4Q15 and 2015 Diabetes and Obesity Industry Roundup: pricing pressure continues with bright spots in SGLT-2s, GLP-1s, CGM, pumps – April 18, 2016

Based on results from the nearly 30 public companies with revenue that we regularly track, our 4Q15 and 2015 Diabetes and Obesity Industry Roundup provides the high-level business and financial trends from the quarter and full year.

This report is divided into four sections: (i) overall industry highlights; (ii) diabetes drugs; (iii) diabetes technology; and (iv) obesity. Each includes sub-section analysis by therapeutic area, followed by charts with current and historical sales figures, growth, and market share estimates. We note that the data represent our best estimations in many cases since a number of companies do not disclose financial information in great detail.

Overall Industry Performance

1. Diabetes revenue across drugs (excluding generics and human insulin products) and devices totaled an estimated ~$11.0 billion in 4Q15 and ~$42.7 billion in 2015, falling 1% vs. 4Q14 and remaining flat vs. 2014, respectively. These weak results were notable given all the pricing fallout.

2. Drug sales totaled ~$9.0 billion in 4Q15 and ~$34.1 billion in 2015, remaining flat for the quarter and growing 1% YOY, respectively. “Reported” device sales totaled ~$2.1 billion in 4Q15 and ~$8.5 billion in 2015, declining 16% and 9% YOY, respectively. Adjusting for the fact that Bayer did not report 4Q15 BGM sales, we note that device sales actually declined 4% in 4Q15 and fell 5% for the full year.

Diabetes Drugs

3. The overall analog insulin market (basal and rapid-acting) fell 5% in 4Q15 to $4.4 billion and 6% in 2015 to $16.6 billion. The basal insulin analog market drove declines, falling 9% YOY in 4Q15 and 8% YOY for the full year. Revenue for human insulin from the three major insulin manufacturers fell 8% YOY to $811 million in 4Q15 and fell 9% YOY to $3.1 billion in 2015.

4. DPP-4 inhibitor sales fell 9% YOY to ~$2.1 billion in 4Q15 and fell 1% YOY to ~$8.7 billion in 2015. DPP-4 inhibitors seem to be losing a bit of ground with greater SGLT-2 competition and pricing pressure, but their strong tolerability profile and familiarity to PCPs should ensure that they remain a major player. We do think some physicians are confused about the heart failure data and what it means.

5. GLP-1 agonist sales grew 24% YOY in 4Q15 to $1.1 billion – the first time they have passed the $1 billion mark in a quarter – and grew 22% YOY in 2015 to $3.9 billion. By product, Novo Nordisk’s Victoza (liraglutide) led the market with 66% market share by value in 4Q15 and 68% in 2015.

6. The SGLT-2 inhibitor class experienced an impressive 91% YOY growth to $539 million in 4Q15 from under $300 million in 4Q14. Full year 2015 SGLT-2 inhibitor sales reached $1.9 billion, 2.4x the $780 million in total sales in 2014. By product, J&J’s Invokana (canagliflozin) led the class with 69% of the market share by value in 4Q15 (70% for full year 2015).

Diabetes Technology

7. Pooled 4Q15 global revenue for the “Big Three” BGM companies (J&J, Roche, Abbott) totaled ~$1.4 billion, falling 10% relative to pooled revenue in 4Q14 (~$1.5 billion). For the full year, pooled global revenue for the Big Three totaled ~$5.3 billion falling 10% relative to pooled revenue in 2014 (~$5.9 billion). Ascensia (formerly Bayer) stopped reporting sales in 4Q15 so we’re not including them in this result.

8. By our estimates, the CGM market grew to ~$226 million in 4Q15 (up 44% YOY) and ~$744 million in 2015 (up 41% YOY). Both were all-time records in our model, and 4Q15 represented the first time combined CGM sales (Dexcom + estimated Medtronic) broke $200 million in a quarter. Dexcom led the US market with ~66% market share by sales in 4Q15, while Medtronic held ~68% of the international market. Abbott has not yet split out sales for FreeStyle Libre. We’re very proud that CGM helped drive overall growth of the field as much as it did

9. We estimate the insulin pump market grew ~4% YOY in 4Q15 to ~$584 million. 2015 sales grew an estimated ~1% to ~$2.2 billion, a slowdown from 2014’s robust 9% YOY gain. Medtronic maintained an estimated ~65% global market share by sales in 4Q15.

Obesity

10. Combined sales of Vivus’ Qsymia, Arena/Eisai’s Belviq, and Orexigen/Takeda’s Contrave were $35 million in 4Q15 and $153 million in 2015, growing 31% ($6 million) and 58% ($57 million) YOY, respectively.

1. Overall Industry Performance

• Diabetes revenue across drugs (excluding generics) and devices totaled an estimated ~$11.0 billion in 4Q15 and ~$42.7 billion in 2015, falling 1% vs. 4Q14 and remaining flat vs.  2014, respectively.  BI's diabetes portfolio added an additional ~$1.2 billion to total revenue in 2015 but is not included in our model because the company has not provided quarterly or product-specific results. The industry’s 2015 growth came from SGLT-2 inhibitors (+240% to $1.9 billion, up $1.1 billion), GLP-1 agonists (+22% to $3.9 billion, up $700 million), CGM (+41% to $744 million, up $200 million), and pumps (+1% to $2.2 billion, up $20 million). These positive sectors were offset by flat sales for rapid-acting insulin ($6.4 billion) and declines in basal insulin (-8% to $10.2 billion, down $900 million), human insulin (-9% to $3.1 billion, down $300 million), BGM (-10% to ~$5.3 billion, excluding Bayer/Ascensia, down $600 million), and DPP-4 inhibitors (-1% to $8.7 billion, down $100 million).

