Memorandum

Sanofi 3Q15 – Diabetes sales down 7% operationally to ~$2.1 billion; US Lantus sales “disappointing” at ~$1.7 billion; Toujeo a “bright spot” with Afrezza high potential but still struggling; LixiLan submission soon – November 3, 2015

Executive Highlights

  • Sales for Sanofi’s diabetes portfolio declined 7% year over year (YOY) in constant currencies (rose 3% as reported) to €1.9 billion (~$2.1 billion), falling 17% sequentially.
  • “Disappointing” Lantus (insulin glargine) sales fell 11% YOY in constant currencies (and were flat as reported) to €1.6 billion (~$1.7 billion). US Lantus sales have eroded faster than expected with a rise in the proportion of sales from less-profitable Medicaid prescriptions. European sales are challenged by the arrival of Lilly/BI’s biosimilar insulin glargine.
  • Toujeo (U300 insulin glargine) continues to do well, but Afrezza’s (inhaled insulin) lackluster performance has led to revised financial guidance from Sanofi.

Sanofi provided its 3Q15 update this morning in a call led by CEO Mr. Olivier Brandicourt. Total sales for the company’s diabetes portfolio were €1.9 billion (~$2.1 billion), falling 7% year over year (YOY) in constant currencies (rising 3% as reported) and falling 17% sequentially. Sanofi’s sluggish performance in recent quarters has been driven largely by declines in its US diabetes sales revenue, particularly for largest-selling product Lantus (insulin glargine). Lantus sales were down 11% YOY in constant currencies (flat as reported) at €1.6 billion (~$1.7 billion), – characterized by Sanofi as “disappointing.” US Lantus sales have eroded faster than expected, due in part to a higher share of sales coming from Medicaid prescriptions. In Europe, Lilly/BI’s biosimilar insulin glargine has begun to chip away a little bit at Lantus’s base. Lower-than-expected penetration for Afrezza (inhaled insulin) and GLP-1 agonist Lyxumia (lixisenatide) have led Sanofi to project a 4%-8% annual decline in diabetes revenue through 2018. Afrezza sales were flat in 3Q15 at €2 million (~$2.2 million) while Lyxumia sales rose 25% in constant currencies (13% as reported) to €9 million (~$10 million).

On the more positive side, Toujeo (U300 insulin glargine) was the lone “bright spot” in Sanofi’s diabetes portfolio, with sales more than tripling YOY and sequentially to €46 million (~$51 million). Newly-launched PCSK9 inhibitor Praluent’s (alirocumab) first quarter on the market brought in €4 million (~$4.4 million) in sales. On the pipeline front, Sanofi reiterated that it will submit its GLP-1 agonist/basal insulin fixed-ratio combination LixiLan (lixisenatide/insulin glargine) for US approval by the end of the year. It has also added a GLP-1/GIP receptor dual agonist to its phase 1 pipeline.

Read on below for a product-by-product overview of the update, followed by a transcript of all diabetes-related Q&A.

Table 1: Summary of financial results for Sanofi’s diabetes drug portfolio

 

1Q14 revenue (millions)

YOY growth (reported / CER)

Sequential growth (reported)

Total diabetes

€1,850 / ~$2,054

2.8% / -7%

-17%

Lantus

€1,561 / ~$1,733

0% / -11%

-9%

Amaryl

€93 / ~$103

7% / 6%

-15%

Apidra

€88 / ~$98

0% / -5%

-5%

Insuman

€36 / ~$40

6% / 9%

6%

Blood Glucose Monitoring (BGM)

€15 / ~$17

7% / 7%

-6%

Lyxumia

€9 / ~$10

13% / 25%

-10%

Toujeo

€46 / ~$51

-

254%

Afrezza

€2 / ~$2

-

0%

Financial Highlights

Overall Diabetes Portfolio

  • Sanofi’s diabetes portfolio faced a tough quarter in 3Q15, with sales falling 7% year-over-year (YOY) at constant exchange (rising 3% as reported) to €1.9 billion (~$2.1 billion). This was against a fairly tough comparison as sales rose 9% in 3Q14. Sequentially, sales fell 17%. 3Q15 represents the lowest reported growth Sanofi has experienced since 3Q06, nine years ago. Sanofi also noted that its diabetes portfolio was the only division in which sales declined in 3Q15. See the chart below for overall trends for Sanofi’s diabetes portfolio.

