakfast to save time and calories. I have a cup of coffee and hope to make it to my first appointment on time.

Dr. Gupta: What’s a job you would be terrible at?

Mr. Gates: I’m not good at firing people, and I wouldn’t want to be a salesman with some quota. If it’s repetitive, I doubt I’d be good at it. I’m very spoiled. I get to meet smart people and learn all day, so most jobs would not be attractive to me.

Dr. Gupta: What’s your greatest extravagance?

Mr. Gates: I don’t fly on commercial airlines. I highly recommend it.

Dr. Gupta: What’s something you almost gave up on but are glad you persevered with?

Mr. Gates: Polio eradication has been much tougher than expected. We started in 1988 and expected to be done by 2000. As late as 2007, we still had thousands of cases in India. The funders considered backing off. We were giving maybe 10%, and there was a real question of whether to give up. It would have been tragic. Polio is a very tough disease. Smallpox has unique, quick symptoms. With polio, people show up with acute flaccid paralysis and most cases don’t cause that – so it can move long distances before you find cases. And the vaccine is not perfect in a number of ways. We knew we’d have to put a ton more money in and we would be the last people funding it, but we doubled down in 2007. By 2011, polio was cleared from India and we got to zero cases. We really underestimated how tough the terrorist zones would be – only Afghanistan and northern Nigeria, where there’s Boko Haram, still have cases today. There were 17 wild type cases last year. If we can maintain that stability over the next few years, it’ll probably be a success.

Q: There’s real power with mobile phones to make diagnostics available in low resource settings. How do you think that’ll play out?

Mr. Gates: The promise of the cell phone in global health is huge. The real execution of what indications it’ll work well for, training, and service coverage has been a challenge. Within a decade, all primary care workers will have a phone and will be getting feedback from patients, and we’ll understand who came back for immunizations and the like. The camera shows a lot of promise for things like bilirubin diagnostics, and even cervical cancer. Even with the HPV vaccine, hundreds of millions won’t get the benefit from that. We have to do something cost-effective.

Q: Would you ever consider running for president, and could you talk about what you’re doing in agriculture?

Mr. Gates: In terms of running for president, the term length is too short. In terms of agriculture, most poor people are subsistence farmers with depleted soils and challenges from climate change. There you see the most acute malnutrition – they’re farming probably one cereal crop and one legume with very few eggs or meat. One of the greatest successes was in the 1960s and 70s when Ford and Rockefeller more than tripled the productivity of rice, wheat, and maize. In Africa, it never really happened because the ecosystem is so broad and the seed market doesn’t work the same way. We’re trying to do more with the crops important for African subsistence. We also do animal vaccines and genetics. US heifer cows produce 20x the milk of African cows, but pathogen challenges and heat mean you can’t just send them over there. We do cross-breeding for African characteristics and some more milk productivity – it’s so obvious but no one is really investing in it.

FDA Digital Health Pre-Cert Program Proof of Concept in Late 2018; Bakul Patel on Agency’s Learning Mindset, Flexibility with Reviews, Five “Excellence Principles” for Developers

Bakul Patel (FDA, Bethesda, MD)

At Health 2.0, FDA’s Mr. Bakul Patel shared encouraging perspective on the Pre-Cert program for digital health software companies, which aims to present a program proof of concept in “late 2018.” Mr. Patel said the FDA’s main goals are to enable patient-centered public health, foster trust in innovate technologies, partner with customers to be “digital-future ready,” and ultimately change the vocabulary from “highly-regulated” to “rightly-regulated.” The pilot began in September, site visits to the nine pilot companies just finished, and there will be a public workshop January 30-31 – Mr. Patel described the meeting as “using the public as a 10^th participant to inform what this should look like”…awesome! Over the next year or so, the FDA digital health unit will continue to lay parameters to define organizational excellence, and figure out the optimal ways to conduct streamlined reviews and collect real-world data to assess outcomes. A top priority for FDA is to be learning and iterating all along the way, and it was evident that there is much to be learned – we definitely don’t view this as a negative, especially as Mr. Patel and other FDA leaders (e.g., Commissioner Dr. Scott Gottlieb and CDRH Director Dr. Jeffrey Shuren) are open-minded and focused on efficient regulation. Mr. Patel expressed interested in exploring alternative review processes (not “a traditional way of submission”) and aligning regulatory strategy to native business practices and nascent business models. When prompted, he also agreed that his approach to digital health software regulation is akin to that an investor would take; FDA is investing in those companies that it thinks could be trusted to safely go to market. He even went so far as to suggest that FDA would “want to make sure” that when companies are evaluated by other parties such as investors, the Agency leverages those data and conclusions. Wow! The readiness and desire of the device/digital health division of FDA to work with disparate stakeholders is impressive, and could cut out inefficiency and allow vetted companies to move faster. FDA is certainly overburdened – and it will only get worse as medical devices become more digital – but innovative programs like Pre-Cert give us hope. We look forward to hearing more on next steps from the pilot companies – which were intentionally selected to range from a small nonprofit to mammoths like Verily, J&J, and Apple – and will be at the public workshop later this month!

• Mr. Patel laid out the five “excellence principles” which, if companies prioritize, will enable streamlined review. They are: (i) patient safety; (ii) product quality – commitment to development, testing, and maintenance; (iii) clinical responsibility – commitment to responsibly conduct clinical evaluation and ensure that patient-centric issues including labeling and human factors are appropriately addressed; (iv) cybersecurity responsibility; and (v) proactive culture – with respect to surveillance, assessment of user needs, and continuous needs. We imagine most companies that have any business launching a regulated digital health software (especially the nine in the pilot) already have strong practices in place on all five principles, but it will be interesting to see how FDA initially evaluates and continually monitors performance in each.

Digital Health Investors: “End of the Beginning” (Rock Health), Pharma’s Challenges, Provider Focus, Reimbursement Fallacy, Key Barriers

Amy Belt Raimundo (Kaiser Permanente Ventures, San Francisco, CA); Ardy Arianpour (CĒQSTER, San Diego, CA); Pavel Khrimian (MedImmune, Washington, DC); Andy Lam, MD (Uprising Ventures, San Francisco, CA); Klaus Stoeckemann, PhD (Peppermint Venture Partners, Berlin, Germany); Megan Zweig (Rock Health, San Francisco, CA)

An excellent investor panel riffed on the current state of digital health investing (“the end of the beginning”), touching on 2017’s trends, hard lessons learned, the balance between reimbursement and showing traction, barriers, and more. See the best quotes and takeaways below from Kaiser Permanente Ventures’ Amy Belt Raimundo (an investor in Omada), CĒQSTER’s Ardy Arianpour (focused on EMR interoperability), MedImmune’s Pavel Khrimian, Uprising Ventures’ Andy Lam (investor in Virta Health), Peppermint Venture Partners’ Klaus Stoeckemann (investor in smart pen company Emperra), and Rock Health Director of Research Megan Zweig.

