Memorandum

Sanofi 1Q17 – Diabetes portfolio down 6% YOY to ~$1.8 billion with declines expected to “accelerate”; Lantus revenue fell 15% YOY to ~$1.3 billion, driven by US pricing pressures and formulary exclusions; Toujeo and Soliqua sales weaker than expected – May 1, 2017

Executive Highlights

  • Sanofi’s overall diabetes portfolio fell 4% year-over-year (YOY) as reported (-6% operationally) and 14% sequentially to €1.7 billion (~$1.8 billion). This is consistent with the company’s financial guidance forecasting 4%-8% revenue declines for the portfolio each year through 2018, though management predicted that revenue declines in the diabetes business will only “accelerate” over the remainder of the year due to headwinds for Lantus in the US market especially. Notably, not included in these results were the loss of the formulary for UnitedHealthcare or the full impact of the loss of CVS.
  • Sales for Sanofi’s flagship product Lantus fell 15% YOY in constant currencies to €1.2 billion (~$1.3 billion) in 1Q17, a steep 16% sequential decline though of course understandable in light of the generic onset. Continued challenges are expected for Lantus as its exclusion on CVS Health’s and UnitedHealthcare’s formularies go into effect.
  • Toujeo sales rose 86% YOY as reported (79% in constant currencies) to €238 million (~$254 million). Very notably, despite the backdrop of YOY revenue gains, Toujeo sales declined a sharp 19% sequentially since 4Q16 – the first sequential decrease in the product’s history following a very strong 4Q16.
  • Soliqua posted €4 million ($4 million) in 1Q17, the first time Sanofi has reported sales of the product. Although this highly-anticipated fixed-ratio combination drug was launched in the US in January, management emphasized that the product was not reimbursed by any payer until the final two weeks of 1Q17.
  • A phase 1 candidate for dilated cardiomyopathy has been added to Sanofi’s “Diabetes Solutions” pipeline and the phase 3 program for Hanmi-partnered GLP-1 agonist efpeglenatide is expected to initiate in 4Q17.

Sanofi provided its 1Q17 financial update in a Friday-morning call led by CEO Mr. Olivier Brandicourt. The company’s press release, webcast, and presentation slides are available on the Sanofi website. Our report outlines key takeaways from the call, including highlights and details on the performance of Sanofi’s diabetes products, the progress of its diabetes pipeline, and a transcript of relevant Q&A.

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

 

1Q17 revenue (millions)

YOY growth (reported / CER)

Sequential growth (reported)

Total diabetes

€1,663/ ~$1,772

-4% / -6%

-14%

Lantus

€1,226 / ~$1,306

-12% / -14%

-16%

Amaryl

€89 / ~$95

1% / 6%

0%

Apidra

€98 / ~$101

15% / 14%

3%

Insuman

€27/ ~$29

-16% / -16%

-13%

Blood Glucose Monitoring (BGM)

€17 / ~$18

0% / 0%

6%

Lyxumia

€7 / ~$7

-22% / -22%

0%

Toujeo

€192 / ~$205

86% / 79%

-19%

Soliqua

€4 / ~$4

-

-

Praluent (not included in Total Diabetes)

€34 / ~$36

183% / 175%

-8%

Financial Highlights

1. Sanofi’s overall diabetes portfolio fell 4% year-over-year (YOY) as reported (-6% in constant currencies) in 1Q17 to €1.7 billion (~$1.8 billion). Sequentially, total revenue fell 14% as reported. This is consistent with the company’s financial guidance forecasting 4%-8% revenue losses for the portfolio each year through 2018, though management predicted that revenue declines in the diabetes business will only “accelerate” over the remainder of the year as the company experiences the full force of the Lantus’ exclusion from the CVS Health and UnitedHealthcare formularies. Further illustrating the challenging state of the diabetes market, even products which have been consistent bright spots in Sanofi’s portfolio underperformed in 1Q17: next-generation basal insulin Toujeo (U300 insulin glargine) and PCSK9 inhibitor Praluent (alirocumab) both experienced steep sequential declines. 

2. Sales for Sanofi’s flagship product Lantus (insulin glargine) fell 15% YOY operationally (-12% YOY as reported) to €1.2 billion (~$1.3 billion) in 1Q17, a steep 16% sequential decline. Lantus received little mention in Sanofi’s prepared remarks and was entirely absent from the company’s slide deck, a clear illustration of the product’s waning status within the portfolio it used to headline (waning status plus nothing hopeful to say). We expect these challenges following Lantus’ 2015 patent expiry will intensify as biosimilar competitor Basaglar becomes more established and PBMs become more aggressive in formulary negotiations, all against the backdrop of the challenging US pricing environment. That said, it continues to be clear how many more patients should be taking basal insulin and we do expect increases in people “new” to basal insulin to continue to begin taking Lantus as well as Toujeo.

3. Sales for Sanofi’s next-generation basal insulin Toujeo (U300 insulin glargine) rose 79% YOY in constant currencies (86% YOY as reported) to €238 million (~$254 million) in 1Q17. Very disappointingly, Toujeo sales declined 19% since 4Q16 – the first sequential decrease in the product’s short history. This was driven entirely by the US market, where Toujeo revenues fell 32% sequentially to €115 million (~$123 million), despite nearly 42% YOY revenue growth operationally (47% YOY as reported). This is likely the reflection of changes in formularies.

4. For the first time, Sanofi reported sales of basal insulin/GLP-1 agonist combination Soliqua (insulin glargine/lixisenatide) – the product posted €4 million ($4 million). While this is lower revenue than we expected (and hoped for, given how great it is for patients), it’s important to note that the product was not reimbursed at all until the final two weeks of 1Q17, which limited prescriptions and sales. As management put it, “we’re in the very early days of Soliqua, only a couple weeks out of the gate,” following US launch and EMA approval in January of this year, and so future quarters will be more telling. In fact, management suggested during Q&A that the company expects uptake to be gradual, likely because it will take some time for patients to gain access. Soliqua has the potential to be a bright spot in the company’s diabetes portfolio, which is sluggish overall, and so we’re glad to note management’s commitment to improving reimbursement prospects and to educating patients/providers.

