J&J 1Q17 – Invokana sales plummet 13% YOY to $284M; Radio silence on upcoming CANVAS results; Evaluation of strategic options for the Diabetes device businesses continues; LifeScan-Animas sales down 7% YOY to record low $399M – April 18, 2017

J&J provided its 1Q17 financial update in a Tuesday-morning call led by CEO Mr. Alex Gorsky, launching us into earnings season once again. See below for our top 13 highlights on SGLT-2 inhibitor Invokana as well as the Lifescan/Animas business. Those of you with our handy Closer Look app saw our First Look at J&J’s 1Q17 posted soon after the call wrapped-up – if you don’t have it yet, download it now! You can also view the presentation slides accompanying the live webcast.

Janssen Highlights

1. Global sales of SGLT-2 inhibitor Invokana (canagliflozin) fell 13% YOY to $284 million, including $247 million in US sales (down 17% YOY – a major surprise) and $37 million in ex-US sales (up 32% YOY from a small base). Janssen management attributed this revenue decline to greater discounts offered and a higher proportion of prescriptions going to patients on Medicaid. We are certainly glad to hear of more patients in-need getting Invokana, though we’re not sure what happened overall in terms of volume and total number of patients taking Invokana. Management characterized the cardiovascular/metabolic therapeutic area as particularly competitive and therefore acutely susceptible to pricing pressure and payer influence. Invokana was noticeably absent as a discussion item on growth drivers for J&J’s overall pharmaceutical portfolio. We do note that Invokana is still (presumably) a billion-dollar product.

2. Invokana’s share of total type 2 diabetes prescriptions (TRx) in the US remained largely flat in 1Q17 – the product captured 6% of this US market by volume, compared to 6.1% in 4Q16 and 6.3% in 2Q16. We imagine, though we’re not sure, that the slight loss in market share is driven by switches to other SGLT-2 inhibitors (like Lilly/BI’s Jardiance).

3. Quite notably, there was no mention of the CANVAS trial during prepared remarks or on the company’s presentation slides. When pressed on possible topline results during Q&A, management maintained that the CVOT is scheduled to report at ADA 2017 and that there will be no earlier unveiling of the data. We’re surprised by this, and a bit uneasy, since topline results from recent positive CVOTs LEADER (for Novo Nordisk’s Victoza), SUSTAIN 6 (for Novo Nordisk’s semaglutide), and EMPA-REG OUTCOME (for Lilly/BI’s Jardiance) were released months before presentation at a scientific meeting. During J&J’s 3Q16 update, management went on record saying “we have very strong reason to suspect that the combination of CANVAS and CANVAS-R will give data very similar to what was reported with EMPA-REG OUTCOME,” and we were excited to note this optimistic outlook from the company, since positive CANVAS results would be meaningful for the field in supporting a cardioprotective class effect of SGLT-2 inhibitors. Not to mention, of course, there would be another diabetes drug that improves CV outcomes, which would be a major win for patients and clinicians. On the flip side, we heard speculation from Dr. David Nathan at ENDO 2017 that CANVAS results may in fact show neutral CV effects – could this be the reason for management’s strange silence on the CVOT in contrast to earlier optimism? We’re incredibly eager for these results, though it seems we’ll have to wait (impatiently) until ADA in June.

4. There was no mention of J&J’s other projects related to diabetes/obesity, including a planned CVOT of Invokana in people with prediabetes (first announced during the company’s 3Q16 update), co-administration of canagliflozin/phentermine for weight loss (phase 2 data presented at ADA 2016), and a preclinical GLP-1/glucagon dual agonist (poster presented at ADA 2016), among others. Stay tuned for a full pipeline summary, to be included in our full report.

5. Management briefly mentioned J&J’s transparency report published online earlier this month (promised by end of 1Q17 during the company’s 4Q16 update), emphasizing the “dramatic” difference between list price for drugs and the company’s net price. J&J follows Novo Nordisk and Lilly in releasing position statements or material on pricing transparency in response to public outcry over the high cost of prescription medicines – and especially insulin – in the US. We’re pleased to see greater transparency from J&J and hope that this will be followed by more concrete action to alleviate out-of-pocket costs for patients.

