Memorandum

Sanofi 4Q16 – Diabetes portfolio up 2% YOY to ~$2.1 billion; Lantus revenues fell 5% YOY to ~$1.6 billion, driven by US pricing pressures; Strong Toujeo performance and high hopes for Soliqua – February 8, 2017

Executive Highlights

  • Although there were a number of bright spots for Sanofi in the quarter, and although 4Q16 was stronger than expected, the overall message from management was to expect no meaningful growth in 2017. Specifically, management forecasted that sales would be below the 4%-8% loss guidance for 2017.
  • Sanofi’s overall diabetes portfolio grew 2% YOY in 4Q16 to €1.9 billion (~$2.1 billion), against an easy comparison of 6% YOY loss in 4Q15. Toujeo (up 39% sequentially) and PCSK9 inhibitor Praluent were bright spots and hopes are high for just-launched basal/GLP-1 combo Soliqua where a contract with UnitedHealthcare for Soliqua coverage will be activated on July 1. Lantus and Adlyxin/Lyxumia continued to struggle, as expected.
  • Sanofi’s diabetes portfolio fell 2% for the full year to €7.3 billion (~$9.7 billion), down vs. 2015.
  • For full year 2016, the overall global GLP-1 agonist market grew 26% YOY to ~$5 billion (accelerating growth from an already high base of $3.9 billion), the global basal insulin market was flat at $10.2 billion (with next-generation insulins growth countering declines in traditional basal analogs), and the global rapid-acting insulin market fell 5% YOY to $6.1 billion.
  • In the pipeline, Sanofi briefly highlighted its Verily joint venture Onduo, but also announced that it is pulling back from its Hanmi partnership – we had never been able to figure out Hanmi.  Lexicon-partnered sotagliflozin is progressing well, and Sanofi hinted that it may aim to have cardiovascular data in-hand at launch.

Sanofi provided its 4Q16 and year-end update in an early morning call today, led by CEO Mr. Olivier Brandicourt. You can view the company’s press release, webcast, presentation slides, and video interview summary on the Sanofi website.

Very notably, sales of Sanofi’s overall diabetes portfolio rose 2% YOY as reported and operationally in 4Q16 (albeit with an easy comparison), representing the first and only quarter of growth in the portfolio in 2016. With sales falling 3% as reported (-2% operationally) for full year 2016, Sanofi’s diabetes products performed better than management’s guidance of 4%-8% declines. That said, management forecasted that 2017 performance would come in below the previous guidance. Overall, the expected declines in older basal insulin analog Lantus sales were offset by substantial growth in revenue for next-generation basal insulin Toujeo. While sales for GLP-1 agonist/basal insulin combination Soliqua are not yet available, following its early January launch, management shared that a contract with UnitedHealthcare for Soliqua coverage will be activated on July 1. On the pipeline, we were pleased to hear Sanofi highlight its joint venture, Onduo, with Verily (formerly Google Life Sciences) as one of the long-term opportunities for the company – few details on the partnership are available still, but we’re glad to hear Sanofi reaffirm its commitment.

Table 1: 2016 Financial Results for Sanofi’s Major Diabetes Products

 

2016 revenue (millions)

YOY growth (reported / CER)

Total diabetes

€7,320 / ~$9,721

-3% / -2%

Lantus

€5,714 / ~$7,588

-11% / -9%

Amaryl

€362 / ~$480

-8% / -4%

Apidra

€367 / ~$487

-2% / -1%

Insuman

€129/ ~$171

-8% / -4%

Blood Glucose Monitoring (BGM)

€66 / ~$88

5% / 5%

Lyxumia

€33/ ~$44

-13% / -13%

Toujeo

€649 / ~$862

296% / 295%

Praluent (not included in Total Diabetes)

€105/ ~$139

1067% / 1067%

Table 2: 4Q16 Financial Results for Sanofi’s Major Diabetes Products

 

4Q16 revenue (millions)

YOY growth (reported / CER)

Sequential growth (reported)

Total diabetes

€1,945 / ~$2,069

2% / 2%

8%

Lantus

€1,463 / ~$1,561

-5% / -5%

5%

Amaryl

€89 / ~$95

-5% / -1%

-3%

Apidra

€95 / ~$101

-9% / -10%

1%

Insuman

€31 / ~$33

-18% / -13%

-6%

Blood Glucose Monitoring (BGM)

€16 / ~$17

0% / 0%

0%

Lyxumia

€7 / ~$7

-36% / -36%

-22%

Toujeo

€238 / ~$254

143% / 139%

43%

Praluent (not included in Total Diabetes)

€37 / ~$39

640% / 640%

6%

Pooled Market Analysis Highlights

1. Now that full year sales for all the major insulin products are in, we see that pooled revenue for the basal insulin market was flat year-over-year (YOY) at $10.2 billion. This reflects expected weakness with older basal insulin analogs Lantus and Levemir, while next-generation insulins Toujeo and Tresiba grew substantially in 2016 (though from a lower base). Despite falling sales of Sanofi’s flagship product Lantus, the drug continues to lead the class with 59% of the $2.7 billion market by value in 4Q16. Pooled class revenue was essentially flat between 4Q15 and 4Q16 as well, rising a modest 1% YOY (and 3% sequentially from 3Q16).

2. Next-generation basal insulins – Sanofi’s Toujeo and Novo Nordisk’s Xultophy – showed more impressive growth in 2016, albeit from a smaller base. Toujeo posted sales of €649 million (~$862 million) for the full year, up 4-fold from 2015. This compares to $608 million for full year sales of Novo Nordisk’s Tresiba, though notably, Toujeo benefits from an additional year on the US market compared to Tresiba. Combined sales of the two next-gen basals totaled $476 million in 4Q16, with Toujeo holding 53% of value.

3. The rapid-acting insulin market fell 5% YOY to $6.1 billion in 2016, down from $6.4 billion in 2015. In 4Q16, the class fell 2% YOY to $1.7 billion, increasing 16% sequentially. Lilly’s Humalog leads with 48% of the market by value, followed by Novo Nordisk’s NovoRapid at 46% and Sanofi’s Apidra at 6%. The rapid-acting insulin class continues to face intense competitive pressure from the increased uptake of GLP-1 agonists and SGLT-2 inhibitors as methods to address postprandial excursions, a challenge that will only grow with the launch of basal insulin/GLP-1 agonist combinations.

4. The GLP-1 agonist class was a bright spot for diabetes therapy in 2016. Pooled revenue neared $5 billion, up 26% YOY from $3.9 billion in 2015. This impressively represents accelerated growth from an already high base – the class grew 22% YOY to $3.2 billion in 2015. We also note that GLP-1 agonists are growing faster from a higher base vs. SGLT-2 inhibitors (despite remarkable growth for both classes). In 4Q16, the GLP-1 agonist class posted $1.3 billion in sales – a 21% YOY and 6% sequential rise. We expect the continued strong performance of the GLP-1 agonist class is driven in part by its ease of prescription and titration compared to insulin, the increasing recognition of the importance of outcomes beyond A1c (including reduced hypoglycemia and postprandial glycemic excursions, not to mention potential cardiovascular benefits), and expanding options in the class (particularly Trulicity and the upcoming approvals of once-weekly injectable and daily oral semaglutide and implantable ITCA 650).

Financial Highlights

5. Sanofi’s overall diabetes portfolio grew 2% YOY in 4Q16 to €1.9 billion (~$2.1 billion), against an easy comparison of 6% YOY loss in 4Q15. Although, on a brighter note, total revenue rose 8% sequentially, management did lower expectations further for 2016. Management expressed optimism that this growth in 4Q16 occurred despite strong headwinds in the US market, vastly outperforming the company’s financial guidance forecasting 4%-8% revenue losses for the portfolio each year through 2018. That said, management forecasted that sales would be below the 4%-8% loss guidance for 2017; we imagine that the large blow in Lantus exclusions from the CVS Health and UnitedHealthcare formularies play a role in this expectation. Sanofi’s diabetes portfolio posted sales of €7.3 billion (~$9.7 billion) for the full year, a 3% decline as reported (2% in constant currencies) from 2015.

