Memorandum

Sanofi 1Q14 – Diabetes Division up 8% as reported despite ~$100 million Lantus stocking hit – April 29, 2014

Executive Highlights

  • Diabetes Division sales grew 8% as reported and 13% in constant currencies in 1Q14 to €1.6 billion (~$2.3 billion)
  • Global Lantus (insulin glargine) sales also rose 8% as reported (14% in constant currencies) to €1.4 billion (~$2.0 billion) in 1Q14, despite a negative impact from US wholesaler stocking of ~$100 million.
  • Sanofi has moved up its timetable for the ex-US submission of its PCSK9 inhibitor alirocumab from “early 2015” (4Q13 update) to 4Q14; US submission dependent on cardiovascular outcomes study and FDA discussions.

Sanofi presented its 1Q14 financial update this morning, in a call led by CEO Mr. Christopher Viehbacher. The company’s overall Diabetes Division posted year-over-year reported growth of 8% (13% in constant currencies) to 1.6 billion (~$2.3 billion), a strong total that, nonetheless, fell somewhat short of the ~12% reported growth seen in the previous three quarters. The difference was due in large part to an ~€70 million (~$100 million) change in US wholesaler stocking for Lantus – without that issue, the entire Diabetes Division portfolio would have posted growth of 12%, comparable with previous quarters. Nonetheless, the US remained a growth driver for Lantus, and global Lantus sales rose 8% year-over-year as reported in 1Q14 (14% in constant currencies) to €1.4 billion (~$2.0 billion). We learned that Sanofi’s U300 insulin glargine formulation will have the brand name Toujeo, and that the company hopes to confirm submission in both the US and EU in 2Q14 (matching previous guidance).

Management commented frankly on the reimbursement challenges in Germany that led the company to withdraw its GLP-1 agonist Lyxumia (lixisenatide), which posted revenue of €5 million (~$7 million) in 1Q14. The LixiLan (Lyxumia/Lantus) fixed-ratio combination is still in phase 3, with a filing still targeted for late 2015.

Outside of diabetes, the company shared that the phase 3 PCSK9 inhibitor alirocumab (for hypercholesterolemia) should be filed in EU in 4Q14, meaning that its timeline is similar to Amgen’s timeline for its phase 3 evolocumab. US filing is still contingent upon the drug’s cardiovascular outcomes data and related discussions with the FDA.

Included below are our top ten highlights from the call, followed by selected Q&A.

 

Table 1: Diabetes Division 1Q14 Sales by Product

 

1Q14 Sales (in millions)

Reported/ Operational Growth from 1Q13

Reported Growth from 4Q13

Total Diabetes Division

€1,662 ($2,277)

8% / 13%

-4%

   Lantus

€1,448 ($1,984)

8% / 14%

-4%

   Lyxumia

€5 ($7)

-

0%

   Apidra

€75 ($103)

14% / 20%

-7%

   Insuman

€32 ($44)

-3% / 3%

-3%

   Amaryl

€86 ($118)

-9% / 0%

-6%

 

Top Five Highlights

1. Sanofi’s Diabetes Division achieved sales of €1.6 billion (~$2.3 billion) in 1Q14, up 8% year-over-year on a reported basis (13% in constant currencies) and falling 4% sequentially as reported. The year-over-year (YOY) comparison was fairly challenging, as the Diabetes Division posted YOY growth of 17% as reported in 1Q13 (compared to growth in the range of 12-13% in the other three quarters of 2013). From a reported growth perspective, 1Q14 was a slight slowdown from previous quarters – YOY growth was 17% in 1Q13, 13% in 2Q13, 12% in 3Q13, and 12% in 4Q13. The slowdown was due in large part to relative loss of approximately €70 million due to wholesaler restocking changes for Lantus in the US (see below). Without that stocking change, YOY reported growth in 1Q14 would have been closer to 12%, more comparable with previous quarters.

2. Global Lantus (insulin glargine) sales rose 8% YOY as reported (14% in constant currencies) and fell 4% sequentially to €1.4 billion (~$2.0 billion). As with the results for the total Diabetes Division, the YOY comparison for Lantus was fairly challenging, as the franchise grew 20% YOY in 1Q13. See Table 2 below for a full breakdown of Lantus sales by geography. Foreign exchange had a significant negative impact on results in the US, Emerging Markets, and Rest of World (ROW). The Lantus SoloSTAR pen represented 61% of total Lantus revenue vs. 57% in 1Q13.