Figure 1: Total Sanofi Diabetes Portfolio Sales (1Q05-3Q15)

Total Sanofi Diabetes Portfolio Sales (1Q05-3Q15)

  • Sanofi’s sluggish performance in recent quarters has been driven largely by declines for its largest-selling product Lantus (insulin glargine). Lantus still leads the basal insulin market, but its share has clearly declined. The product claimed 68% of the total ~$2.5 billion in basal insulin sales revenue in 3Q15, whereas Lantus sales accounted for 77% of total basal insulin sales in at its peak in 4Q14. While the loss of patent protection, the recent launch of Lilly/BI’s biosimilar insulin glargine, and pressure from new next-generation basal insulins have all played a role in Lantus’ decline, Sanofi management also pointed to the overall slowdown in basal insulin market growth as a factor. Indeed, combined sales revenue for basal insulins fell 9% YOY this quarter and fell 7% in 2Q15 and 1Q15. This is the first year in which the basal insulin market has experienced negative growth since we first began tracking it in 2005. In fact, the market saw growth between 15% and 25% each quarter for all of 2013 and the first half of 2014, before falling to single-digit growth in 2H14. However, Novo Nordisk’s Levemir (insulin detemir), which holds the second-largest market share, has performed well this year though from a much lower base. It also has had significant marketing resources to use that we believe were originally meant for long-delayed but now recently FDA-approved Tresiba (insulin degludec).

Figure 2: Total Basal Insulin Market Sales (1Q06-3Q15)

Total Basal Insulin Market Sales  (1Q06-3Q15)

  • Declining US sales, which account for the lion’s share of Sanofi’s diabetes revenue, drove the overall sales decline. US diabetes sales fell 16% in constant currencies (flat as reported) to €1.1 billion (~$1.2 million), comprising 58% of total sales for the portfolio. Outside of the US, diabetes sales increased 8% in constant currencies (9% as reported) to €766 million (~$850 million), comprising 42% of total diabetes sales.
  • Sanofi revised its diabetes portfolio guidance downward through 2018. Management shared that it expects diabetes sales to be down 6-7% in 2015. Over the next three years, Sanofi expects diabetes sales to fall 4%-8% each year.
    • We assume overall results for Sanofi’s soon to be combined Diabetes and Cardiovascular business unit could be more positive. The newly-created business unit (to be implemented in January 2016) will be headlined by LDL cholesterol-lowering PCSK9 inhibitor Praluent (alirocumab), which could eventually be a major blockbuster. While Praluent is currently limited to a small subset of the patient population with high cholesterol (both as a function of its restricted label and its high cost, which has led payers to implement rigorous screening processes for patients seeking to access to drug), positive results from its ongoing cardiovascular outcomes trial would greatly expand its indication. If Praluent were to take off, its sales would likely divert some attention from Sanofi’s struggling diabetes portfolio.

Lantus (insulin glargine)

  • Lantus (insulin glargine) sales were down 11% YOY in constant currencies (flat as reported) to €1.6 billion (~$1.7 billion) – characterized by Sanofi as “disappointing.” 3Q15 is the first quarter in which Lantus sales did not grow as reported since we began tracking them in 2005 (ten years ago!). Lantus sales fell in constant currencies in 2Q15 and 1Q15, but 3Q15 also marks the first quarter in which the operational decline reached double-digits. Sequentially, sales fell 9%.
  • The trend was largely driven by the US market (which accounts for the bulk of Lantus’s sales) where Lantus sales fell 20% in constant currencies (-4% as reported) to €997 million (~$1.1 billion). Sequentially, sales were flat. During prepared remarks, Sanofi noted that the US Lantus market had eroded faster than expected. Management attributed this to higher discounts for Lantus compared to last year (Sanofi agreed to accept higher rebates for Lantus in 2015 in exchange for better formulary positioning as we understand it), overall slowdown in basal insulin market growth, and the fact that a higher proportion of Lantus sales are coming from less-profitable government insurance programs. In particular, management noted that Medicaid prescriptions have increased by 18% and government insurance prescriptions now account for 33% of overall US Lantus sales. Sanofi noted that the Affordable Care Act (and, presumably, Medicaid expansion) is likely driving this trend. The company’s revised guidance for the next three years assumes this shift is here to stay.
  • On a more positive note, Lantus continues to see a bit of a renaissance in non-US, non-European markets. Within emerging markets, Lantus sales rose 16% YOY in constant currencies (12% as reported) to €260 million (~$289 million). Western European sales were fairly neutral, falling 1% in constant currencies (flat as reported) to €222 million (~$246 million).