6. For the first time in many years, Lantus was not a major talking point on the call (and was not even mentioned in prepared remarks) – an indicator of the product’s waning status within Sanofi’s diabetes portfolio. Sales fell 5% YOY to €1.5 billion (~$1.6 billion) in 4Q16, a 5% sequential increase. Full year 2016 sales totaled €5.7 billion (~$7.6 billion), an 11% decline from 2015 as reported (9% in constant currencies). Although challenges resulting from its patent expiry and pricing pressures in the US persist, there is strength in the modern insulins and overall basal insulin sales total. In aggregate, Lantus and Toujeo posted €1.7 billion ($1.8 billion) in 4Q16, up 6% YOY, and posted €6.4 billion ($8.5 billion) for 2016, down 2% YOY.

7. Toujeo sales reached €238 million (~$254 million) in 4Q16, a nearly 3-fold YOY increase and an impressive 43% sequential increase. Management highlighted that Toujeo continues to make progress in gaining total prescriptions (TRx) market share, particularly in Spain (~13%), Germany (~14%), Japan (~11%), and the US (~5%).

8. Management reiterated that its newly-launched basal insulin/GLP-1 agonist combo Soliqua will be a key piece of Sanofi’s diabetes business going forward, following US launch and EMA approval in January. During Q&A, management shared that a contract with UnitedHealthcare for Soliqua coverage will be activated on July 1. Commercial coverage will be the focus in 2017; Medicare coverage will be the focus in 2018. Given the product’s early January launch, sales figures are not yet available and we look forward to learning more about the product’s early performance in the company’s 1Q17 update.

9. GLP-1 agonist Adlyxin/Lyxumia performance was weak as expected. The product posted sales of €7 million ($7 million) in 4Q16 and €33 million ($44 million) in 2016, corresponding to 36% YOY decline and 13% YOY decline, respectively. It’s clear that the combination product Soliqua, rather than standalone Adlyxin, is the main strategic priority for Sanofi.

10. PCSK9 inhibitor Praluent sales totaled €37 million ($39 million) in 4Q16 (the product’s sixth quarter on the market), a >seven-fold increase YOY. Sequentially, sales rose 6% from a base of €35 million in 3Q16. Revenue totaled €105 million ($139 million) for the full year 2016. Management expressed little concern over the US District Court’s recent patent lawsuit decision to ban Praluent sales – there is no “plan B,” management explained, because Sanofi remains confident that the ruling is incorrect and that an appeal will be granted on an expedited timeline. If not, Praluent manufacturing, marketing, and sale will be prohibited in the US as of February 21. Additionally, Sanofi management posited that the recently-announced topline results from the FOURIER trial demonstrating cardioprotection for Amgen’s Repatha will likely benefit the PCSK9 inhibitor class as a whole – FOURIER is scheduled to report full results at ACC 2017 in March while the ODYSSEY Outcomes CVOT for Praluent isn’t scheduled to complete until February 2018.

Pipeline Highlights

11. Notably, in Q&A, management briefly highlighted the potential encapsulated by Onduo, its joint venture with Verily (formerly Google Life Sciences), for the company’s long-term prospects. We’re very eager to see where this partnership goes – we have high hopes given the very strong leadership and patient and systems orientation.

12. Sanofi particularly emphasized the initiation of the phase 3 program in type 2 diabetes for Lexicon-partnered SGLT-1/2 dual inhibitor sotagliflozin and suggested in Q&A that management views sotagliflozin’s blood pressure effect and a potential cardioprotective benefit as its main points of potential differentiation. Management further suggested the Sanofi hopes to have cardiovascular outcome trial (CVOT) data demonstrating cardiovascular superiority for sotagliflozin prior to or just after its launch.

13. Sanofi confirmed that its biosimilar insulin lispro (Lilly’s Humalog) was accepted by the EMA for review in Europe in September 2016 – based on this timeline, we expect a decision in 4Q17. Management declined to share an update on the company’s US regulatory strategy for this product due to “competitive reasons.”

14. Management shared that Hanmi-partnered once-weekly GLP-1 agonist efpeglenatide will enter phase 3 trials in 2017, a slight delay from the previously expected timeline of 4Q16. The company also noted that Sanofi is focusing on the late-stage development of efpeglenatide, while Hanmi will take the lead on the once-weekly basal insulin that may eventually be combined with efpeglenatide.

15. Sanofi’s GLP-1/glucagon dual agonist SAR425899 was advanced into phase 2. In addition, it appears that Sanofi has added a novel rapid-acting insulin, SAR341402, to its phase 1 pipeline – this is very exciting and we’ll be back with more after more investigation by us!

Pooled Market Analysis Highlights

1. Basal Insulin Market Flat at $10.2 Billion in 2016

The basal insulin market rose 1% YOY to $2.7 billion in 4Q16 (against a very easy comparison), a 3% sequential increase. For the full year 2016 the basal insulin market was flat at $10.2 billion. Though underwhelming, these numbers represent a slight upward trend over the past year: basal insulin sales fell -9% YOY in 4Q15, remained flat in 1Q16 and 2Q16, and grew 2% in 3Q16. We expect this is a reflection of growth in next-generation basal insulins (Sanofi’s Toujeo and Novo Nordisk’s Tresiba) and biosimilar insulin glargine (Lilly’s Basaglar) coupled with expected weakness in traditional basal insulins Sanofi’s Lantus and Novo Nordisk’s Levemir. Indeed, combined Lantus and Levemir sales fell 12% YOY in 4Q16 to $2.1 billion and fell 9% YOY in full year 2016 to $8.8 billion (from $9.8 billion in 2015). On the other hand, combined sales of next-generation products Toujeo and Tresiba almost tripled YOY to $471 million in 4Q16. For full year 2016, combined next-generation sales rose nearly 3.5-fold to $1.3 billion, from $395 million in 2015. All in all, ~$1 billion loss in older basal insulin market was almost entirely driven by the nearly $1 billion gain in the next-generation market.

  • Despite the upward trend, without question, the basal insulin market remains extremely challenging, with competitive pricing – particularly in the US – as the major obstacle. The pricing controversy over insulin reached a fever pitch in 2016, with the ADA issuing a resolution and petition calling for increased transparency and access solutions from all stakeholders in the insulin supply chain, the Endocrine Society calling for collaboration among stakeholders to address the diabetes drug pricing crisis and Senator Bernie Sanders going as far as to call for a Department of Justice investigation into possible insulin price fixing. Insulin manufacturers are beginning to take action. We were extremely impressed by Lilly’s December announcement of a new program to provide discounted insulin directly to patients in a collaboration with online platform Blink Health and Novo Nordisk’s position statement to address diabetes drug affordability in America, though both companies committed to only single-digit price increases annually for their drugs. Although Sanofi has not said whether it has plans to limit price increases, we’re very impressed that it put in place a considerably lower price for Soliqua. One potential push forward for the basal insulin market is the excitement brewing over basal insulin/GLP-1 agonist combination products, including both Sanofi’s Soliqua (insulin glargine/lixisenatide) and Novo Nordisk’s Xultophy (insulin degludec/liraglutide), which could bolster sales for both drug classes – although the possibility remains that these more advanced combination products will cannibalize basal insulin sales further. This is something we will be watching closely in 2017, now that Soliqua and Xultophy have been FDA approved. Furthermore, 2017 will mark the first year in which a basal insulin analog – Lantus – will be excluded from some formularies. Formulary exclusions were first introduced to the rapid-acting insulin field in 2012, but the position of basal insulins on formularies was largely protected until the launch of biosimilar Basaglar and the decisions from both CVS Health and UnitedHealthcare to exclude Lantus in favor of Basaglar for 2017.