5. Sales of standalone GLP-1 agonist Adlyxin/Lyxumia fell 22% YOY to €7 million ($7 million) in 1Q17, marking another weak quarter for the product. There was no mention of Adlyxin during prepared remarks or Q&A; we have known from the start that the combination product Soliqua takes precedence as the main strategic priority for Sanofi.

6. PCSK9 inhibitor Praluent sales fell 8% sequentially to €34 million ($36 million). This represents a near tripling YOY but from a very small base of €12 million ($13 million) in 1Q16, which was only the second quarter of reported revenue for the therapy. Pooling 1Q17 revenue from Praluent and Amgen’s PCSK9 inhibitor Repatha, the class declined 12% sequentially to $85 million (from $97 million in 4Q16). According to ClinicalTrials.gov, the expected completion date for the ODYSSEY Outcomes CVOT of Praluent has been moved up slightly, from February 2018 to December of this year.

Pipeline Highlights

7. Notably, Sanofi has added a novel DCM1 myosin activator, SAR440181/MYK-491, for dilated cardiomyopathy (DCM, often a precursor to heart failure) to its phase 1 pipeline, notably categorizing the candidate under “Diabetes Solutions” rather than “Cardiovascular and metabolism.” We clearly see interest in pursuing treatments associated with cardiovascular disease and look forward to more on this front.

8. The phase 3 program for Hanmi-partnered GLP-1 agonist efpeglenatide is expected to initiate in 4Q17, according to the appendix of Sanofi’s press release. This is the first time we’ve heard such specific new timing for the phase 3 start – in its 4Q16 update, Sanofi shared that the initiation had been pushed back to sometime in 2017 from the previous expectation of 4Q16.

9. Sanofi did not provide any updates on the remainder of its diabetes clinical development pipeline, including its late-stage Lexicon-partnered SGLT-1/2 dual inhibitor sotagliflozin (phase 3) and biosimilar insulin lispro (submitted in EU). We look very forward to hearing more.

Financial Highlights

1. Overall Diabetes Portfolio: Revenue falls 4% YOY and 14% sequentially; Declines expected to “accelerate” in future quarters

Sanofi’s diabetes portfolio fell 4% year-over-year (YOY) as reported (-6% in constant currencies) in 1Q17 to €1.7 billion (~$1.8 billion). Yes, big picture, this is still a massive franchise. Sequentially, total revenue fell 14% as reported against a fairly challenging comparison of 8% sequential growth in 4Q16. This is consistent with the company’s financial guidance (updated in 3Q15) forecasting 4%-8% revenue losses for the portfolio each year through 2018, though management predicted that revenue declines in the diabetes business will only “accelerate” over the remainder of the year due to some additional losses not expected earlier. By geography, Sanofi’s revenue losses in 1Q17 were primarily driven by a 15% YOY drop in constant currencies (-12% YOY as reported) in US diabetes sales, where pricing pressures, particularly around insulin, continue to pose a major challenge. Diabetes revenue fell just 3% YOY operationally in Europe and was buoyed double-digit growth in emerging markets, which grew 12% YOY operationally and accounted for 22% of 1Q17 diabetes revenue and 100% of its growth. By product, flagship Lantus (insulin glargine) sales dropped 19% YOY in constant currencies (-12% YOY as reported) to €1.2 billion (~$1.3 billion) in 1Q17. The exclusion of Lantus from the CVS Health and UnitedHealthcare  formularies (the latter exclusion officially went into effect on April 1) will only exacerbate this trend, leading management to forecast that future diabetes portfolio sales will underperform the already-disappointing stated financial guidance of 4%-8% annual declines through 2018.  Further illustrating the challenging state of the diabetes market, even products which have been consistent bright spots in Sanofi’s portfolio underperformed in 1Q17: next-generation basal insulin Toujeo (U300 insulin glargine) and PCSK9 inhibitor Praluent (alirocumab) both experienced steep sequential declines, troubling for products early in their launch cycles. Toujeo revenue increased 79% YOY operationally (86% YOY as reported) to €192 million (~$204 million) but declined 19% sequentially. Praluent sales rose almost 3-fold YOY to €34 million (~$36 million) but declined 8% sequentially. Despite these significant headwinds, management reassured that there will be “steady progress” in the overall outlook of the franchise as time goes on, highlighting the recent launch of the basal insulin/GLP-1 agonist fixed-dose combination product Soliqua (insulin glargine/lixisenatide) as a promising future source of growth. Revenues for 1Q17 remind us of the size of the overall business in 2012.

Figure 1: Total Sanofi Diabetes Portfolio Sales (1Q05-1Q17)

