AZ 1Q17 – “Subdued” quarter with 1% YOY decline for diabetes portfolio; Farxiga up 26% YOY to $207 million; Pooled SGLT-2 sales grow 18% to $715 million; New phase 3 starts for Farxiga in HF and CKD; Bydureon CVOT results in 3Q17 – April 27, 2017

AstraZeneca provided its 1Q17 financial update in a call led by CEO Mr. Pascal Soriot early this morning. The company’s diabetes portfolio overall fell 1% year-over-year (YOY) to $574 million, but it was another strong quarter for SGLT-2 inhibitor Farxiga and GLP-1 agonist Bydureon. Below, we elaborate on the top ten highlights related to AZ’s diabetes portfolio and pipeline, including a pooled analysis of the entire SGLT-2 inhibitor class in 1Q17.

You can also view the company’s presentation slides and a clinical trials update slide deck on AZ’s website.

Financial Highlights

1. AZ’s overall diabetes portfolio posted $574 million in sales in 1Q17, which represents a 1% year-over-year (YOY) decline. Sequentially, revenue decreased 4% from $598 million in 4Q16. This was a more sluggish quarter than usual for AZ, marking the first time the company’s diabetes portfolio has experienced negative growth (and only the third time it didn’t achieve double digit growth) since we began tracking it in 2010. Management underscored the diabetes arena as a “competitive field,” citing “subdued growth,” particularly in US markets, as the reason for this trend.

2. The Farxiga/Forxiga franchise posted $207 million, which marks 26% YOY growth as reported and 13% sequential decline against a relatively tough comparison, as quarterly sales have been increasing consistently since launch of the SGLT-2 inhibitor including 9% sequential growth in 4Q16. US sales were up only 2% YOY to $96 million, which management attributed to patient access/discount programs and to a higher proportion of patients on Medicaid vs. managed care – this matches commentary from J&J management on Invokana’s disappointing 13% YOY drop in 1Q17. AZ management asserted that SGLT-2 inhibitors will be “the foundation of diabetes therapy” in the future, largely due to their CV benefits, and the company is thus wholly committed to its Farxiga business. CVD-REAL data, showing risk reduction for heart failure hospitalization as well as all-cause mortality associated with SGLT-2 inhibitor therapy, was a major highlight on the call.

3. On a pooled basis, the SGLT-2 inhibitor class grew 18% YOY and fell 15% sequentially to $715 million in 1Q17. Admittedly, this growth is disappointing, and there appear to be competing forces at play: positive CVOT data and a new CV indication for Lilly/BI’s Jardiance on the one hand, and intense US pricing pressure on the other. J&J’s Invokana leads the class by value with 40% of sales, though Jardiance is playing rapid catch-up and held 31% of the market by value in 1Q17. Farxiga was responsible for 29% of sales, and management underscored that the product remains the global market leader by volume – according to the company’s presentation slides, Farxiga’s share of total SGLT-2 prescriptions (TRx) was 41% as of January 2017, compared to 29% and 23% for its competitors (presumably Invokana and Jardiance, respectively).

4. Revenue for the GLP-1 agonist Bydureon (exenatide once-weekly) rose 13% YOY as reported (14% operationally) and 8% sequentially to $153 million in 1Q17. AZ highlighted 1Q17 as a quarter of “encouraging growth” for Bydureon, rebounding from two consecutive quarters of decline. Additional bright spots include an earlier report date for the EXSCEL CVOT (now expected in 3Q17) and regulatory submission for the long-awaited Bydureon auto-injector pen, which promises to simplify drug administration.

5. Revenue from AZ’s older GLP-1 agonist Byetta (exenatide twice-daily) totaled $46 million in 1Q17 – a 26% YOY drop as reported (24% in constant currencies). Sequentially, sales fell 16% from $55 million in 4Q16, owing largely to cannibalization from AZ’s more patient friendly Bydureon and overall competition in the GLP-1 agonist arena.

6. Sales of DPP-4 inhibitor Onglyza fell 27% YOY to $154 million, marking the largest YOY drop since launch for the struggling franchise. This isn’t entirely surprising, given AZ’s deliberate shift of focus away from DPP-4 to SGLT-2. The company is positioning Farxiga as the preferred SGLT-2 inhibitor option for patients looking to switch off of DPP-4 inhibitor therapy, including Onglyza.

Pipeline Highlights

7. Very notably, the two phase 3 outcomes studies of Farxiga in patients with heart failure and in patients with chronic kidney disease initiated in 1Q17. Dapa-HF will enroll 4,500 patients with heart failure and reduced ejection fraction and is expected to complete in December 2019. Dapa-CKD will enroll 4,000 patients with stages 2-3 chronic kidney disease (eGFR 25-75 ml/min/1.73m²) and is expected to complete in November 2020.

