Novartis 1Q17 – Galvus sales flat YOY at $286 million; Lucentis revenue falls 2% YOY to $445 million; Bright spots in Entresto and NASH – April 26, 2017

Novartis provided its 1Q17 financial update yesterday in a call led by CEO Mr. Joseph Jimenez. There was no mention of diabetes on the call, but management did comment on Novartis’ expanded development program for NASH, and the company’s presentation slides highlighted data showing the benefits of cardiovascular drug Entresto in patients with diabetes (this post-hoc analysis of the PARADIGM-HF trial was first presented at ACC 2017 last month). Keep scrolling for a detailed look at our top five diabetes-related highlights from Novartis’ 1Q17, starting with financials on DPP-4 inhibitor Galvus and on Lucentis for diabetic macular edema and diabetic retinopathy.

Top Five Highlights

1. Sales of DPP-4 inhibitor Galvus totaled $286 million in 1Q17, which represents a marginal 1% year-over-year (YOY) rise as reported from $283 million in 1Q16 and a 4% sequential decline from $298 million in 4Q16. This story matches an overarching theme for the class, as most major DPP-4 inhibitors have experienced fluctuating sales of-late.

2. Lucentis (intravitreal ranibizumab, prescribed for diabetic macular edema and diabetic retinopathy) posted $445 million in ex-US revenue (Roche markets the product in the US). This represents a 2% YOY drop as reported (though sales grew 3% YOY in constant currencies) as well as a 2% sequential decline. Notably, Novartis’ recorded revenue won’t be affected by the FDA’s recent approval of Lucentis for the treatment of retinopathy without DME, but we look forward to commentary from Roche management on this front during the company’s 1Q17 earnings call on Thursday (April 27).

3. The company’s presentation slides called attention to a sub-analysis of the PARADIGM-HF trial (presented at ACC 2017 and simultaneously published online in the Lancet Diabetes & Endocrinology), which found that patients with diabetes (n=3,778) experienced significantly greater A1c reductions and were significantly less likely to require new initiation of insulin therapy if randomized to cardiovascular drug Entresto (sacubitril/valsartan) vs. angiotensin inhibitor enalapril. That’s pretty great! This post-hoc analysis can only be considered hypothesis-generating, but the results imply that Entresto may well offer glycemic benefits to individuals with comorbid type 2 diabetes and heart failure. We love the idea of a cardiovascular drug being applied to diabetes, and we see this as another sign of Novartis’ commitment to diabetes as a therapeutic area. This also highlights continued convergence in this arena.

4. Novartis has doubled-down on its investments in NASH recently, and this was a major focus of management’s prepared remarks on the call. Through a new collaboration with Allergan, the company will launch a phase 2b trial to evaluate co-administration of a Novartis FXR agonist and Allergan’s cenicriviroc in people with NASH. Through a partnership with Conatus Pharmaceuticals, the company is investigating phase 2 oral pan-capase inhibitor emricasan as NASH therapy.

5. To no one’s surprise, management did not mention the glucose-sensing contact lens that Novartis’ ophthalmology division Alcon is said to be developing with Verily – we haven’t heard so much as a murmur on the project in more than a year. Additionally, there was no mention of Novartis’ partnership with Qualcomm to invest in digital medicine or its partnership with Parvus to develop nanotechnology-based treatments for type 1 diabetes.

Top Five Highlights

1. DPP-4 Inhibitor Galvus Revenue Nearly Flat YOY at $286 Million

Sales of DPP-4 inhibitor Galvus (vildagliptin) totaled $286 million in 1Q17, which represents a marginal 1% year-over-year (YOY) rise as reported (4% in constant currencies) from $283 million in 1Q16 and a 4% sequential decline from $298 million in 4Q16. Quarterly revenue for the franchise has plateaued around $300 million for several years, since 1Q13. Following seven consecutive quarters of YOY decline (between 3Q14 and 1Q16), Novartis’ DPP-4 business seemed to recover somewhat in 2016 – up 12% as reported in 2Q16, 9% in 3Q16, 1% in 4Q16, and 5% in 2016 overall. This story matches an overarching theme for the class, as most major DPP-4 inhibitors are experiencing fluctuating sales of-late, due partly to pricing pressure and partly to competition from GLP-1 agonists and SGLT-2 inhibitors. These are both newer therapy classes, with compelling efficacy data, but we still see a crucial role for DPP-4 inhibitors in diabetes care and ultimately believe they may well be appropriate for high-risk pre-diabetes patients. For one, DPP-4 agents come with a familiarity factor and an ease of dose administration that makes them a preferred choice for many patients/providers. They also boast a longer history of safety and tolerability, supported by clinical trial data as well as real-world experience. Indeed, thought leaders such as Dr. Robert Ratner have defended the use of DPP-4 inhibitors for the elderly as well as type 2 diabetes patients with renal impairment on account of their benign safety profile, massive safety database, and oral formulation – to say nothing of weight neutrality and glycemic-dependent nature. Though we didn’t hear any commentary on Galvus during this 1Q17 earnings call, Novartis management has previously outlined a clear, three-pronged strategy to promote the product (i) among the elderly, (ii) to patients with impaired kidney function, and (iii) for anybody with type 2 diabetes earlier in the course of disease. We hope this marketing approach continues on track, and we’re happy that the company remains committed to its DPP-4 inhibitor business despite some commercial pressures.