Figure 3: Lantus Sales (1Q05-3Q15)

Lantus Sales (1Q05-3Q15)

  • The recent launches of Lilly/BI’s biosimilar insulin glargine Basaglar/Abasaglar – and upcoming biosimilar launches down the pipeline – received significant attention during the call. Sanofi noted that European sales of Lantus eroded this quarter due to the introduction of the biosimilar. European Lantus sales totaled €222 million (~$246 million) this quarter, down 1.4% in constant currencies (flat as reported). We learned from Lilly’s 3Q15 update that Abasaglar has launched in several ex-US markets, including Japan, the UK, Germany, Sweden, Poland, the Czech Republic, and Slovakia. That said, Sanofi management suggested during Q&A that European penetration of the biosimilar is relatively limited “with the exception of one or two minor countries.” We assume Sanofi is referring to the Czech Republic and Slovakia, where Abasaglar has achieved 3% and 11%, respectively, of the total basal insulin market share according to Lilly. In addition, we learned from Lilly that Abasaglar’s market share in Japan reached 5.5%. Lilly had commented that Abasaglar’s strong performance in Slovakia is likely due to poor reimbursement for Lantus, consistent with our assumption that payer access and cost will likely determine how the two products fare in various markets.
    • In its revised guidance for 2016-2018, Sanofi assumes that three biosimilar versions of insulin glargine will be on the market by 2018. This forecast likely includes Basaglar and phase 3 candidates from Mylan/Biocon and Merck/Samsung Bioepis. Sanofi noted in Q&A that while this will likely not affect its 2016 guidance (as a recent settlement agreement between Sanofi and Lilly bars Lilly from marketing its biosimilar in the US until December 15, 2016), the company will likely have to reduce the price of Lantus in order to remain competitive with the biosimilars entering the market. That said, Sanofi emphasized that it sees the biosimilars as competitors to Lantus rather than substitutes. Biocon did suggest in its F2Q16 update that Mylan is hoping to achieve a stricter “interchangeable” designation for the biosimilar that would allow pharmacists to dispense it as a substitute for Lantus without consulting the prescribing physician, but we assume the barriers to this are fairly high. We’ll certainly be interested in how the pricing dynamics play out in the US marketplace. In ex-US markets Abasaglar is priced at only a 15%-20% discount relative to Lantus, but we’ve heard commentary from CVS Health’s chief medical officer suggesting that biosimilars may drive the price of medications down by as much as 40%-50% in the US. Given rising public frustration over high drug prices in general and insulin costs in particular, we expect Lantus and the biosimilar versions of insulin glargine will not increase prices meaningfully in the coming years.

Toujeo (insulin glargine U300)

  • Toujeo (U300 insulin glargine) was a lone “bright spot” in Sanofi’s diabetes portfolio, with sales more than tripling YOY and sequentially to €46 million (~$51 million). Management highlighted that Toujeo has now launched in many major markets including the US, Germany, the UK, Japan, and Canada.Sanofi is clearly hoping that Toujeo can be a saving grace for its overall diabetes portfolio in the US market. US sales alone totaled €40 million (~$44 million), accounting for 87% of Toujeo’s total sales revenue in 3Q15.

Figure 4: Toujeo Sales (1Q15-3Q15)

Toujeo Sales (1Q15-3Q15)

  • Sanofi was particularly proud of the fact that the combined insulin glargine franchise’s market share has stabilized at 68%. We note that Novo Nordisk’s 3Q15 presentation slides indicate a combined market share of 66.5% for Sanofi’s insulin glargine products, though their model includes NPH insulin as part of the basal segment. Management noted that the insulin glargine franchise’s market share has remained relatively stable since February, following “a long period of share decline.”
  • Sanofi noted that, in spite of a less favorable label in the US than in Europe, Toujeo has captured 14% of the new-to-brand prescription (NBRx) share in the US. Management also shared that Toujeo accounts for 4% of new prescriptions and 2.5% of total prescriptions in the US.This represents positive growth as Sanofi had shared in its 2Q15 update that its new prescription share was 2.5%. However, we also learned from the 2Q15 update that Toujeo’s NBRx share was 15.7%, suggesting that the proportion of new patients choosing Toujeo (either when initiating basal insulin therapy or switching from another product) has decreased. We imagine Toujeo’s NBRx share will face even greater pressure once Novo Nordisk’s next-generation basal insulin Tresiba (insulin degludec) – the product most directly comparable to Toujeo – launches in the near future. Tresiba recently (finally!) received FDA approval, and Novo Nordisk repeatedly pointed to its US launch as a very high priority for the company in its 3Q15 update
  • Management shared that 75% of Toujeo’s volume consists of switches from Lantus. This is up from 2Q15, when 60% of Toujeo patients were switches from Lantus, 25% were new to basal insulin, and 15% were switches from other basal insulin products. While the breakdown is unclear, this suggests that either fewer patients may be initiating basal insulin therapy with Toujeo or fewer patients may be converting from Levemir, which has gained share in the US basal insulin market over the course of the year. The product reached 24% market share measured by total prescriptions as of August according to Novo Nordisk’s 3Q15 update. We believe with better orals, there is a delay both to basal insulin as well as to basal plus mealtime – this is unfortunate from our perspective since there are still so many patients not at their glycemic targets. Ultimately, however, the life cycle for drugs for people with diabetes is lengthening and after some delay of patients moving to insulin at all, we believe more people will eventually be taking both basal insulin as well as basal plus prandial insulins, including Afrezza.
  • Sanofi drew a direct comparison between the early launches of Toujeo and Tresiba in Germany. The presentation slides included a graph indicating a steeper launch trajectory for Toujeo compared to Tresiba, with Toujeo achieving 6.8% of the market at 25 weeks post-launch compared to 3.6% for Tresiba at 25 weeks post-Tresiba’s launch. We see this as a bit of an unfair comparison, however, since Tresiba was withdrawn from the German market during Toujeo’s 25-week launch period due to the disappointing “no additional benefit” decision from IQWiG, which led to severe reimbursement challenges. Toujeo benefited from not having to go through the IQWiG review process for reimbursement because it has the same active molecule as Lantus.