2. Lantus: Sales fall 12% YOY as challenges mount with formulary positioning and biosimilar competition

Sales for Sanofi’s flagship product Lantus (insulin glargine) fell 15% YOY operationally (-12% YOY as reported) to €1.2 billion (~$1.3 billion) in 1Q17, a steep 16% sequential decline. This is the lowest quarterly reported revenue for Lantus in six years, since 1Q11. Even more disappointing, 1Q17 performance occurred against an easy comparison – Lantus sales fell 11% YOY operationally (-12% as reported) to $1.5 billion in 1Q16. 4Q16 marked the first time in many years that Lantus was not a major talking point in Sanofi’s earnings updates, and this 1Q17 update followed suit. In fact, Lantus was entirely absent from the company’s slide deck, a clear illustration of the product’s waning status within the portfolio it used to headline. We attribute Lantus’ continuing challenges in part to pricing pressures in the US, where Lantus revenue fell 21% YOY in constant currencies (-18% YOY as reported) to €690 million (~$753 million), down 26% sequentially from ~$1 billion in 4Q16. Since its patent expiry in 2015, Lantus has faced increased challenges that we expect will only intensify as pricing pressure further intensifies, as biosimilar Basaglar becomes more established in the US market, and as PBMs become more aggressive in formulary negotiations. A major and surprising blow to Lantus was its exclusion from the formularies of two of the three largest PBMs, CVS Health and UnitedHealthcare. The CVS Health formulary went into effect at the beginning of this year, and management suggested that Lantus sales have only been partially impacted so far and the full brunt of impact will ramp up throughout 2017. Thus far, Sanofi has been able to maintain 55% of its Lantus volume among patients on CVS Health formularies – within this, the impact of the exclusion is most acutely felt in the national formulary, where Lantus has retained 43% of total prescriptions (TRx). On the other hand, among the custom formularies managed by CVS, Lantus and Toujeo retain access to 70% of covered lives. Overall though, management was not optimistic that Lantus will be able to retain even this lower prescription volume throughout the year – the company shared that prescription volume looks better than it otherwise might partly due to Sanofi’s patient assistance programs. Furthermore, the UnitedHealthcare exclusion only recently went into effect (April 1), so Sanofi has yet to experience the full force of its impact. Indeed, management repeatedly underscored in prepared remarks that declining trends in Lantus sales (and therefore overall diabetes portfolio revenues) will likely “accelerate” in future quarters. Optimistically, it is possible that some of Sanofi’s losses from Lantus are being gained back by patients switching to Sanofi’s next-generation glargine product Toujeo (U300 insulin glargine), but the extent of this within-portfolio cannibalization is unclear, especially given that Toujeo also experienced lower than expected performance in 1Q17 – more on this below. It is very frustrating from our view that insulins like Toujeo that are garnering very strong patient reports are not being covered. Lantus fared slightly better in international markets in 1Q17: ex-US Lantus sales fell 10% YOY as reported and rose 1% sequentially to €536 million (~$571 million). This was driven by declining sales in Europe (-15% YOY) and Rest-of-World (-10% YOY) which were somewhat offset by revenue gains in Emerging Markets (+10% YOY).

Figure 2: Lantus Sales (1Q06-1Q17)

3. Toujeo: Sales rose 86% YOY but declined 19% sequentially for the first time in the product’s history

Sales for Sanofi’s next-generation basal insulin Toujeo (U300 insulin glargine) rose 79% YOY in constant currencies (86% YOY as reported) to €238 million (~$254 million) in 1Q17. Very disappointingly, Toujeo sales declined a sharp 19% since 4Q16 – the first sequential decrease in the product’s short history. This was driven entirely by the US market, where Toujeo revenues fell 32% sequentially to €115 million (~$123 million), despite nearly 42% YOY revenue growth operationally (47% YOY as reported). By contrast, ex-US sales rose 12% sequentially to €77 million ($82 million), a three-fold increase YOY. We are disheartened to see negative sequential growth so early in Toujeo’s launch cycle, especially considering the excitement and positive word-of-mouth surrounding next-generation basal insulins. Notably, Toujeo was downplayed as a talking point in the call, given that Toujeo has consistently been framed as a promising bright spot in Sanofi’s diabetes portfolio. Management provided no details on the forces underlying Toujeo’s surprising turn in US sales, and we suspect that a combination of aggressive pricing negotiations with PBMs and poor patient access may be to blame – Toujeo is also excluded from both the CVS Health and UnitedHealthcare formularies. Additionally, it may be that Toujeo faces intensifying competitive pressures from Novo Nordisk’s next-generation basal Tresiba (insulin degludec), which launched in the US in 1Q16 and ultimately surpassed Toujeo’s new-to-brand prescription (NBRx) share within a year due to major investment by Novo Nordisk – Tresiba held 15% NBRx share in December 2016 to Toujeo’s 10%. Tresiba remains on CVS’ formulary, though it is also excluded from UnitedHealthcare’s formulary. We look forward to Novo Nordisk’s 1Q17 update this Wednesday (May 3) to gain more insight into whether this sudden revenue decline is unique to Toujeo or a reflection on the entire next-generation basal insulin class. We see this class continuing to increase given the incredibly positive patient and provider feedback that we hear though certainly payers are cutting off their noses to spite their faces in not giving the drug to more patients. We do believe that Big Pharma will have to figure out better ways to show the value, which is implicit to us, but only because we very well understand patient and provider feedback!

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

  • For the first time since Toujeo’s launch, Sanofi did not include a slide on its volume share of basal market in its presentation. We’re not sure if this indicates that Toujeo’s TRx share of the basal market has plateaued somewhat – while disappointing, we wouldn’t necessarily be surprised if this were the case in the US given the uptake of Tresiba and the launch of Basaglar (which also had muted sales). We’re hoping that Novo Nordisk’s 1Q17 update next Wednesday (May 3) will provided more color on this. As of 4Q16, Toujeo had continued to make progress in gaining share of the total prescriptions (TRx) in the basal insulin market. The product boasts a growing TRx market share in several countries particularly in Spain (~13%), Germany (~14%), Japan (~11%), and the US (~5%) – and has been launched in at least 35 countries last we heard in Sanofi’s 3Q16 update (we haven’t yet heard how many countries it’s in now). According to information released in Novo Nordisk’s 4Q16 update, Toujeo currently holds 10% market share in terms of new-to-brand prescriptions (NBRx) – Tresiba has a slight edge at 15% NBRx. We are not sure how much of this is driven by price.
  • Tresiba certainly stands as Toujeo’s most direct competitor in the basal insulin market as the only other next-generation insulin. Tresiba offers a slightly differentiated clinical profile to Toujeo and its predecessor basal insulins with a flexible dosing claim and a potential hypoglycemia benefit as demonstrated in the phase 3b SWITCH 1 and 2 trials. That said, Toujeo has shown impressive hypoglycemia findings in the real-world DELIVER-2 study, presented at this year’s ENDO meeting, demonstrating significantly lower risk of hypoglycemia for type 2 diabetes patients who switched to Toujeo (insulin glargine U300) versus other basal insulins. On the other hand, despite the flexible dosing claim for Tresiba, we have heard feedback from leaders in the field praising Toujeo’s “almost effortless” dosing and “just right, really flat” action profile which is “just not the same with Tresiba.” From our view, we’ve heard much better results on this new class – far better than Lantus or Levemir. The Toujeo pen also got marks for being slimmer and more attractive on the surface (it is skinnier), though the actual act of dosing Tresiba has a “slight advantage” according to some (we aren’t sure if this is possible to identify for the average user). All this is to say that while it remains to be seen how Toujeo and Tresiba stack up against each other in terms of clinical value, they are clearly both better as a class. Notably, the two have not yet been studied head-to-head, though a head-to-head PK/PD trial is ongoing. Importantly, as noted, both represent a major improvement compared to current gold standard Lantus, with advantages similar in magnitude to the improvements of the first insulin analogs over NPH. In our view, it seems that formulary positioning and access will more likely determine Toujeo vs. Tresiba uptake, rather than the clinical profile. We do think those new to basal insulin would do far better if they could gain access to one of the two new insulins.