LifeScan/Animas Business Highlights

6. Outside of a global drop in sales of 7%, the biggest news of the call was no news – management didn’t provide any updates during prepared remarks to the major news from the 4Q16 J&J call that the company is “seeking strategic options for Diabetes.” At the time, they said that could come through operating partnerships, joint ventures, strategic alliances, or a sale of LifeScan, Animas, and Calibra Medical – we’re not too surprised there is nothing finalized. In Q&A in this morning’s call, CFO Mr. Dominic Caruso specified that the evaluation process is ongoing: “with respect to Diabetes, we continue that process. We're evaluating various options for that business, whether it be partnership or outright divestiture, whatever is best in terms of giving that business the best position to succeed, and obviously, if we were to divest it, getting the right return for our shareholders.”

7. Global LifeScan/Animas revenue totaled just $399 million in 1Q17, down 7% both as reported and operationally year-over-year (YOY) on an easy comparison to 1Q16, when sales dropped 8% operationally. $399 million is the lowest quarterly revenue recorded in our LifeScan/Animas model, which goes back to 2o05, and the first time a quarter has come in below the $400 million mark. 1Q17 now marks 19 of the past 20 quarters with global sales declines – the only exception is 3Q14, which was flat YOY.

8. US Diabetes Care sales totaled $154 million in 1Q17, falling a striking 14% YOY against an easy comparison (sales fell 4% YOY in 1Q16). The quarterly performance is the lowest recorded in our model by a margin of over $20 million. The slide deck cites BGM price declines in the managed care setting and competitive pressure in insulin delivery – presumably Medtronic and Insulet – as negative headwinds stateside.

9. International Diabetes Care revenue totaled $245 million in 1Q17, down 2% as reported and 1% operationally YOY. The $90-million-plus delta is one of the largest we’ve seen in a while between US and international – prior to 2013, there was much more parity between the two geographies. The decline internationally also came against an easy comparison, as sales fell 9% as reported and 3% operationally in 1Q16. Ten out of the past eleven quarters have seen negative growth in the International Diabetes Care business. As in the US, competitive pressure in insulin delivery contributed to the international difficulties; as usual, J&J did not actually report what pump sales totaled, but we might guess it’s around $50 million for the quarter or perhaps less.

LifeScan/Animas Pipeline Highlights

10. In December, FDA and Health Canada approved J&J’s OneTouch Vibe Plus insulin pump with Dexcom G5 integration. As of January, the company was “evaluating launch timing,” and given the turbulent state of the business, we’ll be interested to see if this launches this year. Launching this product as soon as possible could give J&J the first Dexcom G5-integrated pump on the market (defending against Tandem’s t:slim X2 with G5) and bring important benefits to Animas Vibe G4 users (e.g., the more accurate G5 algorithm, remote monitoring from the phone, etc.). For DIY Loop users, a Bluetooth-enabled pump would also be a huge win – the current Loop system requires a communication bridge to old Medtronic pumps.

11. There was no mention of the WellDoc BlueStar integration partnership (including a J&J investment) on the call, but we confirmed with the company that it went live mid-March, three months after receiving FDA clearance in December.

12. We learned in a December email exchange with J&J that its OneTouch Via (formerly Calibra Finesse) bolus-only insulin delivery patch device will not launch internationally in the short term, but is expected to undergo a “focused” US launch in 1H17. This plan was confirmed in January, though we haven’t heard any updates since. We will be following up with the company – this device could be a bright spot for J&J in an otherwise challenging insulin delivery landscape. OneTouch Via was resubmitted to FDA in November for new 510(k) clearance of an updated manufacturing process.

13. Animas’ automated insulin delivery plans were not mentioned – we last heard (via email on November 30) that the company is still working with the FDA to plan a pivotal trial, and a launch is expected in late 2018/early 2019. This product has been enormously delayed and it’s hard to be optimistic at this stage.  