Afrezza

  • Inhaled insulin Afrezza (partnered with MannKind) sales were flat at €2 million (~$2 million) in 3Q15, its second full quarter on the market. Lower-than-expected penetration for Afrezza contributed to Sanofi’s revised mid-term guidance, in which they project a 4%-8% annual decline in diabetes revenue through 2018. Afrezza has struggled to take off since its launch in 1Q15, posting sales of only $1-2 million each quarter. Afrezza’s ultra-rapid-acting profile demonstrated in clinical trials makes it an attractive mealtime insulin, but the fact that that claim did not make it onto its final label represents a major barrier to wider uptake – and an unfair one in our view. Administrative hurdles like the need for pulmonary function testing and lack of robust reimbursement have also made it very difficult for this product with a strong “real world” clinical profile to do well commercially early on – we believe this should change over time if Sanofi increases its investments.
  • We do not yet have an estimate of total quarter losses for Afrezza. MannKind will provide its 3Q15 update on November 9. In its 2Q15 update, MannKind recorded a $12.8 million loss as its 35% portion of the Afrezza profit/loss-sharing arrangement with Sanofi. This is consistent with the $12.4 million loss in 1Q15. This loss stems from the consolidated Afrezza profit/loss for 2Q15, suggesting the total loss was ~$37 million (comparable to ~$35 million in 1Q15). Moving forward, this metric will be a good indicator of when Afrezza turns profitable; given higher spend from new promotional activities – such as the Afrezza direct-to-consumer program – offset by higher revenue, it’s hard to know when that could happen. With hundreds of millions of people globally not at their glycemic target, it seems obvious that Afrezza could fill an important unmet need – we hope that Sanofi investment in the insulin increases. 
  • That said, we also hope there is more focus overall on alternatives for patients. In addition to label and administrative problems, there are also regulatory questions. For example, part of the post-marketing studies for Afrezza include a trial for “frequent smokers” – if they are contra-indicated from taking Afrezza, we are very surprised about this trial requirement. It’s like saying to smokers, “We think you might die – can you test that for us?” Obviously if there were not other alternatives for smokers, we would want them to do this trial, but at present, we would not advise any patient to go into such a trial without serious conversations with their doctors and healthcare teams (who we believe would not advise them to go into this trial). We hear positive things from patients and doctors taking Afrezza, but not all patients can take it due to the cough – we hope they are getting the right advice from HCPs if they are not at their glycemic target and do not want to take traditional insulin (for which we know there is a lot of “insulin resistance” from HCPs). 

Lyxumia (lixisenatide)

  • The once-daily short acting GLP-1 agonist Lyxumia posted global sales of €9 million (~$10 million) in 3Q15, up 25% in constant currencies (13% as reported). Sequentially, sales fell 10%. Lyxumia’s performance has been limited by its absence from the US market, which accounts for the bulk of GLP-1 agonist sales. However, even on the international market, sales of Novo Nordisk’s market-leading Victoza (liraglutide) eclipse that of Lyxumia at ~$187 million. Lilly’s GLP-1 agonist Trulicity (dulaglutide) has already surpassed Lyxumia in the ex-US market with $11 million in non-US sales in 3Q15, despite arriving on the market a year and a half after Lyxumia. 

Figure 5: Lyxumia Sales (2Q13-3Q15)

Lyxumia Sales (2Q13-3Q15)

  • The FDA accepted Sanofi’s NDA for Lyxumia, supported by the results from the ELIXA CVOT, in September. Assuming a standard 10-month review cycle, the product will likely be approved by July 2016.
  • Lyxumia boasts a unique clinical profile within the fairly heterogeneous GLP-1 agonist class. As the shortest-acting agent that still allows for once-daily dosing (Byetta is dosed twice daily), it has particularly pronounced effects on postprandial glucose. This makes it a particularly strong add-on candidate to basal insulin, at least in theory. In contrast, some longer-acting GLP-1 agonists are being positioned as alternatives to basal insulin rather than add-ons. For this reason, Lyxumia’s greatest potential likely lies in its combination with Lantus in the form of LixiLan (insulin glargine/lixisenatide), which has announced positive phase 3 results from both of its trials – see the pipeline section of this report below. 