8. AZ management highlighted the recent FDA approval of DPP-4 inhibitor/SGLT-2 inhibitor fixed-dose combination Qtern (saxagliptin/dapagliflozin). Qtern is the second combination to reach the US market – Lilly/BI’s Glyxambi (empagliflozin/linagliptin) was approved more than two years ago in February 2015. That said, sales of the class have been sluggish and we look to AZ to grow the class.

9. Though not mentioned in AZ’s update materials, the phase 2 trial of GLP-1/glucagon dual agonist MEDI0382 completed in February 2017, according to ClinicalTrials.gov.

10. We noticed a number of slight delays in expected completion for trials on ClinicalTrials.gov, for Farxiga in type 1 diabetes, for a PCSK9 inhibitor/GLP-1 agonist fusion protein, and for a trial of a CV drug in type 2 diabetes.

Financial Highlights

1. Whole Portfolio: “Subdued” quarter with diabetes revenues down 1% YOY

AZ’s overall diabetes portfolio posted $574 million in sales in 1Q17, which represents a 1% year-over-year (YOY) decline. Sequentially, revenue decreased 4% from $598 million in 4Q16. By geography, US sales totaled $348 million and ex-US sales totaled $226 million. This was a more sluggish quarter than usual for AZ. In fact, 1Q17 marks the first quarter in which AZ’s diabetes portfolio has experienced negative growth since we began tracking it in 2010, and only the third instance to our knowledge in which the portfolio did not achieve double digit growth (the first time was 4Q14, with 8% YOY portfolio growth, followed by 3Q16 and 4Q16 with 5% and 2% YOY growth, respectively). Management underscored the diabetes arena as a “competitive field,” citing “subdued growth,” particularly in US markets, as the reason for this trend. Certainly AstraZeneca is not the only company feeling the heat from ongoing pricing and competitive pressures, as single digit or negative growth has become the norm for several diabetes companies in recent quarters (and the global diabetes drug and device industry only experienced 5% YOY growth in 2016) – Lilly is the notable exception to this, posting 30% YOY diabetes growth to $1.7 billion in 1Q17. Farxiga/Forxiga (dapagliflozin) and Bydureon (exenatide once-weekly) were the undisputable bright spots for AZ in 1Q17 –double digit YOY growth in those two products (26% and 13% as reported, respectively) was offset by large, though not unexpected, hits in Onglyza (saxagliptin) and Byetta (exenatide twice-daily) sales. The company reinforced that it is focused primarily on Farxiga and Bydureon within its diabetes portfolio due to their “potential to offer a cardiovascular benefit” based on the record of demonstrated cardiovascular benefits in both the SGLT-2 inhibitor and GLP-1 agonist classes. 

Figure 1: Total Sales for AZ’s Diabetes Portfolio (4Q12-1Q17)

• AZ’s diabetes unit has been replaced by a new combined Cardiovascular and Metabolic Disease (CVMD) unit merging the company’s diabetes portfolio with its cardiovascular drugs, Crestor (rosuvastatin), Seloken/Toprol (metoprolol), Atacand (candesartan), and newly-launched Brilinta (ticagrelor). The company’s efforts in chronic kidney disease will also fall under this umbrella, echoing the company’s increasing emphasis on the intersection of type 2 diabetes, heart failure, and CKD specifically. We imagine AZ eventually envisions Farxiga as one of its flagship products within this new business unit, based on the initiation of two new phase 3 trials of Farxiga in heart failure and CKD (see our pipeline highlights for more on this). In the meantime, the company certainly seems to be framing Brilinta as the headliner of the new division, and we imagine that the decision to create this combined entity also likely stemmed at least in part from high expectations for Brilinta. This calculus is likely a smart one: while the diabetes portfolio fell 1% YOY in 1Q17, the overall CVMD unit experienced a whopping 22% YOY increase, and comprises 37% of the company’s total pharmaceutical sales. While Sanofi conducted a similar shakeup to create a combined Diabetes and Cardiovascular business unit a year ago, we don’t view AZ’s decision as an attempt to draw attention away from weaker diabetes performance. Rather, it seems that AZ is taking a more comprehensive view of treating patients with diabetes, in going beyond glucose-lowering to address CV and renal comorbidities. Indeed, we’ve been tracking the progress of the ongoing THEMIS cardiovascular outcomes trial for Brilinta in people with type 2 diabetes and coronary artery disease and are pleased to see AZ’s dedicated commitment to addressing residual CV risk in people with diabetes. 