4. Soliqua Posts $4 Million in First Quarter of Reported Revenue

For the first time, Sanofi reported sales of basal insulin/GLP-1 agonist combination Soliqua (insulin glargine/lixisenatide) – the product posted €4 million ($4 million). While this is lower revenue than we were hoping for, we note that the product was not reimbursed at all until the final two weeks of 1Q17, which limited prescriptions and net revenue as much of the volume was due to Sanofi’s patient assistance program for the product. Access remains the top priority for 2017, and management shared that Soliqua is now covered by 34% of commercial plans and 31% of Medicare Part D plans, as of the date of the earnings call (April 28). Management further noted that the Soliqua savings card, offering $0 co-pay to eligible patients, “may have” contributed to an underestimate of net sales for 1Q17. We would think this would definitely be the case! As management put it, “we’re in the very early days of Soliqua, only a couple weeks out of the gate,” following US launch and EMA approval in January of this year. Not only is this a new product on the market, but it joins a relatively new class of therapy, accompanied only by Novo Nordisk’s Xultophy (insulin degludec/liraglutide). Spreading awareness of the strong efficacy and safety data supporting basal insulin/GLP-1 agonist fixed-ratio combinations among payers and providers won’t be accomplished overnight. To this end, we’re glad to note Sanofi’s commitment to improving reimbursement prospects and to educating patients/providers. On access, management explained that some payers are looking at Soliqua and Xultophy together, which is delaying coverage decisions. That said, the company anticipates steady progress through the reimbursement landscape in 2017, and management alluded to some additional coverage secured in 1Q17. We’ve been pleased by the company’s attention to patient access issues, both through the savings card offered and through a decision to price Soliqua on par with existing GLP-1 agonists rather than at a premium, as Novo Nordisk plans to do for Xultophy in the US – we imagine this will factor into payer decisions.

  • Sanofi is focused on positioning Soliqua as a basal intensification option through educational efforts. Management called attention to the different labels for the product in the US vs. Europe (where it’s branded as Suliqua). The FDA approved this fixed-ratio combination only for intensification, or for patients not at goal on basal insulin or lixisenatide monotherapy, whereas the EMA approved the product for intensification as well as second-line therapy to metformin. Though Soliqua in the US is indicated for either basal or GLP-1 intensification, Sanofi appears solely focused on promoting Soliqua’s benefits as an intensification option for patients on basal insulin (who might otherwise add-on a rapid-acting insulin to manage postprandial glucose).  Management characterized basal intensification as the “sweet spot” for intervention with Soliqua, and physician education of this option is the current focus of stateside educational efforts. This emphasis follows Sanofi’s efforts to position standalone lixisenatide as an alternative to rapid-acting insulin (right down to its US brand name – Adlyxin/”add lixi”) and certainly makes sense from a clinical standpoint as lixisenatide has more potent effects on postprandial glucose than other “long-acting” GLP-1 agonists. Soliqua has the potential to be a bright spot in Sanofi’s diabetes portfolio, which is sluggish overall, and so we have our fingers crossed for good growth margins in future quarters. We’re happy to hear management’s positive outlook on Soliqua’s commercial success despite an expectation of gradual uptake. We wonder how many prescriptions have been written and dispensed so far, and we certainly hope for continued improvement on the patient access front.
  • While Sanofi is clearly prioritizing Soliqua within its diabetes portfolio, Novo Nordisk seems to have put Xultophy on the back burner for now and remains primarily focused on components of the combination – Tresiba (insulin degludec) and Victoza (liraglutide). The company has yet to break out sales for Xultophy (the product’s revenue is included in a category of new-generation insulins alongside Tresiba and Ryzodeg) despite EMA approval in 3Q14. Xultophy also has yet to launch officially in the US, despite FDA approval on the same day as Soliqua. Novo Nordisk reps have explained this strategy as an effort to cultivate familiarity – insulin degludec itself is relatively new-to-market, and patients/providers have to be comfortable with an agent before they prescribe it in combination. It’s also notable that the Tresiba and Victoza franchises individually continue to grow: Tresiba sales more than tripled YOY to $600 million in 2016, while Victoza revenue grew 11% YOY to nearly $3 billion. In contrast, Sanofi’s Lantus (insulin glargine) fell 11% YOY in 2016 to $7.6 billion and Lyxumia (lixisenatide), which has never quite taken off, fell 13% YOY to $44 million. In this sense, Soliqua may be more critical for Sanofi’s diabetes business in the short term than is Xultophy for Novo Nordisk’s diabetes business, considering the context of other portfolio assets and overall portfolio growth. Sanofi’s swift US launch of Soliqua and its early investment in commercialization is also smart, in our view, due to the fact that Xultophy has a stronger clinical profile in some ways (weight loss instead of weight neutral, hypoglycemia benefit) and comes with more positive CVOT data backing it. The LEADER trial showed significant CV benefits to Victoza, while the DEVOTE trial for Tresiba is scheduled to report at ADA 2017 (topline data showed non-inferiority to Lantus). In contrast, the ELIXA trial for Lyxumia found neutral CV effects of lixisenatide, as did the ORIGIN trial for insulin glargine. Importantly, we see plenty of room for both Soliqua and Xultophy on the market, and the best case scenario would be whole class growth. Basal insulin/GLP-1 agonists were highly-anticipated diabetes drugs – now that they’ve finally arrived, we want as many patients as possible to benefit from their superior efficacy and milder side-effect profile vs. either basal insulin or GLP-1 agonist monotherapy.