Figure 1: Basal Insulin Market (1Q06-4Q16)

  • Sanofi’s Lantus continues to lead with 59% of the market by value, with its next-generation counterpart Toujeo capturing 10%. Meanwhile, Novo Nordisk holds 30% of the basal insulin market by value: Levemir holds 22% and new-generation insulins (Tresiba, Xultophy, Ryzodeg) hold 8%. Lilly’s Basaglar (biosimilar insulin glargine) captured nearly 2%, although we anticipate this will increase rapidly as Basaglar becomes more established in the US market. Launched in mid-December, Basaglar generated an impressive $15.8 million in US revenue in 4Q16, with only two weeks of sales to report.
  • Novo Nordisk outlined the shifting dynamics of the US basal insulin market during its recent 4Q16 update. As of December 2016, Lantus held 35% of the new-to-brand prescription (NBRx) share (down sharply from nearly 50% at the beginning of 2016). On the other hand, Sanofi’s combined basal insulin franchise (with Lantus and Toujeo) still leads the market with 45% NBRx share. Tresiba’s steep uptake curve over 2016 has been particularly impressive – despite launching a year later than Toujeo, Novo Nordisk’s next-generation insulin has surpassed Toujeo in terms of NBRx share with 15% in December 2016, compared to 10% for Toujeo. We also found the rapid uptake of Lilly/BI’s newly-launched Basaglar (biosimilar insulin glargine) impressive – the product was only launched in mid-December 2016 and already won 9% of the NBRx share – nearly as much as Toujeo’s 10% share – after only two weeks on the market. In our view, this is clearly an indication of the demand for lower-cost insulin analogs, also reflected in the immense public frustration over rising insulin prices throughout 2016.
  • Combined sales of the next-generation basal insulins, Sanofi’s Toujeo and Novo Nordisk’s Tresiba comprised 18% of the basal insulin market by value. This is likely driven by a combination of accelerating uptake for these products and their higher list price compared to older basal insulin analogs and biosimilars. We anticipate this figure will rise in quarters to come given the improved clinical profile of these next-generation products. Much more on this subset of the basal insulin market below.

2. Next-Generation Basal Insulin Market Surpasses $1 Billion for 2016

Next-generation basal insulins – Sanofi’s Toujeo and Novo Nordisk’s Tresiba franchise – showed more impressive growth than the rest of the basal insulin market in 2016, albeit from a smaller base. Combined sales of this sub-class almost tripled YOY to $471 million in 4Q16 – for context, the total sales from 4Q16 alone outstrip total global sales for full year 2015. For full year 2016, combined next-generation sales surpassed the $1 billion mark, rising nearly 3.5-fold to $1.3 billion, from $395 million in 2015. Toujeo held 53% of the market share among new-generation insulins by value in 4Q16, though Tresiba’s $218 million in sales for 4Q16 is rapidly catching up with Toujeo’s 4Q16 sales of $253 million. For the full year 2016, Toujeo posted sales of €649 million (~$862 million), up 4-fold from 2015. This compares to $608 million for Tresiba, though notably, Toujeo benefits from an additional year on the US market compared to Tresiba and Tresiba is very early in its US launch cycle in comparison.

  • Tresiba currently holds an edge over Toujeo in terms of new-to-brand prescriptions (NBRx), with 15% and 10% NBRx share, respectively. Tresiba offers a slightly differentiated clinical profile to Toujeo (and its predecessor basal insulins) with a flexible dosing claim and a potential hypoglycemia benefit, but it remains to be seen how the two stack up against one another (though a head-to-head PK/PD trial is ongoing). Tresiba appears to have a slight clinical edge based on the available data: it matched Lantus’ efficacy at lower doses in phase 3 trials (whereas Toujeo required dose increases to equal Lantus), it has a longer duration of action, it has been demonstrated in the phase 3b SWITCH 1 and 2 trials to significantly reduce hypoglycemia, and its label includes a flexible dosing claim. For us, it’s less about which is technically “better” of the two and more about how much better they both are compared to Lantus, Levemir, and particularly NPH. Having a “true” 24-hour insulin makes an incredible difference as a patient and we suspect that hypoglycemia improvements vary by patients, largely related to patient baselines.

3. Rapid-Acting Insulin Market Down 5% YOY in 2016 Due to Competition from GLP-1, SGLT-2, and Tough US Pricing Environment

The rapid-acting insulin market fell 5% YOY to $6.1 billion in 2016, down from $6.4 billion in 2015. In 4Q16, the class fell 2% YOY to $1.7 billion, though it grew 16% sequentially. Notably, this sequential growth comes against an easy comparison, as the market dropped 5% between 2Q16 and 3Q16. As of 4Q16, Lilly’s Humalog (insulin lispro) leads with 48% of the market by value, followed by Novo Nordisk’s NovoLog/NovoRapid (insulin aspart) at 46% and Sanofi’s Apidra (insulin glulisine) at 6%. Interestingly, this is the first quarter in several years where Humalog has surpassed NovoLog in terms of market share, posting $820 million vs. NovoLog’s $794 million. Indeed, Lilly management emphasized Humalog’s growing share of total mealtime insulin prescriptions (TRx) during the company’s recent 4Q16 earnings call – increasing from 45% to 49% between January 2016 and January 2017 – and highlighted Humalog as a main growth driver in the company’s 2017 guidance. That said, none of these three major rapid-acting insulin products has experienced stable growth in 2016 and we expect the instability will continue into 2017 and beyond.

  • The class continues to face intense competitive pressure from the increased uptake of GLP-1 agonist and SGLT-2 inhibitor therapy to address postprandial excursions, a challenge that will only grow with the launch of basal insulin/GLP-1 agonist combinations (like Sanofi’s own Soliqua and Novo Nordisk’s Xultophy). In our view, the GLP-1 and SGLT-2 classes offer exciting alternatives to insulin therapy for many patients – not only do these newer, more advanced agents improve glycemic control, but their benefits extend to outcomes beyond A1c, including reduced body weight, lower risk of hypoglycemia, and potential cardioprotection. There hasn’t been as much innovation in rapid-acting insulin as there has been in basal insulin, either: Even with Novo Nordisk’s next-generation prandial insulin Fiasp (faster-acting aspart), phase 3 trials showed more of an incremental benefit vs. current mealtime insulins rather than a truly disruptive advance (at least compared to next-generation basals Tresiba and Toujeo vs. older basal analogs and certainly compared to first-gen insulin analogs compared to human insulin and NPH).
  • The tough pricing environment surrounding diabetes drugs in the US has been a hurdle for rapid-acting insulins for a number of years. Within Sanofi’s portfolio, Apidra fell 31% YOY in US sales to €29 million ($31 million) in 4Q16 – in contrast, ex-US revenue actually rose 7%. Global Apidra sales fell 9% YOY as reported and 10% in constant currencies to €95 million ($101 million) in 4Q16. Revenue fell 2% YOY as reported and 1% in constant currencies to €367 million ($487 million) for the full year 2016.