2. Farxiga Revenue up 26% YOY to $207 Million; Modest 2% YOY Growth in the US to $96 Million

The Farxiga/Forxiga (dapagliflozin) franchise rose 26% YOY as reported (25% in constant currencies) to $207 million in 1Q17, falling 13% sequentially. The sequential decline occurred against a relatively tough comparison, as quarterly sales have been increasing consistently since launch of the SGLT-2 inhibitor including 9% sequential growth in 4Q16. US sales were up only 2% YOY (as reported and operationally) to $96 million, leading ex-US revenue to surpass US revenue for the first time (though, by volume, the lion’s share of Farxiga’s sales have come from outside of the US from the start). Management attributed this underwhelming financial performance in the US to increased utilization of patient access/discount programs and to a higher proportion of patients on Medicaid vs. managed care – this matches commentary from J&J management on Invokana’s disappointing 13% YOY drop in 1Q17. We were happy to hear management underscore the importance of good patient access programs during Q&A – despite some negative impact on sales in the short term, growing the Farxiga business long-term rests on strong patient access to drive volume growth, and management articulated that it’s a “key priority” of AstraZeneca to maintain these programs. Emerging markets were a bright spot for the Farxiga franchise in 1Q17, with sales doubling YOY to $42 million. Management highlighted the recent regulatory approval of Farxiga in China, and suggested that the diabetes product is a primary growth driver for AZ’s overall pharmaceutical business in emerging markets. European revenue from Farxiga also rose 22% YOY to $50 million. Notably, J&J’s SGLT-2 business depends more heavily on US sales than does AZ’s SGLT-2 business – Farxiga was the first-to-market SGLT-2 inhibitor in Europe, and ex-US sales of the agent far surpass ex-US sales of Invokana, at $111 million and $37 million in 1Q17, respectively. This may explain why Farxiga has been able to sustain worldwide revenue growth in the face of US pricing pressure, while Invokana has experienced greater challenges. Overall, the SGLT-2 inhibitor remains an indisputable bright spot for AZ Diabetes, despite the relatively modest revenue growth in 1Q17 compared to previous quarters (117% YOY growth in 1Q16, 64% in 2Q16, 63% in 3Q16, 57% in 4Q16, and 70% in 2016 overall).

Figure 2: Farxiga/Forxiga Sales (1Q13-1Q17)

• Management asserted that SGLT-2 inhibitors will be “the foundation of diabetes therapy” in the future, and AZ is thus wholly committed to its Farxiga business. Moreover, management shared that the company has aligned its priorities within diabetes to agents that may demonstrate a CV benefit, which includes Farxiga and GLP-1 agonist Bydureon. While the DECLARE CVOT investigating the CV effects of Farxiga isn’t scheduled to complete until April 2019, management highlighted CVD-REAL data presented last month at ACC 2017. This retrospective, real-world trial found 39% risk reduction for heart failure hospitalization as well as 51% risk reduction for all-cause mortality associated with SGLT-2 inhibitors vs. other glucose-lowering drugs (p<0.001 for both comparisons). Importantly, 87% of participants in the trial had no prior history of CV disease at baseline, which suggests that SGLT-2 inhibitors could be useful in primary CV prevention. Until DECLARE reports, management admitted that the company is very limited in how it can promote the possible CV benefits to Farxiga treatment. That said, AZ’s investment in the CVD-REAL study and in Dapa-HF, a dedicated heart failure trial for dapagliflozin (more on this below), implies that management is optimistic about Farxiga’s CV effects. We’re glad to note the company’s dedication to Farxiga, a commitment that has been reiterated through the past few quarterly earnings calls – in 3Q16, management even went so far as to suggest that AZ is willing to let Farxiga sales cannibalize some DPP-4 inhibitor Onglyza sales. In line with this commentary, management remarked during Q&A today that more providers are starting to prescribe an SGLT-2 inhibitor ahead of a DPP-4 inhibitor, and referred to this trend as good news. Onglyza’s label includes a worrisome warning for increased risk of heart failure (based on the SAVOR-TIMI CVOT) and we’re not surprised by AZ’s continuing de-emphasis of this particular product (in addition to the several quarters of challenging performance from a revenue standpoint, it’s harder to differentiate).
• AZ is investing heavily in additional indications beyond diabetes for two common comorbidities of type 2 diabetes: heart failure and chronic kidney disease. See our pipeline highlights below for more on this.

