January 7-10; San Francisco, CA; Day #2 Highlights – Draft

Greetings from day #2 of JPM! Today we’re bringing you 21 highlights divided among the verticals of diabetes therapy, diabetes technology, and big picture. See yesterday’s report for highlights from Dexcom, Medtronic, Ascensia, Novartis, and Bernard Tyson/Jamie Dimon, and see our conference preview for talks we’re most looking forward to on days #3+#4!

Diabetes Therapy Highlights

1. Lilly CEO Mr. Dave Ricks Touts Trulicity in Competitive GLP-1 Class, Expects Significantly More Class Growth with No Diminished Access; REWIND Positive in Primary Prevention?; First Jardiance for HF Data Possible in 2019

Lilly CEO Mr. Dave Ricks seemed much more expansive in his address this year versus last year at JPM, which was his first as CEO. Overall, diabetes got a decent amount of attention and we’d say Lilly is certainly positioning the area more favorably than did other companies like Sanofi, Merck, and J&J. He touted Trulicity’s (dulaglutide) strong performance within the competitive GLP-1 class (best-in-class 43% volume-share [US only] and second-in-class 40% value share [global] in 3Q18), projecting far more class growth as GLP-1s are increasingly adopted as first-line injectables. We agree! While some would say it’s taken quite awhile, the products have all improved massively in our view – and finally (finally!) pancreatitis is no longer a worry. The field has come a long way from “twice-daily” but boy was the first GLP-1 the start to some history!  

According to Mr. Ricks, use of GLP-1s as the first injectable in the US sits at just under 30% in terms of total market share, but new-to-brand starts (a stronger indicator of where the market is heading) are at ~50% and accelerating on the back of Trulicity and Novo Nordisk’s Victoza (liraglutide) and Ozempic (semaglutide). While there has been much excitement surrounding the last’s entry to the GLP-1 market, Mr. Ricks maintained that Trulicity is “a bit better drug” based on its purported best-in-all-of-diabetes-medication adherence, which Mr. Ricks attributed to the product’s once-weekly autoinjector with no need to titrate (the latter is a big deal for doctors). Coupling this with Trulicity’s glycemic and newly-demonstrated CV benefit, he believes (speaking on behalf of all GLP-1 manufacturers, as he sees it) that GLP-1s should be the first-line injectable therapy for type 2 diabetes – and fortunately for Mr. Ricks, the recent ADA/EASD consensus statement on managing hyperglycemia in type 2 diabetes and ADA’s 2019 Standards of Care both agree, particularly in cases of established ASCVD (atherosclerotic cardiovascular disease). Notably, Lilly’s positive REWIND CVOT for Trulicity could expand the use of GLP-1s (particularly Trulicity) for CV risk reduction to those with only CV risk factors (primary prevention), as Mr. Ricks stated during the breakout: “What’s unique about the REWIND study is that we included a large number of patients without existing CV disease, and across the whole population and in each part of the population we showed benefit.” This seems to suggest that both the primary and secondary populations achieved significant CV benefit in the trial, though it could also mean that overall benefit was achieved without a significant statistical interaction between the subgroups (since the study was not powered to show superiority in each subgroup) – we’ll have to wait for the data to know for sure. Mr. Ricks reiterated that the company plans to file for an indication prior to the full results presentation at ADA 2019, and he expects an early 2020 approval.

• While potential headwinds exist, Mr. Ricks does not see the currently “good” access to GLP-1s or Trulicity dwindling in the near future for two reasons. First, if any players wanted to control growth as the class expands, they would have to change their pricing pattern. However, as it stands, long-term interest seems to be focused on preserving long-term value of GLP-1s with manufacturers investing heavily in the class – including Lilly, in both Trulicity and GIP/GLP-1 dual agonist tirzepatide – the latter is now entering phase 3 and garnering massive attention for its potency and tolerability (especially the medium dose). Second, payers have not yet been able to substitute one product for another based on differentiated clinical profiles – at least some of which can likely be attributed to CVOTs and CV indications, but also to differentiated efficacy on metabolic endpoints (A1c, weight). Indeed, we did hear Merck’s CEO Ken Frazier say yesterday how important differentiation was among Big Pharma drugs and that is much easier to show in GLP-1 than in SGLT-2 inhibitors or DPP-4 inhibitors, to date.

• Mr. Ricks is “very confident” that unprecedented phase 2b efficacy (~25 lbs weight loss, ~2.4% A1c drop in 26 weeks) for tirzepatide is reproducible in phase 3, without the concerning tolerability profile. The candidate’s phase 3 SURPASS program, which is now underway, uses a 20-week titration scheme to achieve 15 mg dosing vs. six weeks in phase 2b – which results in a 34% dropout rate at this highest dose. As a reminder, President of Lilly Diabetes Mr. Enrique Conterno stated during a recent investor call that the company would and should cannibalize Trulicity sales should tirzepatide prove itself a breakthrough diabetes product (of course it should! Toujeo is doing this for Lantus at Sanofi, Tresiba is cannibalizing Levermir, etc.). Notably, a phase 3 program in obesity and a phase 2 study in NASH (including biopsy) are set to start in 2019 – this is a big deal for Lilly who traditionally has not invested in metabolic areas outside diabetes, for the most part.

• When asked about Jardiance and slowed SGLT-2 class growth, Mr. Ricks acknowledged that any drug and/or class that “works on mortality” should certainly be showing even stronger growth. He likened current class-wide concerns over amputation risk to those over pancreatitis in early GLP-1 development, expressing optimism that a return to growth is imminent. Mr. Conterno made this point during the company’s December investor meeting. He also reminded the audience of the class’ potential in heart failure with or without diabetes, pointing to Lilly/BI’s EMPEROR-Preserved and EMPEROR-Reduced (n=6,976 total) trials, for which functional outcomes data could be available in 2019. As he sees it, this data should give substantial reassurance to HCPs on the benefits of SGLT-2 inhibitors beyond glucose control – that is certainly true. Of note, we would also add mounting evidence of renal benefit as a serious future tailwind for the class. At least, we hope so – renal disease is not particularly well-understood to many patients, nor is dialysis, nor is the payment model (do some payers push patients toward dialysis at some point – Medicare takes over all the payments, after all).

• In brief mention, Mr. Ricks was bullish on a 2019 launch of nasal glucagon, which was submitted to FDA and EMA in 2Q18. We strongly believe this new class of product could have been fast-tracked – real innovation is about to be introduced!

2. Lexicon: Pivotal Quarter for Sotagliflozin in Type 1 Includes FDA Ad Comm, CHMP Opinion, and FDA PDUFA Date; Potential Launches in 1Q19 (US) and 2Q19 (EU)

CEO Mr. Lonnel Coats deemed 2019 a “transformational year” for sotagliflozin in type 1 diabetes, with several key dates lined up in 1H19. The year is frontloaded, and the first milestone will come next week (January 17) at FDA’s Advisory Committee meeting to review Sanofi/Lexicon’s NDA for sotagliflozin as an adjunct to insulin in type 1 diabetes. Then, as we learned just before Christmas Day, and as many learned today, the CHMP will offer its analogous opinion by January 31, after a closed-door EMA/CHMP meeting that was held back in November 2018 to discuss both sotagliflozin and dapagliflozin in type 1 diabetes. This date confirms that EMA/CHMP will offer its opinion on either submission (sotagliflozin or dapagliflozin) until after FDA’s Ad Comm has cast its (literal) vote. We think this is good overall – we are not sure but assume they may meet again. Following both preliminary opinions, the NDA’s PDUFA date from FDA is set for March 22. If approved, Sanofi/Lexicon may launch in the US soon – it’s far too soon to speculate but presumably a massive educational process is in place. To be sure, a US launch soon would be an aggressive timeline (especially in the context of a March 22 PDUFA date – decisions don’t typically come long before these, in our observation); certainly, confidence from Lexicon going into the Ad Comm next week is not surprising but we’d like to make sure the systems are set up for success. Finally, Mr. Coats highlighted that the companies will present new analyses from the inTandem program for sotagliflozin in type 1 diabetes at both ADA 2019 and EASD 2019 in June and September, respectively – we’ll be curious to see what these add to the existing body of available data and we are sorry we were not able to get further data.

• Mr. Coats acknowledged that DKA imbalance will be a big focus at the upcoming FDA Ad Comm meeting. This comes as no surprise, as increased DKA risk is widely recognized as a class risk with SGLT inhibitors in type 1 diabetes – the sponsor must be able to show how to address risk. On the topic of DKA risk, Mr. Coats focused on the importance of education and awareness. He pointed toward education on DKA risk management with SGLT use from clinical associations, including recommendations from AACE/ACE, Dr. Satish Garg and others, and a Prof. Thomas Danne-led ATTD Consensus Meeting document expected to be published soon. A similar focus on education/awareness channeled through consensus documents was also evident on Lexicon’s 3Q18 earnings call. Lexicon’s strategy for assuaging concern over DKA is readily apparent – cultivating thought leader consensus on DKA risk mitigation and prevention serves as an important reference to address inevitable regulatory concerns over the risk. Of course, consensus usually comes with data and this isn’t an area where there is much data – but there is plenty of room to standardize and minimize risk.