5. In Another Weak Performance, Lyxumia Revenue Drops 22% YOY to $7 Million

Sales of standalone GLP-1 agonist Adlyxin/Lyxumia (lixisenatide) fell 22% YOY to €7 million ($7 million) as reported and operationally in 1Q17, marking another weak quarter for the product. Revenue was flat sequentially from 4Q16. The Adlyxin business (branded Lyxumia ex-US) has been sluggish of-late, and has never posted >$12 million in quarterly sales. Total sales of the GLP-1 agonist in 2016 summed to $37 million, just a tiny fraction of full-year 2016 revenue from Novo Nordisk’s Victoza ($3 billion) and Lilly’s Trulicity ($925 million). In-class competition from these market leaders is one likely reason for Adlyxin’s underwhelming sales. Lixisenatide has shown a comparatively weaker clinical profile and requires once-daily dosing – as opposed to Trulicity’s once-weekly dosing and very patient-friendly pen. Adlyxin was also last-to-market in the US, the largest market for diabetes worldwide, which created an uphill battle from the beginning. This is not to say that new additions to the GLP-1 agonist class won’t be successful – on the contrary, we think that innovative market entries like Intarcia’s ITCA 650 (implantable exenatide mini pump, offering continuous subcutaneous release of the agent for three-six months) and Novo Nordisk’s semaglutide (a potent, once-weekly GLP-1 agonist) could grow the market overall. Both of these drug candidates, however, improve upon existing options, whether through increasing adherence, enhancing efficacy, or offering a better patient experience. As CVOTs gain more traction in the diabetes field, patients, providers, and payers will turn to diabetes therapies that offer CV benefit in addition to glucose-lowering capabilities. This trend is especially pertinent for the GLP-1 class, since LEADER has already shown positive CV effects associated with Victoza and the ADA has already endorsed liraglutide for patients with type 2 diabetes at high-risk for CV events in its 2017 Standards of Care. Novo Nordisk’s SUSTAIN 6 trial also found CV benefit to semaglutide (though this was a small CVOT, and the company will likely initiate a larger one post-approval). In this realm, too, Adlyxin is at a disadvantage since the ELIXA study showed neutral CV effects for lixisenatide. There was no mention of Adlyxin during prepared remarks or Q&A, and it’s becoming increasingly clear that the combination product Soliqua takes precedence as the main strategic priority for Sanofi.

Figure 4: Adlyxin/Lyxumia Sales (2Q13-1Q17)

6. Praluent Sales Decline 8% Sequentially to $36 Million; Facing Challenging Payer Environment for PCSK9 Inhibitors

PCSK9 inhibitor Praluent (alirocumab) sales fell 8% sequentially to €34 million ($36 million). This represents a near tripling YOY but from a very small base of €12 million ($13 million) in 1Q16, which was only the second quarter of reported revenue for the therapy. Management attributed this sales decline for its Regeneron-partnered product to the challenging payer environment for PCSK9 inhibitors in the US. Indeed, these agents are extremely expensive and reimbursement prospects are poor – according to a survey conducted by the National Lipid Association, the denial rate for PCSK9 inhibitor prior authorizations is 96% upfront, and even after follow-up only 36% of providers successfully obtain a prior authorization. Sanofi management acknowledged the immense financial burden that is often transferred to patients: 80% of the Medicare Part D population (excluding the ~20% of patients who qualify for low-income subsidy) must pay co-insurance on any PCSK9 inhibitor, which results in annual out-of-pocket costs upwards of $3,000. Management recognized that these products are prohibitively expensive for many, which is a huge barrier to uptake and the force behind high drop-off rates. We hope that positive CVOT data from the FOURIER trial for Amgen’s Repatha (evolocumab) sways more payers to reimburse PCSK9 inhibitors – published outcomes data that shows a reduction in CV events signals substantial cost-savings. Full results from FOURIER were only presented mid-March, at ACC 2017, so it will likely take some time to move the needle on reimbursement (especially since payer negotiations sometimes only occur once a year). ODYSSEY Outcomes, Sanofi’s CVOT for Praluent, is scheduled to complete in December 2017 according to ClinicalTrials.gov – this has been moved up from an earlier February 2018 completion date, and while there were no explicit comments on the change in timing during the call, management did mention that Sanofi is “making every effort to be able to present at ACC 2018,” which would be in time for 2019 payer negotiations.

  • Pooling 1Q17 revenue from Praluent and Amgen’s PCSK9 inhibitor Repatha, the class declined 12% sequentially to $85 million (from $97 million in 4Q16), though pooled revenue nearly tripled YOY from $29 million in 1Q16. This is the first time this new therapy class has experienced a sequential drop in sales, with both major products posting smaller revenue compared to 4Q16 (Repatha sales fell 16% to $58 million). The sequential decline so early in these products’ lifecycle comes as a disappointment in the context of FOURIER data published last month, though again, it will likely take time for reimbursement prospects to improve, which is a critical first step before we can expect to see a boost in prescriptions and sales. Repatha held 58% of this market by value, while Praluent held 42%. According to Amgen’s 1Q17 update, Repatha holds 64% of new-to-brand prescriptions (NBRx), up from 56% in 4Q16. This suggests that Repatha is forging ahead as the market leader, but we imagine that neither product will be successful long-term without improvements in the payer landscape. And, on the flip side, concerted efforts from both manufacturers to work with payers and reduce out-of-pocket costs for patients could grow the class as a whole.
  • Addressing Amgen’s patent lawsuit against Sanofi over Praluent, management highlighted the court ruling to suspend the injunction against Praluent sale. This injunction was announced just hours after Sanofi’s 4Q16 call wrapped-up. Sanofi/Regeneron will be allowed to continue manufacturing, marketing, and selling Praluent during the appeals process, and the Court of Appeals is scheduled to hear oral arguments on June 6, 2017. There’s still the possibility that the court could uphold Amgen’s asserted patent claims and eventually withdraw Praluent from US pharmacies – our fingers are crossed that this doesn’t happen, as we see substantial advantages to a two-player PCSK9 inhibitor market, and were already disappointed (if not surprised) by the unexpected phase 3 discontinuation of Pfizer’s PCSK9 inhibitor candidate bococizumab.