• Ms. Zweig reviewed the key trends in Rock Health’s 2017 year-end US digital health funding report: “It’s the end of the beginning for digital health. We’re entering the middle innings as an investment space.” US digital health funding hit an all-time high of $5.8 billion in 2017, up 32% from 2016. The number of deals increased at a smaller rate, meaning the average deal size grew to $16.7 million. As in the prior quarterly reports, Ms. Zweig noted that bigger investments and more mega deals were the trend this year: eight companies raised more than $100 million in 2017 (Outcome Health, Peloton, 23andMe, Modernizing Medicine, PatientPoint, Alignment Healthcare, patientslikeme, and sharecare). Ms. Zweig noted that these companies were founded ~10-11 years ago, meaning they’ve now reached a point of maturity where larger investment are warranted. Notably, exit activity slowed down in 2017 – there were no IPOs and acquisitions declined. She later noted “acquisitions are the new IPO… I don’t see the IPO market heating up a lot.” Interestingly, more than half of the year’s investors were repeat investors. All of these trends, she implied, point to a field that is maturing from prior years, but still has a ways to go.
• “We’ve learned the hard way that even if you achieve reimbursement of a digital solution, that doesn’t mean you see market uptick. You always have the doctor, patient, and nurse. A startup has to control all of those. There is this illusion that if you have a digital solution, you just need reimbursement – that was quite naïve. We see plenty of companies doing this, but many solutions are not adopted. What we have changed now is before we push reimbursement, we try to work on product design and interacting with the customer earlier on. Then we go the other way around. We’ll have to see if that is successful. For instance, Germany is not a large self-pay market. But even then, it’s good to show product is meeting needs of customer.” – Mr. Klaus Stoeckemann
• MedImmune’s Pavel Khrimian (part of AstraZeneca) shared insight into how one pharma player is thinking about digital health – running trials better. “As a general blanket statement, it’s all about data: how do we capture data, analyze it, and put it into action. From pharma, we have a different angle. Those days of a drug taking 15 years to get to market and spending $2 billion to get approved? I think those days are coming to an end. That is no longer acceptable. For companies like Medimmune as part of AZ, digital allows us to look at different ways of running trials. 80% of our trials fail to retain patients. 80% fail to finish on time. There is a 30% dropout rate. Those are industry-wide problem. We have no choice but to do this (digital health). We spent about a year trying to define what “digital health” even means. We’re still trying to define that. Part of it is running trials more efficiently, capturing data with connected devices, sorting/structuring it, and making some predictive calls as you run trials. That is of interest to our company.”
• When discussing Virta Health, Uprising Ventures’ Andy Lam focused on two pieces: great science + digital data/connectivity. “We’re looking for a paradigm shifting scientific breakthrough, combined with data collection and analysis – those unique things that digital health is going to provide. For instance, with Virta Health for diabetes, it’s taking digital/mobile aspects to have continuous monitoring that provides better feedback to patients and support from doctors. On top of that is this big push that takes a different approach to nutrition. We’re also invested in Kaleido, a microbiome company. They have made some big scientific breakthroughs in how they generate molecules in the microbiome space. They also have heavy innovation in data generation and on the analysis side. The data is super exciting. We’re looking for a combination of that and scientific breakthroughs.”
• “[When selling to payers/health systems] the sales cycles are long…and when you pilot in a single hospital, it’s difficult to get to scale. Implementing a product at a single hospital doesn’t scale easily – every system is different. A payer can more easily scale a product across its entire member base.” – Ms. Megan Zweig
• On IPOs vs. acquisitions: “I think we’ll see more sales than IPOs. There are only a handful of digital health companies that have proven they can build a sustainable business, with enough cash flow that generate value – and not just paper value. We believe trade sales will be the most common exit. Consolidation absolutely needs to take place immediately. For society, having so many redundant digital health products is boring. Either they go bust or join forces and move ahead.”
• “One of the data points in the Rock Health report is that ~60% of companies are targeting the provider. At Kaiser, we also want to solve problems for our members on three axes: quality, affordability, accessibility. Those last two are really interesting in the context of digital medicine. We’ve made two investments in mental/behavioral health [Omada, Big Health]. It’s not just providers that are an issue. For instance, 9am-5pm is not usually when you have a challenge associated with mental/behavioral health. Digital allows around the clock access to CBT, telemedicine – it can get you to the right level of folks.” – Ms. Raimundo

Qualcomm Life’s Rick Valencia: We Are to Healthcare Where Pong is to Computing; 5G Will Help Accelerate Progress; Role of Digital Therapeutics vs. MD?

Megan Coder (Digital Therapeutics Alliance, Arlington, VA); Newton Howard (ni2o, Cambridge, MA); Mary Lou Jepsen, PhD (Openwater, San Francisco, CA); Aaron Nelson, MD (Novartis Venture Fund, Cambridge, MA); Joanna Schulman (AIDIA Collective, San Francisco, CA); Rick Valencia (Qualcomm Life, San Diego, CA); Anne Smart (ClearView Healthcare Partners, Newton, MA)