• Mr. Coats underscored the tight bond between sotagliflozin in type 1 diabetes and the beyond A1c movement. The inTandem program demonstrated sotagliflozin’s efficacy not only on A1c lowering, but also on a host of other measures that are important to “read” on productivity : reduced postprandial glucose, bolus insulin, body weight, glycemic variability, and even hypoglycemia, along with meaningful increases in time in range. We’re always thrilled to see Mr. Coats emphasize these outcomes-beyond-A1c and reinforce their importance to patients. Moreover, we recently noted in our 2018 + 2019 Reflections piece that, broadly, the SGLT inhibitor in type 1 story has both leveraged and benefitted from the beyond A1c movement, perhaps more than any other diabetes therapy use case. On this front, Mr. Coats explained that he sees the upcoming FDA Ad Comm as “a remarkable opportunity for [FDA] to test the concept of benefit beyond A1c within the Advisory Committee.” We’re eager to see how FDA will synthesize the totality of sotagliflozin’s risk/benefit profile in its presentation of the data, especially considering the fact that the many benefits of sotagliflozin go beyond what the agency is accustomed to considering in the diabetes realm – and also given that CDER has not that we know of encouraged submission of CGM (that we know of – this is speculative). There is one new paper out by Roy Beck, et. Al., showing DCCT time-in-range analysis just published in Diabetes Care. To be sure, we’ll be interested in how the panel responds to and discusses these endpoints; big picture, we do not think it is safe to have these drugs prescribed to tens of thousands of people off-label – Dr. John Buse recently estimated as many as 50,000 type 1 patients could be on an SGLT-2.

• Lexicon continues to tout the novel dual inhibition of sotagliflozin as a driver of differentiation amongst a crowded SGLT-2 inhibitor market. This was a continuous theme during Lexicon’s presentation – and understandably so, seeing as sotagliflozin stands to be the only dual SGLT inhibitor on the market. Mr. Coats expressed considerable confidence in this unique mechanism, noting that Lexicon believes “that the mechanism of SGLT-1 inhibition is going to prove to be very valuable” in differentiating sotagliflozin amongst its peers and yielding a best-in-class profile for the agent. We would just like to see the approval of an SGLT for type 1 patients at this stage – a rising tide will lift all boards. Mr. Coats explained that SGLT-1 inhibition better reduces post prandial glucose levels, elevates GLP-1 release, and provides for lower SGLT-2 associated urinary glucose excretion – as Lexicon has emphasized, potentially making sotagliflozin more viable in patients with CKD (more on this below). In the past, we’ve also seen Lexicon discuss with enthusiasm putative enhanced cardioprotective effects associated with SGLT-1 inhibition. We’re eager to see how this novel mechanism may hold up in outcomes-based clinical trials.

• Turning fully to sotagliflozin in type 2 diabetes, Mr. Coats singled out five studies from the 13-trial phase 3 program as key in differentiating sotagliflozin. As on past quarterly calls, Mr. Coats highlighted the importance of SOTA-CKD3 (moderate renal impairment), SOTA-CKD4 (severe renal impairment), SOTA-EMPA (head to head sota vs. empa on DPP-4 background), SCORED (CV and renal outcomes), and SOLOIST-WHF (CVOT in worsening heart failure). He further remarked that, although this phase 3 program is surely broad (with 13 total studies), it also represents a program that is “geared to win” – for sure, it’s clear that these five highlighted studies give sotagliflozin the opportunity to differentiate itself amongst the class despite its potential fifth-to-market status. Regarding the CKD studies, this emphasis aligns with Lexicon’s continued focus on differentiating sotagliflozin in patients with renal impairment. Mechanistically, because of its unique dual inhibition, sotagliflozin could offer both enhanced renal protection and glucose control in patients with lower eGFRs when compared to SGLT-2 inhibitors, which lose their function as eGFR declines (but may still maintain renal protection at low eGFR).

  • Notably, “core” phase 3 studies for sotagliflozin are already fully enrolled, and readouts will start to emerge in 2Q19. Mr. Coats said that data from this phase 3 program should be expected “throughout 2019” as well. We’ll expect to first see data soon from the sotagliflozin as monotherapy (estimated completion date May 2019), sotagliflozin as add-on to metformin (est. March 2019), sotagliflozin as add-on to sulfonylurea (est. May 2019), and SOTA-EMPA (est. May 2019) trials. For a full rundown of the phase 3 program for sotagliflozin in type 2 diabetes, see here.

Q: What is the “right” type 1 patient who should be on sotagliflozin?

A:  Patients who are not adequately engaged in their care [should not be on sotagliflozin]. Patients who are willing to monitor their blood glucose levels and ketone levels – for these patients, sotagliflozin may be appropriate. Patients who are not willing to add that additional step [of ketone monitoring] into the process may not be a good candidate.  (Editor’s note – or, presumably, those patients who may not have access.)

Q: How frequently would patients have to monitor their ketone levels?

A: They would have to monitor whenever they didn’t feel good – when they felt nauseas, if they’re going to be consuming lots of alcohol. There are things we can say from a very practical matter, “you should always check your ketones in situations just like this.” Now, for a patient living with type 1 diabetes, they’re already going to know all of these things, because already they know they have to check their blood glucose levels when they have infections, when they go and exert themselves – they already know those things. (Editor’s note – with all due respect to Mr. Coats, we think it is important to realize that patient heterogeneity in type 1 is critical to remember; there are many patients who may not have the same education. Notably, this should be easily addressable.)

Q: What should we look for in a label?

A: We should be very clear on the label and say that patients who are not willing to do certain things like checking ketones, patients who are not able to adequately monitor their diet, meaning that those who are on ketogenic diets, cannot be on this drug. Those patients are not applicable. On the label, you should look for contraindications. You should look at the “Caution” section of the label – all of these things are to guide the community and guide physicians on what the appropriate use of this agent should be and how to administer this to patients with all of the benefits in the absence of risk. (Editor’s note – we agree and believe education on DKA monitoring will be important to establish as well as education on the other side effects.)

3. Sanofi Forecasts Sustained but Diminishing Diabetes Headwinds as Sotagliflozin Ad Comm Looms Large; Onduo Rapidly Expanding

Sanofi CFO Mr. Jean-Baptiste De Chatillon forecasted sustained but diminishing headwinds for Lantus (insulin glargine) in 2019 – primarily pricing pressure and closing of the Medicare coverage gap – expected to be offset by growth from newer products Admelog (biosimilar insulin lispro), Soliqua (insulin glargine/ lixisenatide), Toujeo (next-gen insulin glargine), and Praluent (alirocumab) and four other non-diabetes therapies. The presentation and breakout were on the lighter side on diabetes, focusing instead on Sanofi’s burgeoning dermatology and vaccine businesses. However, brief reference was made to Lexicon-partnered SGLT-1/2 dual inhibitor Zynquista (sotagliflozin) for type 1 diabetes, which will be discussed by an FDA Advisory Committee next week, on January 17 (more on that from Lexicon, just above). Should it be approved for type 1 (and later type 2 – a robust phase 3 program is underway), head of primary care GBU Mr. Dieter Weinand believes sotagliflozin will make a “strong addition” to further counterbalance ongoing losses in Sanofi’s diabetes and cardiovascular profile. From our perspective, there was surprisingly little discussion of the critical debate spurring the pending Ad Comm – can DKA risk with SGLT inhibitors in type 1 diabetes be mitigated with greater education, ketone monitoring, and other measures? The significance of this issue – and the barrier it presents to sotagliflozin’s approval – should not be understated. Throughout the inTandem program, incidence of DKA was higher in the sotagliflozin arm when compared to placebo. For example, there were 21 vs. 4 events in inTandem 3, though only 400 mg sotagliflozin was tested and only 3% of participants in that arm experienced DKA. While the risk is numerically low, DKA is a very serious and costly complication. We’ll be curious to hear how the Ad Comm approaches the issue next Thursday – we think everything is addressable as long as it is established and organized.

Prompted by a salient question on rising interest in digital diabetes innovation, Mr. Weinand gave a concise update on Onduo’s “virtual diabetes clinic” (CGM, care team, coaching and app). 4,000 people signed up for the service when it first launched in early 2018, and Mr. Weinand ambiguously stated that it has “rapidly expanded.” As testament to Onduo’s growth, Walgreens recently announced a broad collaboration with Verily giving Walgreens employees and family members access through the Walgreens health plan (~240,000 people) – we can’t wait to hear more about this.

Mr. Chatillon briefly touched on the potential CV indication for Praluent, noting that EMA and FDA decisions are still expected in 1Q19 and 2Q19, respectively – the EMA date is new. Sanofi/ Regeneron previously submitted an sBLA/Type II Variation application to FDA and EMA in 2Q18 based on positive results from the ODYSSEY Outcomes trial. In that study, Praluent was associated with a 15% risk reduction (HR=0.85, 95% CI: 0.78-0.93, p=0.0003) vs. placebo on the composite primary outcome of coronary heart disease-related death, non-fatal MI, non-fatal stroke, or unstable angina requiring hospitalization. Read more about the potential impact of this indication here.