3. Pooled Analysis: SGLT-2 Inhibitors Post $715 Million, up 18% YOY but Down 15% Sequentially Despite Buzz Surrounding CV Benefits

On a pooled basis, the SGLT-2 inhibitor class grew 18% YOY and fell 15% sequentially to $715 million in 1Q17. Overall, this growth is disappointing, and there appear to be competing forces at play: positive CVOT data and a new CV indication for Lilly/BI’s Jardiance on the one hand, and intense US pricing pressure on the other. During Lilly’s earnings update earlier this week, management forecasted a “return to high growth” for the SGLT-2 class on account of Jardiance’s label now indicating the product for reduction of CV death and the ADA endorsing empagliflozin for patients at high-risk for CV events in its 2017 Standards of Care, and indeed, Jardiance revenue did nearly double YOY. Lilly recorded $74 million in 1Q17 sales, and we estimate total franchise revenue at $224 million, though this is speculation since BI’s portion is not reported publically (in a full-year 2015 diabetes update, BI listed global net sales for the franchise at €165 million, or ~$183 million, while Lilly collected $60 million in revenue from Jardiance in 2015, putting Lilly’s share at ~33%). Meanwhile, Farxiga and Invokana experienced more challenging quarters, with 26% YOY growth to $207 million and 13% YOY decline to $284 million, respectively. Both AZ and J&J management cited US pricing pressure and segment mix as commercial obstacles, pointing to patient discounts and a higher proportion of patients coming from the Medicaid vs. managed care population. We’d love to learn how many total prescriptions of SGLT-2 inhibitors were written in 1Q17, as this concrete information on volume would allow us to evaluate patient access to these advanced therapies separate from revenue recorded by the manufacturers – we suspect it would be meaningful.

Figure 3: Pooled SGLT-2 Inhibitor Sales (1Q13-1Q17)

• Invokana leads the class by value with 40% of sales ($284 million), though Jardiance is playing rapid catch-up and held 31% of the market ($224 million) by value in 1Q17. Farxiga was responsible for 29% of sales ($207 million). To illustrate closing of the gap between Invokana and Jardiance, the products held 44% and 27% of the SGLT-2 inhibitor market by value, respectively, in 4Q16. Meanwhile, Farxiga captured 28% of sales in 4Q16, and AZ management emphasized that its product has sustained volume and revenue in contrast to Invokana, which seems to have yielded sales to Jardiance. Over the last year, revenue for the three SGLT-2 inhibitors have converged rapidly – for comparison, in 4Q15, Invokana revenue was more than eight times that of Jardiance ($372 million vs. $45 million).
• AZ management underscored that Farxiga remains the global market leader by volume – according to the company’s presentation slides, Farxiga’s share of total SGLT-2 prescriptions (TRx) was 41% as of January 2017, compared to 29% and 23% for its competitors (presumably Jardiance and Invokana, respectively). As per AZ’s 4Q16 update, Farxiga held 42% of TRx while Jardiance and Invokana both held ~25%. Volume trends seem to parallel revenue trends in the SGLT-2 inhibitor market, with Farxiga maintaining its stronghold and Invokana yielding prescriptions to Jardiance. It’s especially interesting to see Jardiance overtake Invokana in terms of global TRx for the first time, despite Invokana’s higher revenue – we’re curious if this suggests that many patients are accessing Jardiance via patient assistance programs.
• We’ll be very curious to see how CANVAS results on Invokana impact these market dynamics. The CVOT is scheduled to report at ADA 2017. Positive results would presumably boost sales for all major SGLT-2 inhibitor products, especially because a second CVOT (after EMPA-REG OUTCOME) showing benefit would lend support for a cardioprotective class effect. That said, it’s been more than a year since EMPA-REG OUTCOME results were presented at EASD 2015 and published in the NEJM, and we expected a much steeper incline in SGLT-2 sales in the aftermath of that groundbreaking CVOT (compared to the 44% YOY growth between 2015 and 2016). Through this lens, we see the critical value of a label update and revised treatment guidelines, since Jardiance revenue didn’t increase as dramatically as we anticipated until the FDA-approved indication and ADA’s 2017 Standards of Care, not to mention Lilly/BI’s concerted efforts to promote the new CV indication among providers. Even if CANVAS data is positive (and we’ve become suspicious on this front, due to J&J’s radio silence and lack of topline data), it would likely take time before we see a label update, revisions to treatment guidelines to include canagliflozin alongside empagliflozin, and a meaningful boost to the SGLT-2 inhibitor class. We also wonder how safety concerns related to DKA, lower limb amputation, acute kidney injury, and bone fracture risk have negatively impacted Invokana vs. Jardiance or Farxiga – while these issues have been discussed in the context of SGLT-2 inhibitors broadly, all of the safety warnings have been applied specifically to Invokana while only a subset have been applied to Jardiance and Farxiga.