Figure 2: Total Rapid-Acting Insulin Market Sales (1Q06-3Q16)

4. Another Strong Showing from GLP-1 Agonists: Pooled Revenue up 26% YOY to ~$5 Billion in 2016

The GLP-1 agonist class was a bright spot for diabetes therapy in 2016. Pooled revenue neared $5 billion, up 26% YOY from $3.9 billion in 2015. This represents accelerated growth from an already high base – the class grew 22% YOY to $3.2 billion in 2015. In 4Q16, the GLP-1 agonist class posted $1.3 billion in sales – a 21% YOY and 6% sequential rise. Sanofi’s Adlyxin/Lyxumia franchise (lixisenatide) captured <1% of this market by value. Novo Nordisk’s Victoza (liraglutide) remains the market leader, with 56% of the market by value in 4Q16, followed by Lilly’s Trulicity (dulaglutide) with 25%, AZ’s Bydureon (exenatide once-weekly) with 11%, AZ’s Byetta (exenatide twice-daily) with 4%, and GSK’s Tanzeum (albiglutide) with 4%. Of this cast of players, Trulicity showed the steepest incline in 4Q16, with sales tripling YOY to $337 million. Lilly management cited Trulicity as a prominent growth driver within the company’s diabetes business, as well as its overall pharmaceutical portfolio, and we continue to hear positive feedback on the patient-friendly dulaglutide injection pen. In terms of volume, as measured by total prescriptions (TRx), Victoza continued to lead the market with 50% TRx share in the US as of November 2016, while Trulicity carried 25% TRx share. On the other hand, at JPM 2017 in early January, Lilly management shared that Trulicity has surpassed Victoza in terms of TRx – we look forwarded to updated numbers in Novo Nordisk’s 1Q17 update to get a better sense of the volume market dynamics in the US.

  • While there are observations to be made about Victoza losing market share to Trulicity – for comparison, Victoza held 61% of the market by value vs. Trulicity’s 19% in 3Q16 – we don’t see this as a major concern given the terrific underlying class growth. In fact, Novo Nordisk management attributed Victoza’s success and momentum to underlying GLP-1 class growth during the company’s 4Q16 earnings call. According to Novo Nordisk’s presentation, the GLP-1 agonist class was responsible for ~10% of revenue from all type 2 diabetes therapies as of November 2016 (up from 8% in November 2015); total GLP-1 agonist prescriptions increased 30% YOY in 4Q16, which sheds light on impressive volume as well as sales growth for the class. This all goes to show that there’s plenty of room for multiple GLP-1 agents to do quite well commercially – a trend that we think will only continue with the introduction of new, innovative patient options such as once-weekly injectable and oral daily semaglutide (from Novo Nordisk) as well as Intarcia’s implantable ITCA 650.
  • We also attribute some of this strong class performance to (i) a GLP-1 agonist’s ease of prescription and titration compared to insulin, and (ii) to increasing recognition of the importance of outcomes beyond A1c – reduced hypoglycemia, reduced postprandial glucose excursions, not to mention potential cardiovascular benefits. The ELIXA trial for Adlyxin/Lyxumia reported resoundingly neutral CV effects at ADA 2015, but compelling CV benefits were demonstrated in LEADER (for Novo Nordisk’s Victoza) and SUSTAIN 6 (for Novo Nordisk’s semaglutide). Upcoming CVOTs in the GLP-1 agonist class include the EXSCEL trial for Bydureon (scheduled to complete in April 2018), the REWIND trial for Trulicity (also scheduled to complete in April 2018), and the HARMONY trial for Tanzeum (scheduled to complete in May 2019). We also look forward to full results from the FREEDOM-CVO trial for ITCA 650 – while the topline results indicated non-inferiority, we’re eager for a post-approval trial designed to assess potential CV superiority for the product. As CV outcomes become more central in optimal diabetes care, we’ll be curious to see how results from these studies impact uptake of GLP-1 agonists, especially now that the ADA’s 2017 Standards of Care explicitly recommends Victoza to reduce CV risk in adults with type 2 diabetes based on positive results from LEADER. We imagine that a label update that reflects LEADER data, if approved by the FDA, will serve as an additional boost to the Victoza franchise and to the class as a whole. Of course, biosimilar liraglutide is likely on the mid-term horizon and we’ll be curious how this impacts the market opportunity for newer candidates, especially candidates that may not have positive CV outcomes data for a number of years. Will patients and providers view the cardioprotective benefits of Victoza as transferrable to biosimilar liraglutide (given the overall novelty and uncertainty surrounding biosimilars in general due to the complex manufacturing requirements of biologics)?

Figure 3: Total GLP-1 Agonist Sales (1Q06-4Q16)

Financial Highlights

5. Overall Diabetes Portfolio: 2% YOY Growth to ~$2.1 Billion

Sanofi’s overall diabetes portfolio grew 2% year-over-year (YOY) as reported and in constant currencies in 4Q16 to €1.9 billion (~$2.1 billion), against an easy comparison of 6% YOY loss in 4Q15. Sanofi’s diabetes portfolio posted sales of €7.3 billion (~$9.7 billion) for the full year, a 3% decline as reported (-2% in constant currencies) from 2015. Although, on a brighter note, total revenue rose 8% sequentially in 4Q16, management did lower expectations further for 2017. Management expressed optimism that this 4Q16 growth occurred despite strong headwinds in the US market, vastly outperforming the company’s financial guidance (updated in 3Q15) forecasting 4%-8% revenue losses for the portfolio each year through 2018. That said, management further lowered its expectations for 2017, stating that sales would be even further below the current 4%-8% loss guidance. We imagine that the large blow in the form of Lantus exclusions from the CVS Health and UnitedHealthcare formularies plays a role in this expectation. Although additional challenges resulting from Lantus’ patent expiry and pricing pressures in the US persist, there is strength in the modern insulins and overall basal insulin sales total. In aggregate, Lantus and Toujeo posted €1.7 billion ($1.8 billion) in 4Q16, up 6% YOY, and posted €6.4 billion ($8.5 billion) for 2016, down 2% YOY.

Figure 4: Total Sanofi Diabetes Portfolio Sales (1Q05-4Q16)

  • Once again, Sanofi’s declining revenues are largely attributable to the falling sales of flagship product Lantus.  Further illustrating Lantus’ waning status in Sanofi’s diabetes portfolio, the product went virtually unmentioned in the company’s prepared remarks, and was not a major talking point in the subsequent Q&A. Bright spots in Sanofi’s diabetes portfolio include its next-generation basal insulin Toujeo (U300 insulin glargine) and the Regeneron-partnered PCSK9 inhibitor Praluent (alirocumab). Additionally, Sanofi management clearly has high hopes for the prospects of basal insulin/GLP-1 agonist combination Soliqua, which launched in the US in early January. We’ll be curious to see if Sanofi will begin breaking out sales for Soliqua in its 1Q16 update, or if it will include Soliqua sales under the Lantus or Adlyxin/Lyxumia franchises. 

6. Lantus: Sales fall 5% YOY; Flagship Product Deemphasized in Prepared Remarks

Sales for Sanofi’s flagship product Lantus (insulin glargine) fell 5% YOY in constant currencies and as reported to €1.5 billion (~$1.6 billion) in 4Q16, a 5% sequential increase. Full year 2016 sales totaled €5.7 billion (~$7.6 billion), an 11% decline from 2015 as reported (-9% in constant currencies). For the first time in many years, Lantus was not a major talking point in the call (and was not even mentioned in prepared remarks) – an indicator of the product’s waning status within Sanofi’s diabetes portfolio. We attribute Lantus’ continuing challenges in part to pricing pressures in the US, where Lantus revenue fell 22% YOY as reported in 4Q16 (-12% YOY for the full year) totaling €933 million (~$1 billion). Indeed, according to commentary from Sanofi’s 3Q16 update, this ongoing trend reflects both lower average net price and patients switching to the next-generation glargine product Toujeo (U300 insulin glargine). Since its patent expiry in 2015, Lantus has faced increased challenges that we expect will only intensify in 2017 and beyond as biosimilar Basaglar’s launch progresses PBMs become more aggressive in formulary negotiations (both CVS Health and UnitedHealthcare have excluded Lantus for 2017). Lantus fared much better in international markets in 4Q16: ex-US Lantus sales rose 5% YOY as reported to €603 million (~$664 million), driven largely by high YOY growth in Emerging Markets (10%) and Rest-of-World (9%).