Praluent (alirocumab)

  • Sanofi/Regeneron’s PCSK9 inhibitor Praluent’s (alirocumab) first quarter on the market brought in €4 million (~$4.4 million) in sales. Sanofi noted that it launched Praluent in the US days after its approval in July and plans to launch in Europe by the end of the year. The company stated that it is focusing on increasing US formulary access and improving awareness and adoption of the product. Management expressed enthusiasm over Express Scripts’ decision to add Praluent in a branded preferred Tier 2 position and shared that the company is waiting to hear from two other major pharmacy benefit managers – CVS Health and UnitedHealthcare – about formulary access.
    • Wide access and reimbursement will be key for this expensive drug – an annual supply of Praluent costs $14,600. Express Scripts is managing the high cost by implementing a rigorous screening process to strictly limit the drug’s coverage to the narrow patient population for which the product is currently indicated. CVS Health leadership noted in a recent JAMA editorial that AHA’s removal of numeric lipid targets in its lipid guidelines makes designing these screening processes more challenging.
    • Amgen’s similarly costly PCSK9 inhibitor Repatha (evolocumab) is also available in the US and will be covered by Express Scripts as well. The Express Scripts decision indicates the first payer negotiation showdown between the two products resulted in a tie. It remains to be seen if competition between the two companies for exclusive formulary access to other major pharmacy benefit managers will drive down the cost of the drugs. If not, this would support Roche’s recent assertion that even cost-conscious systems will still be willing to pay for new products with high clinical differentiation compared to existing options.
  • Sanofi highlighted its myPraluent provider outreach and patient support program. The company stated that 4,000 providers have enrolled in the program, 75% of whom are specialists and 25% of whom are primary care physicians. In addition, management shared that about 90% of prescriptions have opted for the lower 75 mg dose of the product, though both the 75 mg and the 150 mg doses are priced equally.
  • Management stated that cardiovascular outcomes trial results for Praluent are expected in the second half of 2017. While we don’t want to jinx anything, the impressive LDL reductions with this class and the demonstrated link between LDL lowering and improved outcomes in previous trials give us a fair amount of confidence that the trial will be able to demonstrate a benefit. As mentioned above, if the results are positive and Praluent sales rise in line with expectations, Sanofi’s new consolidated structure (which will include a single Diabetes and Cardiovascular business unit) could help draw some attention towards the drug and away from the struggling diabetes business.
  • March 7, 2016 has been set as the court date for Amgen’s US patent lawsuit against Praluent. Sanofi noted its 2Q15 update that the judge granted Amgen an expedited trial date in lieu of a primary injunction that would have stood in the way of a launch. Management did not mention the patent lawsuit in the 3Q15 update.

Other Financial Highlights

  • Sales of Sanofi’s rapid-acting insulin analog Apidra (insulin glulisine) fell 5% at constant exchange (flat as reported) to €88 million (~$98 million). This was against a tough comparison as Apidra sales rose 21% in 3Q15. Sequentially, Apidra sales fell 5%. Apidra had enjoyed solid performance over the past few years, maintaining double-digit growth across the four quarters of 2014 from a low though growing base. That said, its sales have always been much, much lower than those of Lilly’s Humalog (insulin lispro) and Novo Nordisk’s NovoLog (insulin aspart). Combined with the slow start for Afrezza, this means that Sanofi’s share of the rapid-acting insulin market remains quite small – we see this area as a key one for Sanofi, however, and one that should experience growth given investment. See below for charts of Apidra’s sales since its approval in 2008 and a view of the total rapid-acting insulin market since 2006.

Figure 6: Apidra Sales (1Q08-3Q15)

Apidra Sales (1Q08-3Q15)

Figure 7: Total Rapid-Acting Insulin Market (1Q06-3Q15)

Total Rapid-Acting Insulin Market (1Q06-3Q15)

  • The human insulin Insuman rose 9% in constant currencies (6% as reported) to €36 million (~$40 million). As usual, Insuman did best in emerging markets (24% growth at constant exchange, 15% as reported). Its largest market, Western Europe, saw sales fall 10% at constant exchange (falling 5% as reported). Sequentially, Insuman sales grew 6% as reported.

Figure 8: Insuman Sales (4Q12-3Q15)

Insuman Sales (4Q12-3Q15)

  • The sulfonylurea Amaryl (glimepiride) grew 6% at constant exchange and 7% as reported to €93 million (~$103 million) in 3Q15. This came against a fairly easy comparison, as Amaryl sales dipped 4% in 3Q14. Sequentially, Amaryl fell 15% as reported, against a tough comparison of 12% sequential growth in 2Q15.