On a Digital Medicine and Medtech Showcase panel, Qualcomm Life President Mr. Rick Valencia likened the current state of digital health to that of Pong in the history of computing – that is, it feels remarkable, but we’re actually in a very early stage and we can expect things to start moving much faster from here. In his and other speakers’ minds, 5G –  the backbone for greatly improved data transfer speed and computing power – will play a big part. Of course Qualcomm is building the technology, but Mr. Valencia said that the 5G network was built to enable the tech side of healthcare, meaning a much greater number of connected devices and sensors. Openwater’s Dr. Mary Lou Jepsen wondered how 5G will help get us to the point of “streaming healthcare” (meaning more accessible and cheaper). Novartis Venture Fund’s Dr. Aaron Nelson added that technology is driving convergence of the digital and healthcare worlds, but the obtuse, Byzantine nature of healthcare business models is resisting the change. Ms. Megan Coder (Digital Therapeutics Alliance) believes that payers are more engaged today and willing to cover products that have demonstrated outcomes. Though she thinks scalability will be a big issue, she’s pleased at how quickly digital health is being implemented to empower patients and build community in healthcare. The question of scalability always comes up, and like hypoglycemia, we’d liken it to baseline – how scalable is diabetes care right now, and how much more scalable will even the most basic digital health make it? With the convergence of tech and healthcare, though, ni2o’s Prof. Newton Howard wondered aloud where traditional care models and doctors stand? He pointed out that, no matter how accurately IBM Watson can diagnose illness, it still lacks the common sense and compassion of a human doctor, and he sees a combination of the two as the right direction (i.e., doctor-mediated diagnostic technology). On the contrary, Dr. Jepsen said that doctors are expensive, and tech should focus on scaling doctors to serve more people; by insisting on “white glove treatment,” people of lower socioeconomic status miss out on healthcare that can come through a smartphone (a “perfect shouldn’t be the enemy of the good” argument). For her part, AIDIA Collective’s Ms. Joanna Schulman drew a distinction between ongoing care that can be provided digitally – especially important in rural areas – and other, more acute care where a sense of trust in and compassion from doctors is valuable. We appreciated this comment – currently, there is a place for both digital health/AI and medical doctors, but over time, we wonder if the balance will shift more towards automation, or at least automation that empowers non-MDs to deliver care. The future role of the doctor/care team is anyone’s guess at this point, but we certainly need to do something different, given rates of burnout and admin headache.

Full Transcript

Ms. Smart: Let’s start by having everyone introduce themselves.

Ms. Coder: I’m a pharmacist by training, but I married into the Coder name and pivoted my career. At the Digital Therapeutics Alliance, we’re hoping to define this merging industry and find some best practices and frameworks to bring digital therapeutics into mainstream healthcare.

Dr. Howard: I’m a professor at Oxford where I founded a neurocomputation lab, and I was at MIT before that.

Dr. Jepsen: I quit my job at Facebook in advanced consumer electronics to start a new company in healthcare. I’ve also found a way to leverage the trillion dollar electronics industry in China, which helped me cofound One Laptop Per Child, making the $100 laptop. Now I’m making a wearable with MRI+ resolution at a consumer electronics price point – potentially a thousand times cheaper.

Dr. Nelson: I’ve been at Novartis almost 9 years, which is one of the world’s largest pharmaceutical companies. I’ve have the pleasure of collaboration with Qualcomm to launch dRx Capital, and I’m currently working with biotech in the Novartis Venture Fund.

Ms. Schulman: We develop behavioral modification immersive therapeutics with VR, AR, gamification, and AI. I’m a cognitive scientist but have spent most of my career in all the things Aaron is doing now in biotech and other life sciences.

Mr. Valencia: I won’t fault you if you’ve never heard of Qualcomm; we make the chips in your phones and tablets and also license that technology. Six years ago, we launched Qualcomm Life, a healthcare effort that enables the technology that gets data from patients back to doctors to deliver better care. We have a platform in hospitals around the world, a homecare platform, and something in the middle. If a patient is ill and recovering, they don’t have to be discharged to go  home – they can be sent home and still monitored. I’m impressed than this panel has no men named Michael, but also even more women than men.

Ms. Smart: We work with companies every day to understand not just the market’s needs and how to maximize technology against those needs, but also to see how they can position themselves in the market as it changes. For the whole panel, we’ve been talking about the convergence of healthcare and the digital world, but maybe we’re already there. Where are we in that convergence and what are the most exciting technologies out there having an impact?

Mr. Valencia: For those who are my age, the state of the art at one point was the game Pong – so really I think we’re in a very early stage. When you think about the sophistication of gaming, the speed of technology and evolution is much faster. I think we can expect to move faster, but I still think we’re in the early stages. Our job is to feed the data up to brilliant scientists, and we’re just at the point of starting to get data capture in care settings right, especially in the home – the fastest growing care setting. We’ve got some examples of what we’re currently doing w data: Something we’re just now launching in hospitals – imagine an operating room, where the anesthesiologist is supposed to keep the patient sedated and alive. They’re looking at multiple streams and make sense of all the info. It’s a complex environment, and we made this really simple FDA-approved technology that displays an image of the upper body and the status of those organs in a red-yellow-green scenario. You can quickly go into the source data, but, it provides dramatic results – it’s so simple. I think we’re at the point of trying to get sight.

Ms. Schulman: I’m a little more optimistic in development cycle. We’re at an extraordinarily wonderful turning point. We’re building capacity through the convergence of smaller and greater capacity computers, an amazing understanding of brain physiology and mapping and disease, and we can put it all together into digital therapeutics and applications. We can now create the therapeutics we were unable to do through biopharma or medical devices.

Mr. Valencia: The tech side of things, in terms of radios, sensors, etc. is absolutely roaring right now. The 5G network? That was built for what we’re trying to do.

Dr. Nelson: I’m a little more aligned with Rick. I think technology is unbelievable, and driver of convergence is the performance of the tech we have as consumers. Everyone wants the latest and greatest iPhone or Samsung in their pocket, and they go home to stream news. That push on the tech side is helping the convergence. The business models are resisting it. It’s really hard to sell things into healthcare markets. They’re all very obtuse, with layers of perverse incentives and bizarre vendor onboarding processes. So it’s a bit of a push and a pull. There are other factors, but a lot of stories I hear about the resistance innovators face in delivering value turn out to be workflow things, whether at a provider level or vendor center level. Yes, there are cultural dimensions, but it’s how healthcare has grown into a Byzantine, massively interconnected and obtuse network of systems.

Dr. Jepsen: The future belongs to those who want it. You look at doctor density – China has 10% of what it needs. Stuff is too expensive. As we think of 5G and streaming, if we look back 15-20 years when streaming started for music, it really changed access. How do we stream healthcare? It probably won’t happen in Boston because of the Byzantine structures. Problem ownership is part of the problems. Structures in Asia leapfrog what we have in the US. Supply chain, the data,  and the AI are straightforward, but the reimbursement and leveraging the manufacturing infrastructure to make more interesting components is a problem. We’re living in a world where drugs cost $100,000; there’s the 99% of the population who, unless we decide to make healthcare better AND cheaper, won’t access it.