4. Bydureon: Revenue rises 13% YOY, rebounding from previous declines in a fiercely competitive market

Revenue for the GLP-1 agonist Bydureon (exenatide once-weekly) rose 13% YOY as reported (14% operationally) and 8% sequentially to $153 million in 1Q17. AZ highlighted 1Q17 as a quarter of “encouraging growth” for Bydureon, rebounding from two consecutive quarters of decline (-8% YOY in 4Q16 and -11% YOY in 3Q16). Though this is certainly welcome news, zooming out Bydureon has experienced a flattening sales trajectory, with revenue plateauing ~$150 million. This trend is especially disappointing in the context of a rapidly growing GLP-1 agonist class overall. It is clear that Bydureon is feeling the pressure from in-class competition, particularly from Lilly’s similarly once-weekly but more patient-friendly Trulicity (dulaglutide) – Bydureon’s plateauing coincides with Trulicity’s meteoric rise post-launch in late 2014. Unlike Bydureon’s lengthy reconstitution process, Trulicity is ready-to-inject in a very well-received, patient-friendly IDEO-designed auto-injector pen. We expect that recent positive cardiovascular outcomes data for Novo Nordisk’s Victoza and the upcoming semaglutide will further intensify competitive pressures in the GLP-1 agonist class, though we believe that there’s immense room for the class as a whole to grow as well (given that only 5% of patients were on a GLP-1 agonist in 2013 according to a JAMA study). That all said, a bright spot for Bydureon is its demonstrated potential as a component in combination therapy. This is best illustrated by the DURATION-8 trial which made waves at EASD 2016 for demonstrating that GLP-1 agonist/SGLT-2 inhibitor dual therapy consisting of AZ’s Bydureon and Farxiga produced greater improvement of glycemic control and cardiovascular risk factors than either drug as monotherapy. Also in this vein, AZ announced in its 4Q16 update that Bydureon met its primary endpoint in the DURATION-7 study comparing the efficacy of Bydureon as an addition to basal insulin versus basal insulin alone, though the full results have yet to be released. Two other very, very exciting upcoming bright spots were also highlighted:

• AZ shared that its new auto-injector, suspension formulation of Bydureon was accepted for FDA review in 1Q17, on time with previous estimates. The auto-injector will eliminate the complex and lengthy reconstitution process that Bydureon currently requires, while still supporting once-weekly dosing. A regulatory decision is expected in 2018, and we imagine that, if approved, this new injection device could eliminate one of the biggest barriers to Bydureon uptake. Indeed, the drug’s complicated administration has been a significant drawback for the product for some time, especially in light of the rave reviews its competitor Trulicity (Lilly’s dulaglutide) has received for its easy-to-use, extremely patient-friendly IDEO-designed auto-injector pen. This improved Bydureon pen has been long-awaited and we’re glad to see a more patient-friendly version of the product finally come to fruition. All that said, upcoming advances in GLP-1 agonist administration – namely Intarcia’s implantable ITCA 650 [exenatide mini-pump] and Novo Nordisk’s oral semaglutide – may soon make even one-touch weekly injection not quite convenient enough for many patients.
• Very excitingly, management announced that cardiovascular outcomes data from the long-awaited EXSCEL trial will be available ahead of schedule, in 3Q17. Regulatory submission for the inclusion of this data on the Bydureon label is expected in the second half of 2017 as well. EXSCEL’s data readout had been previously estimated for 2018, and management attributed this newly accelerated timeline to a higher than expected event rate among study participants, leading to faster attainment of the necessary number of events to achieve sufficient statistical power. EXSCEL results will likely be crucial for the future success of Bydureon as it continues to face tough in-class competition, and as CVOT results continue to gain central importance for all diabetes therapies, GLP-1 agonists in particular. The LEADER and SUSTAIN 6 trials have already demonstrated compelling cardiovascular benefits for Novo Nordisk’s Victoza (liraglutide) and phase 3 semaglutide, and the REWIND CVOT for Lilly’s Trulicity (dulaglutide) is expected to report data in April 2018.   

Figure 4: Bydureon Sales (3Q12-1Q17)

5. Byetta: Revenue continues to fall, down 26% YOY to $46 million

Revenue from AZ’s older GLP-1 agonist Byetta (exenatide twice-daily) totaled $46 million in 1Q17 – a 26% YOY drop as reported (24% in constant currencies). Sequentially, sales fell 16% from $55 million in 4Q16. This marks the fifth consecutive quarter of YOY decline for Byetta (sales dipped 31% YOY in 1Q16, 7% YOY in 2Q16, 15% YOY in 3Q16, and 24% in 4Q16). Indeed, Byetta revenues have nearly consistently trended down since 2Q14 owing to a combination of factors including overall competition from other contenders in the rapidly-expanding GLP-1 agonist arena (namely Novo Nordisk’s Victoza [liraglutide] and Lilly’s Trulicity [dulaglutide]) and cannibalization from AZ’s newer exenatide formulation Bydureon, which offers a more convenient patient experience with less frequent dosing.