Figure 5: Lantus Sales (1Q05-4Q16)

7. Toujeo: Growth Continues with 3-Fold YOY Sales Increase

Sales for Sanofi’s next-generation basal insulin Toujeo (U300 insulin glargine) reached €238 million (~$254 million) in 4Q16, a nearly three-fold YOY increase (as reported and in constant currencies) and an impressive 43% sequential increase. Toujeo posted sales of €649 million (~$862 million) for the full year, up 4-fold from 2015. US sales accounted for the lion’s share of Toujeo revenue in 4Q16, totaling €169 million (~$180 million), a 39% sequential increase as reported. We suspect that positive word-of-mouth surrounding this product is growing. Although access certainly remains a major barrier, more and more patients know about the newer next-generation insulins and the uptake trajectory bodes well.

Figure 6: Toujeo Sales (1Q15-4Q16)

  • Toujeo has continued to make progress in gaining share of the total prescriptions (TRx) in the basal insulin market. As of Sanofi’s 3Q16 update, Toujeo has been launched in 35 countries. The product boasts a growing TRx market share in several countries particularly in Spain (~13%), Germany (~14%), Japan (~11%), and the US (~5%) – see slide 11 for more detail. According to information released in Novo Nordisk’s recent 4Q16 update, Toujeo currently holds 10% market share in terms of new-to-brand prescriptions (NBRx) – Tresiba has a slight edge at 15% NBRx.
  • Tresiba certainly stands as Toujeo’s most direct competitor in the basal insulin market as the only other next-generation insulin. Tresiba has received enthusiastic praise from many providers since its launch earlier this year. During a corporate symposium held at this year’s ADA, Ms. Davida Kruger (Henry Ford Health System, Detroit, MI) and Drs. Anne Peters (USC, Los Angeles, CA) and Christopher Sorli (Billings Clinic, MT) spoke very highly of Tresiba’s long duration of action and, in particular, the opportunity for flexible dosing. Furthermore, a presentation at the Keystone Symposium on New Therapeutics in Diabetes and Obesity characterized Tresiba as a scientifically and clinically superior insulin to others on the market. Toujeo’s duration of action, while longer than Lantus’, is not quite as long as Tresiba’s and the Toujeo label does not include a flexible dosing claim. One may work better for a given patient than another but overall we expect formulary access to be primary point of differentiation for most US patients. 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.” The Toujeo pen also got marks for being slimmer and more attractive on the surface, though the actual act of dosing Tresiba has a “slight advantage” according to some. 

8. Soliqua: A Huge Opportunity for Sanofi Diabetes

Management reiterated that its newly-launched basal insulin/GLP-1 agonist combo Soliqua (insulin glargine/lixisenatide) will be a key piece of Sanofi’s diabetes business going forward, following US launch and EMA approval in January. Given the product’s early January launch, sales figures are not yet available and we look forward to learning more about the product’s early performance in the company’s 1Q17 update. During the 4Q16 call, management cited Soliqua as a tremendous opportunity, pointing to the large number of type 2 diabetes patients who could benefit: “50% of patients treated today with basal insulin are not at goal, so by definition, they would quality for Soliqua.” We agree that Soliqua and its in-class competitor Xultophy (from Novo Nordisk; launched in nine countries ex-US; FDA-approved but not yet launched in the US) could be extremely influential new therapies in diabetes care. We have high hopes for Soliqua’s success for many reasons: (i) Data from the LixiLan-L and LixiLan-O trials shows pronounced benefits to Soliqua vs. insulin glargine or lixisenatide monotherapy, including superior glucose-lowering efficacy, neutralization of any weight gain associated with basal insulin treatment, lower daily insulin requirements, and a milder side-effect profile; (ii) This class of basal insulin/GLP-1 fixed-ratio combinations has been highly-anticipated in the field, with several endorsements from diabetes thought leaders; and, importantly, (iii) Sanofi has announced a very responsible pricing strategy for Soliqua, listing the combo on par with existing GLP-1 agonists (~$20-25/day). We believe this is a smart move that will play to Soliqua’s advantage vs. Xultophy (and, as was apparent from management’s 4Q16 remarks, Sanofi Diabetes is depending on a strong performance from Soliqua). The DUAL program for Xultophy reported a somewhat stronger clinical profile than the LixiLan trials (no head-to-head study has been done, but we anticipate one is coming from Novo Nordisk), but on the flip side, Novo Nordisk has announced that its combo will be listed at a premium in the US (~$31/day). Ultimately, we see more than enough room for both of these products to be successful on the market, and for both, we suspect that price and access will be powerful determinants of uptake.

  • During Q&A, management shared that a contract with UnitedHealthcare for Soliqua coverage will be activated on July 1. Elaborating further, management characterized the deal as a major win, given that UnitedHealthcare is a big commercial payer covering 50 million lives. Based on conversations with payers so far, management expressed a positive outlook on prospects for reimbursement, noting that payers appreciate Sanofi’s pricing strategy (as we expected!). Commercial coverage of Soliqua will be the focus in 2017; Medicare coverage will be the focus in 2018. It’s great to see this pointed, strategic emphasis on reimbursement – this will greatly benefit Soliqua’s uptake in the first couple years, in our view, plus it ensures that more patients will have access to this very valuable new medication. This stands in contrast to Novo Nordisk’s slower launch strategy for Xultophy, in which management has acknowledged that Xultophy takes a backseat to Tresiba and Victoza in terms of priorities and the company is wary of establishing access at expense of too-large rebates, which may undermine the standalone products. Given Lantus’ waning status and the weak sales for Adlyxin, this is less of a concern of Sanofi.

9. Standalone Adlyxin Sales Sluggish

GLP-1 agonist Adlyxin/Lyxumia performance was weak as expected. The product posted sales of €7 million ($7 million) in 4Q16 and €33 million ($44 million) in 2016, corresponding to 36% YOY decline and 13% YOY decline, respectively. Sequentially, revenue dipped 22% from a base of $10 million in 3Q16. Sales in 4Q16 also represent the lowest quarterly total for the franchise since 1Q14. Despite surrounding growth in the GLP-1 agonist class, Adlyxin (branded Lyxumia ex-US) sales seem to have never quite taken off following 2Q13 ex-US launch and 2H16 US launch – we suspect the once-daily dosing and somewhat weaker clinical profile in a crowded market, coupled with its last-to-market status in the US, may be driving this low uptake. There was no commentary specific to Adlyxin from management during the 4Q16 call, and it’s clear that the combination product Soliqua, rather than standalone Adlyxin, is the main strategic priority for Sanofi.

Figure 7: Adlyxin/Lyxumia Sales (2Q13-4Q16)

10. Praluent Faces Lawsuit from Amgen and Intensifying Competition from Repatha

PCSK9 inhibitor Praluent sales totaled €37 million ($39 million) in 4Q16 (the product’s sixth quarter on the market), a >seven-fold increase YOY. Sequentially, sales rose 6% from a base of €35 million in 3Q16 – this is the smallest sequential increase to-date, which is not unexpected given that Regeneron-partnered Praluent (alirocumab) is relatively new to market (FDA-approved in July 2015) and is now growing from a slightly higher base. Revenue totaled €105 million ($139 million) for the full year 2016. For comparison, Amgen’s PCSK9 inhibitor Repatha (evolocumab) posted $141 million in full year sales and $58 million in 4Q16 sales (up 45% sequentially from a base of $40 million in 3Q16). In 4Q16, Praluent held 40% of the PCSK9 inhibitor market by value, while Repatha sales comprised the majority of market share at 60%. Pooled quarterly revenue from these two PCSK9 inhibitors was $97 million, which represents a 23% sequential rise driven primarily by Repatha. This class of advanced lipid-lowering agents is not growing as rapidly as we might expect, or hope, which we attribute to poor payer coverage. A statistic that stands out from CMHC 2016: patients looking to initiate PCSK9 inhibitor therapy face an 80-90% denial rate, and even after extensive appeals, only 27% of privately-insured individuals and 46% of Medicare beneficiaries obtain access. We find this exceptionally unfortunate, especially given the high residual cardiovascular risk many patients with diabetes face.