4. Commissioner Gottlieb Details New “Office of Drug Evaluation Science” and Review Process Overhaul, Expresses Optimism on Biosimilars and Complex Generics

A lunchtime keynote from FDA Commissioner Scott Gottlieb (teleconferenced in, as there’s no money to travel due to the US government shutdown – now on day #18) offered meaningful regulatory updates, including details on agency reorganization (a new Office!) and comments on new drug and generic acceleration and approval.

• FDA will create a brand-new Office of Drug Evaluation Science (ODES), employing 52 people who will work to standardize the evaluation of personalized medicine, patient reports of drug effects, biomarkers, and digital data to the end of improving review of new medicines. ODES will be part of the Office of New Drugs within CDER, led by the highly-respected Dr. Janet Woodcock; the Office is in the final stages of review and expected to launch this half of 2019. ODES will also have its own director and three divisions: A Division of Clinical Outcomes Assessments (18 people), a Division of Biomedical Informatics and Safety Analytics (18 people), and a Division of Research and Biomarker Development (11 people). According to the Commissioner, this Office will work to bring more consistency and rigor to drug review, and he likened it to the 2003 creation of a modeling and simulation office – a three-person team that established guidance on how to use modeling and simulation tools for the few companies that were using it, and which has since grown into a “couple dozen” FDA employees whose work now impacts ~90% of the applications FDA receives. We appreciate the forward-looking spirit of this initiative, which immediately evokes, for us, the growing beyond A1c movement. Could work on “digital data” better enable FDA to accept and consider CGM data in making regulatory decisions? What therapeutic areas and biomarkers are on the top of FDA’s list (we think of NASH, where non-invasive diagnostics and tests would have a tremendous impact on drug development and evaluation).

  • Commissioner Gottlieb characterized this addition as one component of a broader reorganization at FDA, first announced in June 2018; indeed, the agency is overhauling how it goes about drug review. Commissioner Gottlieb described the agency’s movement toward a more integrated structure. Instead of, for example, having biostatisticians and clinical pharmacologists working separately to produce individual consultant reports, they’ll begin working on consolidated review teams comprised of multiple different experts who will “cooperate around one review memo.” This sounds great. Indeed, in Commissioner Gottlieb’s assessment, this will make for a much more structured review process, resolve logistical headaches (he cited issues as fundamental as chart formatting), and also free up time to work on new guidance documents and drug development science. Structured review, he says, will be implemented this year around safety data, and we’re excited for the further efficiency these changes could bring to the FDA. This reorganization also includes the creation of new therapeutic offices that will be more specifically focused on disease areas. This expansion makes sense to us – there are currently only six offices within New Drugs, and there are only two focused on specific therapeutic areas (antimicrobial products, and hematology and oncology products). Greater focus on disease areas could surely benefit the drug evaluation process. As we understand it, the will be more guidance documents and they will be updated more frequently if all goes according to plan.

• On drug approvals broadly, Commissioner Gottlieb expressed satisfaction with the current pace of drug evaluation but pointed to opportunities for improvement in biosimilars and generics, especially complex generics (e.g., Victoza). When asked what he was most proud of from the past two years at the helm of FDA, Dr. Gottlieb cited the record-setting volume of drug approvals in 2017 and 2018 and stood behind policies aimed at speeding up generic drug development and approval. We continue to believe that the FDA is very under-resourced and we admire very much their efficiency; that said, the work is expanding, not contracting, and we also understand the filling the positions is a major challenge as is retaining people.

  • When pushed on biosimilars specifically, the Commissioner maintained optimism over the trajectory of the market but admitted growth has been slow to date, also acknowledging that he worries about manufacturers pulling out (evoking Merck’s recent decision not to commercialize biosimilar glargine Lusduna). Here, he says, greater capital investment is still required to bring a product to market, and “[stacked] rebates surrounding legacy products make it hard to penetrate the market.” To be sure, biosimilars have been a huge focus of Gottlieb’s FDA (see our Reflection on this topic), and he reinforced the agency’s intention of enabling interchangeability designations to make it easier for biosimilars to see commercial success (e.g., through a structured application for the request and finalized guidance). We’re not sure how popular this will be among all patients – we remember “one size doesn’t fit all” and how biosimilars will work well and others want no part of non-medical switching.

• Additionally, complex generics have garnered substantial attention from Gottlieb, who identified this type of therapeutic as a potential way that FDA could help lower the price of drugs. He firmly supported the notion that product competition can result in price competition and identified complex generics as an area where “we don’t see competition materializing” – FDA hopes not only to encourage approval, but also to consider how it can facilitate more launches post-approval, too. The country continues to spend millions on drugs without patent exclusivity – and without generic competition. Forthcoming FDA guidance will outline new parameters geared toward making it more efficient for developers to go through the end process of complex generic development (we wonder if this is a finalized form of the two October 2017 draft guidances on this topic). The agency also plans to look closely at patent issues and consider whether some patents should not be listed, or if new patents should be added. Finally, a more structured, templated approach to generic review is coming, and a common, global generic application accepted by both the US and EU is in the works. 

5. Early Phase Moderna Therapeutics/AstraZeneca VEGF-A mRNA Candidate (AZD8601) for Ischemic Vascular Disease, Including Diabetes Wounds

Moderna Therapeutics presented at JPM following a record-setting IPO last month. The company has a suite of early stage mRNA-based therapies, including one in partnership with AZ that codes for VEGF-A and has implications for diabetes wound healing, heart failure, and other ischemic vascular diseases. VEGF-A stimulates growth of new blood vessels, which can restore circulation to oxygen-deprived tissues (see this AZ slide deck from 2016 for more details). The mRNA therapy (AZD8601) has already proceeded through a phase 1 safety study (n=18) and is currently being evaluated in a phase 2a randomized study, in which the molecules are injected directly into the heart of people undergoing CABG (coronary artery bypass grafting). In a separate activity study, people with diabetes were given the VEGF-A mRNA intradermally; VEGF-A protein levels in the skin and blood flow at the injection sites were found to be elevated up to seven days post-dose. These results are reportedly going to be published shortly by AZ. While this was an early stage demonstration, there’s clear potential to treat ischemic injury. Better yet, we could imagine an earlier intervention when neuropathy is detected to restore tissue perfusion and prevent ulceration in the first place.

• Moderna has whipped up a frenzy in popular media in recent years, building hype over its platform’s potential to develop therapeutics for nearly any disease state. For more on the science, history, and envisioned future for this exciting (yet secretive) biotech, we point toward this excellent article in Science.

6. Amgen Remains Bullish on Repatha Despite Access Woes; Touts It as a Potential “Very Strong Growth Driver”

Amgen CEO Mr. Bob Bradway highlighted PCSK9 inhibitor Repatha’s potential to address “the world’s biggest public health problem” and the “greatest unmet need in healthcare” – cardiovascular disease. While Repatha’s clinical potential to treat hyperlipidemia and CVD is undeniable, we struggle to see how Mr. Bradway’s ambitions for the product will be realized unless patient access and affordability are dramatically improved. To this end, he highlighted positive effects emerging following the 60% list price cut for Repatha in October 2018. Mr. Bradway noted several important signs of progress:

• More than 50% of commercial patients can now access Repatha with physician attestation only (presumably, no prior authorization is needed). For these patients with commercial coverage, co-pay cards are available to lower out-of-pocket costs.

• Approximately 80% of current Repatha users on Medicare have access at the new lower list price through their respective plans. Mr. Bradway elaborated that as the proportion of Medicare patients continues to grow over time in accordance with the aging US population, Repatha will continue to improve in affordability for the general population.

Regarding Repatha’s price cut, Amgen announced yesterday that all device options for the PCSK9 inhibitor will now be available at a 60% reduced list price of $5,850/year. The initial announcement of this list price cut only applied to the SureClick autoinjector, which is the most commonly used delivery system for Repatha, but the discount now extends to the Pre-Filled Syringe and Pushtronex (on-body infuser with prefilled cartridge) devices as well. Whereas the Pre-Filled Syringe and SureClick autoinjector are administered once every two weeks, the Pushtronex system allows for once-monthly dosing and enables patients to perform moderate physical activities as Repatha is delivered subcutaneously. We’re thrilled to see Amgen expand its list price cuts to include these other modes of delivery for Repatha and allow for expanded patient choice. That said, we imagine there’s a much longer road ahead to optimizing reimbursement of PCSK9 inhibitors.

• Mr. Bradway underscored that Repatha (evolocumab) remains the market leading PCSK9 inhibitor as it continues to outpace Sanofi/Regeneron’s Praluent (alirocumab). As of the end of 2018, Repatha holds 64% of total weekly US prescriptions (see graphic below); notably and encouragingly, total prescriptions for the class continue to display sustained (yet incremental) growth. Amgen management expressed during the company’s 3Q18 financial update that they expect Repatha’s price cut to drive long-term volume gains for the franchise, and we hope to see volume gains significantly pick up for both Repatha and Praluent in the near future.