  • Sales in the US (a market responsible for around two-thirds of total Lantus sales), rose 10% as reported and 15% in constant currencies to €950 million (~$1.3 billion). Management noted that changes in wholesaler stocking had a negative impact of ~€70 million in 1Q14 Lantus revenue relative to 1Q13. Without that effect, Lantus sales would have been up a striking 19% as reported in 1Q14, rather than the 10% growth actually posted. This topic received some attention during Q&A, when management shared that approximately 60% of the difference was related to unusually high inventory levels in 1Q13, and about 40% was due to unusually low inventory levels in 1Q14. At the end of 1Q14, wholesaler inventory was at around 14 days, and since then it has fallen to 12 days. The company believes that this impact on stocking should be mostly limited to 1Q13, although it is likely that stocking will lead to some degree of quarter-to-quarter variability for Lantus. Management did not comment on whether this stocking applied to Sanofi’s rapid-acting insulin Apidra (insulin glulisine), which was responsible for only $38 million in US sales in 1Q14.
  • The press release noted specifically that Lantus sales in China grew 39% to €45 million (~$62 million). As China develops, it is likely to see increasing switch-over from human insulin to insulin analogs and better basals, and the Chinese market holds enormous potential due to the number of patients there.   

Table 2: Lantus revenue in 1Q14 (by region)

 

1Q14 Sales (in millions)

Reported/ Operational Growth from 1Q13

Reported Growth from 4Q13

Global Lantus sales

€1,448 ($1,984)

8% / 14%

-4%

   US

€951 ($1,303)

10% / 15%

-5%

   W Europe

€208 ($285)

6% / 6%

2%

   Emerging Markets

€225 ($308)

6% / 18%

-4%

   ROW

€64 ($88)

-6% / 9%

-17%

 

  • Other companies are developing insulin glargine biosimilar candidates, as Lantus’ patent protection expires in 2015. Lilly/BI filed their biosimilar insulin glargine in the EU in mid-2013, and submitted a 505(b)(2) new drug application with the FDA in December 2013. However, in late January, we learned that Sanofi filed a lawsuit against Lilly alleging patent infringement. Lilly denied the claim, but the lawsuit triggered a hold on possible approval for 30 months or until the case is ruled in Lilly’s favor. A 30-month hold would push approval back into 2016. We would expect to get word of an EU CHMP opinion on the candidate in the coming one or two months. Merck and partner Samsung Bioepis are beginning phase 3 trials on their insulin glargine biosimilar (read our report), and Biocon has a biosimilar glargine on the market in over ten countries (mostly in the developing world), with a global phase 3 program slated to begin in 1H14 (read our Biocon F3Q14 Report).

3. Management briefly discussed the company’s U-300 insulin glargine formulation, which will go by the brand name Toujeo. Sanofi expects to confirm submission for Toujeo during 2Q14 in both the US and Europe. Although CEO Mr. Christopher Viehbacher stated that the company has received “definitive FDA guidance” that the company will not require a cardiovascular outcomes trial, Global R&D President Dr. Elias Zerhouni followed with slightly softer language, sharing that that a CVOT is not what the company would expect, based on previous FDA interactions where the agency seemed willing to consider CV data from Lantus. In either case, it seems unlikely that a CVOT will be required, which is good news for Sanofi as well as patients – more concentrated insulin formulations meet the needs of highly insulin-resistant type 2 diabetes patients, and are associated with lower injection volumes and perhaps less nocturnal hypoglycemia (see our report on phase 3 results on Toujeo for more details). 

4. Lyxumia (lixisenatide), Sanofi’s short-acting once-daily GLP-1 agonist, brought in €5 million (~$7 million) in 1Q14, and was relatively flat sequentially. As we have seen at exhibit halls in recent meetings (such as EASD), the company is marketing Lyxumia as a “positive” addition to Lantus. Sanofi first began reporting sales for Lyxumia in 2Q13, and since then, sales have grown fairly modestly. However, during Q&A management spoke optimistically about the product’s broad launch, sharing that Lyxumia’s share of the GLP-1 agonist market in European markets ranges from 10-20%. The company plans for a launch in France in 3Q14. Lyxumia’s GLP-1 agonist market share is 12.5% in Japan, and 16% in Mexico (Sanofi’s two major ex-Europe markets for Lyxumia). The product is also available in Italy and Spain, with additional launches expected in 2014.