2. Lucentis Sales Fall 2% YOY to $445 Million

Lucentis (intravitreal ranibizumab, prescribed for diabetic macular edema and diabetic retinopathy) posted $445 million in ex-US revenue (Roche markets the product in the US). This represents a 2% YOY drop as reported (though sales grew 3% YOY in constant currencies) as well as a 2% sequential decline. Sales of Lucentis have been steadily falling throughout 2015 and 2016, and in fact, 1Q17 marks the smallest YOY decrease since 4Q14. Once again, management didn’t address this financial performance directly, but we imagine Lucentis continues to struggle under competition from Bayer/Regeneron’s Eylea (intravitreal aflibercept) and Genentech’s Avastin (bevacizumab).

• Notably, Novartis’ recorded revenue wouldn’t be affected by the FDA’s recent approval of Lucentis for the treatment of retinopathy without DME, but we look forward to commentary from Roche management on this front during the company’s 1Q17 earnings call on Thursday (April 27). We’re thrilled about this FDA approval (which came on an expedited timeline!), given that retinopathy remains an area of massive unmet need. Hopefully, the expanded indication serves as a much-needed boost for the Lucentis franchise in the US – Roche has also reported sluggish sales in recent quarters – though it will take time for the new label to be implemented, for awareness to be spread among providers, patients, and payers, and for a noticeable spike in volume or sales. After all, the FDA’s decision came through just last week.

3. Cardiovascular Drug Entresto Displays Glycemic Benefits in Patients with Type 2 Diabetes

The company’s presentation slides called attention to a sub-analysis of the PARADIGM-HF trial (presented at ACC 2017 and simultaneously published online in the Lancet Diabetes & Endocrinology), which found that patients with diabetes experienced significantly greater A1c reductions and were significantly less likely to require new initiation of insulin therapy if randomized to cardiovascular drug Entresto (sacubitril/valsartan) vs. angiotensin inhibitor enalapril. Mean A1c for this diabetes subgroup (n=3,778) was 7.4% at baseline – A1c dropped to 7% with three years of Entresto treatment and to 7.2% with three years of enalapril treatment, culminating in a mean A1c difference of 0.2% in favor of Entresto (p=0.001). Looking specifically at people with diabetes who were insulin-naïve at study start, those on Entresto were 29% less likely to require new initiation of insulin therapy over three years (p=0.005). This post-hoc analysis can only be considered hypothesis-generating, but the results imply that Entresto may offer glycemic benefits to individuals with comorbid type 2 diabetes and heart failure. We love the idea of a cardiovascular drug being applied to diabetes, and we see this as another sign of Novartis’ commitment to diabetes as a therapeutic area. Where companies like Lilly/BI and AZ have initiated clinical trials of their SGLT-2 inhibitors in patients with chronic heart failure, could Novartis call a reverse play, investigating its CV drug in patients with diabetes? We can only speculate at this point, and we note that a more rigorous evaluation of Entresto’s placebo-adjusted A1c efficacy would be informative – it’s possible that the A1c benefit with Entresto would be larger when compared to placebo than it is relative to enalapril, which also showed a minor effect on A1c. We’d love, of course, to see time in zone data. It’s very interesting to see diabetes addressed in this context within a Novartis earnings presentation, and we certainly hope there’s more crossover for Entresto into the diabetes world coming up.

• Sales of Entresto grew nearly five-fold YOY to $84 million, albeit from a low base of $17 million in 1Q16. Sequentially, revenue increased 24% from $68 million in 4Q16. US sales in 1Q17 totaled $68 million. Sales for all of 2016 – Entresto’s first full-year on the market – totaled $170 million. Anecdotally, we’ve noticed immense interest in Entresto amongst cardiologists at conferences – heart failure is one of the great unmet needs of cardiology and medications that show promise on this front, including Jardiance, attract a lot of attention and hope. Ultimately, we think cardiologists will be massive prescribers of SGLT-2s and we’d love to see more on combo data with cardiology agents. Lest anyone sound the horn on how much a branded drug combo would cost, can we begin to talk about how much heart failure costs?