• New cholesterol guidelines released at AHA 2018 further bolster the utility of Repatha in disease management. These guidelines, the first full update since 2013 guidelines from AHA/ACC, recognize the benefit of even lower LDL-C levels, giving more credence to the idea of broader Repatha use. Mr. Bradway mentioned these updated guidelines as another potential tailwind that will lift Repatha revenue in the coming years. 

7. ViaCyte’s Dr. Laikind Updates Beta Cell Replacement Pipeline: Improved Encapsulation Devices for PEC-Encap May Enable 1H19 Clinic Return; Phase 2 for PEC-Direct Enrolling, Proof-of-Efficacy as Early as Mid-2019, Potential for Expedited Review

ViaCyte CEO Dr. Paul Laikind disclosed that the company has identified several optimized encapsulation devices to bring PEC-Encap back into the clinic as early as mid-year. In 2H18, the company raised an impressive $105 million including funding from W.L. Gore, CRISPR Therapeutics, and a Series D financing led by Bain Capital Life Sciences. This provides the company with significant resources to advance its pipeline of two clinical-stage beta cell replacement therapies for insulin-requiring diabetes as well as a new approach using gene editing to engineer a immune-evasive candidate, and Dr. Laikind gave updates on all three programs:

• PEC-Encap – fully-enclosed beta cells in an implantable, semi-permeable membrane) – is set to return to the clinic as early as mid-this year with a revamped encapsulation device. Enrollment for the phase 1/2 study of ViaCyte’s original device was paused in 2016 after identifying foreign body response issues associated with the encapsulation device. Since, the company has been working with materials company W.L. Gore & Associates to modify the membrane, and preclinical studies of newer devices have demonstrated significantly improved c-peptide levels in a preclinical model that exhibits an aggressive foreign body response as seen in the human trials (signaling healthier engraftment) compared to the original membrane at four months. Notably, ViaCyte will bring several of the most promising devices into the clinic and expects to only need to submit an amendment to its previous IND to resume studies – potentially under the same or similar protocol previously used.

• Proof-of-efficacy data from the phase 1/2 trial for PEC-Direct – a device that allows direct vascularization of the graft cells in the device and thus is designed to not be impacted by foreign body response but requires immunosuppression – is expected as early as mid-2019. Incremental improvements to the device have been made throughout the phase 1/2 process using “sentinel” implants – 6-10 smaller devices that can be implanted together and easily removed to track cell engraftment and differentiation over time. According to Dr. Laikind, ViaCyte has now begun introducing larger, therapeutic doses to its devices, enrolling ~20 patients thus far. Once satisfactory optimization is obtained, the plan is to enroll approximately 40 patients to complete the phase 2 part of the study. Should this cohort demonstrate efficacy (primary endpoint of c-peptide levels at six months), ViaCyte plans to file for a Regenerative Medicine Advanced Therapy (RMAT) designation – an expedited regulatory track for breakthrough cell therapies. Notably, ViaCyte has already engaged with FDA in a “Type C” meeting to discuss this possibility. Full completion of ViaCyte’s phase 1/2 trial could occur in 2020, at which point Dr. Laikind hopes the product will progress into phase 2/3. A European trial (no details given) has also been initiated.

• Dr. Laikind remained reticent on PEC-QT (immune-evasive stem-cells with a vascularized device) timing given the early stage of the program, stating only that ViaCyte and gene-editing giant/partner CRISPR Therapeutics are “aggressively” pushing the project forward and plan to bring several candidates to the clinic. As “the long-term answer,” PEC-QT conceptually reconciles the engraftment fortitude of PEC-Direct (through direct vascularization) with the allogeneic and autoimmune protection of PEC-Encap (through immune-evasion rather than a membrane), bringing together the best of both candidates. Dr. Laikind stated it is too early to forecast entry to the clinic, and creating an immune-evasive stem cell line is surely no small scientific proposition.

8. No Diabetes/Tanzeum Talk During GSK’s Presentation or Breakout

CEO Ms. Emma Walmsley made no mention of GLP-1 agonist Tanzeum during GSK’s presentation or breakout. We can’t say we’re surprised, since the company has discontinued Tanzeum (once-weekly albiglutide) and is looking to divest the asset as we understand it – we did get the impression from a brief conversation after that seeing Tanzeum go to another player would make them very happy given the CV benefits, which they acknowledged. Ms. Walmsley noted that GSK has terminated or discontinued 80 programs in the last couple years, in order to streamline investments into HIV, infectious disease, oncology/immuno-oncology, and respiratory disease – and it was very clear how much attention oncology/immuno-oncology in particular was receiving. We wonder whether Tanzeum could actually return to the market in the hands of another commercial company – although positive HARMONY CVOT results which read out at EASD 2018 were striking, it is more difficult and expensive to manufacturer and the glucose potency and weight loss are not as favorable as the other drugs – but boy is it on CV risk reduction! Indeed, allthough albiglutide has never been able to compete with other GLP-1 molecules on potency (GSK management has gone so far as to say it shouldn’t have been developed as a diabetes drug after early data showed low glycemic efficacy – that may have been very apt or very short-sited), it seems to offer profound CV benefit regardless. In HARMONY, albiglutide reduced risk for three-point MACE by 22% vs. placebo (p=0.0006 for superiority) and reduced risk for MI by 25% vs. placebo (HR=0.75, 95% CI: 0.61-0.90). Given the unmet need in lowering CV risk for diabetes patients, it would be a travesty in our view for Tanzeum to simply disappear from the treatment arsenal. Rather, we’d love to see a company like Walmart (as just one example) buy the asset and offer albiglutide as a low-cost cardioprotective diabetes medicine; in the best-case scenario, Tanzeum would be re-launched at a lower price point, expanding access to the GLP-1 class (we doubt it would prompt movement away from next-generation GLP-1s since the weight loss and lower average glucose levels are major selling points). There’s no shortage of challenges in the diabetes market, but quite notably, the GLP-1 market is on an impressive growth trajectory and shows no signs of slowing down – and this is before the major public health benefit from GLP-1 is really quantified. Several factors make it more appealing to invest in GLP-1 including continued underlying class growth, far less pricing pressure than you see in the insulin market, emerging consensus on a cardioprotective class effect, etc. – here’s hoping that by JPM 2019, we’re hearing another company talk about its acquisition of albiglutide and about expanding commercial prospects for the therapy.

• Ms. Walmsley did not comment on otelixizumab, GSK’s anti-CD3 candidate in phase 2 for new-onset type 1 diabetes, which again was what we expected. She dedicated a substantial portion of her remarks to Shingrix, the company’s highly-successful Shingles vaccine. For what it’s worth, vaccines typically aren’t the most profitable products in a company’s portfolio, so pharma often under-invests on this front. It’s thus notable that GSK is prioritizing vaccines, and we were also pleased to hear Ms. Walmsley’s perspective on minimizing patient burden with longer-acting therapies for HIV. Of course, we’d ideally like GSK to apply this mentality to diabetes, obesity, and cardiovascular (the most prevalent chronic diseases and the world’s leading public health problems), but it seems that ship has sailed – at least for now. Finally, we note that it was terrific to hear Ms. Walmsley position GSK as a “modern company”

9. Mylan Quiet on Biosimilar Diabetes Pipeline

Mylan did not directly address diabetes in a late-morning fireside chat, instead speaking broadly on the company’s efforts to diversify geographically and scientifically while building access. The company is somewhat atypical in that it produces both generic and branded products (though more so the former – including metformin, SUs, and TZD pioglitazone). Mylan’s vast generics catalog involves the company in a diverse range of therapeutic areas, so we’re not surprised diabetes didn’t come up. Additionally, Mylan is highly notable for its deep investment in biosimilars, and the company has recently reaffirmed its commitment to biosimilar insulin glargine product Semglee (partnered with Biocon). Mylan actually has a deep pipeline of diabetes biosimilars, though the status of ~half of that pipeline is somewhat uncertain (i.e., candidates have been announced but no updates have followed). By all means, Semglee is closest to reaching the market in the US, and Mylan/Biocon have already begun European launch of the second-ever biosimilar basal insulin (after Lilly/BI’s first-to-market Basaglar). While Biocon still has to complete bridging studies to resubmit Semglee in the US, we’re glad to see the companies continue their commitment to biosimilar insulin despite commercial uncertainty.

10. Alkermes Continues to Inspire with Public Health Conscious Approach to Drug Development

As CEO Mr. Richard Pops opened his presentation on Alkermes, “It’s a company we’re really building as a model of what a biopharmaceutical company can do for patients and for society … We’re taking on critical public health challenges in a way that … is quite distinctive and quite laudable.” We would certainly agree. The company is focused on meeting unmet need in addiction and mental health disorders (it markets Vivitrol for addiction and Aristada for schizophrenia), and though only implicated in diabetes through Bydureon royalties, we’re always struck by the way Alkermes balances its for-profit business with a very intentional awareness of and commitment to public health. In Mr. Pops’ words, the faces are as important as the numbers, and we were struck throughout his presentation by his emphasis on impact of chronic disease on both patients and their families. To our understanding, Alkermes has built robust compliance infrastructure and patient support programs around both therapies to maximize their real-world impact. This holistic approach to chronic disease is commendable, and we would love to see more of biopharma consider how it can have a deep impact on public health through drug development. We also loved hearing the importance of schitzophrenia drus that did not prompt weight gain and obesity – this has been a major area of education according to Pops.