Pipeline Highlights

7. Phase 1 Dilated Cardiomyopathy Candidate Added to “Diabetes Solutions” Pipeline

Sanofi has added a novel DCM1 myosin activator, SAR440181/MYK-491, for dilated cardiomyopathy (DCM, often a precursor to heart failure) to its phase 1 pipeline, notably categorizing the candidate under “Diabetes Solutions” rather than “Cardiovascular and metabolism.” While we’re very excited about this addition, management did not discuss this candidate in the call or in any of the 1Q17 update materials, reinforcing that it is under the radar screen. Sanofi is partnered with Bay Area biotech company MyoKardia for the development of SAR440181 – the two organizations formed a research collaboration aimed at developing therapies for heritable cardiomyopathies in 2014. MyoKardia filed an Investigational New Drug (IND) application for SAR440181 in November 2016, triggering a $25 million milestone payment from Sanofi, and a phase 1 trial of the candidate in 56 healthy volunteers initiated in January 2017. According to MyoKardia’s announcement at the time, topline results from this trial are expected in in 3Q17 – ClinicalTrials.gov lists an expected completion date of July 2017. MyoKardia’s website and press announcements seem to emphasize a relatively narrow indication for SAR440181 (“precision DCM”), and, indeed, the research collaboration between Sanofi and MyoKardia was created to focus on rare genetic forms of heart disease (the lead candidate of the partnership is phase 2 myosin inhibitor SAR439152/MYK-461 for obstructive hypertrophic cardiomyopathy, which was granted an orphan drug designation). That said, diabetes is often implicated in the development of dilated cardiomyopathy – so much so that the AHA lists “diabetic cardiomyopathy” as an alternate name for dilated cardiomyopathy. The inclusion of this candidate in the “Diabetes Solutions” section of Sanofi’s pipeline suggests that the company plans to eventually pursue a broader indication for the candidate.

  • It seems that Sanofi is hoping to expand its diabetes portfolio to address common comorbidities of diabetes, such as cardiovascular disease and heart failure. While CVOTs for Sanofi’s marketed diabetes products have demonstrated a resoundingly neutral effect on cardiovascular outcomes (in the ORIGIN trial for Lantus and the ELIXA trial for lixisenatide), Sanofi’s Dr. Riccardo Perfetti emphasized cardiovascular benefit as a key consideration for diabetes drugs in the future and suggested a possible mechanism for heart failure benefit for Lantus based on mouse studies at GTC Bio 2017. Sanofi (and partner Lexicon) have also previously expressed strong optimism for a cardioprotective benefit for phase 3 SGLT-1/2 dual inhibitor sotagliflozin – in fact, in 4Q16, Sanofi shared that it hopes to have positive CVOT for the candidate data pre-approval. That all said, to our knowledge, SAR440181 is the first candidate in Sanofi’s diabetes pipeline to primarily address a cardiovascular complication of diabetes, without glucose-lowering. All in all, we’re very pleased to see Sanofi commit to addressing residual cardiovascular risk in patients with diabetes and we’re eager to follow the progress of the candidate.
  • Cardiovascular benefit is increasingly a key consideration for new drug development in diabetes. Just yesterday, AZ announced the creation of a combined Cardiovascular and Metabolic Disease unit, as well as the initiation of phase 3 trials of SGLT-2 inhibitor Farxiga (dapagliflozin) in heart failure and chronic kidney disease. AZ clearly views Farxiga as a future headliner of this division, with double/triple duty indications of diabetes, heart failure, and chronic kidney disease. The company also has a PCSK9 inhibitor/GLP-1 agonist fusion protein in phase 2 that will presumably offer both glucose-lowering and CV protection. Similarly, Lilly/BI recently launched two phase 3 heart failure trials for Jardiance (empagliflozin) and R&D leadership at Lilly has repeatedly emphasized the “glucose-plus” approach to drug development. Novo Nordisk also shifted their R&D priorities late last year to include development of medications for diabetes comorbidities including cardiovascular disease. In our view, the line between “diabetes medication” and “cardiovascular medication” (and, also, potentially “nephropathy medication”) will become increasingly blurred – we’re so glad to see pharmaceutical companies tackle these comorbidities as one. Time for us to brush up on our cardiology and nephrology knowledge!

8. Phase 3 Start for Efpeglenatide Expected 4Q17

The phase 3 program for Hanmi-partnered GLP-1 agonist efpeglenatide is expected to initiate in 4Q17, according to the appendix of Sanofi’s press release. This is the first time we’ve heard such specific timing for the phase 3 start – in its 4Q16 update, Sanofi shared that the initiation had been pushed back to sometime in 2017 from the previous expectation of 4Q16. We’re glad to have a more concrete timeline to look forward to, though we’re somewhat disappointed that the start of the program will be at the tail-end of the expectation shared in the last update. Efpeglenatide has demonstrated fairly promising phase 2 data and Sanofi acquired the candidate in November 2015, so we’ve been eager for this candidate to move into phase 3 for some time now. This follows disappointing news from the last update that Sanofi pulled back from development of once-weekly basal insulin LAPSInsulin-115 and once-weekly basal insulin/GLP-1 agonist combination LAPSInsulin Combo, returning the development responsibility to Hanmi in 4Q16. We’re also intrigued by efpeglenatide’s potential for once-monthly dosing, but Sanofi does not appear interested in pursuing such an indication at this time.