• Cumulative revenue for AZ’s exenatide franchise (once-weekly Bydureon and twice-daily Byetta) totaled $199 million in 1Q17. Of this Bydureon’s $153 million accounts for 77% and Byetta’s $46 million accounts for 23%, a ratio that continues to shift in Bydureon’s favor. This comes as no surprise, given the company’s single-minded focus on Bydureon over Byetta in public remarks.

Figure 5: Byetta Sales (3Q12-1Q17)

6. Tough Quarter for Onglyza – Sales Down 27% YOY to $154 Million

Sales of DPP-4 inhibitor Onglyza (saxagliptin) fell 27% YOY (as reported and operationally) to $154 million, marking the largest YOY drop since launch for the struggling franchise. The product experienced double-digit revenue decline across all global markets: Sales fell 35% YOY in the US to $81 million, fell 18% YOY in Europe to $27 million, and fell 17% YOY in emerging markets to $30 million. Sequentially, sales grew 3% against an easy comparison, given the 12% sequential decline between 3Q16 and 4Q16, and given that 4Q16 represented a low point for Onglyza revenue in recent history. This financial performance isn’t entirely surprising, given AZ’s deliberate shift of focus away from DPP-4 to SGLT-2 and the question mark of heart failure safety for the product. The company is positioning Farxiga as the preferred SGLT-2 inhibitor option for patients looking to switch off of DPP-4 inhibitor therapy, including Onglyza. Indeed, one of the main reasons for fluctuating sales within the DPP-4 inhibitor class of-late has been competition from GLP-1 agonists and SGLT-2 inhibitors – AZ seems to have internalized this message and reorganized its diabetes priorities accordingly. That said, we still see a crucial role for DPP-4 inhibitors in diabetes care, and could even see them deployed for diabetes prevention, prescribed to people with prediabetes at very high-risk for developing type 2. DPP-4 agents come with a familiarity factor and an ease of dose administration that makes them a preferred choice for many patients/providers. They also boast a longer history of safety and tolerability vs. SGLT-2 inhibitors or GLP-1 agonists, supported by clinical trial data as well as real-world experience. Thought leaders such as Dr. Robert Ratner have defended the use of DPP-4 inhibitors for the elderly as well as type 2 diabetes patients with renal impairment on account of their benign safety profile, massive safety database, and oral formulation – to say nothing of weight neutrality and glycemic-dependent nature. Of course, there are other DPP-4 inhibitors that don’t have a worrisome warning for possible increased risk of heart failure on their labels and it seems unlikely that AZ is going invest in returning the Onglyza franchise to a state of growth, so we look to other companies with major DPP-4 products on the market, including Merck (Januvia), Takeda (Nesina), Novartis (Galvus), and Lilly/BI (Tradjenta). Thus far in 1Q17 earnings season, Novartis has reported flat YOY sales for Galvus at $286 million and Lilly has reported 20% YOY growth for Tradjenta up to $113 million. We estimate total Tradjenta franchise revenue in 1Q17, including BI’s share, at $314 million. This is based on our estimate of Lilly’s share of revenue at ~36% based on Lilly’s reported Tradjenta franchise sales for 2015 ($357 million) and global net sales for the franchise in 2015 (€909 million, or ~$1 billion) as reported by BI in a diabetes update. We’ll be back with a full class analysis of DPP-4 inhibitors after 1Q17 updates from Merck (May 2) and Takeda (date not yet announced).

Figure 6: Onglyza Franchise Sales (4Q12-1Q17)