Figure 9: Amaryl Sales (1Q05-3Q15)

Amaryl Sales (1Q05-3Q15)

  • Sanofi’s BGM portfolio accrued revenue of €15 million (~$17 million), up 7% from 3Q14 and down slightly from €16 million in 1Q15. Sanofi noted during the call that it plans to de-prioritize its BGM business moving forward. This de-emphasis contributes to Sanofi’s revised three-year guidance that projects diabetes sales falling 4%-8% annually for the next three years. Management noted that this decision will largely impact European diabetes revenue as 93% of BGM sales revenue comes from that market.

Pipeline Highlights

Insulin Lispro Biosimilar

  • Sanofi’s insulin lispro (Lilly’s Humalog) biosimilar SAR342434 remains in phase 3. The program was not mentioned during the call. The program consists of two trials. SORELLA-1 compares SAR342434 and Humalog in type 1 diabetes patients and has an estimated primary completion date of June 2016. SORELLA-2 is designed similarly but will enroll type 2 diabetes patients and has an estimated primary completion date in February 2016. As we understand it, the formulation patents for Humalog expired in 2013, and NovoLog’s will expire in 2017.
  • The biosimilar category is slightly emptier in rapid-acting insulin than in basal insulin. That is not to say that there are not new rapid-acting analogs on their way – Lilly and Novo Nordisk are each working on updates to their flagship rapid-acting insulins. Novo Nordisk’s faster-acting insulin aspart (Faster aspart) will be submitted to regulatory authorities by the end of the year. The product’s phase 3 Onset 1 and Onset 2 studies demonstrated non-inferior to slightly superior A1c reductions with Faster aspart vs. NovoLog (insulin aspart). Faster aspart also blunted one-hour postprandial glucose excursions significantly more than NovoLog and provided comparable A1c reductions to mealtime NovoLog when given post-meal. The overall rate of hypoglycemia was comparable between groups, but Faster aspart did cause more hypoglycemia in the postprandial period. Lilly has acquired Adocia’s BioChaperone Lispro with faster-on, faster-off potential vs. Humalog.

LixiLan (insulin glargine/lixisenatide)

  • Sanofi reiterated that it will submit its GLP-1 agonist/basal insulin fixed-ratio combination LixiLan for FDA approval by the end of the year. It will submit the combination in the EU “shortly after” in 1Q16. Novo Nordisk’s GLP-1 agonist/basal insulin combination Xultophy (insulin degludec/liraglutide) was submitted in the US in September of this year and is already on the market in Europe, suggesting Sanofi will have to hurry if LixiLan is to arrive on the US market around the time Xultophy does. We have assumed that the two products will be fairly comparable clinically, but Novo Nordisk suggested in its 3Q15 update that it sees Xultophy as significantly differentiated.
  • We saw topline results from the phase 3 LixiLan-L trial at EASD 2015. The combination produced statistically superior A1c reductions vs. Lantus (insulin glargine) after 30 weeks in 736 patients with type 2 diabetes on basal insulin, with a safety profile reflecting those of the components. Secondary endpoint results were not shared, but we eagerly await details on LixiLan’s effect on weight, hypoglycemia, and GI side effects. Positive topline results from the LixiLan-O trial were announced in July. LixiLan-O compared A1c reductions with LixiLan vs. Lyxumia or Lantus in 1,170 patients with type 2 diabetes on background metformin. As with LixiLan-L, the announcement shared only that the combination produced statistically superior A1c reductions compared to the individual components and did not comment on the secondary endpoints. Full results for the trials will be presented at a future conference.

Other Pipeline Highlights

  • Sanofi added a GLP-1/GIP receptor dual agonist SAR438335 to its phase 1 pipeline. This class of drugs has shown promise in early studies but has also faced challenges. There was significant excitement around Marcadia’s GLP-1/GIP dual agonist when Roche acquired the company (founded by the renowned Dr. Richard DiMarchi) for over $500 million in cash and milestone payments in 2011. Roche later terminated development of that candidate in favor of a new dual agonist, RG7697, and then recently dropped RG7697 from its pipeline as well. Novo Nordisk, which recently acquired two of Dr. DiMarchi’s companies, plans to evaluate RG7697 once the ongoing trial is complete, but our sense is that this will not be the top priority for the collaboration. Based on this mixed history, we are glad to see Sanofi pursuing additional early-stage targets in diabetes but wonder whether this combination will be able to meet the currently very high bar for new type 2 diabetes drugs.
  • Sanofi’s GLP-1/glucagon receptor agonist SAR425899 remains in phase 1. According to ClinicalTrials.gov, the expected end date of the trial has been moved up slightly to December 2015 from January 2016. The trial consists of a multiple ascending dose in 72 healthy male subjects. Safety will be the primary outcome measure. We learned from the study description that SAR425899 is a once-daily injectable.
  • Sanofi did not mention its new partnerships with Google Life Sciences during the call, though they were noted in the press release. The details of the partnership with Google Life Sciences are not yet known, but the two giants will collaborate to improve diabetes care by “developing new tools that bring together many of the previously siloed pieces of diabetes management and enable new kinds of interventions.” This will likely include the development of new sensors, wearable devices, and software. With Sanofi’s statement that it is de-prioritizing its existing BGM business, we wonder if partnership is poised to revitalize Sanofi’s diabetes technology portfolio.
  • Sanofi also announced a $329 million partnership with Evotec to develop novel beta cell replacement therapies earlier this year. The development process will use functional stem-cell derived human beta cells. This partnership marks Sanofi’s entry into the type 1 and type 2 diabetes cure field and offers some reassurance about the company’s long-term commitment to diabetes despite the current challenges.