11. Takeda CEO Outlines Company’s Core Areas of Focus, Which Don’t Include Diabetes

As we anticipated, there was no discussion of diabetes during Takeda’s JPM presentation. CEO Mr. Christophe Weber focused his remarks on the recent acquisition of Shire: With this $62 billion deal, Takeda adds rare diseases to its focus areas, which also include GI, oncology, neuroscience, and vaccines. The company’s sole diabetes product is DPP-4 inhibitor Nesina (alogliptin), which has seen fluctuating sales that parallel overall market trends for the DPP-4 class. For example, in 3Q18, Nesina revenue grew 7% YOY and dipped 10% sequentially. Takeda’s public pipeline is also void of any diabetes therapies. The company is clearly pivoting away from diabetes in more ways than one – limited commercial investment in the Nesina business (though we can’t be sure of this, it’s only our speculation) and no diabetes R&D. There has been no diabetes-relevant commentary from Takeda at JPM for several years, and similarly, we now expect management to skip any diabetes updates during quarterly earnings calls (even more than they already do). Our biggest takeaway from all this? It’s clear that diabetes is a challenging field, plagued by intense pricing pressure as well as reimbursement hurdles as well as PR negativity. As much as we’d like to see strong support behind all diabetes products (even DPP-4 inhibitors continue to play a critical role in diabetes care for many patients), we can’t ignore the fact that manufacturers have a very difficult time on the differentiation front here, which makes the drugs less valuable – and then the companies see greater profit potential elsewhere.

Diabetes Technology Highlights

1. Insulet Omnipod Dash launch in late 1Q19 in pharmacies (>100M covered lives, free PDM); Horizon pivotal in 2019, 2H20 launch on Samsung Galaxy; Tidepool Loop = Faster Path to Apple iOS

In her first presentation as Insulet CEO, Shacey Petrovic shared five notable updates/confirmations: (i) the new Dash PDM will see its full US launch this quarter (1Q19) with over 100 million covered lives in the pharmacy and the PDM offered for free (no upfront cost); (ii) Insulet’s own Horizon hybrid closed loop will enter a pivotal trial this year ahead of the expected 2H20 launch; (iii) the direct smartphone control for Horizon will initially be available only for Samsung Galaxy Android phones, with Apple iOS to follow; (iv) integrating with Tidepool Loop gives Insulet a faster path to getting hybrid closed loop for Omnipod on Apple iOS; and (v) the Lilly U500 Omnipod has still not been submitted to FDA, with launch now slated for end of 2019/early 2020 (back from a “2019” launch). Beyond those product updates (more covered below), we loved Ms. Petrovic summary of the access wins since JPM 2018: “12 months ago today, Omnipod was arguably the least well-covered insulin pump in the US. 12 months later, we are now the most well-covered insulin pump in the US.” Indeed, beyond Dash’s pending pharmacy launch, Insulet has obtained Medicare Part D coverage, expanded Medicaid access to over 50% of US covered lives, and established a direct contract with UHC. “This will fuel growth into 2019 and beyond.” There were no 2018 installed base or 4Q18 revenue updates today.

• The Dash full launch timing (1Q19) is right on par with expectations for an “early 2019” US launch, following FDA clearance last June and the six-month limited market release. Continuing 3Q18 commentary, much of today emphasized the huge benefits of getting Omnipod into the pharmacy with a free PDM: no upfront cost for patients to get on the pump, more predictable out-of-pocket costs for patients (copays instead of deductibles), a true pay-as-you-go model for payers (less upfront risk), and simpler prescribing for healthcare providers. We asked in Q&A about expected Omnipod Dash copays in the pharmacy, and Ms. Petrovic broadly agreed with our rough estimate of ~$50/month; in a later email, Insulet clarified that a remarkable >50% of copays were <$35. Using pump therapy for a predictable monthly price with no upfront cost is very exciting for expanding the market! Insulet stood at over 75 million covered lives as of 3Q18, and it was impressive to hear today that the goal of over 100 million will indeed be ready for launch later this quarter. Indeed, both Ms. Petrovic and CFO Mike Levitz emphasized the tremendous payer traction Dash has seen – getting to over 100 million covered lives in six months reflects how much the pay-as-you-go model makes sense for payers. Giving the Dash PDM free is expected to be revenue neutral for Insulet across the entire installed base, as the price of pods will go up slightly to offset the reduction in upfront revenue. (Of course, since new patient starts account for <10% of revenue in any given quarter, upfront revenue doesn’t drive the business anyways.) Today, ~10%-15% of Insulet business goes through the pharmacy, and Dash will help bring that to a majority of the business over the coming years. There were no comments on a European launch of Dash, though a CE Mark had been received as of November’s call.

• Insulet’s own Horizon hybrid closed loop system will enter its pivotal study this year (2019), the first pivotal timing shared since the new 2H20 launch timing update in November’s call. It was not clear if the fourth IDE study mentioned last fall has been completed – this was expected to test real-world use in 20-30 people. We also wonder how large and long the pivotal studies will be; Insulet has breakthrough device designation for Horizon, which was oddly not mentioned today but will allow an expedited path to market.

• Ms. Petrovic also reiterated the 3Q18 news that Horizon will launch with direct smartphone control in 2H20. However, today confirmed that the initial launch will only be for Samsung Galaxy phones, with Apple iOS to follow “in the future.” This is not a surprise on one hand, as Insulet announced an agreement with Samsung just after the 3Q18 call. Still, we had been assuming Horizon would have a similar setup on Apple iOS in time for 2H20. Today made it clear that the launches will be staggered, as we often see with other diabetes products. Ms. Petrovic noted that Horizon on Android is a faster initial path to market for Insulet, since the Dash software runs as an app on a locked-down Android phone already. Meanwhile, integration with Tidepool Loop allows Insulet to get on Apple iOS with direct smartphone control for AID around the same time (or perhaps earlier) – a smart play indeed. Tidepool Loop was not mentioned in prepared remarks, but did come up a couple times in Q&A. We think the combo of Loop + Omnipod is going to be very compelling – see Adam’s just-published test drive of Loop in diaTribe, with Kelly’s to come soon. Launching Horizon only for Samsung phones to start is a good way to take one bite at a time, though it may limit early uptake – most data sources (e.g., here and here) put Apple’s US smartphone market share notably ahead of Samsung.

• In the few pictures shown today, the user experience of Horizon has changed a bit – there is more use of purple on the home screen, with a prominent large purple box now around the CGM number (presumably to indicate a user is in automated insulin delivery, similar to the MiniMed 670G’s blue shield) and an “automated” symbol in the top right. Unlike Loop, Horizon does not show insulin delivery on the home screen. Beyond that, Horizon looks similar to previous screens we’ve seen, to the G6 app’s user interface, and to Dash.

• The Insulet/Lilly U500 has still not been submitted to FDA, and a launch is now expected by the “end of 2019/early 2020” – a delay from the last update to launch in “2019.” The latter update came almost a year ago and there has not been a timing update since, including after the clinical trial data shared at ADA. This product has seen lengthy delays since this partnership was announced in May 2013 – nearly six years ago! One positive point of emphasis today was that just under 15% of Insulet’s user base already has type 2 diabetes (and growing rapidly), meaning the current reservoir size will fill the needs of many. Indeed, Ms. Petrovic called the Lilly concentrated insulin Omnipods “attractive, but more as a supporting player than a feature player.” 

  • Ms. Petrovic added that pharmacy channel could simplify the path for type 2s to get on Omnipod, since it gets rid of the dreaded C-peptide requirement – wow! As mentioned in 3Q18, she also noted the importance of discretion in the type 2 population, making Dash and phone control “really, really valuable” for the type 2 pump market.

• In Q&A, Ms. Petrovic shared that Wayde McMillan has been appointed Insulet’s new CFO starting on March 1 (announced via press release yesterday). Noted Ms. Petrovic: “This is a change that Mike Levitz (current CFO) and I have been contemplating together for some time – especially given the future trajectory of the company as we move past $1 billion in sales in 2021. Mike will stay on to ensure a successful transition, including through the 10-K filing. It has been a tremendous four years, and Mike and I have known each other for the better part of two-and-a-half decades. It is time for Mike to move on, and this is a good move for both Insulet and Mike.” Mr. Levitz was extremely gracious in his remarks, thanking the team and expressing price over Insulet’s progress over the past four years. Mr. McMillan’s background is impressive: he most recently served as CFO of the Minimally Invasive Therapies Group at Medtronic, where he managed an $8 billion revenue business with greater than 20,000 employees and a global finance team. He played a critical role in integration efforts following the company’s acquisition of Covidien in 2015, including reorganizing into the Medtronic Group structure and developing a new global financial plan and strategy. This CFO change was unexpected, but Mr. McMillan seems like a very strong asset for the company – especially as it gains more global scale.