Figure 1: Overall Quarterly Market Revenue (1Q12-4Q15) – Diabetes Drugs and Devices

• Overall drug sales drove growth offset by declines in overall device sales. Drug sales totaled ~$8.2 billion in 4Q15 and ~$31.0 billion in 2015, representing growth of 1% and 3% YOY, respectively. “Reported” device sales totaled ~$2.1 billion in 4Q15 and ~$8.5 billion in 2015, representing declines of 16% and 9% YOY, respectively. We would point out, however, that our 4Q15 and 2015 device estimates are skewed by the fact that Bayer Diabetes Care did not report sales in the last quarter of the year – adjusting for that fact, we estimate that devices sales declined 4% in 4Q15 and fell 5% for the full year.

2. Diabetes Drugs

Insulins

• The overall insulin analog market (basal and rapid-acting) fell 5% in 4Q15 to $4.4 billion and 6% in 2015 to $16.6 billion based on our calculations. This decline was driven by a decline in the basal insulin market, specifically Sanofi’s Lantus (insulin glargine) – see below for more. It compares to positive growth of 7.9% in 2014. In its 4Q15 update, Sanofi shared growth figures for the overall insulin market that were largely consistent with our calculations: a decline of 4.9% in 2015, compared to 7%-7.2% growth in 2014 (we assume Sanofi’s figures might include non-analog insulin). Sanofi predicted that the insulin market would return to low single-digit growth in 2016.
• The basal insulin analog market fell 9% YOY as reported in 4Q15 to $2.6 billion and fell 8% YOY as reported in full year 2015 to $10.2 billion. For comparison, basal insulin sales totaled $11.1 billion in 2014. Since we began tracking the market in 2005, this was the first year that the basal insulin class experienced negative growth, and 4Q15 was its weakest quarter of the year. The basal insulin market faced  pressure on multiple fronts in 2015 from (i) private payers in the US as formulary exclusions become an increasingly popular negotiating tactic, (ii) increasingly cost-conscious public and political discourse surrounding drug pricing, and (iii) increased competition from the arrival of biosimilar insulin with Lilly/BI’s biosimilar insulin glargine Basaglar. While all of these factors will present challenges for the market going forward, our sense is that most of the impact on sales in 2015 came from increased US rebates for Sanofi’s market leader Lantus (insulin glargine).   
• In its 4Q15 update, Sanofi pointed to the rise of the SGLT-2 inhibitor and GLP-1 agonist classes as a contributor to the overall slowing of the basal insulin market. Full year 2015 sales of the SGLT-2 inhibitor class were $1.9 billion, 1.7x higher than full year 2014 sales of $780 million. The GLP-1 agonist class grew 22% to $4.0 billion in 2015 – see below for more on these classes’ performance. We’ve seen growing acceptance and even preference for GLP-1 agonists as the first injectable therapy in the type 2 diabetes treatment algorithm – the AACE/ACE guidelines suggest GLP-1 agonists as a potential first-, second-, and third-line option, ahead of initiation of insulin therapy. We also know that more patients are taking SGLT-2 inhibitors and staying on them longer, and the latest 2015 update to the ADA/EASD treatment guidelines included SGLT-2 inhibitors as a potential second- or third-line therapy for the first time. Furthermore, combination therapies are becoming increasingly popular and may be delaying the need for basal insulin initiation, a potential explanation for the falling insulin revenue in 2015. Still, the basal insulin class remains 2.5x larger than the GLP-1 agonist class and more than 5x larger than the SGLT-2 inhibitor class by revenue.
• The decline in basal insulin sales was driven almost entirely by Sanofi’s Lantus (insulin glargine) as every other basal insulin experienced growth in both 4Q15 and 2015 (though from a much lower base than Lantus). Though Lantus’ share of the market has been falling, its sales still represented 65% of the basal insulin market by value in 4Q15 (69% in 2015 overall), which accounts for its strong influence on overall market trends. For comparison, Lantus held 68% of the market by value in 3Q15 and accounted for 77% of all basal insulin sales at its peak in 4Q14. Sanofi’s next-generation basal insulin Toujeo (U300 insulin glargine) held 4% of the market by value in 4Q15 (2% in 2015 overall). Competitor Novo Nordisk’s Levemir (insulin detemir) held 28% of the market by value in 4Q15 (27% in full year 2015) while its next-generation basal insulin Tresiba (insulin degludec) held 3% of the market in 4Q15 (2% in full year 2015). Lilly/BI’s biosimilar insulin glargine Basaglar held a mere 0.3% of the market in 4Q15 after two quarters on the market. That said, Lilly’s publicly reported sales of Basaglar do not include BI’s share of the earnings. BI has not yet reported its annual performance and Basaglar would presumably hold a slightly larger portion of the market share if both Lilly’s and BI’s earnings were taken into account.