Janssen Highlights

1. Disappointing Quarter for Invokana: Global Sales Fall 13% YOY, US Sales Fall 17% YOY

Global sales of SGLT-2 inhibitor Invokana (canagliflozin) franchise fell 13% YOY to $284 million, driven by a surprising 17% YOY decline in US sales to $247 million and bolstered by ex-US growth from a much smaller base (up 32% YOY to $37 million). This marks the lowest overall quarterly revenue for the franchise (which also includes Invokamet [canagliflozin/metformin] and Invokamet XR) in two years (since 1Q15), and the lowest US revenue in more than two years (since 4Q14). That said, YOY comparisons were challenging for 1Q17, as Invokana revenue grew 17% YOY in 1Q16 from a high base (the drug has achieved blockbuster status for two years running now). Sequentially, worldwide revenue declined 24% from a base of $371 million in 4Q16. US revenue declined 26% sequentially from a base of $334 million in 4Q16 and international revenue was flat. Sequential growth against a relatively challenging comparison as well, with the franchise growing 13% (14% in the US, 9% ex-US) sequentially in 4Q16. While we’re glad to see sustained sales ex-US, the majority of SGLT-2 inhibitor revenue (and indeed overall diabetes revenue) comes from the US. As the first-to-market SGLT-2 inhibitor in the US, Invokana has historically helped gauge overall class uptake in the US. It’s unclear if this downturn in US revenue for 1Q17 reflects broader challenges for the class a whole in the US or if it reflects a shift toward the field favoring competing SGLT-2 inhibitors (such as Lilly/BI’s Jardiance, which is now indicated for the reduction of CV death) – we eagerly await more information during Lilly and AZ’s updates on April 25 and April 27, respectively. Invokana was noticeably absent as a discussion item on growth drivers for J&J’s overall pharmaceutical portfolio, and on the whole we’re disappointed to see such a distinct plummet for the franchise. We have our fingers so very crossed for growth recovery in future quarters, and we do expect Invokana to maintain its billion-dollar, blockbuster status for 2017. The graph below shows trends in Invokana/Invokamet sales since 1Q14.

• Janssen management attributed 1Q17’s sharp revenue decline to greater patient discounts offered and a higher proportion of prescriptions going to patients on Medicaid. Presumably, this has helped alleviate out-of-pocket costs of Invokana for the most vulnerable patients. We’re always glad to hear of more patients in-need getting Invokana, though we’re not sure what happened overall in terms of volume and total number of people taking the drug – these numbers would help make sense of how the product is really faring, rebates and discounts aside. It’s unclear if the higher level of patient discounts is partly driven by increased challenges in payer reimbursement for Invokana, leading patients to seek out patient assistance programs due to decreased access. Notably, management did not provide an update on reimbursement status as it has done in previous quarters – as of 3Q16, the SGLT-2 inhibitor was preferred by >70% of commercial health insurance plans and by >90% of Medicare Part D plans. We’re not sure if the lack of coverage numbers is due to poorer formulary positioning for 2017 compared to 2016. Indeed,  J&J management characterized the cardiovascular/metabolic therapeutic area as particularly competitive and therefore acutely susceptible to pricing pressure and payer influence. As management explained during Q&A, “there are a lot of market entries” for CV and metabolic diseases like diabetes, which paves the way for “competitive payer dynamics” and leads to lower prices, more discounts, lower rebates, and ultimately means lower recorded profit-per-prescription. There has certainly been controversy brewing surrounding the high cost of insulin and other diabetes drugs, and recently the focus has turned to PBMs (pharmacy benefit managers such as CVS Health, Express Scripts, and UnitedHealth) as the black box making opaque decisions on list price for patients and rebates for manufacturers. This isn’t the first time we’ve heard pricing pressure cited as a reason for lower-than-expected revenue, and it likely won’t be the last, especially as PBMs continue to wield exclusive formulary positioning in rebate negotiations (leading some to even suggest that diabetes drugs have become commoditized). We also imagine that some element of the competition alluded to stems from in-class pressure – although Lilly and AZ have yet to report 1Q17 sales for their SGLT-2 inhibitors, Jardiance (empagliflozin) and Farxiga (dapagliflozin) respectively, both franchises experienced marked growth in 2016.

Figure 1: Invokana Sales (1Q14-1Q17)

2. Invokana Captures 6% of All Type 2 Diabetes Prescriptions in the US, Reflecting Flat Volume Share

Invokana’s share of total type 2 diabetes prescriptions (TRx) in the US remained largely flat in 1Q17 – the product captured 6% of this US market by volume, compared to 6.1% in 4Q16 and 6.3% in 2Q16. We imagine, though we’re not sure, that the slight loss in market share is driven by switches to other SGLT-2 inhibitors (rather than a decline in SGLT-2 inhibitor class uptake overall), especially considering that Lilly/BI’s Jardiance (empagliflozin) is now the first and only type 2 diabetes drug indicated for the reduction of CV death. Results from the CANVAS CVOT will be telling for J&J’s SGLT-2 inhibitor business as it becomes increasingly important for type 2 diabetes drugs to demonstrate CV benefit. We expect that Invokana’s commercial success will be particularly swayed by CANVAS data. Additionally, we’ve heard some reservations regarding the safety of SGLT-2 inhibitors (DKA, lower limb amputation, acute kidney injury, bone fracture risk) and all of the safety warnings thus far have applied specifically to Invokana (while only some of them applied to Jardiance and Farxiga). We’re curious how these safety warnings on Invokana’s label have impacted prescriptions for the product vs. one of its competitors. Finally, we also wonder what the market impact of the launch of a fourth SGLT-2 inhibitor agent will be –Merck/Pfizer’s ertugliflozin is currently under FDA review, with a decision expected by 1Q18. See below for more thoughts on the implications of CANVAS, and stay tuned for our pooled class analysis of SGLT-2 inhibitors, which we’ll publish after Lilly reports on April 25 and AZ reports on April 27.