  • Management expressed little concern over the US District Court’s recent patent lawsuit decision to ban Praluent sales – there is no “plan B,” management explained, because Sanofi remains confident that the ruling is incorrect and that an appeal will be granted on an expedited timeline. Just hours after the call wrapped-up, Sanofi announced a court ruling has suspended the injunction against Praluent sale, thus Sanofi/Regeneron will be allowed to continue manufacturing, marketing, and selling their product during the appeals process. This is step one of two for the companies, meaning the court could still uphold Amgen’s asserted patent claims and eventually withdraw Praluent from the US market – 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 by the unexpected phase 3 discontinuation of Pfizer’s PCSK9 inhibitor candidate bococizumab.
  • Sanofi management posited that the recently-announced topline results from the FOURIER trial demonstrating cardioprotection for Amgen’s Repatha will likely benefit the PCSK9 inhibitor class as a whole. FOURIER is scheduled to report full results at ACC 2017 in March while the ODYSSEY Outcomes CVOT for Praluent isn’t scheduled to complete until February 2018. Sanofi/Regeneron’s CVOT is continuing as planned following an interim analysis in November 2016, which could signal less-than-overwhelming CV benefit (though it could also mean a lot of other things as well – it’s ultimately entirely in the hands of the data safety monitoring committee). Given the very robust LDL-lowering associated with alirocumab therapy, Sanofi management previously expressed optimism that the CVOT might be stopped early due to overwhelming efficacy findings – while this wasn’t the case, there is still a very good chance that Praluent demonstrates compelling CV risk reduction in the full ODYSSEY Outcomes results… we’ll just have to wait until 1Q18 to see. Overall, cardiologists and other healthcare providers seem to view Repatha and Praluent as largely interchangeable at this point, so we expect that many providers will view Repatha’s benefit as a class effect extending to Praluent, even if this is not yet reflected in Praluent’s label. We do hope that the FOURIER results make apparent to payers the value in PCSK9 inhibitors, since poor reimbursement is still the primary obstacle to uptake.
  • Management briefly touched upon the European approval of a 300 mg once-monthly dose of Praluent (vs. the standard starting dose of 75 mg every two weeks and the higher dose of 150 mg every two weeks) in November 2016. The offering of a once-monthly option helps bridge one of the few clinical gaps between Praluent and Repatha – while Praluent initially focused on offering two similarly timed doses with differentiated strength, Repatha initially offered greater dose timing flexibility by offering both once-monthly and a twice-monthly options. The FDA considered Sanofi’s submission of a once-monthly dose for Praluent a major amendment, so a regulatory decision for the US was pushed back by three months. Sanofi/Regeneron also anticipate launching Praluent in 15 new countries in 2017 (the drug is already marketed in 15 countries ex-US).

Pipeline Highlights

11. Long-Term Opportunity with Onduo Joint Venture with Verily

Notably, in Q&A, management briefly highlighted the potential encapsulated by Onduo, its joint venture with Verily (formerly Google Life Sciences), for the company’s long-term prospects. When asked about Sanofi’s prospects in the diabetes field in the long-term, Sanofi management specifically noted the potential to “develop better-integrated diabetes care” through Onduo. All in all, the joint venture is certainly in stealth mode – while Onduo is flush with cash ($500 million!) from parents Sanofi and Verily, the company has not yet made public any sort of concrete product or project in development. We’ve speculated that possible products developed by Onduo could include Bluetooth-enabled insulin delivery devices; coaching apps; insulin dose titration software; provider dashboards for population management, and patient communication and clinical decision support. We’re very eager to see where this partnership goes – we have high hopes given the very strong leadership and patient and systems orientation. We’re curious how integrated Onduo projects will be with existing and upcoming Sanofi drug products – will Onduo’s products essentially serve as support to improve use of Sanofi therapies or will they serve as standalone products? Sanofi’s early-stage diabetes-related pipeline is noticeably sparser than that of other diabetes giants – Novo Nordisk and Lilly especially – and it appears that Sanofi is taking a bold bet on this rather nebulous Onduo venture rather than going all-in on new diabetes therapy compounds or expanding to new diabetes-related indications (such as NASH), as other companies have done. We’re excited to hear Onduo CEO Dr. Josh Riff at ATTD 2017 next week – this will be his first time speaking publicly at a diabetes conference and we hope he can shed some light on the company’s progress!

12. SGLT-1/2 Dual Inhibitor Sotagliflozin Phase 3 Type 2 Diabetes Initiation

Sanofi notably suggested that it hopes to have cardiovascular outcome trial (CVOT) data demonstrating cardiovascular superiority for Lexicon-partnered SGLT-1/2 dual inhibitor sotagliflozin prior to or just after its launch. Management commented in Q&A that the company views sotagliflozin’s blood pressure effect and a potential cardioprotective benefit as its main points of potential differentiation in an increasingly competitive type 2 diabetes – and SGLT-2 inhibitor – field. Management further emphasized that previous studies have demonstrated that blood pressure is the single strongest indicator for better cardiovascular outcomes, which bodes well for the prospect of a cardioprotective benefit for sotagliflozin. Thus, Sanofi clearly sees positive CVOT data as a key piece of its strategy for sotagliflozin in type 2 diabetes – this view has been echoed by Lexicon management previously as well.

  • We were particularly intrigued by the implication that Sanofi intends to conduct a pre-approval trial powered to demonstrate superiority. In order to demonstrate superiority, the CVOT will need to accumulate more events – a process that will likely take more time and require a much larger number of participants. As such, it’s unusual for diabetes companies to conduct pre-approval CVOTs for superiority, given the likely delay in reaching market, to say nothing of the extra expense of the trial itself – see below for more on the FDA’s CVOT policy. Sanofi has a history of taking a gamble with pre-approval CVOTs powered for superiority – the company’s ELIXA trial for Adlyxin enrolled 6,068 patients and the company decided to withdraw its original NDA for the product in 2013 and wait for the full ELIXA results rather than risk interim data disclosure with an earlier submission (though we can’t be sure of their reasons, an interim data disclosure would’ve precluded a superiority analysis with the full data set, though, ultimately, the full findings were resoundingly neutral anyway). Additionally, the ELIXA trial enrolled a noticeably higher-risk group of patients (all were within 180 days of an acute coronary syndrome event) than most other CVOTs – this presumably allowed the trial to accumulate the necessary number of events more quickly and with a lower number of participants than many post-approval trials, which is particularly important for post-approval drugs. We’re curious if Sanofi will follow a similar strategy of enrolling very high-risk patients for its sotagliflozin CVOT, though the renowned Dr. Jay Skyler has suggested that the neutral results of ELIXA were due in part to the decision to enroll such a high-risk participant population, who may have been “too far gone” in some respects. The CVOT for sotagliflozin is not yet listed on ClinicalTrials.gov currently and we eagerly await more details on its design, size, inclusion criteria, etc.
    • We’re curious how a potentially longer pre-approval CVOT for sotagliflozin in type 2 diabetes will impact Lexicon/Sanofi’s submission plans for type 1 diabetes. Lexicon had largely solidified plans to forge ahead with a solo type 1 diabetes phase 3 program, rather than the combined type 1 and type 2 diabetes program preferred by the FDA, prior to its late 2015 partnership with Sanofi. As a result, the type 1 diabetes program is currently operating on a significantly accelerated timeline compared to the type 2 diabetes program – topline results from the inTandem1 and inTandem2 phase 3 trials are already available with 52-week extension results from both trials and results from the third and final inTandem3 trial expected to report in mid-2017. Lexicon management has suggested that it will be able to submit sotagliflozin for type 1 diabetes to the FDA as early as 2018, ahead of its type 2 diabetes submission – we certainly hope that this will be the case so that patients with type 1 diabetes will be able to access one of the very first non-insulin adjunct therapies for type 1 diabetes earlier rather than later. On the other hand, the FDA may delay approval until the type 1 and type 2 diabetes data packages can be evaluated together, in an effort to avoid off-label prescription of sotagliflozin for type 2 diabetes if the product is first approved for type 1. If the latter scenario is the case, we hope that the planned CVOT will not significantly delay the product reaching market entirely – we look forward to more clarity from Sanofi and Lexicon on their regulatory strategy in the coming months.
    • As a reminder, the 2008 FDA CVOT guidance requires only that new diabetes products demonstrate a hazard ratio of 1.8 for cardiovascular events compared to placebo prior to approval – both Intarcia’s ITCA 650 and Novo Nordisk’s semaglutide were able to achieve this with trials enrolling around 3,000-4,000 patients, which is very small for most modern-day diabetes CVOTs. If the hazard ratio in the pre-approval trial is below 1.3, no further trials are required from a regulatory standpoint. However, if the hazard ratio is between 1.3 and 1.8, then companies are required to conduct a post-approval study to demonstrate a hazard ratio below 1.3 to stay on the market – often, these post-approval trials are larger to generate the statistical power to meet this more stringent requirement. Incidentally, the SUSTAIN 6 pre-approval CVOT for semaglutide was able to demonstrate a statistically significant hazard ratio below 1 with just 3,300 patients, but this result was a huge surprise to virtually everyone and, since it wasn’t designed to demonstrate superiority, Novo Nordisk will likely still need to conduct a larger post-approval study to support a label indication for the reduction of CV events. If Sanofi is setting out to demonstrate cardiovascular superiority for sotagliflozin, we imagine the size (and length) of the trial will be significantly larger than SUSTAIN 6 or the pre-approval FREEDOM-CVO trial for ITCA 650.
  • Sanofi reiterated the initiation of the phase 3 program in type 2 diabetes for Lexicon-partnered SGLT-1/2 dual inhibitor sotagliflozin. The company 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. Currently, only two trials in the phase 3 program are listed on ClinicalTrials.gov – one of sotagliflozin as a monotherapy (expected to complete in March 2018) and one as an add-on to metformin (expected to complete in March 2019).