Figure 2: Basal Insulin Market (1Q06-4Q15)

• The overall rapid-acting insulin market grew 6% YOY to $1.8 billion in 4Q15 and was flat in 2015 overall with $6.4 billion in total sales. By product, Novo Nordisk’s NovoLog (insulin aspart) led the class with 48% of total rapid-acting insulin sales in 4Q15 (49% in 2015 overall). Lilly’s Humalog (insulin lispro) was a close second with 45% of sales in 4Q15 and 2015 overall. Sanofi’s Apidra (insulin glulisine) accounted for 7% of sales in 4Q15 and 2015 overall. MannKind’s Afrezza (inhaled insulin, formerly partnered with Sanofi) accounted for 0.001% of sales in 4Q15 and 2015. Afrezza experienced an unexpectedly sluggish launch year in 2015, leading Sanofi to terminate its commercialization partnership with MannKind after less than a year on the market. Lilly has attributed much of Humalog’s growth this year to price increases, and we assume this may be the case for NovoLog as well. This suggests that the rapid-acting insulin market could be headed for a similar fate as the basal insulin market if companies begin to face greater pricing pressure from payers, which we expect.

Figure 3: Rapid-Acting Insulin Market (1Q06-4Q15)

• Revenue for human insulin from the three major insulin manufacturers fell ~8% YOY to ~$811 million in 4Q15 and fell ~9% YOY to ~$3.1 billion in 2015. Lilly noted in its 4Q15 update that demand for Humulin has been declining, but the product has still seen positive growth in the US due to price increases – we hope that this trend will not continue in the coming years given the widespread frustration from patients and providers over inadequate access to affordable insulin.

DPP-4 Inhibitors

• The DPP-4 inhibitor class fell 9% YOY to ~$2.1 billion in 4Q15 and fell 1% YOY to ~$8.7 billion in 2015. While growth for the class has been leveling off for some time, 2015 is the first year it has experienced a YOY decline. Merck’s Januvia (sitagliptin) continued to dominate the class with approximately 67% of the market by value in 4Q15 (69% for 2015 overall) based on publicly reported sales. Novartis’ Galvus (vildagliptin) held approximately 14% of the market in 4Q15 (13% in 2015 overall), AZ’s Onglyza (saxagliptin) held approximately 9% in both 4Q15 and for 2015 overall, and Lilly/BI’s Tradjenta (linagliptin) and Takeda’s Nesina (alogliptin) each held approximately 5% (5% and 4% for 2015 overall, respectively). However, Lilly’s reported revenue for Tradjenta represents only a fraction of total sales, so the product’s actual market share by value is higher – it is the #2 DPP-4 inhibitor worldwide according to BI. Tradjenta appears to be the only marketed DPP-4 inhibitor on a consistent upward swing throughout the year.
• DPP-4 inhibitors may be losing a bit of ground with greater SGLT-2 competition and pricing pressure, but their strong tolerability profile and familiarity to PCPs will ensure that they remain a major player. The class has been experiencing a slowdown for some time, which we imagine is due to factors including the pancreatitis and heart failure controversies, the decline in switches from TZDs, and the SGLT-2 competition and pricing pressure. The DPP-4 inhibitor market is one of the more crowded and homogenous out of all type 2 diabetes drug classes, and we imagine that the lack of differentiation between products may have led to stronger competitive pricing pressures. That said, the reassuring TECOS results for Januvia should help cement its dominance within the class. More recently, the demonstrations of a cardioprotective benefit with SGLT-2 inhibitor Jardiance (empagliflozin) and GLP-1 agonist Victoza (liraglutide) will likely drive more patients toward these products and classes, and further erode the DPP-4 inhibitor patient base. SGLT-2 inhibitors in particular pose a formidable competitive challenge due to their oral delivery and relatively benign safety profile – two of the main draws for primary care physicians prescribing DPP-4 inhibitors.

Figure 4: DPP-4 Inhibitor Market (1Q07-4Q15)

GLP-1 Agonists

• The GLP-1 agonist class grew 24% YOY in 4Q15 to $1.1 billion – the first time it has passed the $1 billion mark – and grew 22% YOY in 2015 to $3.95 billion. The class accounted for 45% of total diabetes drug market growth (not including insulin) in 4Q15 and 38% in 2015 overall. Novo Nordisk’s 4Q15 update shared IMS Health data indicating that US volume growth for the class reached 25% by the end of 2015, a strong recovery from the ~8% growth at the beginning of 2015 and similar to the 20%-25% growth seen in early 2013. This is consistent with expectations that new entrants, particularly Lilly’s patient-friendly Trulicity (dulaglutide), would serve to expand the class rather than solely taking market share from more established products. We see this as a positive trend as we have long felt that this class was underutilized. GLP-1 agonists should be one of the more exciting drug classes to watch in the next few years, with new entrants like Intarcia’s ITCA 650 (implantable exenatide mini-pump) and Novo Nordisk’s once-weekly semaglutide on their way. We expect the recent LEADER cardiovascular outcome trial (CVOT) results demonstrating a cardiovascular benefit for Novo Nordisk’s Victoza (liraglutide) will only add to the class’ momentum. The SUSTAIN 6 CVOT for semaglutide has also completed and is expected to report topline results soon.
• By product, Novo Nordisk’s Victoza (liraglutide) led the market with 66% market share by value in 4Q15 and 68% in 2015. AZ’s exenatide franchise (Bydureon and Byetta) held 21% of the market in 4Q15 and 23% in full year 2015.  Trulicity held 10% of the market in 4Q15 (6% for 2015 overall) after a very successful first year on the market. GSK’s Tanzeum (albiglutide) held only 2% in both 4Q15 and full year 2015, a reflection of its relatively lower list price (its market share by volume was roughly equivalent to Trulicity’s for much of 2015). Sanofi’s Lyxumia held only ~1% market share in both 4Q15 and 2015, though this will likely increase with its expected entry into the US market later this year. Based on IMS Health data from Novo Nordisk’s 4Q15 presentation slides, it appears that Victoza’s market share by volume had slipped to 56% of the total GLP-1 agonist market by 4Q15, down from 66% in 4Q14. We imagine this is due at least in part to new, patient-friendly entrants such as Trulicity, though we expect to see some rebound in Victoza’s market share following the LEADER results. If Novo Nordisk’s once-weekly semaglutide formulation demonstrates a similar – or even greater – cardioprotective benefit, we could see best-in-class potential for that candidate. The REWIND CVOT for Trulicity is not expected to complete until April 2019 according to ClinicalTrials.gov.

