Zealand 4Q14 – $1 million in Lyxumia royalties; Enrollment complete in LixiLan phase 3 trials – March 24, 2015

Zealand provided its 4Q14 update late last week in a call led by new CEO Ms. Britt Meelby Jensen. As a reminder, Ms. Meelby Jensen replaced the highly regarded Dr. David Solomon as CEO in January; she brings significant experience in the pharmaceutical industry and we have found her to be quite impressive thus far. Below we include our top five highlights from the call, followed by an honorable mention and selected Q&A.

1. Zealand received DKK 6.2 million (~$1 million) in royalty revenue from Lyxumia (lixisenatide) in 4Q14; full-year royalties totaled DKK 20.3 million (~$3.6 million). Sanofi plans to resubmit Lyxumia in the US in 3Q15 following the very recent release of topline results from the ELIXA CVOT.

2. The two phase 3 trials for LixiLan (lixisenatide/insulin glargine) have completed enrollment. Topline results are expected in 3Q15, enabling regulatory submissions in 4Q15.

3. Management highlighted the initiation of a phase 1 trial for Zealand’s stable glucagon analog ZP4207 in November; the trial is expected to complete in mid-2015 and report results in 3Q15.

4. Zealand plans to advance a new lead glucagon/GLP-1 dual agonist candidate toward clinical development in 4Q15 in partnership with BI.

5. Zealand had cash resources of DKK 538 million (~$88 million) at the end of 2014, including proceeds from a DKK 299 million (~$50 million) royalty bond financing in December.

Top Five Highlights

1. Zealand received DKK 6.2 million (~$1 million) in royalty revenue from Lyxumia (lixisenatide) in 4Q14 from Sanofi’s total Lyxumia sales of €8 million (~$10 million). Full-year royalties totaled DKK 20.3 million (~$3.6 million) from €27 million (~$36 million) in total sales. According to the company’s press release, 4Q14 sales were particularly strong in the UK, Spain, and Japan – UK is a bit of a surprise since pricing tends to be so low there for virtually all diabetes drugs, though perhaps the enthusiasm was more about volume than actual revenue. Lyxumia is now approved in over 50 countries and launched in over 30 (up from over 20 in 3Q14), with more launches planned in 2015. Overall uptake of Lyxumia remains relatively modest after over a year on the European market, though US approval should certainly help boost its performance going forward (see below). How profitability will fare over time in the US is anyone’s guess – we anticipate it’s going lower from a higher base, though the heterogeneity of GLP-1 vs. other classes like DPP-4 inhibitors should help it a bit. The product’s growth would also likely have been stronger if not for its withdrawal from the German market (Europe’s largest) in 2013 following a negative IQWiG ruling that would have stripped it of its pricing premium. In our view, Lyxumia’s greatest potential lies in the LixiLan combination with Lantus (see more below) – and a future combination with Toujeo, though the drug’s status as a shorter-acting “prandial” once-daily GLP-1 agonist should also provide a useful point of differentiation in an increasingly heterogeneous class.      

• Sanofi plans to resubmit Lyxumia in the US in 3Q15 following the very recent release of topline results from the ELIXA CVOT. Full results from the trial will be presented on Monday, June 8^th at ADA. The topline results announcement stated that Lyxumia was non-inferior, and not superior, to placebo in terms of the incidence of cardiovascular events – this finding is in line with expectations, as the study was primarily designed to demonstrate safety and therefore enrolled a high-risk population (patients with a history of an acute coronary syndrome event) to facilitate a shorter trial duration; trial completion actually occurred ahead of the most recent guidance of 2Q15. However, GLP-1 agonists are generally viewed as the diabetes drug class with the best chance of demonstrating cardioprotection over the long term, and we will be looking closely at the full results to see if there is any hint of separation in the Kaplan-Meier curves toward the end of the study.
• Interim results from the INTENSE real-world observational study of Lyxumia are expected in 2Q15. The trial is comparing Lyxumia to other injectable therapies (including rapid-acting insulin analogs) as an add-on to basal insulin in patients with type 2 diabetes; it is also examining specific factors impacting patients’ adherence to treatment, which we’ll certainly be eager to hear more about. According to Zealand’s annual report, results from the GetGoal-Duo-II study (evaluating Lyxumia vs. Sanofi’s Apidra [insulin glulisine] in patients with type 2 diabetes poorly controlled on insulin glargine and/or metformin) are also expected in 2Q15.