  • During Q&A, management commented that the US is clearly the biggest opportunity for Lyxumia, and that the company is racing to finish its cardiovascular outcomes trial (ELIXA) to enable re-submission next year. As background, the company made the bold decision in September of last year to withdraw its FDA NDA for Lyxumia to prevent interim data disclosure from ELIXA that might threaten the integrity of the ongoing trial (read our report). According to the company press release, an arbitration process regarding Lyxumia’s reimbursement is ongoing.
  • Although we are seeing a number of very long acting once-weekly GLP-1 agonists enter the market (AZ’s Bydureon, Lilly’s dulaglutide, and GSK’s Tanzeum/Eperzan), we believe there is still a role for shorter-acting agents within the class. Short-acting agents have a more pronounced effect on postprandial glucose and gastric emptying, while long-acting agents have a stronger impact on fasting plasma glucose and generally come with less nausea. As a result, Lyxumia’s growth potential depends as much with the success of Lantus (and the Lixi/Lan combination – see below) as it does with the GLP-1 agonist competitive landscape.

5. Sanofi CEO Mr. Chris Viehbacher (himself a German passport holder) expressed frustration over the German reimbursement environment for diabetes drugs, which forced Sanofi to stop selling Lyxumia in Germany as of April 1. We had learned of this decision from Zealand Pharma, Sanofi’s development partner for Lyxumia, during Zealand’s 4Q13 update in March. The decision on the part of the German Federal Joint Committee (G-BA) to rule that a number of diabetes drugs across multiple classes show “no additional benefit” compared to sulfonylureas, a decision which subjects the drugs to generic-level pricing, has frustrated a number of companies. For an in-depth look at the Germany comparative effectiveness situation, read our report on AZ’s recent withdrawal of its SGLT-2 inhibitor Forxiga earlier this year for similar reasons. In most cases, the “no additional benefit” ruling has been decided not due to the drugs’ actual comparative efficacy, but because the manufacturers’ clinical trial programs did not meet the G-BA’s narrow guidelines. Mr. Viehbacher characterized the G-BA process as overly rigid, and noted that older drugs within the GLP-1 class have not been subjected to this comparative efficacy review process from the G-BA. He suggested that the more logical way for the G-BA to evaluate cost-effectiveness would be to compare Lyxumia to drugs in the same class that are already on the market (which are priced at a premium over generics) rather than SFUs. The series of recent G-BA decisions has been a worrying trend for diabetes drug manufacturers and (of course) for German diabetes patients, who we hope will be able to mobilize to defend patient choice. 

6.  According to management, Sanofi is slightly ahead of where it thought it would be in its development program for LixiLan, a fixed-ratio combination of the basal insulin Lantus and the GLP-1 agonist Lyxumia. However, the company did not provide any additional specifics regarding timing. During the company’s 4Q13 update in February, the company announced that it had initiated two phase 3 studies for LixiLan: LixiLan-O (n = 1,125 patients with inadequate control on oral agents) and LixiLan-L (n = 700 patients not at goal on basal insulin). Since that update, both LixiLan-O and LixiLan-L have been registered on ClinicalTrials.gov. Both trials have an estimated primary completion date of August 2015 matching previous guidance for a submission in late 2015. This timeline places Sanofi on track to get its basal insulin/GLP-1 agonist combination to the US market ahead of Novo Nordisk, which had its IDegLira (insulin degludec/liraglutide) combination pushed back until 2016 at the earliest due to the FDA CRL for insulin degludec (Tresiba) – see our Novo Nordisk 3Q13 Report for more detail.