Figure 5: GLP-1 Agonist Market (1Q06-4Q15)

• GLP-1 agonists are increasingly being positioned earlier in the type 2 diabetes treatment algorithm, potentially as a first injectable therapy. The latest AACE/ACE guidelines suggest GLP-1 agonists as a potential first-, second-, and third-line option, ahead of initiation of insulin therapy, and even recommended considering off-label use of GLP-1 agonists for some patients with prediabetes. The updated ADA/EASD guidelines, released in February, positioned GLP-1 agonists as a potential second-line therapy with “high” efficacy.
• The use of GLP-1 agonists as an add-on to basal insulin has also gained traction. The updated ADA/EASD guidelines enthusiastically recommend considering the addition of a GLP-1 agonist instead of prandial insulin to basal insulin therapy, especially for patients with obesity, due to its benefits on weight, hypoglycemia, and possibly glucose lowering. We have also heard positive commentary on the use of GLP-1 agonists – especially short-acting GLP-1 agonists – for postprandial glycemic control from speakers at several conferences this year. Dr. Robert Henry (University of California San Diego, CA) gave a ringing endorsement of GLP-1 agonist/basal insulin combination therapy at EASD 2015. The topic came up multiple times at CODHy 2015, with Dr. Bernard Charbonnel (University of Nantes, France), Dr. Jaime Davidson (UT Southwestern, Dallas, TX), and Dr. Ofri Mozenson (Hadassah Medical Center, Jerusalem, Israel) offering their support of GLP-1 agonist use for postprandial control. That said, several speakers still felt that rapid-acting insulins are a better option, most notably due to their known long-term safety profile (with his characteristic candor, Dr. Philip Home [Newcastle University, Newcastle Upon Tyne, UK] called GLP-1 agonists “the untested new boy on the block.”) We think Novo Nordisk’s and Sanofi’s newest products to go before FDA - the combination GLP-1/basal – should drive tremendous growth in the field.  

SGLT-2 Inhibitors

• The SGLT-2 inhibitor class experienced an impressive 91% YOY growth to $539 million in 4Q15 from under $300 million in 4Q14. Full year 2015 SGLT-2 inhibitor sales reached $1.9 billion, 2.4x the $780 million in total sales in 2014. This growth represented 55% of growth of the entire diabetes drug market (not including insulin and generics) in 4Q15 and 61% of the growth of the entire market in 2015. In its 4Q15 update, AZ management noted that the SGLT-2 inhibitor class as a whole is once again experiencing an upward trajectory (after a plateau that AZ attributed to reports of DKA with SGLT-2 inhibitor use). Indeed, Sanofi management suggested in 4Q15 that rising SGLT-2 inhibitor sales are encroaching on basal insulin sales. We expect this class’ positive trajectory to continue due to the winning combination of A1c-lowering, weight loss, low risk of hypoglycemia, and – with the recent EMPA-REG OUTCOME results – cardioprotective benefit with at least one agent. Though the class has only been on the global market for three years (two years in the US), it’s clearly quickly gaining favor among patients and prescribers and was added to the 2015 update to the ADA/EASD guidelines. The class did hit a bit of a speed bump in mid-2015 with reports of DKA associated with SGLT-2 inhibitor use, but the current consensus seems to be that the risk in type 2 diabetes is quite low – the risk/benefit profile in type 1 diabetes remains more of an open question.
• By product, J&J’s Invokana (canagliflozin) led the class with 69% of the market share by value in 4Q15 (70% for full year 2015). This is largely attributable to its first-to-market status in the US and its strong formulary access there. AZ’s Farxiga/Forxiga (dapagliflozin) was first-to-market in Europe and held 28% of the global market share by value in 4Q15 (26% for full year 2016). Lilly/BI’s Jardiance (empagliflozin), as the third agent to reach both the US and ex-US markets, held a mere 3% of the share in 4Q15, the same share it held in 3Q15 and for full year 2015. However, Lilly’s sales numbers for Jardiance does not take into account BI’s split of the revenue. BI has not yet reported its annual results and Jardiance presumably holds a larger portion of the market with BI’s revenue taken into account.
• It is somewhat surprising that Jardiance has not made more market share gains following the positive EMPA-REG OUTCOME results. Lilly management has highlighted Jardiance’s swiftly rising new-to-brand prescription (NBRx) share with each update (as of its 4Q15 update, Jardiance held 26% NBRx). However, AZ management also noted in its own 4Q15 update that Farxiga’s NBRx numbers are rising as well. While AZ did not specifically reference the EMPA-REG OUTCOME results, management emphasized that the company is watching the class closely to see how it picks up and stated that there’s “no question” it is going to do well – we agree. It appears that both Farxiga and Invokana experienced an uptick in sales in 4Q15 (Invokana sales rose 9% sequentially), which may be due to providers viewing the EMPA-REG OUTCOME results as a class effect and Farxiga and Invokana having better payer access. Indeed, Lilly’s market research suggests that physicians are fairly evenly split on whether the results are a class effect or specific to Jardiance. Lilly recently submitted the EMPA-REG OUTCOME results to the FDA for inclusion on the Jardiance label. A label update would strengthen Lilly’s negotiating power in formulary discussions with payers, though the company has argued that Jardiance’s access is already fairly strong.