Ms. Coder: It’s important to remember that we’re talking about items and programs with clinical validation and some regulatory strength, being prescribed by providers. Validation is huge for us. There are solutions that are working, providing really great outcomes, and payers are paying. Patients are using them, but scalability is going to be big issue. I don’t think we expected it to be here at this point. Making healthcare at home a reality empowers people to manage their care. It’s not replacing doctors – we’re strengthening that relationship and building a community around health.

Ms. Schulman: I’m going to be a bit contrarian about the Byzantine structure. The movement allows the consumer to own their own healthcare, their information. The consumer and patient can drive the adoption and acceptance – we’ve seen this strange shift where the innovation companies used to be industry, but in this digital therapeutics industry it’s actually the payers who are way far ahead. They’re looking at it as a pure ROI, so they have reason to want to innovate. 21st Century Cures exempted a lot of the technology, so they’re not worried about regulation.

Dr. Nelson: These are really interesting points. Consumerization of healthcare is a meaningful macro. With more high-deductible plans or more use of HSAs, patients have to think about the value they’re buying. Whether that’s minute-clinic-style consumer care, face-to-face, or digital, I would also predict rise of consumerization beyond fitness – all respect to Fitbit, I think this is largely initially about relatively simple, acute, urgent care types of problems. I don’t expect consumerization of dialysis anytime soon. Payers, to some degree, have the margins and still, today, a lot of the risk. The providers just don’t have the margins. Pharma has so much margin that they don’t have to do too much.

Mr. Valencia: I think the consumer revolution is going to help, but hopefully we won’t wait for that for healthcare to adopt change. My own family has had our plan change recently, and we have a high deductible and it’s so complex on an individual basis. I want a doctor who is a trained professional to help me and weigh in. It’s going to move the needle but I don’t think we have the time. Around the payer side, there’s an important data point that just came out: 25 cents of every healthcare dollar in the US rolls through UnitedHealthcare.

Ms. Smart: I read that we’re at the democratization of healthcare: Patients are at the center, and the role of patients and physicians is going to change in the future. Patient involvement in their own care coupled with AI, tech, and machine learning might take over some of these diagnostic aspects across healthcare, whereas doctors might then be primarily involved in treating.

Dr. Jepsen: The sooner the better.

Dr. Nelson: It’s easy to imagine technology, whether AI or something short of spectacular synthetic intelligence, helping not just doctors but all clinicians. Nurses make a lot of complicated decisions. There are lots of people whose work can be facilitated by data driven systems that pay attention to the population being managed.

Dr. Howard: It’s entirely possible that if I ask Watson to give me a diagnostic, I’d get a very good answer, but you lack the common sense and compassion from a human doctor. I think the combination of those will probably be the right direction from a technology point of view: Diagnostics mediated by a doctor rather than controlled fully.

Dr. Jepsen: What about cost? Is it really worth it? Honestly, it’s too expensive – the doctors and people are too expensive. How do we scale the doctors that we have to serve more people? The healthcare costs are going up to 20% of GDP in most countries. Do you really want to kill the poor people? That’s what we’re saying when we say it has to be white glove treatment, when you can deal with your smartphone instead.

Ms. Schulman: There’s a difference between the ongoing care that you can and can’t do digitally. This is really important in rural areas. In US, the rural hospital has been dying. There’s a tremendous need for a large number of people who don’t have access to healthcare. In Malibu, or LA, or SF you have a choice of treatments centers; in Modesta, you don’t. We need to look at where digital health can take over. There’s no way, with the number of practitioners and ER visits, that there’s going to be enough healthcare. We need to figure out what doctors do best – that sense of trust and compassion – and then where the digital health infrastructure and technologies can fill in for that ongoing need.

Dr. Jepsen: I had a brain tumor in 1995. Every six months, I have to prove that part of my brain has not magically grown back so that my insurance will continue to cover the medication I need to replace what my brain isn’t making. It’s been over 20 years – I’m fine, I got a PhD, but I have to take time off from work, see all these people, and spend 10-20 thousand dollars through my healthcare twice a year. Legally, if I don’t prove it, they will keep me from getting the medication I need – which is just absurd. We need to let people take courses, prove they understand things, and do things digitally. It would dramatically lower costs.

Ms. Smart: Who pays for these technologies? That’s the biggest question: Products get to market, but do we have a clue how to get reimbursement how easy it is to demonstrate value that translates into reimbursement by payers?

Ms. Coder: It’s important for us to realize that payers are engaging and want to know what’s going on. We promote real-world data collection. Once something is through FDA, that’s great; once it’s in patient hands, data comes back. We look at safety and efficacy, but also outcomes. And that leads to ideas of value-based reimbursement.

Ms. Schulman: I don’t think it’s necessary to have regulatory approval for reimbursement, but every digital therapeutic company worth its salt has to do efficacy studies and demonstrate clinical value. What is the business model for these technologies? Right now, it’s just been a crapshoot of “let’s try this subscription fee and see if the market will bear it.” When you talk about payers, it’s a matter of finding the right codes. Some companies have worked out per head subscription models with payers. Payers do not want to pay for provider visits.

Ms. Coder: For diabetes, for example, a payer could look at integrating digital therapy into the management protocol. Before being prescribed a high-level drug, why not try insulin with a digital therapeutic?

Ms. Smart: Someone said companies spend 60% of time collecting and cleaning data.

Mr. Valencia: It’s not scalable to think that every company will develop their own means of data capture and somehow this will all get magically integrated. There are all sorts of great solutions out there to save money. We’re creating an open, agnostic, Switzerland-like platform to integrate with virtually any medical device, with a contract commitment to make sure. From data capture, to transmitting, to storage, it’s not enough to have biometrics; you also need claims and history data. When you’re working on one patient or effort at a time, it’s a little easier, but then you start thinking of scale and underdeveloped emerging markets. We have a lot of work to do to get there.

Ms. Smart: How big of a risk is cybersecurity? Some predict a big cybersecurity hack coming soon, with info being taken and patients dying.

Mr. Valencia: It’s a big deal. We’re flying planes, which are now basically data driven machines. We’re putting data driven cars on the road, and it’s freaking some people out. But if you look at the plane accident rate, it’s gone down from when humans were flying them. Actually securing the data and fostering a willingness for people to share data is a big deal. You can’t do that in a million places. Hospitals at the worst. They put everything behind firewall and say it’s more secure – do you trust a hospital IT department more than AWS to secure your data?