• In Q&A, CFO Mike Levitz casually addressed an ongoing arbitration with former EU distributor, Ypsomed. Ypsomed initiated the arbitration proceedings in late December, as the companies could not amicably agree on the final expiration payment. Said Mr. Levitz: “We expected this and it is not a surprise. We have disclosed a range in payment of between $10-$55 million to Ypsomed, and those proceedings are probably going to play out over some period of time – 24 months is a typical arbitration. One important thing to note, from our standpoint, is that this is an asset amortized over ten years, so it won’t affect the P&L.” We note this is an extremely wide-range and on the high end, $55 million would have at least some impact – even spread over ten years. (Kelly also points out that even $10 million would buy a paperback copy of Bright Spots & Landmines for every type 1 in the US, with 500,000 copies left over.) According to the press release, Ypsomed believes the amount to be paid should be CHF 50 million (~$51 million). Per the agreement terms, the final amount Insulet pays to Ypsomed depends on the number of patients using Omnipods sold by Insulet in the 12 months after Insulet assumed distribution on July 1, 2018.

• “According to dQ&A, Omnipod has the #1 net promotor score as compared to all other insulin pumps.” This was mentioned briefly on the below slide, though the actual NPS number and quarter of collection was not shared. It will also be interesting to see how NPS evolves once Dash is on the market against Tandem’s Basal-IQ and Control-IQ and Medtronic’s MiniMed 670G.

2. FreeStyle Libre on Pace for $1+ Billion in 2018 Revenue, 1+ Million users (~200,000 in US); ~$2 Billion Annual Revenue for Diabetes Overall; CFO Yoor Positions Libre as Market Leader; Libre 2.0 Launched in Germany

Implying 2018 CGM financial results on par with Dexcom’s pre-announced $1.025 billion, Abbott CFO Mr. Brian Yoor suggested that FreeStyle Libre is “on track to achieve over a billion in sales this year.” This comes as no surprise, given Q3 FreeStyle Libre sales of >$300 million alone. Mr. Yoor cited over one million Libre users globally (also shared in 3Q18), specifying ~800,000 Libre users internationally and ~200,000 in the US. We wonder how the fourth quarter looked for Abbott in the US, given G6’s momentum – certainly there is a lot of runway for both products. As with prior estimates, Libre is reimbursed in 30+ countries, and ~2/3 of customers remain type 1 while ~1/3 are type 2. However, as we’ve heard from Mr. White in the past, Mr. Yoor noted that type 2s who are not insulin dependent and want to stay that way “represent a whole ‘nother rich world out there.” Indeed, Mr. Yoor estimated that there are ~40 million people dependent on insulin globally – ~20 million in the markets in which Abbott is active – so the potential runway in non-intensive type 2s is hundreds of millions. Looking at it another way, Mr. Yoor said that Abbott’s diabetes business hauled in ~$2 billion in 2018, meaning that SMBG still accounts for ~$1 billion per year. He added that if Abbott’s fingerstick market were all converted to CGM, that could be a $16 billion annual business – we’ll be back to unpack that math but we certainly believe that the field would be many double-digit billions of dollars if all BGM users were on CGM. Notably, Mr. Yoor explained that the underestimated complexity of manufacturing Libre in an exacting, precise, and cost-efficient manner, and that this was one reason Abbott isn’t expanding even faster, while it is in the midst of building capacity for millions of people: “We’re pacing it since we have multiple years of growth behind this.”

• Mr. Yoor’s remarks continued the strong confidence we’ve heard on recent calls, positioning Abbott and FreeStyle Libre as the definitive CGM market leader. Indeed, Abbott does dominate the market in terms of number of reported users, affordability, simplicity, and fully disposable design, though from a revenue perspective it is on par with Dexcom. We wish user bases were reported in a standardized way, which would make comparisons much easier! (We estimate Dexcom is nearing 400,000 users vs. FreeStyle Libre’s 1 million, but defining a “user” is tricky.) Features-wise, FreeStyle Libre is behind G6 on accuracy and behind both Medtronic and Dexcom on analytics/data ecosystem and automated insulin delivery (Bigfoot will help). A few of Mr. Yoor’s direct quotes:

  • “We are the leader, I will just say that to go on the record. Others are chasing, trying to emulate what we’re doing – we get that, we know that, but we already have plans in place for our next gen product too. We couldn’t be in a better position.” Editor’s note – while we believe Abbott is in a very strong position, we believe this is very true for Dexcom as well …

  • “We’re leaders here, and it’s honoring and flattering to see others trying to emulate us – the market could certainly use [more CGM] – but we’re not sitting still as we think about next versions of the product. We’re being smart about capacity.” Editor’s note – we believe everyone in the field continues to try to make products simpler and more user-friendly in diabetes.

  • “We feel like we’re in a leadership position – we know we are. The form factor, it’s so affordable, it’s in the pharmacy, reimbursed as pharmacy benefit. We know people will gravitate to this moving forward, and we’re in a cost position to appeal to the broader market.”

  • “Libre is truly a revolutionary product and solution. It’s a small patch worn on the arm, it’s disposable, it’s affordable, it’s convenient, it’s continuous glucose monitoring, and its designed with value to treat the mass market.”

• The CE-marked FreeStyle Libre 2 with optional, customizable hypoglycemia and hyperglycemia threshold alarms has officially launched in Germany. The “gradual European rollout” does not sound like it has commenced, meaning the EU launch is still pretty early. Said Mr. Yoor, “We’re in a great position here, looking to bring it to the US, and we’re confident in our ability to do that.” Our impression is that Bigfoot will be using FreeStyle Libre “3” with continuous communication for its pivotal, now pushed back to 2H19.  

3. Livongo for Diabetes: Average A1c Drop of 0.8% at Three Years (Baseline: 7.7%) and 15% Less Hypo; Up to 112,000 Members, Launched 246 New Company Clients on January 2^nd

Livongo Executive Chairman Mr. Glen Tullman presented to a brimming room of JPM attendees, providing a number of company data points and updates – boy, people were having a very hard time even entering the door! A slide (below) showed that the average Livongo for Diabetes member’s (no “n” provided) A1c drops from 7.7% to 6.9% at the three-year mark, with the biggest drop (-0.6%) occurring in the first year. In addition, users see 15% less hypoglycemia, presumably measured as blood glucose values <70 mg/dl. In the weight management and DPP program (acquired from Retrofit), systolic blood pressure in the subset of members with baseline hypertension (>130/80 mmHg) has dropped by ~9 mmHg at (baseline 130 mmHg) by six months. This improvement in blood pressure comes in tandem with notable 6.5% weight loss at one year (no baseline or “n” provided). The slide title implying these outcomes are “best in industry” is a pretty bold claim, but it’s true that no one is presenting three-year, real-world A1c data. Mr. Tullman alluded to a poster presented at ADA, showing that these clinical improvements lead to financial returns of $83 saved per participants per month, and clients only pay for a member when that member is engaged. These data are encouraging, and we are looking forward to the readout of the UCSF SUGAR study (n=300), pitting Livongo for Diabetes Program (with coaching) against the iHealth smartphone BGM and unlimited strips (no coaching) in an RCT. The six-month study will likely read out at ADA (three-month outcomes) and DTM (six-month outcomes), respectively. See below the picture for more details on clients and a Livongo for Behavioral Health.

• On the growth side, Mr. Tullman shared that Livongo launched 246 new client companies on January 2^nd, by our math, bringing total clients to ~850! This presents strong 2019 tailwind for growth from a user base of 112,000 in 2018, and is a testament to the ease with which Livongo can onboard new users through automated emails. It is difficult to compare the user base to competitors such as mySugr (~1.4 million users) and One Drop (860,000 users as of June) since the others report users of the free app, not necessarily paid premium subscribers. As a side note, Livongo more than quintupled its user base over the past two years from a base of ~21,000 in 2016. Mr. Tullman also shared that Livongo works with four of the top seven payers and top PBMs (CVS Health, Express Scripts). Livongo’s enrollment rate in clients is 30%-35% vs. typical telehealth utilization rates of ~5%-10%. In Mr. Tullman’s words, once Livongo gets someone to opt-in, “We simply don’t lose members” – retention rates are >95%. This is supported by a Net Promoter Score of 66.

• Mr. Tullman foreshadowed a future launch of a ‘Livongo for Behavioral Health’: “Livongo for diabetes is where it started, but the reality is 70% of diabetics have hypertension. 70% of them have weight issues. 70% of them have depression. We need a platform that addresses all of these issues.” We love this idea and think many could benefit, especially the convenience of mental healthcare via connected devices rather than in person visits. The company has done a lot of horizontal integration – programs for diabetes, prediabetes/weight management, and hypertension (and previously plotted for one in dyslipidemia) – and this move to tackle behavioral health also makes sense. We imagine Livongo will build out a separate coaching team of licensed mental health providers, and presumably they would need providers in the state of care (as therapists are licensed state-by-state). Remote mental health care will be a benefit in its own right for payers, Livongo, and patients, and it will also presumably provide direct support for existing members who would benefit from mental health support.