7. Outside of diabetes, Sanofi’s phase 3 PCSK9 inhibitor alirocumab (for hypercholesterolemia and other associated indications) was a major point of discussion during the call and Q&A. The company presented phase 3 monotherapy results at last month’s American College of Cardiology Scientific Sessions, showing a 47% mean LDL cholesterol reduction. This efficacy fell somewhat short of the efficacy seen with Amgen’s phase 3 PCSK9 inhibitor evolocumab (LDL reductions ranged from ~50-75% with that candidate). During the presentation, management shared that the level of LDL reduction in statin-intolerant patients seen with alirocumab is comparable to that seen with Amgen’s evolocumab (as tested in GAUSS-2), and that the class’ side effect profile appears to be relatively benign. The company plans to release topline phase 3 results from additional trials in 2Q14 and 3Q14.

  • Notably, the company has advanced its timeline for the European submission of alirocumab from early 2015 to 4Q14, placing it neck-in-neck with Amgen’s timeline for evolocumab. US submission continues to be gated by the progress of the ODYSSEY outcomes trial and related discussions with the FDA. The company believes that the FDA policy regarding CVOTs will be consistent across the PCSK9 inhibitor class.

8. Sanofi’s rapid-acting insulin analog Apidra (insulin glulisine) rose 14% year-over-year as reported (20% in constant currencies) and fell 7% sequentially to €75 million (~$100 million). Apidra posted relatively strong gains through 2013 (27% YOY in 1Q13, 21% in 2Q13, 28% in 3Q13, and 25% in 4Q13), albeit from a much smaller base than Lantus. The product did not receive any significant mention during the call.

9. In terms of Sanofi’s other diabetes products: the company’s human insulin Insuman fell 3% YOY as reported (up 3% in constant currencies) to €32 million (~$45 million). Amaryl (glimepiride), which the company does not market in the US, fell 9% YOY as reported (flat in constant currencies) to €86 million (~$120 million). 

10. In a bit of big-picture commentary, CEO Mr. Christopher Viehbacher noted that the diabetes market is becoming increasingly competitive. However, he suggested that rebate pressure was not a major impact in 1Q14, and that the increased competition will likely not cause a deviation from the company’s forecast for the year (suggesting perhaps that this pressure was built in to the forecast). He suggested that some players in diabetes are pushing harder than others for market share, but did not go into specifics on that front. Of course, the increased competition in diabetes care is not a new idea, but we always appreciate hearing recognition of the subject from very high-level management.

 

Table 3: Sanofi’s diabetes drug pipeline

Drug Name

Class

Status

Timeline

Toujeo (U300 insulin glargine)

Concentrated basal insulin

On the verge of submission in US and Europe

Submission in 2Q14

LixiLan (Lyxumia/Lantus)

GLP-1 agonist/ basal insulin fixed-ratio combination

Phase 3

Targeting submission in late 2015

Lyxumia (lixisenatide)

GLP-1 agonist

Approved / phase 3

US submission expected in 2015

Alirocumab              

PCSK9 inhibitor

Phase 3

EU submission in 4Q14, US submission dependent on CVOT discussions

Insulin Biosimilar Program

Biosimilar insulins

Phase 1

Unknown

 

Questions and Answers

Q: Can you clarify if the €70 million that you mentioned for Lantus is the net change on 1Q13 compared to 1Q14 or is it a high inventory level carried in Q1for a lower inventory level that occurred in Q1 and will hence wash out?

A: It was a higher level last year and a lower inventory level this year because of the difference being €70 million. It’s about 60% related to the higher inventory level last year and 40% related to this year.

Q: Could you give us a feel for what inventories are at nowadays?

A: On inventory, we’re down to 12 days. At the end of the quarter, it was about 14 days, so we’re obviously at a pretty low level of inventory, and this is the trend. In industry, there is a question always of how things are managed and on cash flows, and I think we’ve got to quite a low level of inventory. We’ll have to wait and see where that goes. I suspect that over the course of quarters that could go up and down a bit, but I think it looks it has, as far as we can tell, washed out.

Q: Could you speak to the U300 filing strategies in the US vs. EU, and also the related regulatory requirements around a particular in the cardiovascular side effects if it is a new drug application (NDA) in the US?

A: As far as the cardiovascular outcome study for Toujeo [Sanofi’s next-generation, U300 insulin], it’s not what we expect. We know for sure that the FDA is looking at Lantus as the comparer. As far as all of our interactions with the Agency, there are no expectations to conduct a cardiovascular outcome study in the US.