4. Management Underscores Company Commitment to NASH

Novartis has doubled-down on its investments in NASH recently, and this was a major focus of management’s prepared remarks on the call. Through a new collaboration with Allergan, the company will launch a phase 2b trial to evaluate co-administration of a Novartis FXR agonist and Allergan’s cenicriviroc (CVC) in people with NASH. According to ClinicalTrials.gov, the phase 2 CENTAUR trial of Allergan’s CVC is ongoing with an expected completion date of October 2017, although Novartis’ announcement of the Allergan partnership refers to the drug candidate as “phase 3 ready.” Novartis has several FXR agonists in its NASH pipeline, the most advanced being a phase 2, potent, non-bile FXR agonist that received Fast Track Designation from the FDA (which is fitting, given that NASH persists as an area of high unmet need). We’re keen to follow a study combining the therapeutic effects of these two separate agents, though no timing has yet been shared. Through a collaboration with Conatus Pharmaceuticals, Novartis is also investigating oral pan-capase inhibitor emricasan as NASH therapy, and the company’s presentation slides mention four ongoing phase 2 trials. The slide deck also highlights the phase 2, dose-ranging FLIGHT-FXR study of Novartis’ LJN452, a multimodal FXR agonist, which will enroll 250 participants and is expected to complete in 1H18. During the company’s 4Q16 earnings call, management referred to LJN452 as a potential best-in-class molecule, so our interest is piqued for this drug candidate as well. There was no mention of Novartis’ other NASH pipeline products, including FXR agonist LMB763 (phase undisclosed, expected to read out in 2018), SGLT-1/SGLT-2 dual inhibitor LIK066 (slated to enter phase 2 according to Mr. Jimenez’s comments at JPM 2017), relaxin receptor RLX030 (phase undisclosed, expected to read out in 2019), and an anti-inflammatory/anti-fibrotic agent in preclinical development. The most recent update we’ve heard on these other NASH candidates came alongside Novartis’ 4Q16 and year-end financial update, in an accompanying slide deck on development projects. Overall, we’re pleased to note the company’s commitment to NASH – no therapies are yet approved for this condition, a common comorbidity of type 2 diabetes, and it’ll take concerted efforts and investment to change that. The broad range of NASH candidates in Novartis’ pipeline indicates to us that the company is hedging its bets to some extent in terms of which specific agents/mechanisms will be most effective – indeed, NASH is enormously difficult to even diagnose or measure (due to a lack of biomarkers), which poses a major challenge for therapeutic development. It’s not surprising then that many, many different classes and therapeutic targets are in play in the NASH competitive landscape. Currently, the most advanced candidates in this area are in phase 3, including a more advanced FXR agonist from Intercept Pharmaceuticals (obeticholic acid, already approved for primary biliary cholangitis) and candidates from Zydus Cadila, Genfit, and powerhouse Gilead.

5. No Mention of Other Diabetes Partnerships: Verily, Qualcomm, or Parvus

To no one’s surprise, management did not mention the glucose-sensing contact lens that Novartis’ ophthalmology division Alcon is said to be developing with Verily – we haven’t heard so much as a murmur on the project in more than a year. The most recent mention we can find is an August 2015 Wall Street Journal article reporting that the contact lens was meant to enter high-volume production and large-scale clinical trials in 2016. We take the silence from both Novartis and Verily as a sign that the project has been pushed much further back on the docket (if it’s still planned at all), which is especially disappointing in the context of an expanding Alcon division – the company is undoubtedly investing in ophthalmology products, but not in this particular contact lens that crosses over into diabetes. That said, a glucose-sensing contact lens is an ambitious therapeutic device that would be truly disruptive for diabetes care, so perhaps (fingers crossed) it is simply taking more groundwork from the companies before they can forge ahead. This includes returning Alcon to a state of profit and growth, which Mr. Jimenez suggested is taking longer than expected but emphasized as a company priority during his JPM 2017 remarks.

• Additionally, there was no mention of Novartis’ partnership with Qualcomm to invest in digital medicine or its partnership with Parvus to develop nanotechnology-based treatments for type 1 diabetes. The latter collaboration is hot-off-the-press, having just been announced last week. The licensing agreement between Novartis and Parvus concerns immunomodulatory “Navacims” technology, which involves nanoparticles coated with disease-specific peptide-major histocompatibility complexes (pMHCs). These nanoparticles bind and reprogram T cells to a regulatory T cell (Treg)-like state, thereby working against the autoimmune attack in type 1 diabetes. Under the terms of the agreement, Novartis will receive exclusive rights to Parvus’ Navacim technology and will be responsible for clinical development and commercialization, while Parvus will be responsible for finalizing the ongoing preclinical work and filing an Investigational New Drug Application. With this move, Novartis extends its diabetes activities into type 1 as well, and we’re very happy to note this commitment (especially in the context of underwhelming Galvus and Lucentis sales).

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