• Mr. Tullman was joined at the front of the room by new CEO Mr. Zane Burke (former Cerner president), President Dr. Jennifer Schneider, and new CFO Mr. Lee Shapiro. Mr. Shapiro, whose appointment was announced four days ago, goes way back with Livongo and Mr. Tullman: He was previously President of Allscripts Healthcare Solutions (2001-2012), co-founded 7wireVentures with Mr. Tullman, and has been on the Livongo board since its inception. He also serves on the national board of the American Health Association. This leadership team brings diverse experience to Livongo! See notes from our recent interview with Mr. Burke and Dr. Schneider.

4. FDA Digital Health: Releases of PreCert Model 1.0 Greeted with Optimism, with Nuance to Come

At JPM and Biotech Showcase today, we heard comments on FDA’s just-released milestones for the Digital Health PreCert program: a Version 1.0 working model (58 pages), a 2019 Test Plan (4 pages), and a framework describing how the pilot program fits within current authorities (4 pages). This FDA webpage has an excellent overview that describes the vision we’ve covered for the past 18 months – to allow FDA to first look at the company, rather than primarily at the digital health software product being submitted. This “firm-based approach,” sort of like a ‘TSA Pre-Check’ for digital health submissions, is intended to expedite product reviews from vetted “excellent” companies – either minimizing the burden of submissions or eliminating them in some cases. As we’ve expected since the January 2018 workshop – and as the new graphic below shows – the PreCert program includes three main components: (i) an excellence appraisal of software developers based on five categories (patient safety, product quality, clinical responsibility, cybersecurity responsibility, and proactive culture); (ii) a premarket review determination and (if needed) a streamlined review of the product; and (iii) real-world, post-market performance data to verify product safety/efficacy and a company’s ongoing culture of excellence. Then the cycle repeats, driving continuous improvement in both the company and software. As expected, FDA is currently considering two levels of precertification based on how a company meets the excellence principles and whether it experienced in delivering safe and effective software. Consistent with prior digital health regulation everything here will be based on level of risk, leveraging the IMDRF Framework. FDA is accepting public comments here until March 8, and the Agency will hold a webinar on February 7 at 1-2:30 PM EST to do a deep dive on the materials. We’ll return with more detailed coverage after own read-through. The materials are emphasized as a “working model v 1.0,” as 2019 is about testing the program with the nine pilot participants, including seven with some connection to diabetes (Apple, Fitbit, J&J, Roche, Samsung, Tidepool, Verily). This could be especially interesting for Tidepool Loop, which is a perfect pressure test of PreCert – can the program accommodate class III software that automates insulin delivery? During this test phase in 2019, FDA will assess whether the company excellence appraisal and streamlined review components together can provide reasonable assurance of safety and effectiveness prior to launch, as compared to the traditional product-focused paradigm.

• In his keynote address at JPM today, FDA Commissioner Dr. Scott Gottlieb shared optimism and discussed the need for PreCert: “On the medical device side, we have software that we can’t regulate the same way we regulate medical devices. Highly iterative products undergo updates every night, in some cases, or weekly – we can’t review products on a weekly basis, especially things like AI. We’re taking a novel approach through the PreCert process. We took significant steps two days ago, saying that once we validate the underlying software architecture, validate the Standard Operating Procedures a company uses to evaluate its own software, we can say their processes provide assurance of safety and effectiveness – an evaluation just like our (product-focused) process would. Then we can allow the manufacturer to go to market with modifications and new devices. We think that’s a much more applicable approach to regulation for technology.”

• At Biotech Showcase, we also heard a panel sharing excitement for PreCert, though there are near-term areas of nuance and confusion. Former FDA reviewer Sam Surette from Bay Labs (AI startup focused on echocardiograms) and two pilot participants (Pear Therapeutics and Roche) had plenty of astute comments on the program. For one, they noted that FDA currently operates within small teams of ~8-15 reviewers, who take responsibility for products in a certain area; how will this bottom-up approach work with the top-down-developed PreCert program? How will reviewers accustomed to a product focus switch to a firm focus, especially if the specialized team has not been involved in developing PreCert or assessing a company’s software excellence? Will reviewers buy into the PreCert program? These threads were a reminder that PreCert is not just a change for companies; it’s also a change for FDA internally, which will bring near-term tension and require a cultural change. Panelists also pointed to the difficulty of regulating AI-based technology, which is constantly learning and improving – how will companies explain to reviewers how an algorithm is making its decision from vast quantities of data? (This will be especially important as automated insulin dosing becomes more sophisticated, pulling in Big Data and multiple data sets.)  Zooming out, Welldoc’s Anand Iyer asserted that FDA is “unequivocally” in front of other countries on digital health regulation, though Canada, Australia, Brazil, Sweden, Japan, and UK are keen to follow in the direction of PreCert. Perhaps ironically, an FDA member was supposed to be on the panel, but couldn’t attend due to the government shutdown.

5. Roche: No Mention of Diabetes in Slides or Q&A

Roche CFO Dr. Alan Hippe did not mention “diabetes” a single time during prepared remarks or Q&A. The talk focused almost entirely on the pharma pipeline (e.g., oncology, hematology, MS), with just one slide labeled, “Transforming healthcare through new era of data and analytics.” All of the examples on the slide were from oncology – Flatiron Health, Synapse, Foundation Medicine, Ignyta. Dr. Hippe did mention that with real-world, historic Flatiron data replacing a control group, Roche brought the oncology therapy Alecensa to market faster in more than 20 countries. This has obvious diabetes drug implications – could real-world, Big Data enable faster, more efficient, and less expensive clinical trials?

6. Sanofi Head of Digital and Analytics Dr. Heather Bell: Digital Tech’s Differentiating Impact at this Juncture is in Clinical Trial Efficiency

In a StartUp Health interview conducted by CNBC’s Ms. Christina Farr, Sanofi SVP/Global Head of Digital and Analytics Dr. Heather Bell explained that, at the moment, digital technology’s differentiating impact at Sanofi is in clinical trial recruitment and monitoring. Wearable technology allows Sanofi to “bring the study to patient”, “allow for treatment in a home setting”, and provide “continuous data gathering”. Citing the time patient recruitment takes (on average 35% of clinical duration) and the cost of patient care during trials (75% of total cost on average), Dr. Bell stated digital technology is both shortening time and, through monitoring, reducing the size of the patient sample needed for trials. We would love to learn how this is being used in diabetes trials at Sanofi. She also was very optimistic about continuous monitoring allowing Sanofi and FDA to identify new endpoints for trials, although she did not specify therapeutic areas. Her answers also referenced the role digital technology has played in improving therapeutics for diabetes (dosing algorithms, real time monitoring), oncology (Israeli ehealth company Sivan Innovation, “a personal favorite” due to its lung care monitoring product), atopic dermatis (dosing), and neuroscience (retraining neural pathways in ADD as a specific example). Finally, Ms. Farr asked about digital technology in relation to the “social determinants of health”, a phrase she says she hears more and more frequently in her coverage of the industry. Dr. Bell predicted that, enabled by digital technology, quality of life will become an increasingly important component of healthcare and that behavioral specialists and others will be important members of pharma therapeutic development teams. Great to hear from a major pharma exec who certainly has tremendous influence on the development and evaluation of therapies. A question mark is whether the drug side of FDA will move in lockstep with the device side in accepting real-world data and integrating digital health tools; hopefully there will be more cross pollination between the centers as pharma moves into technology.

7. Startup Health Rapid-Fire Pitch Session: Fruit Street Health (DPP; 4.2% Weight Loss at 16 Weeks), Veloce (Smart Ingestible Drug Delivery Capsule), and Metalogics (Weight Loss Coach + Hardware)

The StartUp Health Festival closed with a rapid-fire “pitch” session for a handful of portfolio companies, many of which could have implications for the diabetes field. Below, we highlight three of these startups that we found particularly intriguing: Fruit Street Health, Veloce, and Metalogics.

• Fruit Street Health: We first wrote about Fruit Street Health a year-and-a-half ago when it became the first organization to deliver the CDC’s National Diabetes Prevention Program (DPP) via group telehealth classes and video conferencing (CDC recognition pending). CEO Mr. Laurence Girard shared that the company has now surpassed $10 million raised (from 250+ MD investors) and has 1,000 educators in network. In a small demonstration project, the program (telemedicine-based group education sessions + wireless scale + Fitbit + app with photo meal logging) resulted in 4.2% weight loss at 16 weeks (on pace to surpass the 5% CDC benchmark), 96% of participants lost weight, 86% of participants said it improved their quality of life, and Net Promoter Score came in at a whopping 85. We’re not sure how large this study was or how many participants have gone through Fruit Street overall, but we’re intrigued by the group telemedicine approach – when it comes to behavior change, the more providers that are taking differing approaches, the merrier.