Dr. Jepsen: Hospitals are hacked quite a lot for ransom.

Mr. Valencia: 5G is being designed for a high level of security, low latency, and mission critical use cases like driving a car – that car has to be connected to things around it, including you, a sign post, and a car in an accident ahead. It’s going to make a big difference.

Dr. Nelson: There’s one more – blockchain.

Ms. Schulman: I was going to say Bitcoin!

Dr. Nelson: No, I was kidding!

Ms. Schulman: There is an entire set of companies utilizing blockchain as a data transfer modality. There are a whole bunch of companies right now; the ICO market has platforms utilizing blockchain technology for patients to acquire, own, and store their own medical records in addition to shifting data.

Mr. Valencia: But at scale, we’re quite a way away. Right now, your medical record is held in an EMR in one of a handful of big companies on a database created 30-40 years ago. Breaking down those barriers will take some time.

Dr. Nelson: Even within the same healthcare system, it’s hard to share with other providers.

Dr. Howard: It’s sort of a leap to talk about the technology we’re working on at ni2o. It stems from believing a lot of activities and control over your body is from the brain. What we’ve been working on is essentially a brain augmentation platform to allow you to read and write to the brain, with a focus on correcting disorders. In Huntington’s, we currently put an implant in the affected area, the basal ganglia, but those deep brain stimulators are not secure – they’re being hacked and having to be removed and reprogrammed. In our design, we’ve created an implant much smaller than Medtronic’s with far more connectivity, and it’s wireless.

Mr. Valencia: I’m a boring infrastructure guy – but guess what? He uses our platform. When I go home I’m going to tell my team we’re doing brain augmentation and they’re going to be blown away.

Ms. Smart: What will we be talking about next year?

Mr. Valencia: Healthcare is not going to be iOS or Android; it has to be open, interoperable, and inexpensive. That means scale. Healthcare moves so damn slow compared to technology, but we’ve made a lot of progress.

Ms. Schulman: What we’re going to begin seeing is this aggregation, much like Qualcomm has, into a platform, agnostic infrastructure such that more relationships between digital health companies can be build.

Dr. Nelson: A lot will be the same, but macro changes in healthcare will promote some of the changes we’ve talked about.

Mr. Valencia: This is one great thing I expect more of: With my Fitbit, I earn $1,500 a year on my health plan if I’m active enough.

Ms. Coder: It’s possible we’ll see digital outpacing traditional treatments in some areas, from opioid to ADHD; as far as outcomes and the number of prescriptions it’s definitely possible.

Dr. Howard: My personal belief is that if you engage patients in knowing more about their disorder, disease, or ailment, and have a two-way education – an interaction – then that helps the patient significantly. You see it with Alzheimer’s and neurodegenerative patients. I had a patient who refused to see doctors, but after two hours of sitting down and watching her favorite TV, she opened up so much that we didn’t think the cognitive tests were accurate anymore.

CEO Ms. Anne Wojcicki Presents 23andMe’s New Weight Loss Intervention Study

Anne Wojcicki (23andMe, Mountain View, CA)

Ms. Anne Wojcicki, powerhouse CEO of the personal genetic testing company 23andMe, argued that we’re at a tipping point in digital health with people seeking to take ownership of their own health data. 23andMe exemplifies this perfectly: The business model around the company’s $99 genetic testing kit hinges on people’s innate curiosity about their ancestry and disease risk, and desire to understand, have access to, and make lifestyle changes based on their own genomes. Ms. Wojcicki underscored that modern health and wellness is less about visiting your physician, and more about the lifestyle decisions you make everyday – a powerful argument for giving people direct access to their health data, provided it is framed in an approachable, easy-to-understand way. Of course this task is “not trivial,” and takes an incredible amount of time and care to get right, Ms. Wojcicki explained.

• Enthusiastic about the potential of precision medicine, Ms. Wojcicki highlighted 23andMe’s new Weight Loss Intervention Study, which aims to determine which genetic variants are associated with weight loss and the effectiveness of different diet/exercise methods based on an individual’s genetic background. This is the first-ever interventional study from 23andMe, and it also represents the first-ever attempt at generating a genome-wide association with behavioral weight loss. Participants with overweight will be recruited from a group of >one million 23andMe customers who consented to research studies. These individuals will be assigned to one of three behavioral weight loss interventions. Data on any correlations between genotype and weight loss success will be announced on an ongoing basis beginning within just a few weeks of study initiation. The analysis will continue for at least one year according to the company website. Notably, this is not 23andMe’s first foray into obesity: Less than one year ago, the company launched its Genetic Weight Report, a machine learning project that calculates a person’s genetic predisposition to weigh more or less than average. The Genetic Weight Report relies on opt-in surveys, and Ms. Wojcicki previously reported that surveys of this kind have an >80% response rate, illustrating how eager people are to contribute to scientific knowledge and in turn, to learn more about themselves. It’s certainly noteworthy that 23andMe’s first foray into producing original research addresses obesity – a scientifically challenging area made even more difficult by extreme stigma and low public awareness of obesity as a disease. As revealed in the landmark ACTION study, only 24% of people with obesity in the US are offered follow-up care for weight loss after raising this as a concern with their physicians, and indeed, few physicians know how to effectively advise patients about losing weight (an issue that’s complicated by unpredictable response/non-response rates to various obesity interventions – diet, exercise, and pharmacotherapy alike). If there was ever an area where innovative companies like 23andMe could make an impact, this is it. 
• Ms. Wojcicki characterized 23andMe as a “data company” rather than a genomics company, explaining that her chief goal is to generate insights. 23andMe’s massive database is currently the largest re-contactable repository of genetic information in the world (a whopping 85% of 23andMe users opt-in to having their data used for research purposes). The main implications of this now are 23andMe’s offerings of personalized information about ancestry and disease risk, but Ms. Wojcicki underscored that this is just the beginning. 23andMe opened a Therapeutics Division in 2015 that aims to identify novel drug targets using the database. CV disease was listed as a key focus area for these innovative drug discovery efforts (alongside oncology, skin, and respiratory).
• We’d add that it was fantastic to catch one of the only 20 (of 540) presentations at JPM 2018 delivered by a female CEO. According to STAT, 94% of this year’s presenters are male (and in our estimation the composition of the audience is not much different).