Figure 6: SGLT-2 Inhibitor Market (1Q13-4Q15)

TZDs

• The downward sales trajectory continued for the thiazolidinedione class (TZDs) in 4Q15 and 2015 overall. This class doesn’t drive too much interest anymore due to its generic status and long list of safety concerns. Takeda’s Actos (pioglitazone; revenue split with Lilly) is the only major brand accruing revenue in the class. Its 4Q15 revenue totaled $25 million, down 65% YOY from $72 million in 4Q14. Full year 2015 sales fell 40% to $209 million from $350 million in 2014. However, Takeda stopped reporting its ex-Japan sales for Actos in 4Q15. Ex-Japan sales had accounted for roughly two-thirds of Takeda’s revenue from the product, which suggests that the 4Q15 and full year 2015 total revenue underestimates actual Actos sales. That said, Takeda’s decision not to report full Actos sales is yet another indication of the product’s waning popularity – and profitability.
• The recent IRIS trial may herald a new era of popularity for pioglitazone in patients with prediabetes and a previous history of stroke. The results demonstrated a cardioprotective benefit in this (admittedly narrow) patient population and suggest a potential role for pioglitazone in patients with prediabetes. Coupled with pioglitazone’s role in Dr. Ralph DeFronzo’s very successful triple therapy trial and some observational evidence casting doubt on the bladder cancer controversy, we imagine some providers may be less averse to prescribing the drug moving forward. However, the most recent observational study on the bladder cancer question did find an increased risk with pioglitazone, and we would expect the majority of patients to choose generic pioglitazone rather than branded Actos at this point, meaning the downward trend in Actos revenue is unlikely to change course.

3. Diabetes Technology

BGM

• Pooled 4Q15 global revenue for the “Big Three” BGM companies (J&J, Roche, Abbott) totaled ~$1.4 billion, falling 10% relative to pooled revenue in 4Q14 (~$1.5 billion). [We’ve excluded Ascensia Diabetes Care (formerly Bayer), who did not issue a 4Q15 earnings report; see below.] This came against an easy comparison, as combined revenue declined 8% a year ago. Some of the weakness comes from currency headwinds, though it cannot explain the entire drop – YOY pooled sales for the three companies have now fallen for 15 (!) consecutive quarters, going far beyond the recent strengthening of the dollar. On a sequential basis, pooled sales did grow 11% sequentially though that is typical from 3Q to 4Q.
  
  • Abbott had the strongest operational performance in the quarter (up 2% YOY) vs. J&J (down 2%) and Roche (down 3%). We assume much of Abbott’s strength in the quarter came from FreeStyle Libre; the company has not broken out sales yet but we assume it will at some point.
  • Declines continue to be driven in part by US weakness, where combined revenue fell ~4% in 4Q15. This was on a very easy comparison to 4Q14 when pooled sales fell 14%. Ultimately, the US continues to be a challenging region for BGM sales, though we assume the “new normal” is at least profitable (though with low margins). The outlook for BGM in ten years seems treacherous, given the drive to improve CGM and reduce the price, the move to automate insulin delivery, and better drugs that cause less hypoglycemia in type 2. How can the Big Three innovate to stay relevant?
  • International sales in 4Q15 declined a striking 12% as reported on negative currency impacts. This came on an easy YOY comparison to a 15% decline in sales in 4Q14. On a reported basis, this marked the fourth consecutive double-digit quarterly decline in 2015. Given the aforementioned operational performance, however, the underlying international businesses are not doing as badly as the reported sales would suggest.
  • As a reminder, Ascensia Diabetes Care (formerly Bayer) did not issue a 4Q15 earnings report, making it impossible to track the sales of the newly formed company. We considered various workarounds (e.g., assuming 0% YOY growth for Ascensia) though were advised that such an estimation would only inflate and distort pooled numbers. We do believe that an accurate “Big Three” analysis is more valuable than an approximate Big Four analysis – let us know if you have other thoughts! We are hopeful that Ascensia will report these numbers soon though since this is now a private company that owns the technology, we assume they are reluctant to share news on their revenue or R&D plans.

Figure 7: Pooled Abbott, J&J, and Roche Quarterly Sales (1Q12 – 4Q15)*

* Includes non-BGM revenue for Abbott (CGM, FreeStyle Libre), J&J (pumps), and Roche (pumps).

• For the full year, pooled global revenue for the Big Three totaled $5.3 billion falling 10% relative to pooled revenue in 2014 (~$5.9 billion). The comparison was quite easy as combined revenue declined 5% a year ago. As in the fourth quarter, Abbott had the strongest operational performance for the year (up 3%) vs. J&J (down 1%) vs. Roche (down 3%).
  
  • Pooled declines for the year were driven by both the US and international markets. Pooled US sales fell 7% after falling 15% in 2014 while international sales fell 12% vs. a 3% decline in 2014. Depressed revenues as a result of foreign exchange have characterized the business for several quarters now, and we’re not sure when the international market will bottom out.
• As a note, it is difficult to make direct comparisons between J&J, Abbott, and Roche, given that each company’s Diabetes Care business includes a fraction of non-BGM revenue. J&J and Roche have insulin delivery and Abbott has CGM and FreeStyle Libre outside of the US. In the pump section below, we have broken out estimates for J&J’s and Roche’s sales.