3. Conspicuous Radio Silence on CANVAS

Quite notably, there was no mention of the CANVAS trial during prepared remarks or on the company’s presentation slides. When pressed on possible topline results during Q&A, management maintained that the CVOT is scheduled to report at ADA 2017 and that there will be no earlier unveiling of the data. We’re surprised by this, and a bit uneasy, since topline results from recent positive CVOTs LEADER (for Novo Nordisk’s Victoza), SUSTAIN 6 (for Novo Nordisk’s semaglutide), and EMPA-REG OUTCOME (for Lilly/BI’s Jardiance) were released months before presentation at a scientific meeting. During J&J’s 3Q16 update, management went on record saying “we have very strong reason to suspect that the combination of CANVAS and CANVAS-R will give data very similar to what was reported with EMPA-REG OUTCOME,” and we were excited to note this optimistic outlook from the company. Positive CANVAS results would be meaningful for the field in supporting a cardioprotective class effect of SGLT-2 inhibitors. Not to mention, of course, there would be another diabetes drug that improves CV outcomes, which would be a major win for patients and clinicians. On the flip side, we heard speculation from Dr. David Nathan at ENDO 2017 that CANVAS results may in fact show neutral CV effects – could this be the reason for management’s strange silence on the CVOT in contrast to earlier optimism? We’re incredibly eager for these results, though it seems we’ll have to wait (impatiently) until ADA in June.

• In contrast to EMPA-REG OUTCOME, the CANVAS trial includes a subset of participants without established CV disease at baseline, which allows researchers to investigate the effect of canagliflozin in primary CV prevention. The relatively lower-risk patient population, coupled with the small size of the trial (only 4,300 participants to EMPA-REG OUTCOME’s 7,000), likely makes it more challenging to demonstrate cardiovascular superiority in this trial. The DECLARE CVOT, expected to complete in April 2019, also features a primary prevention group, but has a total enrollment of over 17,000 participants and is more likely to provide a definitely answer on the impact of SGLT-2 inhibitors on primary prevention of CV events. This aspect of trial design is significant because thought leaders, including Yale University’s Dr. Silvio Inzucchi, have pointed to primary CV prevention as one of the “next steps” for SGLT-2 inhibitors in the wake of EMPA-REG OUTCOME. Given that CV complications remain the leading cause of death for people with diabetes, it would be tremendously valuable to show that one or more of these glucose-lowering agents significantly reduces CV risk in all patients, regardless of prior CV events, especially since a relatively small proportion of people with type 2 diabetes currently have comorbid pre-existing cardiovascular disease. At the same time, we imagine that the inclusion of these lower-risk participants (plus the small n) could make the risk reductions, if any, in CANVAS seem less impressive than those in EMPA-REG OUTCOME. Come ADA 2017, we’ll be on the edge of our seats for CANVAS results, and we’ll be very curious to note the hazard ratios for the lower-risk subgroup specifically, as well as to evaluate how this subgroup affected the hazard ratios for CV risk reduction overall.

4. No Other Updates on Diabetes/Obesity Pipeline

There was no mention of J&J’s other projects related to diabetes/obesity, including a planned CVOT of Invokana in people with prediabetes first announced during the company’s 3Q16 update. We’ve heard no further details on study design or expected start date. We certainly hope this study is still on the books for J&J. There are currently no medications approved for the treatment of prediabetes or for the prevention of type 2 diabetes, but we’d be excited about Invokana’s potential in this therapeutic area given its weight loss and glucose-lowering efficacy. A large-scale trial that also shows a CV benefit to Invokana in this particular population that includes data on diabetes prevention in addition to CV outcomes could provide a much-needed boost for pharmaceutical intervention in prediabetes, holding weight with the FDA as well as the scientific and medical community. Before we get ahead of ourselves in celebrating this prediabetes CVOT, however, we note that the company’s decision on whether or not to move forward with it may depend, at least partially, on CANVAS results and reception. The table below provides a snapshot of J&J’s diabetes/obesity-related pipeline.