Panel Discussion: The Impact of New Leadership and New Initiatives at FDA

Gayatri Rao, MD (FDA, Silver Spring, MD); John Jenkins, MD (Greenleaf Health, Washington, DC; formerly Office of New Drugs, FDA); David Horowitz (Hogan Lovells, San Francisco, CA; formerly Office of Compliance for Drugs, FDA); Nancy Bradish Myers (Catalyst Healthcare Consulting, Denver, CO); Philip Katz (Hogan Lovells, San Francisco, CA)

Current and former FDA officials came together for this panel at the Biotech Showcase, voicing their opinions on the current state of regulatory affairs. The panelists acknowledged public concerns after the 2016 presidential election, because it was hard to predict how things would change under Trump’s administration. However, they largely agreed that change at FDA hasn’t been as dramatic as people may have expected. In the words of Dr. Gayatri Rao, director of FDA’s Office of Orphan Products Development, “at the end of the day, FDA is a science-based agency and we’re required to follow the rule of law and the regulations inherent there. That doesn’t change, or it takes a lot to change. While administrations come and go, submissions coming in are applied the same standards day in and day out.” We’ve been impressed by Commissioner Dr. Scott Gottlieb’s commitment to improving the approval process for generics and digital health products, and Ms. Nancy Bradish Myers (Catalyst Healthcare Consulting, Denver, CO) also pointed out that the new Commissioner has been prolific in publishing guidances to help applicants and blog posts to clarify the agency’s expectations. She suggested that it’s high time to be creative, because FDA is more open-minded than companies may think. Several points of discussion during this session reminded us of the outcomes beyond A1c movement, and while we recognize recent strides, we do think FDA has been less open-minded on this front, in accepting CGM data and considering glycemic metrics other than A1c. A full transcript of the hour is below, and we encourage you to dive in – this was a fascinating and important discussion.

Full Transcript

Mr. Philip Katz (Hogan Lovells, San Francisco, CA): I work with about 25 lawyers dedicated to regulatory issues in biotech, so I have the opportunity to touch on many companies and their issues. Hopefully that gives me the perspective to engage these panelists in an interesting discussion. The title of this panel and the premise for discussion is notwithstanding the fact that the new administration in Washington provides a break from past administrations like no other has in our lifetime. But other things are not because of the new administration: Most of what’s happening at FDA is a result of organic change at FDA and in the industry. We have a very informed set of panelists who will introduce themselves and then engage in discussion about issues we think are of interest to those regulated by FDA.

Dr. Gayatri Rao (FDA, Silver Spring, MD): I am currently the director, soon-to-be former director, of the Office of Orphan Products Development at FDA. My office focuses on incentives related to orphan drugs. We’re responsible for implementing provisions of the Orphan Drug Act, its grant programs, the rare pediatric disease designation, etc.

Dr. John Jenkins (Greenleaf Health, Washington, DC): I’m currently a principal for a drugs and biologics consulting practice based in Washington. I spent 25 years at FDA, the last 15 as director of the Office of New Drugs. That’s where all of the therapeutic review division is housed – all small molecules, biologics, and biosimilar programs. I was responsible for about 1,200 people, but I’m a primary clinical care physician by training.

Mr. David Horowitz (Hogan Lovells, San Francisco, CA): I’m one of 25-26 lawyers at Hogan, where I started a few months ago. Previously, I had a 25-year career at HHS and FDA. Most recently, I was deputy general counsel at HHS, and before that I spent 17 years at FDA, including 10 years in the Chief Counsel’s office on drugs issues. I was also director of the Office of Compliance.

Ms. Nancy Bradish Myers (Catalyst Healthcare Consulting, Denver, CO): I’m president and founder of Catalyst Healthcare Consulting, a very niche regulatory policy consulting firm working with innovative companies in drugs and devices to help them understand how to approach FDA and prepare FDA for new technologies. I started about 12 years ago after a stint at the FDA in the Commissioner’s office, and then I worked as a managed care lobbyist for several years before a stint at Lehman Brothers as an analyst. For years, I’ve been looking at how the agency changes with leadership.

Mr. Katz: What you have before you is a panel of folks who each worked at FDA in different capacities, but all have perspectives informed from both FDA and the activities they engaged in before and since. I hope to have a conversation about what’s going to happen at FDA – what’s coming down the pipe this year? Nancy, you heard my initial thesis: I’ve been doing this for more than two decades and I’ve been saying to people that with a new administration, not that much will change. What really happens is a pendulum swing between letting too many crappy drugs come to market and not letting any innovation through. My opinion is a change in administration may accelerate or exaggerate that pendulum but it doesn’t fundamentally change things – though Donald Trump being elected certainly shakes things up more than usual. But in discussion before, we all came to the conclusion that, actually, the administration isn’t, so far, that different from others – it has not wrought fundamental change. Do you agree with that and what changes do you expect?

Ms. Myers: I think when you had the Trump administration come in, people were very concerned about what was going happen. They promised to withdraw two regulations for every one passed – those conversations struck terror. When they brought in Dr. Scott Gottlieb, he had already been to FDA twice beforehand. He knew the leadership and the agency, and he had a good understanding of what the scope of responsibility was. He has been able to come in and discuss where the agency is going in a way many Commissioners were not immediately comfortable with.

Mr. Katz: What do you think a new Commissioner really brings?

Dr. Jenkins: I think Scott did benefit from being there during the Bush administration in senior level positions. He’s been very involved with FDA-related issues since leaving and he’s coming in well-situated to hit the ground running. That said, a lot of activities and initiatives are things that were already being legislated through [the 21st Century Cures Act]. I think what changes with a Commissioner can be some priorities, tone, and visibility, but fundamentally the laws that govern FDA, the regulations, and most importantly the science is what drives the decision-making about developing and approving new drugs. That’s what changed the most in the 25 years I was there – the science. The drugs are way more effective now than they were before, and there are a lot more programs FDA can use to expedite development. People need to remember, a lot of work in the 2000s related to drug safety is paying dividends now. We haven’t had a safety scandal at FDA in quite some time, and that’s not by chance. All those things coming together make it a very exciting time.

Mr. Katz: From your point of view, if we know we have these programs and they’re getting emphasis, does that suggest we’ll see continuous increases in rapidity and number of approvals?