Pipeline Highlights

7. Phase 3 trials of Farxiga in Heart Failure and Chronic Kidney Disease Initiated

Very notably, the two phase 3 outcomes studies of Farxiga in patients with heart failure and in patients with chronic kidney disease initiated in 1Q17. These trials were announced to great fanfare in AZ’s 3Q16 update and we’re glad to see them come to fruition. Dapa-HF initiated in early February, according to ClinicalTrials.gov, and plans to enroll 4,500 patients with heart failure and reduced ejection fraction (with and without type 2 diabetes). The primary endpoint is a composite of CV death, hospitalization for heart failure, and urgent heart failure visit. Secondary outcome measures include a composite renal endpoint (≥50% sustained decline in eGFR, ESRD, or renal death) and change in score of a heart failure-specific patient-reported outcome questionnaire – we’re very excited to see the incorporation of patient-reported outcomes in this trial. The trial is expected to complete in December 2019. Dapa-CKD also initiated in early February and plans to enroll 4,000 patients with stages 2-3 chronic kidney disease (eGFR 25-75 ml/min/1.73m²) – like Dapa-HF, both patients with and without diabetes will be enrolled in Dapa-CKD. The primary endpoint is a composite of (≥50% sustained decline in eGFR, ESRD, or CV/renal death. Secondary endpoints include each component of the primary endpoint, a composite endpoint of CV death and hospitalization for heart failure, and all-cause mortality. Dapa-CKD is expected to complete in November 2020, according to ClinicalTrials.gov. AZ also has an ongoing trial of Farxiga in patients with type 2 diabetes and chronic kidney disease, DERIVE, but the primary endpoint of this trial is change in A1c – rather than support a renal indication, we assume that this trial is aimed at expanding the diabetes indication of Farxiga to those with mild to moderate CKD, as the drug is currently not recommended in this population due to a lack of demonstrated efficacy.

• Dapa-HF will evaluate Farxiga in a narrower subset of patients with heart failure than Lilly/BI’s EMPEROR-HF program for Jardiance. The EMPEROR-HF program initiated in March of this year and includes two trials, both enrolling heart failure patients with and without diabetes. Notably, the EMPEROR-Preserved trial will enroll patients with heart failure and preserved ejection fraction, while the EMPEROR-Reduced trial will more closely mirror the Dapa-HF trial by enrolling patients with reduced ejection fraction only. The combined EMPEROR program will also include more participants than Dapa-HF as well – EMPEROR-Preserved hopes to enroll 4,126 patients while EMPEROR-Reduced hopes to enroll 2,850 for a total of nearly 7,000 participants in the program. The EMPEROR-HF program is expected to wrap up about six months after Dapa-HF completion. Given that Jardiance has already demonstrated very impressive heart failure benefit (35% risk reduction) in a long-term outcomes trial, we’re not surprised that Lilly and BI are doubling down on this opportunity with a very large and ambitious phase 3 program. Our sense from cardiology meetings is that there is a hunger for new, more effective medications for heart failure and many cardiologists are already eager to consider Jardiance a CV drug (this is further underscored by the inclusion of Jardiance on the heart failure guidelines).
• J&J’s ongoing CREDENCE renal outcomes trial for Invokana will likely report results before Dapa-CKD. CREDENCE (n=4,200) features a primary composite endpoint of end-stage kidney disease, doubling of serum creatinine, and CV/renal death and is expected to complete in January 2020 (primary completion June 2019). In addition, results from the CANVAS-R trial are expected to report at ADA 2017 – CANVAS-R is a renal biomarker study, rather than a hard renal outcomes trial, but it should help provide additional data on the long-term renal impact of SGLT-2 inhibitors. Jardiance has already demonstrated impressive renal benefit in EMPA-REG OUTCOME and we expect a second outcomes trial suggesting a class effect would go a long way toward further catalyzing growth in the SGLT-2 inhibitor market. That said, despite the EMPA-REG OUTCOME data, Lilly management acknowledged that regulatory agencies likely would not support a renal indication for Jardiance without a separate, dedicated outcomes trial (indeed, this was our sense from the EMPA-REG OUTCOME Advisory Committee meeting as well, where panelists largely dismissed the renal and heart failure data due to their secondary endpoint status). Further, Lilly noted that it has no plans to conduct such a renal outcomes study at this time – we imagine Lilly’s resources are fairly stretched by the two largescale heart failure outcomes trials, as well as the litany of ongoing launches for new diabetes products.
• Farxiga has the potential to be the only SGLT-2 inhibitor indicated for diabetes, heart failure, and chronic kidney disease. It seems that AZ may be keeping its options open for future, non-diabetes indications for Farxiga with the initiation of both a heart failure and a renal outcomes trial. Indeed, data from the diabetes CVOT DECLARE won’t be available until 2019, so in some ways AZ is taking more of a gamble than Lilly/BI because the company doesn’t yet know for sure that there will be either a CV or a renal benefit, much less which benefit might be greater/more attractive to pursue.