Janssen Pipeline Summary and Ongoing Clinical Trials

5. Management Draws Attention to Company’s Recent Pricing Transparency Report

Management briefly mentioned J&J’s transparency report published online earlier this month (promised by end of 1Q17 during the company’s 4Q16 update), emphasizing the “dramatic” difference between list price for drugs and the company’s net price. J&J follows Novo Nordisk and Lilly in releasing position statements or material on pricing transparency in response to public outcry over the high cost of prescription medicines – and especially insulin – in the US. Lilly’s 2016 Integrated Summary Report, which included a section on pricing transparency, hit on a similar theme as J&J’s report – that the price realized by manufacturers falls well below the list price that patients see. Diabetes thought leaders, including Seattle’s Dr. Irl Hirsch, have turned their attention recently to PBMs. These middlemen play a heavy hand in determining list prices and rebates, and yet are absent from many of the political discussions on how to curtain soaring cost of prescription medicines. To date, there’s also been little to no transparency from PBMs on price-setting and rebates. In our view, it’s going to take collaboration from all parties in the healthcare system to devise a health economic solution on this front, one that guarantees patient access to essential therapies while also sustaining research and development at pharmaceutical companies so that we continue to advance our therapeutic toolkit. We’ve been impressed by Lilly’s efforts to both provide direct discounts to cash-pay patients and to engage payers to perhaps consider insulin a separate benefit category from other pharmaceuticals with no cost-sharing. We’d love to see J&J work with Lilly and other companies to take similar concrete action to alleviate out-of-pocket expenditures for patients both individually and at a systems level. In the meantime, as a small first step, we’re pleased to see greater transparency from J&J (and Novo Nordisk, and Lilly) – this report is especially pertinent since discounts and rebates were cited as reasons for lower-than-expected Invokana franchise revenue in 1Q17.

LifeScan/Animas Highlights

6. J&J Still “Evaluating Various Options” for Diabetes Business

Outside of a global drop in sales of 7%, the biggest news of the call was no news – management didn’t provide any updates during prepared remarks to the major news from the 4Q16 J&J call that the company is “seeking strategic options for Diabetes.” At the time, they said that could come through operating partnerships, joint ventures, strategic alliances, or a sale of LifeScan, Animas, and Calibra Medical – we’re not too surprised there is nothing finalized, given the challenging state of the business and the (probably) finite number of realistic buyers. In Q&A in this morning’s call, CFO Mr. Dominic Caruso specified that the evaluation process is ongoing: “with respect to Diabetes, we continue that process. We're evaluating various options for that business, whether it be partnership or outright divestiture, whatever is best in terms of giving that business the best position to succeed, and obviously, if we were to divest it, getting the right return for our shareholders.” As a reminder, CEO Mr. Alex Gorsky emphasized during the 4Q16 call that there is no definitive timeline here (nor a guarantee that there will be any transaction at all), but with declining profitability and a new low in sales, a transaction feels more likely. In our 4Q16 report, we review the strengths and weaknesses of the LifeScan, Animas, and Calibra businesses, examine the impact of a transaction on current partners (Dexcom, WellDoc), and explore potential acquisition and partnership avenues.

• Unlike during the 4Q16 call, there were no words about how committed J&J is to the diabetes field. Last quarter, Mr. Gorsky repeatedly highlighted that the company is still committed to the Janssen Invokana franchise and bariatric surgery, but with Invokana dropping 13% YOY and no talk of top-line CANVAS results this quarter, there was no reassurance today. 
• That J&J continues to assess potential options is a reminder of the challenging insulin pump and BGM businesses facing stronger competition and continued pricing pressures. Roche saw Global Diabetes Care revenue fall 11% in 4Q16 (40% in North America!) and management had to dispel rumors of a potential sale – on the other hand, the next-gen Accu-Chek Guide BGM system is currently being rolled out, Roche has forged a BGM partnership with Medtronic, and it has its own CGM launching (limited) in Europe. Meanwhile, we estimate that Abbott’s worldwide BGM revenue (excluding FreeStyle Libre) fell ~25% in 4Q16, as the company is clearly focusing on Libre. Roche and Abbott report in the next two weeks, and based on J&J’s performance, we are a little worried that pooled revenue will again reach a historic low.
  