CGM

• By our estimates, the CGM market grew to ~$226 million in 4Q15 (up 44% YOY) and ~$744 million in 2015 (up 41% YOY). Both were all-time records in our model, and 4Q15 represented the first time combined CGM sales (Dexcom + estimated Medtronic) broke $200 million in a quarter. Dexcom’s performance continues to be the story in CGM: sales reached $131 million in 4Q15, marking 13 straight quarters of 49%+ YOY growth since the launch of G4 in late 2012. Dexcom contributed 67% of growth in the CGM category in 2015 vs. 33% for Medtronic. Abbott’s FreeStyle Libre is not included in these estimates, as the company has not provided any sales figures thus far.
  
  • To estimate Medtronic’s sales, we confirmed with the company that roughly 20% of its Diabetes sales are now from CGM, up from 15% as of a chart presented at the June 2014 Analyst Day. Our model (and the chart below) use 15% of overall Medtronic sales from CGM from 1Q12-2Q14. We then assumed a gradual rise in the CGM sales mix so that 20% of sales were from CGM as of 4Q15. We’d emphasize that this is a ballpark estimate and is likely to vary from quarter to quarter.
• We estimate that ~75% of CGM sales came from the US in 2015, a slight rise from ~73% in 2014. The US provided 81% of the CGM industry’s growth in 2015. This likely reflects: (i) stronger reported US growth for Dexcom and Medtronic; (ii) the strengthening US dollar; (iii) still patchy reimbursement for CGM in Europe; and (iv) potential cannibalization of CGM sales with the broader EU launch of FreeStyle Libre. Dexcom’s CGM business is ~15% international; Medtronic’s overall diabetes business (pumps + CGM) is ~38% international. 
• As shown in the chart below, CGM could be hitting an inflection point and crossing the chasm beyond early adopters. It will take several quarters to know for sure, but the combination of better accuracy, smartphone integration, remote monitoring, useful apps, and automated insulin delivery could be the killer apps CGM has been waiting for. While Abbott’s FreeStyle Libre is not technically a CGM, it’s certainly in the ballpark (body-worn sensor, real-time data) and will help the category’s awareness too.

Figure 8: Pooled CGM Revenue (1Q12 – 4Q15)

• Dexcom CGM sales totaled an impressive $131 million in 4Q15 (rising ~55% YOY) and $401 million in 2015 (rising 56% YOY). The 4Q15 results came on a very tough comparison to a blowout 4Q14, and sales rose a remarkable 26% sequentially from record-high 3Q15 revenue. This now marks 13 straight quarters of 49%+ YOY growth for Dexcom since the launch of G4 in late 2012, and three straight quarters of all-time record high sales. Dexcom’s estimated global patient base was ~140,000-150,000 as of December 31, 2015, with an estimated 75%-80% in the US (~110,000) and 20%-25% (~30,000) residing outside the US. Dexcom has a slew of launches coming in 2016, including updates to the G5 app, an Android version of G5, an improved insertion device, a touchscreen receiver, a smaller transmitter, and (hopefully) an insulin dosing claim. Read our Dexcom 4Q15 report.
• We estimate Medtronic’s 4Q15 CGM sales totaled ~$95 million (rising ~32% YOY), and 2015 sales totaled an estimated ~$340 million (rising ~27% YOY). [These are estimates and could be off in magnitude and direction. Medtronic confirmed with us that roughly 20% of sales now come from CGM, rising from 15% based on a chart presented at the 2014 Analyst Day. The mix likely varies from quarter to quarter.] Assuming Medtronic’s geographic CGM sales split is consistent with overall sales, US CGM revenue was an estimated ~$59 million in 4Q15 (up 31% YOY) compared to international revenue of ~$36 million (up 33% YOY). Near-term CGM launches include Guardian Connect in Europe this summer (standalone, Bluetooth-enabled Enlite 3 mobile CGM targeted at MDIs) and the Enlite 3 CGM sensor next year in the US (as part of the MiniMed 670G and standalone Guardian Connect). Read our Medtronic 4Q15 report.

Estimated Market Shares by Sales (4Q15)

• Dexcom had an estimated ~66% share of the US CGM market by sales in 4Q15, up from ~62% in 4Q14 and ~54% in 4Q13. This seems in the ballpark based on Dexcom’s 76% share of the diabetes market research company dQ&A patient panel in 4Q15 (contact CEO Richard Wood) and 63% share of the T1D Exchange registry (per a presentation at Dexcom’s ATTD 2016 symposium). Dexcom has steadily grown its market share with a slew of products leveraging the G4 Platinum sensor (Share, G5, t:slim G4, Animas Vibe), though things will likely become more competitive soon if: (i) Medtronic successfully launches Enlite 3 in the US (MiniMed 670G and Guardian Connect; ~2017); (ii) Abbott launches the consumer version of FreeStyle Libre (“optimistically” by end of 2016); and (iii) Senseonics launches Eversense (mid-2017 at the earliest).
• We estimate that Medtronic held ~68% of the international CGM market by sales in 4Q15. This was consistent with 4Q14 and down from ~84% in 4Q13. Dexcom has steadily increased its international business over that time, which accounted for 15% of sales in 2015 ($53 million) compared to 8% of sales in 2013. Medtronic has seen strong adoption of the MiniMed 640G/Enlite Enhanced in Europe, and assuming Guardian Connect is launched on time this summer, its international market share could expand.
• Abbott’s market share is unknown at this time, as it has not reported sales for FreeStyle Libre in Europe.