Questions and Answers

Q: It looks like your guidance downgrade on the Diabetes midterm outlook is entirely US related, but can I confirm that's correct and there's nothing changed in your outlook for the ex-US markets? Can you help us understand whether that's more of a volume or a price expectation that's changing?

A: It’s mainly US, using the same trends that we have seen during the last quarters there. In addition, for Lantus there’s the fact that we have assumed three biosimilars on the market. And in addition, our midterm includes half of the guidance related to Lyxumia penetration and Afrezza penetration, which is US driven. Lyxumia, it's a balance of Europe and the U.S. And, again, that half of the guidance you have the BGM business, which is mainly European. So it's a mix, but the biggest impact is by and large coming from the US side.

Q: You didn't mention any revised expectations for Toujeo. Can I confirm that's also the case and you still expect to switch more than 15% to 20% of the Lantus franchise that consensus is currently assuming?

A: On Toujeo, you've seen in the slides that if you look at the European uptake, it's delivering on its promise. You've seen the German numbers and actually we see that consistently in all the countries we have launched in Europe. In the US, if I look at the latest data in NBRx, we're at 14%. We're at total NRx now close to 4%. We're at total TRx 2.5% in the latest weekly data. If you add all that together, we still think that we will be ahead of the numbers that you mentioned, which is 15% to 20% as a share of Toujeo in the overall glargine business.

Q: Lantus and Lyxumia contributed to the lower midterm targets. How do you think Lixilan can offset this? And could you quantify how much will be then protected?

A: LixiLan will be an important asset in our Diabetes portfolio and that asset has been accounted for and is part of our guidance.

Q: On Praluent, can you please give us an update on the timing for the publication of the CV outcome study?

A: The CV outcome study is an event-driven study, so the timing will depend on the accumulation of adjudicated events. Right now, what we have planned are interim studies that the DSMB is going to look at, at 50% of events and then after that an analysis of 75% events. So in terms of timing, if you look at the recruitment rate that we have, it could be mid-2016 or end of 2016. I can't tell you exactly the timing but by next year we should have at least the interim studies. Now, if nothing happens in those studies and the study continues, the study will complete about 2017 second half.

Q: Going back to the glargine franchise, could you add any more color on whether this is more of a volume or a price impact, particularly in the US?

A: You have seen that we have indicated that glargine altogether, Toujeo and Lantus, we were able to maintain volume in terms of TRx share of the basal market. So volume-wise, we've been stable. There were a significant number of switches from Lantus to Toujeo. That's what you would expect, right? And as of today, the volume on Toujeo is driven about 75% by switches. So the answer to your question is more net price, but it's not due to a change in our commercial terms during the quarter. It is mainly driven by what I alluded to in my remarks, which has to do with a much larger and non-anticipated volume in government channels, and more specifically Medicaid, 340B, DOD and VA, which are now representing about 30% of our total Lantus volume. And prescription in that segment, we are growing around 20%, especially on Medicaid and 340B. As I'm sure you know, when you have increased your price regularly over time, in those segments you have a CPI penalty, which drives a much less profitable return on those prescriptions. Now in the longer term, we have to expect an impact on prices in order to compete effectively within the glargine market.

Q: On the three drugs where you've downgraded the expectation based on the latest penetration rates for Lyxumia, blood glucose and Afrezza, are you still looking for growth from those products? And would you say that your numbers are perhaps more in line with where consensus was for those?

A: It would be difficult for us to give you whether or not we are above or below consensus on Lyxumia and Afrezza. But again, the message is we have revised our forecast with a lower penetration of both compounds.

Q: On your multi-year planning assumptions, are you expecting that Lilly is the only biosimilar seller? Because my understanding is that US-based Merck is likely to file their glargine in the next handful of months most likely. And related to that, when you sued Lilly, it triggered a 30-month stay; then you settled with Lilly. I'm assuming that, that settlement is completely independent and wouldn't preclude you from suing other companies like Merck that could then cause a delay there?