  • Where does BGM go from here? While CGM is exciting and growing rapidly, reality is worth emphasizing: a tiny minority of insulin users are on this technology globally. In the next ten years, we imagine CGM will be considered “standard of care” in most insulin users, and penetration should certainly rise as devices get less expensive. So what is a BGM company to do? We see promise in other pathways: (i) novel diabetes care delivery models, coaching services, and wraparound education; (ii) insulin dose titration support leveraging BGM data (particularly in basal-only users); (iii) a focus on improved access, dramatically lower cost, and serious affordability; and (iv) opening new markets, particularly in less developed markets, where much more focus on diabetes is needed. The last option would not only show an absolute commitment to diabetes, but could also expand the potential user base by orders of magnitude. 

7. Worldwide LifeScan/Animas Sales Decline 7% YOY on Easy Comparison

Global LifeScan/Animas revenue totaled just $399 million in 1Q17, down 7% both as reported and operationally year-over-year (YOY) on an easy comparison to 1Q16, when sales dropped 8% operationally. $399 million is the lowest quarterly revenue recorded in our LifeScan/Animas model, which goes back to 2o05, and the first time a quarter has come in below the $400 million mark. 1Q17 now marks 19 of the past 20 quarters with global sales declines – the only exception is 3Q14, which was flat YOY.

• We are astounded that the decline in the Invokana franchise (-13%) was actually much larger than that on the device side. For all of the talk of pricing and competitive pressures in BGM and insulin delivery, Invokana managed to drop to a significantly greater degree thanks to smaller rebates and a greater proportion of Medicaid beneficiaries taking the drug. Invokana seemed like the one saving grace for J&J’s involvement in diabetes in 4Q16, and we hope that the franchise can return to growth. See above for more. 

Figure 2: Global, Us, International Quarterly Sales (1Q12-1Q17)

8. US LifeScan-Animas Sales Drop 14%

US Diabetes Care sales totaled $154 million in 1Q17, falling a striking 14% YOY against an easy comparison (sales fell 4% YOY in 1Q16). The quarterly performance is the lowest recorded in our model by a margin of over $20 million.

• The slide deck cites BGM price declines in the managed care setting and competitive pressure in insulin delivery as negative headwinds stateside. Whereas negative price and rebates were offset by higher strip consumption last quarter, it seems that volume growth wasn’t (as) positive this time around. On the insulin delivery side, we assume competition from Medtronic, Insulet, and (to a lesser extent) Tandem are challenging the Animas business – see our just-published industry roundup for more on this front. The year will continue to be tough in pumps, as Medtronic’s MiniMed 670G launches (broader launch starting in June), Tandem launches its t:slim X2 with G5 integration (expected mid-year), and Insulet rolls out the Dash PDM towards the end of the year and into 1Q18.
• Abbott reports April 19 and Roche reports next week. Will they experience comparable US and international challenges? Abbott, of course, has Libre as some offset.

9. International LifeScan/Animas Sales Decline 1% Operationally

International Diabetes Care revenue totaled $245 million in 1Q17, down 2% as reported and 1% operationally YOY. The $90-million-plus delta is the one of the largest we’ve seen in a while between US and international – prior to 2013, there was much more parity between the two geographies. The decline internationally also came against an easy comparison, as sales fell 9% as reported and 3% operationally in 1Q16. Ten out of the past eleven quarters have seen negative growth in the International Diabetes Care business.

• As in the US, competitive pressure in insulin delivery contributed to the international difficulties; as usual, J&J did not actually report what pump sales totaled, but we might guess it’s around $50 million for the quarter or perhaps less. Internationally, Medtronic is the chief competition for Animas, as the 640G continues to do very well.

LifeScan/Animas Pipeline Highlights

10. No Update on OneTouch Vibe Plus/Dexcom G5 Launch; Approved in US, Canada in December

In December, FDA and Health Canada approved J&J’s OneTouch Vibe Plus insulin pump with Dexcom G5 integration. As of January, the company was “evaluating launch timing,” and given the turbulent state of the business, we’ll be interested to see if this launches this year. Launching this product as soon as possible would give J&J the first Dexcom G5-integrated pump on the market (defending against Tandem’s t:slim X2 with G5, expected mid-year), bring important benefits to Animas Vibe G4 users (e.g., the more accurate G5 algorithm, remote monitoring from the phone, etc.), and complete a key stepping stone on the way to the hypoglycemia-hyperglycemia minimizer. For DIY Loop users, a Bluetooth-enabled pump would also be a huge win – the current Loop setup requires a communication bridge (mhz->Bluetooth) to talk to old Medtronic pumps.