• Veloce: Veloce is developing the SmartTab system, which aims to allow for the delivery of the right medicine, to the right place, at the right time. SmartTab is an ingestible capsule that contains an electronic receiver, smart polymer actuator, and active ingredients; the idea is that people will ingest the capsule, which will then deliver medication to targeted areas of the GI tract in response to external remote cues or a monitored physiological condition. We would imagine this being put to good use for ingestible therapies such as SGLT inhibitors/oral GLP-1 agonists, or perhaps, thinking into the more distant future, as a potential closed loop actuator that delivers concentrated insulin when glucose levels drop (a form of “smart insulin”). This would presumably entail a patient taking a capsule every day or so, and having a CGM inform a smartphone algorithm that controls the release of the insulin.

• Metalogics: Metalogics’ “Lume” measures caloric expenditure with an armband (calories out) and caloric consumption with a digital scale (calories in), to give customers guidance through an app pertaining to exercise and diet. The user selects a weight loss goal, and Lume helps them get there through tailored lifestyle advice. Lume has not yet launched, and the armband strikes us as a slightly clunky approach in a world where Fitbit and Apple Watch are quite good. Absent efficacy data, we’re not sure to what degree this product improves adherence to regimens and outcomes, nor whether the “calories in, calories out” model is sufficient to explain weight trends (see carb-insulin model).

8. Head of NHS England Lord Prior Announces HealthTech Connect: Streamlined Portal for Digital Health Tool Integration into NHS; Vision to Make NHS “Most Accessible Healthcare System in the World for Tech”

Head of NHS England Lord Prior of Brampton announced that HealthTech Connect – an online system for identifying and integrating novel health technologies (including devices, diagnostics, apps, and wearables) into the UK’s NHS – will launch in early 2019. As part of Lord Prior’s vision for NHS to be “the most accessible healthcare system in the world for technology,” companies and entrepreneurs can submit and continuously update information about their digital health technology through the portal. The goal is to help companies understand what information (such as levels of evidence) decision-makers in the UK healthcare system need to confidently incorporate the tech into NHS, as well as to clarify routes to market access. Underpinning the project is a clear desire to simplify complex entry routes for new health technology into clinical care workflows – an already evident and ever-growing issue in the age of start-ups and digital health. We’re thrilled by the UK’s forward-thinking move here and would love to see similar, streamlined access points for technology into healthcare systems/EMRs in the US and elsewhere around the globe. As we understand it, the philosophy is simple: allow the developer to update relevant information about its product in one location, rather than sending the same information to regulators, payers, potential clients, etc. in a million different formats.

• A day earlier, US HHS Chief Data Officer Dr. Mona Siddiqui broke down the many barriers to internal and external sharing of patient data – cultural practices, confidentiality assurance, legal and technical hurdles – ultimately expressing optimism that data sharing struggles are primed for public/private collaboration. While most of her recommendations were very high level (“more discussion, learning from successes and failures, use case by use case”), she did urge members of the private sector to come forth and meet with HHS to discuss routes and technologies by which data sharing could be streamlined. Doubtless, curiosity around big data’s potential in diabetes is high, though we have yet to see discussion or action move much beyond the overarching ideas put forth by Dr. Siddiqui.

Big Picture Highlights

1. CVS CEO Larry Merlo Says Aetna Integration is “Unequivocally” Underway, Featuring Pilots in Care Coordination (Incl. Around Diabetes); Shares Health Hub Concept Store Details; PBM Commentary!

There was great interest in CVS CEO Mr. Larry Merlo’s JPM talk in light of the Aetna integration, which he assured is already well underway, remarking: “I want to unequivocally state that CVS and Aetna are one company and transformation work is already underway. We are making substantial progress on the integration and are already rolling out programs and services…” With the acquisition, Mr. Merlo positioned CVS as a new front door to the healthcare system, a door that’s uniquely positioned to deliver local care. He noted that CVS already engages with and is part of the normal routine of a third of all Americans; CVS doesn’t have to change people’s routines, they simply need to build programs and services into existing routines. This is another reason why beloved consumer brands – Amazon, Apple, Facebook, Google – can be so effective in promoting health. Specifically, Mr. Merlo laid out five areas of focus for the new-look CVS:

• (i) Common chronic disease management (CVD, diabetes, hypertension, asthma, and behavioral health). The company anticipates near-term medical cost savings through tighter integration of pharmacy and claims. Efforts include having pharmacists at stores provide adherence outreach and counseling to Aetna members at high risk for adverse health events (launched in 4Q18) and specialized enhanced services to support Aetna members with CVD (launching in 1Q19).

• (ii) Readmission prevention. CVS and Aetna clinical programs will be integrated with an “expansive” community presence to support patients during and after discharge. 1Q19 will feature two pilots in this vertical: First, on-site MinuteClinic follow-up visits will be scheduled within 14 das post-discharge when the individual is unable to see a provider. Second, CVS will engage with patients post-discharge to educate on care management and mitigate risks of non-adherence, side effects, and gaps in care.

• (iii) Site of care management. As implied, this program aims to increase utilization of lower-cost sites of care, including home infusion.

• (iv) Optimize primary care. This will entail expanding the scope of MinuteClinic services to help with early identification and management of chronic disease.

• (v) Complex chronic disease management. Specifically mentioned were a new oncology product, CVD interventions, and CKD management. 

These programs and their associated initiatives are exactly the promise of vertical integration in healthcare, and we are so eager to see how they pan out. Will they result in $750 million in synergies by 2020? Will patients receive substantially more coordinated, higher quality, and lower cost care? How involved will the new CVS be in surrounding community health? Mr. Merlo provided a preliminary answer to this last question with his overview of a concept CVS store – one that looks more like a community health hub with an expanded suite of health and wellness products and services. He explained that the first concept store will soon be opening in Houston, Texas, and have an expanded suite of healthcare services (care concierge, other health and wellness support), new MinuteClinic services (enhanced chronic disease screening and phlebotomy), and enhanced automated decision support for pharmacists. Stores may allocate up to 20% of space to new health care service offerings by scaling back on underperforming categories and products. Importantly, not every CVS store will receive this overhaul – rather, the goal is to have a “hub and spoke” model, where some receive the full health makeover while others get a lighter retouch.

• During the breakout, Mr. Merlo shared his justification for why PBMs demand rebates, making some salient points and other controversial ones. He framed rebating as a natural step in the process of an industry becoming more competitive. Microeconomics 101 tells us that increasing supply of a good will drive down the equilibrium price (i.e., consumers pay less). Inherently, competition is a good thing – it incentivizes manufacturers to improve on their product, to innovate. Mr. Merlo thus argued that rebates are PBMs’ way of “pushing the pharma industry to step up and lower the cost of care.” When there’s more than one “clinically-equivalent product in a therapeutic class,” manufacturers have to agree to a rebate to get on formulary. Where we strongly disagree with Mr. Merlo is what constitutes “clinically-equivalent.” Competitive rebating is perhaps most intense in the insulin market, because PBMs view most insulins as interchangeable. Of course, you’d be hard pressed to find a patient or provider who thinks Tresiba is interchangeable with Lantus; the next-generation basals are leaps and bounds ahead of the first generation/previous standard of care, especially when it comes to hypoglycemia risk reduction, which any payer should care about (fewer severe hypo events translates to fewer expensive hospitalizations). Exclusive formularies hurt patients in other ways, too, by restricting therapeutic choice and sometimes interrupting the continuity of care – these issues prompted ADA to release a statement of concern over common PBM practices in 2017. Furthermore, we noticed a flaw in Mr. Merlo’s logic, because while supply of diabetes drugs is undoubtedly rising, so is demand. New market entries shouldn’t necessarily suppress price because there are a growing number of people in-need of effective diabetes therapy. We don’t dispute that drug manufacturers should be held accountable for responsible pricing, and PBMs do play a role in this, but as things stand, high rebating and exclusive formularies for diabetes drugs are adding pressure to an already-tough market. These practices are stifling innovation, when they should be having the opposite effect, according to Mr. Merlo.

  • All this said, Mr. Merlo emphasized that CVS Caremark retained only 2% of the rebates it negotiated from manufacturers last year. The remaining 98% was returned to beneficiaries, either at the point-of-sale (meaning a lower co-pay) or by lowering the monthly premium. He described a CVS pilot that charged a higher premium but offered steep discounts on co-pays – this wasn’t very popular, and enrollment was underwhelming. We appreciated this brief glimpse into PBM rebating, which to-date has been a total black box. We stand firm in our opinion that we need much more transparency from PBMs in order to solve the insulin pricing crisis and to alleviate pricing pressure from other segments of the diabetes market, though Mr. Merlo’s comments did underscore that this is all much more complicated than it seems. The pharmaceutical industry is quick to point the finger at PBMs for driving up prescription drug costs, and even diabetes KOLs have been vocal in their criticism, but they do serve a purpose in controlling healthcare spending. There’s clearly work to be done in figuring out how to make advanced medicines affordable (e.g., which patient segments respond to lower premiums vs. lower co-pays?), but step no. 1 in our view is for all stakeholders to come to the table and agree on the common goal of improving the health of beneficiaries.

-- by Adam Brown, Ann Carracher, Martin Kurian, Brian Levine, Peter Rentzepis, Payal Marathe, Terry Vance, and Kelly Close