2. Management shared that the two phase 3 trials for LixiLan (lixisenatide/insulin glargine) have completed enrollment; topline results are expected in 3Q15, enabling regulatory submissions in 4Q15 – pretty fast! The two phase 3 trials are LixiLan-O (n=1,125; ClinicalTrials.gov Identifier: NCT02058147), which is comparing LixiLan to Lantus alone or Lyuxmia alone (both on top of metformin) in type 2 diabetes, and LixiLan-L (n=700; ClinicalTrials.gov Identifier: NCT02058160), which is comparing LixiLan to Lantus (both on top of metformin) in type 2 diabetes patients treated with basal insulin. LixiLan-O is expected to complete in May 2015 and LixiLan-L in July 2015 (moved up slightly from previous guidance for completion in August 2015). Sanofi plans to submit LixiLan in both the US and EU in 4Q15. As a reminder, we saw the first proof-of-concept data on LixiLan vs. Lantus at ADA: both groups achieved striking A1c reductions (1.8% reduction with LixiLan vs. 1.6% with Lantus from 8% baseline), and LixiLan blunted postprandial glucose excursions substantially more than Lantus (reductions of 70 mg/dl and 12 mg/dl, respectively; p<0.001) while also offering a weight benefit.

• During Q&A, one analyst inquired about Sanofi’s commercialization plan for LixiLan in the context of a “challenging US outlook” for Toujeo (U300 insulin glargine). Zealand management commented only that the phase 3 data for LixiLan is expected to be very strong and referred all marketing questions to Sanofi. Based on the very positive commentary on GLP-1 agonist/basal insulin combinations that we have heard at recent conferences (most recently at ACC and Rachmiel Levine), we see LixiLan as one of the most exciting new products in Sanofi’s portfolio, and we believe it offers one of the best opportunities for the company to meaningfully strengthen the Lyxumia franchise and preserve a leading role for Lantus after its patent expiration this year. We also do not consider it a given that the launch of Toujeo will be challenging, as we believe factors including the product’s smooth PK/PD profile, the updated SoloStar pen, and the extensive Toujeo COACH support program could be appealing for many patients. However, questions during a recent product theater on Toujeo at ENDO did indicate some uncertainty about the product among providers, and it remains to be seen to what extent the hypoglycemia benefits seen in phase 3 trials will be perceived as clinically meaningful.  From our view, given the number of patients on basal insulin, we assume that it is a meaningful benefit for some meaningful percentage of patients, and given the growing number overall, the number of patients that could benefit even if a relatively small percentage is high.     
• Novo Nordisk’s GLP-1 agonist/basal insulin combo Xultophy (insulin degludec/liraglutide) was approved in Europe in September and recently had its first launch in Switzerland. During its 4Q14 update, Novo Nordisk shared new compelling topline results from the DUAL V phase 3 trial showing a superior A1c reduction from baseline in patients with type 2 diabetes on background metformin who switched from Lantus to Xultophy (-1.8% from a baseline of 8.4%) vs. those who stayed on Lantus (-1.1% from a baseline of 8.2%). Novo Nordisk has not commented on whether it would file Xultophy in the US immediately after a Tresiba (insulin degludec) resubmission (possible in 2015 pending interim results from the DEVOTE CVOT) or wait for a final Tresiba regulatory decision, so at this point it is unclear whether Xultophy or LixiLan will be the first GLP-1 agonist/basal insulin combination to reach the US market.