13. Biosimilar Insulin Lispro Accepted for Review in EU

Sanofi confirmed that its biosimilar insulin lispro (Lilly’s Humalog) was accepted by the EMA for review in Europe in September 2016 – based on this timeline, we expect a decision in 4Q17. Management declined to share an update on the company’s US regulatory strategy for this product due to “competitive reasons.” Sanofi previously presented phase 3 results from the SORELLA 1 trial for its insulin lispro biosimilar SAR342434 at ADA 2016, and we’ve heard very few updates on the candidate since. In the Q&A portion of its 4Q16 update, Lilly had shared that it is “prepared” for the launch of Sanofi’s biosimilar and strategizing around it, though the company declined to share specific plans. Lilly especially pointed out that it will benefit from knowledge gained from its own experience launching biosimilar insulin glargine globally. In any case, we see Sanofi’s biosimilar insulin lispro and Humalog competing for a piece of an increasingly shrinking pie, given the declines in the rapid-acting insulin market observed in 2016. We expect this trend will only continue as SGLT-2 inhibitors and GLP-1 agonists grow in popularity in part due to their ability to address postprandial glucose without increased hypoglycemia and with weight loss.

14. GLP-1 Agonist Efpeglenatide to Enter Phase 3 in 2017; Partnership with Hanmi Amended

Sanofi shared that it has amended its licensing agreement with Hanmi to return the rights for once-weekly basal insulin LAPSInsulin-115 to Hanmi. The candidate has thus been removed from Sanofi’s phase 1 pipeline. According to Sanofi, this decision is partly to focus its efforts on once-weekly GLP-1 agonist efpeglenatide, also acquired from Hanmi in the original November 2015 deal. In the near term, Sanofi will lead development on efpeglenatide while Hanmi takes the lead on LAPSInsulin-115 development. The original agreement also included a third candidate, a preclinical once-weekly combination of efpeglenatide and LAPSInsulin-115 referred to as LAPSInsulin Combo. Under the revised terms, Hanmi will initially take the lead on the development of the combination and Sanofi will re-evaluate whether or not to continue its development in around two years, depending on its progress and the competitive landscape/diabetes market. Management shared in Q&A that this revised agreement was driven in part by the delays in phase 3 program initiation for efpeglenatide caused by manufacturing issues on Hanmi’s side. Management confirmed that efpeglenatide will enter phase 3 trials in 2017, rather than in 4Q16 as previously expected. While Sanofi appears to be pulling back from its investment in once-weekly GLP-1 agonist/basal insulin combinations, Lilly advanced a once-weekly combination of a novel basal insulin and GLP-1 agonist Trulicity into phase 1 in 4Q16 – as such, at this point, Lilly could potentially be first-to-market with a once-weekly combination. Given Lilly’s historical expertise in the insulin field, we’d expect that the preclinical data for its once-weekly basal insulin – which was developed in-house – are quite promising, though of course once-weekly insulin is a much more challenging prospect than once-weekly GLP-1 agonists.

  • Sanofi also appears to be pulling back from the once-monthly dosing potential of efpeglenatide. Management confirmed in Q&A that the phase 3 program will focus on once-weekly dosing for efpeglenatide and acknowledged that it’s unclear at this point if the once-monthly dose will make it into phase 3. Results previously presented at EASD 2015 demonstrate promising efficacy for once-monthly dosing of efpeglenatide and we remain intrigued by this option. Of course, not all patients would want once-monthly injections (it may be harder to remember to take than daily or weekly injections), but we imagine some patients would appreciate the expanded choice if this were an option. That said, we imagine many of these same patients would also appreciate Intarcia’s implantable once- or twice-yearly ITCA 650, which will likely reach the market in late-2017 or early 2018.

15. Early-Stage Pipeline Updates

Sanofi’s GLP-1/glucagon dual agonist SAR425899 was advanced into phase 2. SAR425899 is the third candidate in this class to be advanced into phase 2 in the competitive landscape, following OPKO Health/Transition Therapeutics’ TT401 and AZ’s MEDI0382. We previously saw very promising full phase 1 results for SAR425899 at ADA 2016, demonstrating impressive reductions in weight (~12 lbs) and solid A1c efficacy (-0.59%). Based on the data from this four-week, phase 1b trial, it appears that SAR425899 may feature a solid efficacy and safety profile that is more impressive in terms of weight loss than glucose lowering. Indeed, several other GLP-1/glucagon dual agonists on the competitive landscape – including OPKO Health’s phase 2 candidate TT401 and Novo Nordisk’s phase 1 NN9277 are being investigated for obesity rather than a type 2 diabetes indication, presumably due in part to the more impressive and differentiated body weight profile. That said, Sanofi’s pipeline currently has SAR425899 listed as a candidate for type 2 diabetes and it doesn’t appear that Sanofi has any current plans to expand into obesity at all.