A: We have assumed three biosimilars on the market at the end of the period. However, we also indicated that we don’t think they will be substitutions so we would compete on the marketplace. I don't want to enter into the legal aspect of what could be our strategy or not against some of those biosimilars.

Q: What is your thinking on how Lilly is going to price in the US and whether this is going to be a battle for exclusive contracts or you think you both can coexist with individual payers?

A: We cannot speculate what the pricing of Lilly would be. The only fact that we know is what Lilly is doing in Europe. And there we see indeed that they're coming in with what I would call a reasonable price discount compared to the Lantus prices; let's say between 15% and 20% depending on the country. By the way, we see so far, relatively limited penetration of the biosimilar of Lilly in Europe, with the exception of one or two minor countries.

Q: I think I get what you're saying about channel mix, but what I don't understand is why that would all happen in the fourth quarter this year. So the timing of the rebates, the timing of the channel mix into the government programs, why did that all come to a head in the third quarter and going into the fourth quarter? And then also, why does it then extend into 2015 to 2018? Because your longer term reduced guidance compounds that into the years thereafter.  

A: When you sell a dose of Lantus, you don't know in which channel this is being sold. So in fact, the way you do it is that you take some assumptions on your share of the various channels. When it comes to the government channels, it's a bit later that you actually know how much has been sold through these channels because then you get, in particular from Medicaid, invoices actually coming from the various states. So there is no acceleration as such, but a sort of recalculation of the share of Medicaid and part of it is a result of Affordable Care Act, which is driving more patients into the Medicaid or the Medicare segments. So all together, this share has increased to the area of 16%, 17%, and on top of that, a few other channels.

Q: In your long-term guidance, what do you assume the volume growth of the biosimilar and the basal insulin market is going to be?

A: We have taken a rather conservative assumption of low-single digit growth from the basal market growth. I understand that it may be more conservative than some of our competitors, but that's what we have put in.

Q: In terms of the guidance for the Diabetes franchise, of minus 4% to minus 8% – within that you've got growth products such as Toujeo and LixiLan coming through. And between pressure on Lantus and switching from Lantus to Toujeo, it certainly suggests that we're going to have a sustained double-digit decline in Lantus reported sales. Can you confirm if that's the case?

A: The glargine assumptions we have made is a 2% to 4% decline with the pricing pressure of those biosimilars on the market on Lantus while Toujeo will continue to grow. At the end of the day, you get a couple of positive elements, like Toujeo, like LixiLan, and you get a couple of negative elements, like the mix into the Medicaid channel. We saw this year an 18% increase for our glargine business in the Medicaid channel. If you look at the total government channels like Medicaid, DOD, VA, et cetera, this is now accounting for 33% of the Lantus sales.

Q: In terms of the biosimilars and how bad this could possibly get, does your assumption for biosimilars assume that you'll see products in the US market or is it ex-US predominantly?

A: The biosimilars are US and ex-US So it's really global and certainly US and Europe. That is our assumption.

Q: On the Diabetes guidance, could you give us more color on the shape of the decline, notably in 2016, as you will not have a biosimilar on the US market? So is it a fair assumption to assume that next year maybe it will be a little less under pressure? And then toward the end of the three-year period, as you assume more biosimilars, we should see an acceleration?

A: The only thing I can tell you is we do not expect significant additional pressure on rebates for both Lantus and Toujeo. However, of course, based on what you heard in the last half-hour, the pressure through government channels may still be there.

Q: On the PCSK9 market, from the prescription we can get it seems that Repatha is taking off more rapidly than Praluent, so could you add some more color here?

A: I will caution that it's very early days, frankly, in the launch. We would recommend not to over-interpret PCSK9 market data. The PCSK9 prescription data at this point is extremely small compared to the expected size of the market and again, at this point, we do not view the differences in product performance as really representing the underlying demand.

When you look at the data itself and the NPA prescription data, they are underreporting some specialty pharmacy indication for Praluent regarding Accredo. And Accredo, however, provides the data for Repatha, and we are not part of it. In addition, our prescriptions are very much into the patient assistance program and also what we call the bridge program where patients are waiting for coverage by their insurance company and of course, those prescriptions and those patients are not captured by IMS.

So overall at this point, the task is to get coverage for those patients and the future patients, and we're very optimistic based on what happened with Express Scripts and we are waiting now for two other very important PBMs to give us their answers and their decision. But very importantly, we continue to be confident in Praluent, its clinical program, the education, and the number of prescribers we have now in the myPraluent hub, which is over 4,000 prescribers now. 75% of them are specialists; about 25% are GPs, and so far they are prescribing the 75 mg dose in 90% of the cases. So, we think we have the flexibility there of the dual dosage.

 

-- by Helen Gao, Emily Regier, and Kelly Close