Insulin Pumps

• We estimate the insulin pump market grew ~4% YOY in 4Q15 to ~$584 million. Full-year sales grew an estimated ~1% in 2015 to ~$2.2 billion. Full-year growth of ~1% marked a slow down from 2014’s robust 9% YOY gain. The US drove all the industry’s gains in 2015, with ~5% YOY growth (~$1.4 billion) vs. a 6% decline internationally (~$808 million). This marked the first time ever in our model that full-year pump sales did not grow outside the US, reflecting currency headwinds on the strengthening US dollar. As a reminder, these combined pump sales figures are highly estimated, as only Tandem and Insulet break out sales.
  
  • The pump industry is still seeing modest growth. Will automated insulin delivery accelerate the category? The market is pretty mature at this stage, and some step function changes are presumably needed to take it to the next level. Automated insulin delivery could be just such a change, though it’s hard to know how many MDI patients will make the leap. We’ll get a first look next year, of course, when Medtronic’s MiniMed 670G is expected to launch in the US.

Figure 9: Pooled Insulin Pump Revenue (1Q12 – 4Q15)

• Medtronic’s estimated worldwide insulin pump sales were ~$379 million in 4Q15 (~0.5% growth YOY) and ~$1.5 billion in 2015 (~0.6% growth YOY). [Medtronic confirmed with us that roughly 80% of its sales now come from pumps, decreasing from ~85% based on a chart presented at the 2014 Analyst Day. This could vary from quarter to quarter.] Medtronic saw impressive “65% pump growth” in Europe on strong sales of the MiniMed 640G, an acceleration from 3Q15’s “nearly 40%” growth. Given the currency headwinds throughout the year, the US business provided all of Medtronic’s reported growth in 2015: overall Diabetes sales increased 9% YOY in the US vs. -2% outside the US (we assume ~5% pump growth in the US vs. -5% internationally). Medtronic did see positive operational growth OUS in every quarter in 2015, including three quarters with double-digit gains – that suggests the underlying international business is still growing pretty well. The company is well-positioned for pump growth near-term – an FDA submission of the MiniMed 670G/Enlite 3 hybrid closed loop is expected before the end of this June, meaning a launch is still possible by April 2017. More here.
• Insulet’s worldwide OmniPod sales in 4Q15 grew a solid 20% YOY ($68 million), though full-year OmniPod sales grew an uncharacteristically modest 2% YOY ($227 million). The latter reflected a challenging year in the international business, where a 20% YOY decline in 2015 sales ($40 million) reflected Ypsomed’s de-stocking of inventory early in the year. The US OmniPod business also had a rough start to the year (-4% YOY in 1Q15, +1% in 2Q15), though sales picked up steam in the second half of the year (+12% in 3Q15, +21% in 4Q15). Notably, new US patient starts rose over 20% YOY in 4Q15, reaching the highest point in Insulet’s history. Management guided for mid-teens YOY US OmniPod growth in 2016, understandably conservative guidance given the volatile 2015. We’re especially glad to see Insulet making bigger investments in a digital strategy and automated insulin delivery (it licensed the UCSB algorithm from Mode AGC in 4Q15), which are both essential for competing with Medtronic.
• We estimate J&J Animas pump sales were ~$55 million in 4Q15 and ~$215 million in 2015. These are ballpark estimates, as J&J does not disclose pump sales for the overall Animas business. Combined LifeScan/Animas sales did have a rough year, as sales declined 7% in 4Q15 and dropped 10% in 2015. That said, the Animas Vibe saw strong 32% operational growth in the first half of 2015 followed by “double-digit” growth in 3Q15 and 4Q15. The company is currently planning a pivotal study of its hypoglycemia-hyperglycemia minimizer with the FDA.
• We estimate that Roche’s worldwide pump sales were ~$55 million in 4Q15 and ~$200 million in 2015 (8% operational growth YOY). These are also highly estimated, as Roche does not disclose pump sales. Pumps were characterized as a driver of growth in nearly all recent quarterly updates (3Q15; 2Q15; 1Q15), and we assume the modest growth reflects uptake of the Accu-Chek Insight (next generation insulin pump and BGM system) that launched in the EU in January 2014. Management believes it can sustain this growth momentum moving forward, labeling pumps as one of a handful of “opportunities” in Diabetes Care in 2016.
• Tandem’s sales totaled $29 million in 4Q15 (63% YOY gain) and $73 million in 2015 (46% YOY gain) in 2015. There was a “tremendous response” to the Dexcom-integrated t:slim G4 in 4Q15, which carried sales and accounted for 62% of pumps shipped. Tandem shipped a record-high 6,234 pumps in 4Q15, a 59% YOY increase from 4Q14 and an 82% sequential gain from 3Q15. To date, Tandem has shipped 33,825 pumps, encouraging uptake after just three years on the market. “About 50% of shipments” came from MDI patients, suggesting Tandem is still expanding the market at the same rate it is stealing share. Tandem’s 2016 full-year guidance suggests a lot of management confidence going forward: full-year sales of $105 million-$112 million, representing annual sales growth of 44%-54% vs. 2015 – in other words, higher growth from a higher base of sales.
• Cellnovo’s sales totaled €346,524 in 4Q15 (up four-fold YOY) and €608,000 in 2015 (up five-fold YOY). We look more at actual sales rather than growth, given the low sales base in these early days of commercialization. The company shipped 102 pump systems in 4Q15, bringing cumulative shipments to 224 since launching in 2014.