8. US Qtern (Saxagliptin/Dapagliflozin) Approval Highlighted

AZ management highlighted the recent FDA approval of DPP-4 inhibitor/SGLT-2 inhibitor fixed-dose combination Qtern (saxagliptin/dapagliflozin). Qtern is the second combination to reach the US market – Lilly/BI’s Glyxambi (empagliflozin/linagliptin) was approved more than two years ago in February 2015. Qtern’s US approval has been much-anticipated, following the FDA’s issuance of a Complete Response Letter in October 2015 for the product’s first submission (Qtern was resubmitted in 2Q16). Qtern launched in Europe in 3Q16, where it was the first combination product to market (closely followed by Glyxambi in 4Q16). While Glyxambi has technically been available in the US since early 2015, our sense is that sales for this particular combination have been sluggish, due in part to a relatively high list price, less-than-ideal reimbursement and formulary positioning, and a lack of emphasis on marketing and promotion on the part of Lilly/BI (a fact that Lilly management has readily acknowledged). On the other hand, AZ has a much smaller diabetes portfolio than Lilly and it’s clear that management views its SGLT-2 inhibitor franchise, including combinations, as a cornerstone of its future growth. Management has also expressed a willingness to almost cannibalize Onglyza sales by positioning Farxiga as the ideal alternative for patients switching from DPP-4 inhibitors – promotion of Qtern could fit nicely into this strategy. With AZ’s pharmaceutical expertise behind Qtern, we can envision DPP-4 inhibitor/SGLT-2 inhibitor combinations playing a larger role in diabetes care – their clinical profile is certainly enviable, with greater efficacy than either component alone and the convenience of a single daily pill. We expect Merck/Pfizer will also devote significant energy and resources to establishing the market for these combinations as well once sitagliptin/ertugliflozin is available (FDA decision expected by year-end) – both companies have repeatedly the combination as the key product within the upcoming ertugliflozin franchise.

9. GLP-1/Glucagon Dual Agonist Trial Completed

Though not mentioned in AZ’s update materials, the phase 2 trial of GLP-1/glucagon dual agonist MEDI0382 has completed, according to ClinicalTrials.gov. The trial enrolled 422 participants and completed in February 2017. Primary endpoints for the study included changes in postprandial glucose and body weight; A1c was a secondary endpoint. We’re very eager to see the results, which will only be the second set of phase 2 results for this class, despite a robust competitive landscape.

10. Minor Trial Delays

We noticed a number of slight delays in expected completion for trials on ClinicalTrials.gov. The DEPICT 2 trial of Farxiga in patients with type 1 diabetes now is expected to complete in April 2018, compared to expected completion of January 2018 previously. The other trial of Farxiga in type 1 diabetes, DEPICT 1, is still on track to complete in August 2017. The ClinicalTrials.gov page for the phase 2 trial of PCSK9 inhibitor/GLP-1 agonist fusion MEDI4166 is now lists an expected completion of March 2017, a delay from November 2016, and we’re very excited to hopefully see data from this trial soon. The expected completion date of the THEMIS outcomes study of P2Y12 receptor agonist antiplatelet agent Brilinta (ticagrelor) in patients with type 2 diabetes and coronary artery disease has been pushed back to November 2018, from January 2018 previously – we’re especially intrigued by this trial given the high residual CV risk patients with diabetes currently face, despite the best standard-of-care therapy. See below for a full table of AZ’s relevant clinical development efforts.

Table 1: AZ’s Diabetes Pipeline

Questions and Answers

Q: It looks like Onglyza has been losing formulary coverage in the DPP-4 inhibitor arena over the last two or three years (with Tradjenta gaining and Januvia slightly down), while in the SGLT-2 inhibitor arena Farxiga is holding with Jardiance going up and Invokana losing a bit. Does this reflect any particular change in contracting dynamics?

A: The contracting challenges and pricing pressures have been strong and we will continue to have some amount of that going forward. We believe that the SGLT-2 inhibitor class is going to be the foundation of diabetes therapy in the future, and we're going to continue to support the strong access that we have for Farxiga. Remember that we are still in the early days of this class and it remains quite small relative to other classes of oral anti-diabetic agents. The key is to drive the message cardiovascular benefit. Today, we can't really promote that for Farxiga, but over time this is what will drive the class.

Q: Are physicians becoming more comfortable with the SGLT-2 inhibitor class? Is the class mainly gaining from the DPP-4 inhibitor class?

A: Physicians are definitely getting more comfortable with the SGLT-2 inhibitor class, and that's evolving primarily through earlier use of an SGLT-2 inhibitor. We're seeing more use of SGLT-2 inhibitors in drug-naïve patients and as the first add-on to metformin, ahead of DPP-4 inhibitors. We are also seeing physicians adding it on to other therapies sooner.

Q: Do you see any indicators that SGLT-2 inhibitors are delaying the start of injectable therapy? Can you give any color on how patient flow into and between the drug categories is changing as the SGLT-2 inhibitor class gains traction?

A: So far, I can't say that we've got a strong indication of a big change in when injectable therapy is starting. I think all of this is going to head to SGLT-2 inhibitors as people better appreciate the benefits of the class, and we're certainly doing our part to educate around the overall benefit in glucose control and weight loss.

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