  • Very excitingly, Sanofi has also added a novel rapid-acting insulin, SAR341402, to its phase 1 pipeline. This candidate was not mentioned on the call and no further details are available. We imagine that Sanofi is feeling the pressure to enter the next-generation ultra-rapid-acting insulin competitive landscape to some extent – both of the other two insulin giants (Novo Nordisk and Lilly) have next-generation candidates in late-stage development and faster-acting insulins will become increasingly important as the development, launch, and uptake of closed loop systems progress. Novo Nordisk’s next-generation faster-acting insulin aspart is already approved in Europe under the trade name Fiasp and will be resubmitted to the FDA in the next three months (following its October 2016 Complete Response Letter). Lilly recently terminated a partnership with Adocia for its phase 3-ready BioChaperone Lispro while simultaneously revealing plans to advance its internally-developed ultra-rapid insulin candidate into phase 3 in 2017. All in all, Sanofi has not historically been a big player in the rapid-acting insulin market – its product in this class, Apidra, faced another tough quarter in 4Q16 and has a much smaller base than either Humalog or NovoLog – but we imagine the company is eager to return to the forefront of innovation within diabetes over the next few years.
  • Disappointingly, it appears that Sanofi has removed its phase 1 stable glucagon SAR438544 from its phase 1 pipeline. The product had been added to Sanofi’s pipeline in 4Q15 and produced positive phase 1 results in August 2016. That said, a second phase 1 study investigating hypoglycemia amelioration terminated prior to enrollment was terminated prior to enrollment in 4Q16. Sanofi management did not discuss this decision on the call at all so it’s unclear what specifically drove this disappointing decision – perhaps Sanofi has chosen to focus on core insulin and GLP-1 agonist combination development rather than expand into a new area with a glucagon. Nonetheless, the stable glucagon competitive landscape remains fairly robust despite Sanofi’s decision.

Sanofi Diabetes Product Pipeline

Candidate

Phase

Timeline/Notes

Soliqua/Suliqua (lixisenatide/insulin glargine)

Submitted

EMA decision expected in early 2017; Launched in the US

SAR342434 (biosimilar insulin lispro)

Submitted in EU

SORELLA 1 trial presented at ADA 2016; Submission accepted by the EMA in September 2016

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 2017 (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

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

Candidates Discontinued in 4Q16

Candidate

Phase

Timeline/Notes

SAR440067/LAPSInsulin-115 (long-acting insulin analog)

Phase 1

Acquired from Hanmi in November 2015; Rights returned to Hanmi in 4Q16

SAR438544 (stable glucagon)

Phase 1

Added to pipeline in 4Q15; positive phase 1 results evaluating PK/PD profile completed in August 2016; phase 1 study investigating hypoglycemia amelioration terminated prior to enrollment; Discontinued in 4Q16

Questions and Answers

Q: What are your long-term thoughts about Sanofi’s diabetes sector and your partnerships?

A: We are going through a difficult period. For 2017, we expect sales to fall below 4-8% year-over-year, but at least we have anticipated it. More long-term, I think we have many levers to pull. We have a couple of products in late stage pipeline, with efpeglenatide, the Hanmi asset, entering Phase 3, in 2017. Moreover, we have a very vibrant emerging market in the diabetes space with Soliqua and Toujeo. Also, we have our more long-term, joint venture with Google Life Sciences on Onduo, which aims to develop better-integrated care in diabetes. 

Q: On Praluent, what is the plan B if you have to withdraw the product from the market?

A: At this point, we are not officially considering or detailing any plan B. We are very concerned now with our legal strategy, where we are appealing the injunction.

Q: What is the status of Humalog biosimilars in the US and Europe? Is 2018 a realistic approval and launch timeline?

A: The file for Sanofi’s insulin lispro was accepted for review by the EMA in September 2016. In the US, because of competitive reasons, we do not want to share our regulatory strategy.

Q: Mylan has talked about wanting to study the possibility of substitutable generic insulin, which could impact Lantus sales. Is that a real risk in the future or not?

A: Our guidance assumes three non-substitutable biosimilars in the period. Given the fact that more and more payers make decisions of exclusive coverage, whether the product is substitutable or not becomes less relevant. At the end of the day, the payers exclude you or substitute you by formulary decisions.

Q: How are the PBMs looking to enforce the label on Soliqua? Will there be prior authorizations or free access?

A: We are discussing this very intensely with payers and trying to unlock the commercial and Medicare access. The good news is, we have a contract signed with UnitedHealthcare, a big commercial player covering 15 million lives, which will be activated on July 1. In terms of structure, the label in US is for “patients on basal insulin non-controlled,” and that is what it is going to look like. There are many ongoing discussions and we’ve had very good feedback. I think the payers appreciate our pricing strategy, so we're optimistic about unlocking further commercial contracts in the next couple of months.

Q: What are your thoughts on the new US Presidential administration, both in terms of drug pricing and in terms of taxes. Specifically, what impact would the potential border have on your offshore manufacturing product?

A: During the meeting with the trade association in the US, there was talk about the need for a stronger trade agreement to help ensure that other countries are paying their fair share for innovative medicines, tax reform, and creating jobs in the US. The President expressed concerns about pharmaceutical pricing and Medicare Part B, but was supportive of reducing regulation, helping speed the regulatory process to encourage more competition, having less expensive development programs, and bringing drugs faster to the market.

Border adjusted taxes have to comply with WTO agreements and that may limit their actual scope, since human medicines are very often exempt for custom duties today. We don't know what the rest of the world, including the EU, would do, if a border tax was put in place in the US. As a non-American company, that would concern us. However, the tax reform could be an advantage since we have a much lower exposure in the US than most of our peers.

Q: Could you quantify the benefits from your co-pay assistance program for Lantus and Toujeo in terms of retaining patients?

A: The co-pay retention program is only two to three weeks out of the gate in January weekly sales, but it is tracking as planned. Of course, we should be realistic about where we want to see the success of this co-pay program. Financially, it is neutral because at the end of the day, either you lose a patient and you have zero income or you keep them on a co-pay program.

Q: What are your thoughts on Praluent and the ODYSSEY data?

A: We're very pleased to see the data from this long-term safety study confirming what we've been expecting in the mechanism of PCSK9, that it lowers morbidity and mortality. We will see more about the order of magnitude of the cardiovascular benefit with the presentation of the FOURIER CVOT at the ACC meeting in March and take it from there. I think it's too early to say what all this is going to mean in terms of commercial situation, market access, etc.

Q: Can you give a bit more color about the amendment to the Hanmi relationship with the GLP and insulin?

A: There were various reasons for the reconsidering the structure of the partnership. One is that, for every development program, the market changes, and you have to evaluate the impact over time. Also, in terms of clinical supplies, we have to delay the onset of the phase 3 trial for efpeglenatide. We decided to realign Sanofi’s focus on efpeglenatide (which is the once-a-week GLP-1 component), and ask Hanmi to take the lead on the once weekly insulin, which is their area of expertise. We left the testing of the once-a-week combination product as something we could potentially come back to maybe two years down the line as we evaluate the progress the program and the market.

Q: Have you seen other positive developments within the pipeline or business that can help to offset the challenging market for the mid-term guidance for 2018 to 2020?

A: To me, the prospects and the potential of Praluent have increased with the cardiovascular outcomes data. Obviously, it is subject to legal proceedings, but I'm very confident that the patent we're disputing is invalid.

Q: For your pipeline SGLT-2 asset, will you do a CV study pre-approval or post-approval?

A: The SGLT-1 and SGLT-2 classes have a very significant effect on blood pressure, which is the main driver of cardiovascular morbidity or mortality and the strongest indicator for better outcome. We believe that these cardiovascular benefits are going to be a major differentiation driver, so we are going to conduct the CVOT in time to have that information available at or right after launch.

Q: There weren’t any stocking or rebate reversals in 4Q16 for Lantus or Toujeo, but (even factoring in a very low 4Q16 base) US net price was much less negative than expected. What will be the negative impact of US net pricing be for Lantus and Toujeo in 2017?

A: In 4Q15, we flagged that there were some significant Medicaid back builds, so the comparison base 4Q16 versus 4Q15 becomes more favorable. This does not flag any improvement on fundamental pricing dynamics in the US. In fact, the launch of the follow-on biologic of Lantus signals the opposite. The relatively good performance in 4Q16 is due to the favorable comparison to 4Q15 and the very good Toujeo performance in 4Q16.

Q: Will we still have monthly administration GLP-1 in phase 3?

A: We are first and foremost focused on the once-a-week formulation, but not at the exclusion of once-a-month. Once-a-month dosing is still in our sight, but I can't say if it will reach phase 3 or not.

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