Estimated Market Shares by Sales (4Q15)

4. Obesity

• Combined sales of Vivus’ Qsymia (phentermine/topiramate extended-release), Arena/Eisai’s Belviq (lorcaserin), and Orexigen/Takeda’s Contrave (naltrexone/bupropion extended-release) were $35 million in 4Q15 and totaled $153 million in 2015 year-end revenues. Total revenues for 4Q15 represented a 31% ($6 million) YOY growth and total 2015 year-end revenues represented a 58% ($57 million) YOY increase. Specifically, Qsymia generated revenue of $14 million in 4Q15 (up 10% YOY and flat sequentially) and $55 million in 2015 (up 20% YOY); Belviq posted $7.9 million in sales in 4Q15 (down 21% YOY and 14% sequentially) and $44.6 million in 2015 (down 0.8% YOY); and Contrave saw net sales of $13 million in 4Q15 (flat sequentially) and $53.5 million in 2015 (up 723% YOY; after having launched in 4Q14 with $6.5 million). Contrave launched halfway through 4Q14, leading us to believe that the increased revenue for 2015 is due to the additional sales from Contrave.
• Both Qsymia and Belviq experienced some of their historically lowest quarters, following the cost reductions of Vivus and Arena. Qsymia’s 4Q15 revenues of $14 million mark the product’s lowest YOY growth (+10%) since its launch; however, Qsymia maintains the majority market share at 36% (of the total of Contrave, Belviq, and Qsymia). Belviq’s 4Q15 revenues of $7.9 million represent its lowest quarter since 4Q13, with a market share of 29%. As a reminder, this follows Vivus’ 2Q15 update of significant cost cutting across the company, which was shortly followed by the departure of the company’s Chief Financial Officer Mr. Svai Sanford. Arena similarly announced the requested retirement of its President and CEO Mr. Jack Lief late last year, which was followed by the 3Q15 update of a cost reduction plan and discontinuation of Belviq’s lifecycle management programs. The future of these two obesity drug players does not look bright – one small hope that remains is the potential for positive CVOT data as Arena makes progress on its CVOT CAMELLIA (as CV benefits may catch the eyes of payers), although Vivus’ CVOT ACQLAIM remains to be in discussions around possible redesign with the FDA.
• While Contrave has built a strong market share, we see newfound pressure on Orexigen after Takeda’s recent departure from the partnership. Contrave has seen impressive growth since 1Q15 and while its revenues have started plateauing in recent quarters, its 35% market share for year-end revenues (of the total of Contrave, Belviq, and Qsymia) is impressive for being one-year post launch. In March, Orexigen announced a “strategic” acquisition of all US rights to Contrave, following an agreement with Takeda to terminate the Amended and Restated Collaboration Agreement. This leaves Orexigen with significant financial burdens as a smaller company, and without Takeda’s support and marketing expertise (Takeda originally agreed to fund 75% of Contrave’s post-approval development activity costs as well as potential support for the new CVOT).
  
  • We are glad to see Orexigen moving Mysimba (Contrave in US) into Europe. The company recently announced a commercialization and distributorship agreement with Valeant Pharmaceuticals for 19 Central and Eastern European countries; Orexigen expects Valeant to launch Mysimba in the 12 EU countries in 2H16 and Valeant is also anticipated to apply for marketing authorization in the non-EU countries. While Valeant may not be a popular leader at present, this greater access to obesity treatments is exciting from a public health standpoint, especially due to the limited treatment options for a growing unmet obesity need in these regions.
• While Novo Nordisk has not broken out Saxenda’s (liraglutide 3.0 mg) sales from those of Victoza, the company remains positive about the drug’s market share by value and its share within formularies. According to Novo Nordisk’s 4Q15 update, Saxenda holds onto 31% market share by value – likely due to the drug’s comparatively high cost ($1,068 per month). In terms of total prescriptions (TRx), Saxenda is on an upward trend but still lags behind other prescription obesity medications with only 11% of total prescriptions. Management also shared that Saxenda has contracted with a number of undisclosed PBMs and is growing its share within each formulary. The obesity class as whole did experience revenue growth, which may show some hope for the market, and continued interest from patients and physicians in the use of weight loss medications for the treatment of obesity. We remain hopeful that Novo Nordisk’s resources, particularly in terms of pushing reimbursement forward, will positively influence the slower-moving obesity drug market.
• On the device front, the topline results of GI Dynamics’ ENDO Trial for EndoBarrier failed to meet its primary efficacy and safety endpoints –disappointing news for the company. These results represent quite the letdown after GI Dynamics expressed confidence in the final dataset’s results in its 3Q15 update and after the German Diabetes Society shared promising interim data on the therapy’s A1c benefits in a statement late last year. Notably, the company said that these results have “revealed an opportunity to improve the clinical algorithm,” as GI Dynamics has developed an approach to reduce hepatic abscess incidence and ultimately improve the device’s risk-benefit profile. Moving forward, the company plans to discuss with the FDA if the Agency can approve an investigational device exemption to conduct a new US clinical trial to determine EndoBarrier’s efficacy and safety using the revised clinical treatment algorithm. Regarding revenues, the company did not provide a 4Q15 update, though its other reported sales have remained on a constant decline to $0.2 million in 3Q15 (a 67% YOY drop and 35% sequential drop). While obesity devices may promise minimal invasiveness and significant weight loss, they have not yet made their mark as viable widespread treatment options due to concerns ranging from safety concerns (like with EndoBarrier) to high price tags (like with EnteroMedics’ VBLOC Therapy).

Figure 10: Qsymia, Belviq, and Contrave Revenues (1Q13– 4Q15)

-- by Melissa An, Adam Brown, Helen Gao, Varun Iyengar, Sarah Odeh, Emily Regier, Ava Runge, and Kelly Close