3. Management highlighted the initiation of a phase 1 trial for Zealand’s stable glucagon analog ZP4207 in November; the trial is expected to complete in mid-2015 and report results in 3Q15. Part 1 of the trial (n=64 healthy volunteers) is primarily intended to evaluate the product’s safety and tolerability, with secondary endpoints including PK/PD vs. native glucagon. Part 2, slated to begin in 2Q15, will evaluate the same endpoints in 20 patients with type 1 diabetes and will also investigate, in a crossover design, the efficacy of ZP4207 vs. native glucagon in ameliorating hypoglycemia (which will be induced immediately before treatment). During Q&A, one analyst inquired whether ZP4207 could advance to phase 2 by the end of the year; management commented only that the company’s 2015 budget includes post-phase 1 activities for the product. Zealand has indicated in the past that ZP4207 should be able to follow an expedited development process, as a great deal of information can be gained in phase 1b studies with healthy volunteers. See the table below for an overview of the competitive landscape for stable glucagon formulations.

Table 1: Glucagon Competitive Landscape

4. Zealand plans to advance a new lead glucagon/GLP-1 dual agonist candidate toward clinical development in 4Q15 in partnership with BI. As a reminder, Zealand announced in 3Q14 that BI had selected a new lead candidate for the program; Zealand has sole responsibility for former lead candidate ZP2929, which remains in phase 1. The company remains “in dialogue” with the FDA regarding the next steps for the product, with a decision expected later in 2015. Zealand and BI also have a second partnership focusing on cardiometabolic disease that is advancing “very well,” according to Zealand’s 4Q14 press release. Zealand has an undisclosed preclinical candidate for diabetes/obesity in partnership with Lilly. The press release also noted that a number of in-house preclinical candidates may advance into clinical development later this year. See the table below for an overview of Zealand’s cardiometabolic pipeline.

Table 2: Zealand’s Diabetes and Obesity Drug Pipeline

5. Zealand had cash resources of DKK 538 million (~$88 million) as of the end of 2014, including proceeds from a DKK 299 million (~$50 million) royalty bond financing in December. Net proceeds from the financing were DKK 272 million (~$44 million). Around 87% of future Lyxumia royalties will be used to pay interest on the bond until it is fully repaid, at which point Zealand will retain all future royalties. Future royalties on LixiLan sales are not included in the agreement. Zealand plans to use the funding to support advancement and expansion of its early-stage pipeline.

Honorable Mention: Zealand announced several organizational and management changes recently. The company’s research and development organization will now be split into two parts, each with direct representation at the senior management level: Vice President for Development Dr. Adam Steensberg will serve as Senior Vice President for Development and Chief Medical Officer, and Vice President for Research Dr. Keld Fosgerau will serve as interim Senior Vice President for Research while the company searches for a permanent appointment. In addition, Ms. Hanne Leth Hillman has been promoted to Senior Vice President for Investor Relations & Communications, enabling the department to be directly represented at the senior management level. As part of the restructuring, current Chief Scientific Officer Dr. Torsten Hoffmann and Chief Operating Officer Ms. Agneta Svedberg will be leaving the company. Zealand had characterized Ms. Meelby Jensen’s appointment as CEO as a “natural consequence” of the company’s shift to late-stage development and commercialization, and we assume the latest changes are in line with this new approach. We are curious to see whether Zealand maintains its commitment to a small organizational size (100 employees) or whether an expansion could be in the cards going forward.

Questions and Answers

Q: Does the expansion of the pipeline to start clinical programs reflect two new projects moving into phase 1 this year?

A: A number of projects are expected to advance. I can’t be more specific at this point. It continues to be a focus area, and we’ll come back with news.

Q: What are your thoughts on how to market LixiLan in the wake of the Toujeo approval and complicated FDA label? It seems that the Lixi combination has moved from being the new Lantus to a specialty premium product in the past few years. How do you see the outlook for LixiLan given the challenging US outlook for Toujeo?

A: It’s very difficult to comment because Sanofi is completely in charge of the positioning. We will see LixiLan data from two phase 3 trials this year, which will be exciting, and we would expect to see a product that has strong clinical benefits on A1c, weight, and the hypoglycemia profile. That’s all I can comment on; I would refer you to Sanofi.

Q: Does your guidance contemplate moving the stable glucagon to phase 2 by the end of the year?

A: It covers all planned costs for glucagon, including activities after the end of phase 1 that are planned for this year.

-- by Emily Regier, Manu Venkat, and Kelly Close