9. No Updates on Other Diabetes Pipeline Candidates, Including SGLT-1/2 Dual Inhibitor Sotagliflozin and Biosimilar Insulin Lispro

Sanofi did not provide any updates on the remainder of its diabetes clinical development pipeline, including its late-stage Lexicon-partnered SGLT-1/2 dual inhibitor sotagliflozin (phase 3) and biosimilar insulin lispro (submitted in EU). We found the lack of mention of sotagliflozin particularly disappointing – there is immense interest in this novel candidate (for both type 1 and type 2 diabetes) and we would’ve loved an update on how the Sanofi-led phase 3 program for sotagliflozin in type 2 diabetes is progressing. We’re particularly curious as to how many trials will be involved in the program and their design – Sanofi has previously emphasized that the phase 3 program is designed to demonstrate a potential benefit for sotagliflozin in three specific use cases: (i) as a monotherapy; (ii) as an add-on to oral diabetes medications; and (iii) as an add-on to basal insulin. Additionally, the program will attempt to demonstrate differentiation in two specific ways: (i) greater A1c and blood pressure efficacy compared to Lilly/BI’s SGLT-2 inhibitor Jardiance (which is indicated for the reduction of cardiovascular death) and (ii) efficacy in renally-impaired patients. As such, we expect a very robust phase 3 program with several head-to-head trials. Even more ambitiously, management has implied that Sanofi intends to conduct a pre-approval CVOT for sotagliflozin designed to demonstrate superiority. Currently, only three trials from the program are posted on ClinicalTrials.gov: (i) in drug-naïve patients (n=240, expected completion September 2018); (ii) as an add-on to metformin (n=500, expected completion March 2019); and (iii) as an add-on to sulfonylureas (n=500, expected completion May 2019). We did notice that the expected completion of the trial in drug-naïve patients has been pushed back about six months, from March 2018 previously – this trial is still enrolling patients and we’re curious if the delay may be due to slower-than-expected recruitment. We eagerly await Lexicon’s 1Q17 update next Tuesday (May 2) for more details on the progress of both the type 2 diabetes program for sotagliflozin and the Lexicon-led type 1 diabetes program.

  • Sanofi management declined to share an update on biosimilar insulin lispro (Lilly’s Humalog) during Q&A due to “competitive reasons.” The company reiterated that that product has been accepted for regulatory review in the EU, but it has yet to share a timeline for the US submission. In Lilly’s own 1Q17 update, management expressed optimism that Humalog will be able to maintain its market position and payer access despite the arrival of biosimilar insulin lispro. The company pointed out that exclusive formularies have largely the norm in the rapid-acting insulin field for a few years, whereas some formularies are just now beginning to exclude certain basal insulins. Thus there would be less opportunity for payers to benefit economically from a larger rebate due to narrowing of the formulary, since it’s already whittled down to a single rapid-acting insulin. Furthermore, Lilly management suggested that payers with exclusive formularies are unlikely to switch out the insulin of choice after the initial exclusion, since that would force mass switches for all patients on the formulary. Of course, this is all speculation until a biosimilar is available and we look forward to following the market dynamics when that occurs. Overall, regardless of biosimilars however, we think the rapid-acting insulin market will continue to face substantial pressures given the growing popularity of non-insulin options for postprandial glucose excursions (including GLP-1 agonists and SGLT-2 inhibitors).
  • A phase 2 trial of GLP-1/glucagon dual agonist SAR425899 is expected to complete in January 2018, according to ClinicalTrials.gov. The trial will enroll 270 patients with type 2 diabetes and include head-to-head comparisons of SAR425899 to Novo Nordisk’s GLP-1 agonist Victoza (liraglutide), metformin, and placebo. Our sense from phase 1 data for this candidate is that it may feature a solid efficacy and safety profile that is more impressive in terms of weight loss than glucose lowering. We wouldn’t be surprised to see similar A1c reduction to liraglutide coupled with greater weight loss in this trial, though this is highly speculative. Lilly declined to advance phase 2 dual agonist TT401 into phase 3 based on modest phase 2 results (non-inferiority in A1c efficacy and superiority in weight loss to GLP-1 agonist exenatide) – OPKO Health picked up the candidate and is now developing it for an obesity indication. Novo Nordisk’s phase 1 NN9277 is similarly under development for an obesity indication. That all said, Sanofi is clearly focused on a type 2 diabetes indication for SAR425899 and, overall, the company does not appear to have any plans to move into obesity. GLP-1/glucagon dual agonists are a very active area of development currently – see our competitive landscape for a complete overview.

Table 2: Sanofi Diabetes Pipeline

Candidate

Phase

Timeline/Notes

SAR342434 (biosimilar insulin lispro)

Submitted in EU

SORELLA 1 trial presented at ADA 2016; Submission accepted by the EMA in September 2016; No word on US submission

Sotagliflozin (SGLT-1/2 dual inhibitor)

Phase 3

Partnered with Lexicon; Lexicon released positive phase 3 topline results in type 1 diabetes; Sanofi initiated phase 3 program in type 2 diabetes in 4Q16

Efpeglenatide (long-acting GLP-1 agonist)

 

Phase 2

Partnered with Hanmi; Phase 3 initiation expected in 4Q17 (delayed from 4Q16)

SAR425899 (GLP-1/glucagon dual agonist)

Phase 2

Promising full phase 1 results presented at ADA 2016; Advanced into phase 2 in 4Q16

SAR438335 (GLP-1/GIP dual agonist)

Phase 1

Added to pipeline in 3Q15

SAR341402 (rapid-acting insulin)

Phase 1

Added to pipeline in 4Q16

SAR440181/MYK-491 (DCM1 myosin activator)

Phase 1

Added to pipeline in 1Q17; Investigated for dilated cardiomyopathy indication; Phase 1 topline data expected in 3Q17

Once-weekly LAPSInsulin-115/efpeglenatide combination

Preclinical

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

Questions and Answers

On Lantus’ Formulary Exclusions:

Q: You've clearly highlighted the deeper decline expected this year in diabetes, has anything changed recently which will make you more cautious?