• We wish the OneTouch Vibe Plus’ user interface was updated from the previous Vibe or Ping. This puts Animas well behind Tandem’s t:slim X2 and Insulet’s upcoming OmniPod Dash; for some, this is the “cool factor,” but it is increasingly important as pumps try to expand beyond geeky early adopters.

11. WellDoc BlueStar Integration Launched Mid-March

There was no mention of the WellDoc BlueStar integration partnership (including a J&J investment) on the call, but we confirmed with the company that it went live mid-March, three months after receiving FDA clearance in December. The system integrates the BlueStar mobile app (Android, iOS) with LifeScan’s OneTouch Verio Flex BGM and paired Reveal app (Android, iOS), though use of the Reveal app will be optional. It’s still not clear to us what the business model will look like (e.g., traditional BGM vs. WellDoc’s prescribed-as-a-drug model vs. something else?), though talks are reportedly ongoing with payers, whom we would assume would be quite interested – this should be far more efficacious than BGM alone. Meanwhile, WellDoc has moved ahead on other avenues too: in addition to the prescription-only BlueStar Rx app (510(k) cleared; includes an insulin calculator), there is now a non-prescription version of BlueStar (510(k) cleared, but without an insulin calculator) and the BlueStar C (non-regulated) consumer version. We see high potential for this partnership to boost the efficacy of J&J’s BGM franchise with clinically valuable education – will this partnership launch something soon?

12. OneTouch Via Focused US Launch in 1H17; New Manufacturing Process Re-Submitted in November

We learned in a December email exchange with J&J that its OneTouch Via (formerly Calibra Finesse) bolus-only insulin delivery patch device will not launch internationally in the short term, but is expected to undergo a “focused” US launch in 1H17. This plan was confirmed in January, though we haven’t heard any updates since. We will be following up with the company – this device could be a bright spot for J&J in an otherwise challenging insulin delivery landscape. OneTouch Via was resubmitted to FDA in November for new 510(k) clearance of an updated manufacturing process. From an outsider’s perspective, we think OneTouch Via is one of J&J’s most compelling assets – we assume the company would try to keep this, but aren’t positive – it could also be an attractive selling point for the entire LifeScan/Animas/Calibra business. Who might acquire this technology and really scale it?

• The latest timeline is back from guidance at ADA 2016 that called for a launch in select markets outside the US by late 4Q16, followed by a US launch in “early 2017.” While still relatively on pace for US launch, work to automate the production process and scale manufacturing capabilities has presumably pushed international timing back. We are not sure how broad the “focused” launch will be, but we expect a limited roll out to learn from early adopters, make sure manufacturing and access is in place, etc. BD/Medtronic’s MiniMed Pro-set certainly benefitted significantly from a limited US launch, which ultimately uncovered some issues with cannula kinking and training; see our coverage here. Adam and Kelly are eager to try OneTouch Via – the slim on-body form factor seems very appealing, particularly from patients who have otherwise refused to use prandial insulin.
• According to the clinicaltrials.gov page, the OneTouch Via’s 24-week clinical trial (n=280) is ongoing and should complete by October 2017. The study randomizes type 2s not achieving glycemic target (A1c 7.5-10%) to either OneTouch Via or the Novo Nordisk FlexPen to initiate bolus insulin therapy. The primary endpoint is A1c at 24 weeks, with secondary endpoints including time-in-range and treatment satisfaction.
  
  • A possible criticism against OneTouch Via is it may increase total cost of therapy for MDI users, since patients will need a basal insulin, a rapid-acting insulin, AND OneTouch Via. Assuming outcomes are positive, this study could really help drive reimbursement and marketing. We can’t wait to see the results of this trial – we imagine the insulin manufacturers would be interested also, now that the Via may be available to acquire.
• Per the Medical Device Business Review, there are two OneTouch Via products in the pipeline: a smart version with connectivity and a version with a larger reservoir. These both seem like logical expansions to improve the convenience factor of the device. We also believe that a one-unit bolus version is in development, which would be smart for appealing to type 1s.
• As a reminder, the OneTouch Via is a three-day, very slim profile (2 inches long, 1 inch wide, and 0.25 thick), bolus-only delivery device. J&J acquired the device from Calibra Medical in July 2012 and it secured initial FDA clearance way back in 2010 for type 1 and type 2 diabetes, though submission for an updated manufacturing process went into FDA last fall.