Dr. Jenkins: The rate limiting step for FDA is the number of NDAs submitted, and the number of NDA and BLA submissions has been relatively flat for decades. However, the first-cycle approval rate has changed dramatically. More and more applications are getting approved on the first review cycle, but FDA can’t approve more than it receives. I think the science will hopefully continue to bring new drugs and new targets. But with greater certainty of first-cycle approval than in the past, we’re seeing the rewards of all the investment that goes into the IND phase, all the meetings FDA has with sponsors, and the companies making sure they bring in what the FDA needs. I joke that I didn’t leave at the right time – I think we approved 22 drugs the year I left, and 46 last year. It’s good they got rid of me.

Mr. Katz: Dr. Rao, you’re seeing lots of products coming through – what’s your perspective about the phenomenon John is talking about?

Dr. Rao: First, I’d like to echo what John was saying. At the end of the day, FDA is a science-based agency and we’re required to follow the rule of law and the regulations inherent there. That doesn’t change, or it takes a lot to change. While administrations come and go, submissions coming in are applied the same standards day in and day out. We know Commissioner Gottlieb has focused on ­orphan drugs, and that’s not a surprise when you think about the number of drugs being approved in that space. They’re over 40% of NME’s over the last couple of years. I’ve seen that firsthand: The number of requests for orphan designation, early on in development, has just skyrocketed. In 2016, we saw a record number, and the same happened in 2017. What does this mean? We need new molecular entities as well as products previously approved for another common or rare disease being developed again for another rare disease. This is an area with a lot of interest – whether the incentives of the Orphan Drug Act are being appropriately used. A drug already approved for one use does and can take advantage of the incentives, but now that’s a debate. A significant chunk is both NMEs and non-NMEs; should that change legislatively, you’ll see the ratio change.

Mr. Katz: You said among other things that we’re creatures of law and regulations. A drug approved for one use can get the designation for another. Talk to me about the flexibility.

Dr. Rao: There’s been a lot of debate over whether applying the designation to repurposed drugs is appropriate and contributing to increased prices. Now there’s a GAO report, as of December, looking into “abuse” of the Orphan Drug Act. What discretion do we have? In a regulatory context, you can imagine a scenario when you go through rule-making to say in those specific contexts a company could not get orphan designation, or only if it passes certain hurdles. But you need to go through rule-making to do that.

Mr. Katz: David, in your last position, you were responsible for policy issues. Could you talk about (i) the way that science is driving change and (ii) the way FDA might be approaching policy?

Mr. Horowitz: The facts get applied to the law and to a large degree the science changing can bring new perspectives and approaches to law that hadn’t been considered before. FDA has some discretion in interpreting statutes and regulations. When a new administration comes in, it’s not about a reversal or radical shift. More often, you’re increasing the priorities for certain areas and decreasing priorities for others. What can happen is the energy and priorities of a new administration can take a languishing initiative and push it over the finish line. There is a lot of discretion in agenda-setting and prioritizing.

Mr. Katz: What do you see Commissioner Gottlieb prioritizing?

Mr. Horowitz: One thing Commissioner Gottlieb is really good at is managing both up and down. What he has to do is come up with approaches consistent with the law and with the public health mission of the agency, but that are also consistent with the broader priorities of the administration. In that regard, I think he’s looking for public health strategies that decrease burden on industry within that framework, to increase competition and take a more risk-based approach in prioritizing enforcement and compliance. One particular example – homeopathy policy. He announced a new risk-based priority approach. In many ways, it’s consistent with prior approaches to homeopathy, but he wrote it down and prioritized it in a way it hadn’t been before. On regenerative medicine, he put out four guidances on a new framework, continuous with the existing framework.

Mr. Katz: Nancy, you in particular have been working on behalf of companies where the rubber meets and road. We’ve been talking in elevated terms. Talk a little, if you would, about the practical implications you see for companies.

Ms. Myers: One of the things I think of right now is “more, more, more.” It seems like Commissioner Gottlieb communicates more often – they’ve dropped more guidance, and there are more tweets and clarifying blog posts. For companies, what can be taken away is that there are great opportunities to engage with FDA. My team follows all these rules and we’re so busy right now because they keep coming out with new rules. When you read through, you have 60 days to comment on where they’re going. In December, they dropped a ton of proposed rules for digital health. That’s an opportunity for all those companies who either like or dislike what’s been laid out to say what they think. There is a way to influence what’s being thought about before it’s finalized.

Dr. Jenkins: One of the challenges is, whose voice are you listening to? Patients have different perspectives and different tolerance for risk and benefit. FDA needs to work on ways of soliciting that information in a science-driven way, and think about how it’s synthesized, analyzed, interpreted, and brought to bear on drug development and the regulatory process.

Mr. Katz: The plural of anecdote is not data.

Dr. Jenkins: There has been a push to expand accelerated programs beyond cancer and HIV, but often a surrogate endpoint isn’t well identified. There is a new pathway in PDUFA VI for companies to meet with FDA when they want to use a new efficacy endpoint. As we learn more about science, we’ve uncovered markers and surrogates, but it has to be translated into regulatory constructs. Does it reasonably predict clinical benefit?

Mr. Katz: You were speaking earlier about the need for changes and regulations. How can FDA take a situation and, without a change in regulation, craft a policy that says “here’s how I’m interpreting reasonably likely?” Do they need to pronounce it in guidance, or can they do individualized decisions? How can and how should FDA do it?

Dr. Rao: It’s all of the above. Changing regulation is not an easy thing to do – it’s a years-long process. But it begs the question, is that necessary? In most cases, regulations are broad and flexible, and I think this is one of those cases. Whether it’s surrogate endpoints or other issues, those kinds of decisions are made individually and discussions happen iteratively with the agency. John was even closer to it than I was. And you also see it in guidance when appropriate, they put it out there and say what “reasonably likely to predict clinical benefit” means in XYZ circumstance.

Dr. Jenkins: For decades, FDA had interpreted that new chemical entity molecules first approved as combinations, where the other ingredient was already approved by FDA, as not eligible for five-year exclusivity. And combination products weren’t that common 20 years ago, but the science has changed and we started seeing situations where it made no sense for the new chemical to be approved by itself. Sometimes you need the combination for safety/efficacy. And David was involved with changing the policy. The statute didn’t change, but the interpretation changed. And I think most people are happy about it.