A: Of the new formulary decisions in the US, the exclusion from UnitedHealthcare has not had any impact yet during 1Q17 – we will see that during the rest of the year when the exclusion goes into effect. The reasons for the deceleration of sales in the US that we are forecasting for the coming year is also due to the full impact of the CVS Health formulary exclusion; 1Q17 was only partially impacted. It is true that the channel mix remains unfavorable, but not more unfavorable than we had anticipated. We stick with our long-term guidance of -4% to -8% YOY declines until the end of 2017, but we also remind you that by the last quarter of 2017, we will probably be at the lower end of that long-range guidance.

Q: Have you retained some prescriptions from CVS Health or has there been a massive switch to other products? What is your strategy to potentially come back on some formularies?

A: We put into place a €10 co-pay strategy for both Lantus and Toujeo and we are relatively satisfied with it because we have been able to retain in total 55% of our volumes with CVS Health. CVS is actually composed of two sub-buckets: the national template and custom plans. Custom plans account for roughly 20 million commercially insured lives and of this subset we have been able to retain 70% access for Lantus and Toujeo. CVS’ national formulary is where we lost access; we retained only 43% TRx and we only have the couponing as a mitigation strategy.

Q: You have highlighted fantastic performance with your couponing retaining 43% of TRx share in part of the CVS Health formularies. Does that antagonize CVS Health and make it more difficult when you come to negotiate next year? Do you think that UnitedHealthcare is a better organization at instilling their formulary or do you think that we should be able to see you also retain a significant proportion of the United business going forward with your couponing strategy?

A: Whether this antagonizes CVS Health, I don't know. On UnitedHealthcare, I think that it's very hard to predict how this will play out. Our objective is to make sure that we have as few disruptions as possible for the patients; we're trying to put patients first. We’re unsure of the relative retention we can keep in UnitedHealthcare with the couponing. On one hand, we have have “practiced” with CVS and that gives me reason to believe that we will be reasonably ready for UnitedHealthcare.  Of course in parallel, we will work with the PBMs on our way through obtaining good positioning for Soliqua. As you know that this is the most strategic objective.

Q: Could you quantify the incremental volume loss that we should expect in the second quarter from the UnitedHealthcare contract kicking in and the incremental impacts from the CVS Health contract?

A: The number of lives in UnitedHealthcare’s commercial segment is actually 60 million covered lives smaller than CVS Health’s. You should also know that Toujeo was not covered with UnitedHealthcare, contrary to Lantus; we were in a tier 3 position. So, we suspect the impact of United to be less important than the impact of CVS.

Q: Is there any initial commentary you can give us on 2018 contracting? How are you prioritizing pricing versus access, especially given the need to get Soliqua access too?

A: It is very early to comment on 2018 contracting. As you know, we have submitted our bids and we'll have to wait until we get the results of those bids. In terms of prioritization, we have a strategy of keeping a large coverage for many reasons not only for Lantus and Toujeo, but also in the future for Soliqua.

On Insulins:

Q: Now that we've seen more developments in the competitive landscape with Basaglar, Soliqua, etc., is there any change to the target market share you can achieve from patients switching to Toujeo from Lantus?

A: We stick to our initial thinking. We think that Toujeo is sufficiently differentiated to make the mark: we are happy with the initial launch of this product and it continues to perform extremely well. In Europe we have very significant market shares and we're returning to very good performances in Japan as well. The interesting thing is that, despite all the new competition in the field of diabetes, the overall insulin market by volumes – even in the US – continues to grow 3%, 4%, or 5% depending on the quarter. In countries where we have more maturity with Toujeo (Germany for example, which was the first launch country in Europe), you see that the first source of business for Toujeo it switches from basal insulin and Lantus. But moving forward that Toujeo captures more and more new patients. Remember that Soliqua is in its early days. And don't forget that in Europe, the drug is indicated for both post-OAD label and for insulin intensification which is not the case in the US. That is a fundamental difference of appreciation between EMA and FDA.

Q: What is your strategy regarding insulin lispro?

A: As I mentioned last quarter, we have submitted the NDA in Europe and the EMA has accepted for review. We cannot give any additional background on that.

On Praluent:

Q: Could you give us a feel for what's driving the delay on event rate? Do you think you can still get the ODYSSEY data in time for ACC and in time for 2019 contracting negotiations?

A: For ODYSSEY, nothing has really changed. As you know, it's an event driven trial. We want to perform this trials the best possible way because it's critical for the field that we accumulate the best possible scientific data to enlighten us on the value of this PCSK9 inhibitor. From our event models it's clear that we will be able to record all the events by the end of the year. We're making every effort to be able to present the data at the ACC 2018 meeting, but I can't promise because it's really beyond our control.

Q: So, no change at all in the number of events or follow-up while pairing the study there?

A: Absolutely not.

Q: It seems that Americans are increasingly exposed to out-of-pocket costs, because America has a Part B population and probably over half the patients on Medicare Part D. Roughly what would be the incremental monthly out-of-pocket cost for Praluent?

A: Praluent in general is covered for Medicare Part D. To give you an idea for the PCSK9 inhibitor class, out-of-pocket payment would be about $3,000/year, even higher in some cases, which is prohibitive. It is difficult to even start the treatment for many patients given these high out-of-pocket expenses.

On Soliqua:

Q: Can you give us an update on how the formulary access discussion is going for Soliqua?

A: What we've seen is that some payers try to look at the two products of Soliqua and Xultophy together, delaying their decision in terms of access. That being said, what we know today is that we have 34% commercial access and 31% marketing access already signed but not necessarily all in place. Actually during the first quarter, there was no access with the exception of the last two weeks of the first quarter. So, net sales for Soliqua are underestimated, because of the coupon and card and the zero copay, which all offsets against net sales. It's obviously very early days; we're only a couple weeks out of the gate. We are looking at patients who previously would either up-titrate with their basal insulin or intensify it by adding a GLP-1 agonist or a prandial insulin. That is the sweet spot for Soliqua. However, for patients to know this it requires a bit of education for our physicians, so that is currently our focus. The access and education will require some time so uptake of Soliqua will be gradual.

 

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