13. No Update on Animas Automated Insulin Delivery Pivotal; Launch Last Expected in Late 2018-Early 2019

Animas’ automated insulin delivery plans were not mentioned – we last heard (via email on November 30) that the company is still working with the FDA to plan a pivotal trial, and a launch is expected in late 2018/early 2019. This product has been enormously delayed and it’s hard to be optimistic at this stage. The pivotal study was previously expected to begin in 4Q16 (per July’s Keystone conference), though that did not happen. Prior to the email update, Animas had positioned itself to be second to market in the US, though now its timeline is likely behind Medtronic, Tandem, Bigfoot, and Beta Bionics (of course, timelines are always in flux, for both big and small players). Even still, Medtronic is very slowly rolling out the 670G in a Customer Training Phase (>700 patients) and will open up the launch to 630G priority access program participants in June (we’ve heard estimates that this cohort is ~25,000 patients strong!); a late 2018 launch for Animas (on the early side) could put it just over a year behind Medtronic, and in the ballpark of Tandem and Beta Bionics (insulin only) for US launch timing. See our latest automated insulin delivery competitive landscape here.

LifeScan/Animas Pipeline Summary

Q: On the upcoming presentation of the CANVAS trial, there’s been some discussion on the street about what you may or may not know about the results today. Is there anything you want to add on J&J’s expectations of that study?

A: We’re going to unveil the results of that study in June at the ADA meeting, so it would be premature to comment. That’s the only scheduled release date at this point in time.

Comment: Okay, I’ll let it drop.

Q: For the pharmaceutical business, what did you see this quarter that was one-time in nature? What do you think will persist over 2017?

A: With respect to pharmaceuticals, we were pleased not to see too much impact of the Remicade biosimilar. There may be some additional impact as we go through the year, but nothing has changed our estimates on that. It’s all baked into our guidance. We did see an effect of pricing dynamics, particularly in the cardiovascular and metabolic space – we’re talking about Invokana and Xarelto. These are competitive markets with lots of entries, and therefore the payer dynamics are more competitive. So we saw some lower pricing. That’s also baked into our estimates, however, so it’s not dramatically different from what we expected.

Q: You recently put out this report on pricing transparency, and I’m wondering if you could comment on that. What changes should we be anticipating related to competition and pricing pressure? Can you offer some color on changes to rebates?

A: Overall, we have an innovative portfolio in pharmaceuticals. With that innovation comes better patient outcomes, so we have the evidence that supports pricing for our products. Of course in certain parts of the portfolio, cardiovascular and metabolic disease in particular, the market is more crowded and that’s where the payer community has more influence on rebates and the like. You’re not going to see a dramatic change in our pricing methodologies, which are all evidence-based already. We look at prices annually. And as you know from the report you mentioned, the difference between list price and net price is pretty dramatic – we think that will continue.

Q: Can we turn also to some of your portfolio management? Specifically, last quarter you talked about your Diabetes franchise being evaluated on a strategic basis

Mr. Dominic Caruso (Chief Financial Officer): With respect to Diabetes, we continue that process. We're evaluating various options for that business, whether it be partnership or outright divestiture, whatever is best in terms of giving that business the best position to succeed, and obviously, if we were to divest it, getting the right return for our shareholders.

Q: I’m curious for your thoughts on corporate tax reform and repatriation, given some of the dysfunction in Washington.

A: One of the things that’s very clear is that the House has a plan that they want to move forward, which includes the border adjustment tax. That has not yet been adopted by the Senate, although everyone agrees that some innovation in the way jobs are created in the US is important. Our takeaway is that both the House and the Senate are waiting for guidance from the White House on whether they prefer the border adjustment tax, or whether they have another vehicle they’d like to implement. While everyone is waiting for that, things have stalled. But I’m confident that we’re talking about the right things – we’re talking about a lower US tax rate, about a territorial system, and about some innovation for job creation in the US. That latter point is the one that’s up for discussion still, and we’re waiting for some clarity and preference from the White House.

--by Brian Levine, Payal Marathe, Adam Brown, Helen Gao, and Kelly Close