Q: You mentioned that in the US the FDA is likely to have the same position for the different products in the same place, in terms of the requirement of the CV trial. Can we assume that if Amgen files and the filing is accepted, then Sanofi will be ready to do that almost immediately? Or would it take you a few months to prepare the dossier?

A: It’s difficult to compare exactly where Amgen is. The only thing we would say is that from what we understand, there is no real reason to suggest that we would be either ahead or behind Amgen at this stage. As far as we can tell from public explanations by Amgen, we would expect that these are on roughly the same timeline. There’s a great deal of elements that you can go into here, but we prefer at this stage not to do that. There is the outcomes study and there are ongoing discussion, so we prefer not to be any more precise.

Q: Do you have any comments on the rebate pressure? Has it turned out to be as hard as you were flagging at the beginning of the year?

A: Rebates are not a significant impact in this quarter. I think it’s fair to say that the diabetes market is becoming increasingly competitive. I think some are pushing harder than others for market share. So far we haven’t see anything on the horizon that would cause us to change our business outlook for the year, but there is definitely an increased competitiveness in this field.

Q: How do you see emerging markets going forward, especially with China recovering?

A: In general, our emerging markets were affected a little bit by some of the timing on Pentaxim. This is our pentavalent emerging markets vaccine, not produced in Toronto so it’s nothing to do with that – it’s really a timing issue. If I take the vaccines part out of that, sales of pharmaceuticals in emerging markets were up 8.6%.

You can see that emerging markets from quarter to quarter is going to be affected by here and there…One of the things I keep telling people is that just because you see a decrease in the growth in GDP, that doesn’t mean that you see a change in the fundamentals of what drives healthcare markets. One is the emerging middle class, which continues….

The second thing you see, generally, across emerging markets is a significant migration of people from rural areas into the cities. This is extremely important because not only do people make more money in cities, but people start eating differently and having different activity levels, which cause certain disease – additionally, cities are where the doctors and hospitals are. You’re seeing quite significant investment in healthcare infrastructures across most emerging markets because that is the way governments convey that they are benefiting from economic growth of their country.

The fundamentals of emerging markets in healthcare continue to be attractive. You’re going to always be subject, here and there, to when a government decides to perform a price decrease, or when there’s a tender that doesn’t get made, or there’s some varying buying patterns. However, over the next year and coming years, I think emerging markets are a big areas. I have to say, many CEOs who I talk to different meeting are al of that view – I don’t think that this is just a Sanofi view.

Q: The stocking of Lantus is negative from Q1… with Q1 already well in the middle of the range, how could you explain the announcements of your guidance except that you are usually reluctant to move guidance after the first quarter?

A: We’ve never looked at guidance at the end of a quarter. I think it’s always a good idea to give guidance at the beginning of the year and then look at things again midyear. There’s still much time left in the year, and I think it’s good to have a better sense of it – the guidance we gave a few weeks ago is still valid.

Q: Are you happy with Lyxumia’s progress, excluding the situation in Germany? Or would you say that it’s taking more time than you expected to make this drug significant?

A: Obviously this is a European launch to start with. We’ve had good success in Japan, and our market share across Europe, depending on where we are, is anywhere from 10-20%. Yes, we are on track. Clearly the situation in Germany is something that has frustrated a number of companies – you suddenly have an AMNOG law [the German Act to Reform the Market for Medicinal Products – introduced a mandatory early benefit assessment for all new active pharmaceutical ingredients] that subjects some new products to be evaluated in a way that products in a class reimbursed before the law didn’t have to be submitted to.

The curious thing is that, true to German style – and speaking as someone with a German passport – there is a very black and white view to this. You can propose pricing less than existing products in the same class, but the Germans are absolutely geared to looking at some other comparator vs. drugs that they are actually paying quite a lot of money for. It’s a very non-economic way of looking at things, but there are certain rigidities in Germany.

The big opportunity is clearly going to be in the US. We are racing to finish our safety study and be able to file next year. Japan has about 12.5% market share. Mexico is in there around 16%. We’ll expect to launch in France in 3Q14. It would be a whole lot nicer if you could launch in the US and then get Japan and then Europe, but we’ve done that in kind of reverse order. However, considering everything we’re seeing, we’re very happy with the progress of Lyxumia.

--by Manu Venkat, Hannah Martin, and Kelly Close