Ms. Myers: Do you think that, from the top, there’s encouragement to be a little more forward thinking about new technologies and using flexibility in new and novel ways? It’s not that FDA has no flexibility – they’ve always been able to be flexible. But as we identify what new leadership means, it seems like they’re encouraging everyone to be more creative in their approaches. Whether it’s a pre-certification program for software or more meetings on the gene therapy side, there’s just a feeling from on high to say “try it.” For companies looking at the environment, it’s a time for people to be more creative than in the past. You have to float it to FDA. If you don’t take the step to be more creative, FDA can’t be more creative.

Mr. Katz: David, do you agree? And why do you think that’s happening?

Mr. Horowitz: I think that’s true, and I want to emphasize the caveat that it’s difficult to generalize. These are humans, and there’s some bell curve you can apply. Some are more creative and willing to change than others. Some were always willing to but now there’s more opportunity. I think the Cures legislation provides more opportunity in some areas, and leadership recognizes and supports some opportunities.

Mr. Katz: When you were at HHS, you had some input on policy decisions. How might companies intersect with Capitol Hill?

Mr. Horowitz: It’s important to recognize how historically unusual it is to have a President and administration control, via their party, both houses of Congress. That’s only happened a couple of time in brief periods, in my time. What’s unusual is that it gives FDA much more freedom to set its own agenda, and this very well may change next year: 2019 may be more difficult for FDA to have autonomy because of intense congressional oversight. As far as accessing the Hill, there are opportunities – other legislative vehicles have become increasingly common. However, if and when Congress changes, the appropriations bill tends to be another vehicle to either get legislative change or put pressure on the agency.

The Microbiome: Beyond the Gut

Joseph Gulfo, MD (The Lewis Center for Healthcare Innovation and Technology, Teaneck NJ); Thomas Hallam, PhD (Leading BioSciences, Solana Beach, CA); Arpita Maiti, PhD (Pfizer, Boston, MA); Glenn Nedwin, PhD (Second Genome, San Francisco, CA)

The opening session at this year’s Biotech Showcase was a fascinating panel discussion on the future regulatory landscape for microbiome-based therapies. How will FDA and other regulators approach such a treatment? There’s no real precedent right now. We hear a lot of microbiome buzz in the context of academic endeavors and small animal studies, but this session offered an in-depth look at the practicalities of creating a commercial product in this new scientific arena. Moderator Dr. Joseph Gulfo (Executive Director of the Lewis Center for Healthcare Innovation) kicked things off with a fundamental question: Will these therapies even be regulated as “drugs”? Traditional therapies (small molecules, peptides, etc.) are evaluated through FDA’s Center for Drug Evaluation and Research (CDER) whereas related products such as cell and tissue culture, gene therapies, blood products, and vaccines are instead evaluated through the Center for Biologics Evaluation and Research (CBER). It’s unclear what category microbiome-based therapies would fall under – an issue made even more complex by Second Genome CEO Dr. Glenn Nedwin’s observation that “microbiome-based therapies” could take a variety of forms, from molecules that microbes feed on (prebiotics) to molecules that microbes produce, and from a curated mixture of a few microbial strains to a full-fledged fecal transplant encompassing an individual’s entire microbiome. For the latter types of microbiome-based therapies that involve multiple strains of bacteria, it’s also worth considering whether FDA will view this as a single cohesive therapy or instead as a combination product (which would entail a more complex process on the part of manufacturers to demonstrate the effects of each different active bacterial strain). Amidst this complexity, we appreciated the closing sentiment from Pfizer’s Dr. Arpita Maiti that regulatory agencies and drug manufacturers will ultimately evaluate the microbiome “like any other opportunity” – by considering whether there’s solid science.

Political Commentators Mr. Paul Begala and Mr. Tucker Carlson Sound Off on Repeal & Replace, Single-Payer Healthcare

Paul Begala (CNN, Washington, DC); Tucker Carlson (Fox News, New York, NY)

The lunchtime keynote on Wednesday at JPM was a debate between two opposing political commentators, Democrat Mr. Paul Begala and Republican Mr. Tucker Carlson. While the conversation focused largely on future directions for each political party, there was some interesting discussion of Repeal and Replace and of the possibility of a single-payer health system in the US. According to Mr. Carlson, a single-payer system is what the American people want. He suggested that even among Republican voters, >50% want a single-payer system because it seems simple and straightforward – the party leaders just don’t see this because it’s a quiet, nearly invisible popular will, and they continue to argue against it on TV and in the media. “It’s not what I want,” he clarified “but the point of democracy is to translate the will of voters.” In any case, a single-payer health system in the US seems like a far-fetched vision right now. If anything, healthcare will move away from this under the Trump administration. That said, efforts to repeal and replace the Affordable Care Act (ACA) have stalled in President Trump’s first year, even though he pledged throughout his campaign to “dismantle Obamacare” soon after entering office. “Apparently, no one knew healthcare was complicated,” said Mr. Begala. “Aside from race, it’s the single most difficult domestic issue there is.” We know this to be true. As the Republican-led fight to Repeal and Replace continues into 2018, we’ll underscore again that any revision to healthcare policy needs to maintain insurance and access for as many people as possible. Without access to health services/essential medicines, chronic disease rates will rise (even faster than they already are) and the cost of complications could skyrocket. Diabetes is a prime example – the cost of a single hypoglycemia hospitalization far outweighs the price of a more advanced therapy with lower hypoglycemia risk. Mr. Carlson and Mr. Begala agreed that US political parties are experiencing an identity crisis, as lower-income white people switch to the Republican side: This voter base is more socially conservative, but still fiscally liberal, and both commentators emphasized the importance of knowing your constituents. This applies readily to healthcare politics – what do voters with diabetes, prediabetes, and obesity (>50% of the US adult population) want and need from their health system? Reimbursement and pricing pressure are already substantial challenges in the diabetes/obesity market, and we do worry that hasty change to the ACA could end up severely harming patients. What we need is across-the-aisle collaboration in Washington that recognizes faults in the ACA (no legislation is perfect in its first iteration, let alone a policy as large as healthcare) without completely undoing all the positives to access and insurance. Tax reform was a frequent topic of discussion during many pharma company presentations and breakouts at JPM, and we would’ve loved to hear different CEO perspectives on Repeal and Replace efforts as well.

 

-- by Adam Brown, Ann Carracher, Abigail Dove, Brian Levine, Payal Marathe, Megan Clyne, and Kelly Close