January 9-12, 2017; San Francisco, CA; Day #1 Highlights – Draft

Executive Highlights

Greetings from the 35^th Annual JP Morgan Healthcare Conference in our home base of San Francisco, where this time the conference has come to us! We spent day #1 (Monday) navigating the absolutely packed halls of the Westin St. Francis alongside nearly 9,000 other attendees, gleaning the latest insights into the diabetes drug and device industry. See below for our top 15 highlights – there is much to report even after only one day! Take a look at our preview for a look at what the rest of the week has in store – today, Monday, Roche, Pfizer, Dexcom, and Abbott, among others!

Diabetes Technology

1. Medtronic shared that the full US launch of the MiniMed 670G hybrid closed loop will now occur in May-October, with only an initial “customer training launch” to occur by the end of this April. The rollout will be very deliberate, management said, confirming our expectations. An international launch of the MiniMed 670G and US launches of the standalone Guardian Connect mobile CGM and the Sugar.IQ app with Watson are also expected in May-October (the latter two are coming after we had expected).

2. Insulet CEO Patrick Sullivan gave a condensed version of the November Investor Day deck and confirmed the same pipeline timing, including a mid-2017 FDA submission of the new Dash Android PDM (launch by end of year). An insightful and convincing commentary in Q&A shared thoughts on the payer landscape, Insulet’s differentiated business model, and competition. We continue to be very impressed with this leadership and team; for us, the 670G isn’t worth the noise it’s created, since patients that want a traditional pump wouldn’t be after Omnipod anyway and vice versa.

3. Baxter isn’t a company that typically has diabetes-related announcements, but we wanted to share something from CEO Mr. José Almeida, who mentioned that the ongoing launches of AMIA (US) and CLARIA (outside of the US), both peritoneal dialyzers that include the SHARESOURCE connectivity platform, have been “very successful.” Notably, he expressed “the new dialyzer, THERANOVA, by itself is probably the closest to human kidney performance you get in a dialyzer…We are confident that it will launch in the next two years.” That’s one we’ll be watching since about thirty percent of people with type 1 eventually have kidney failure, and ten to forty percent of people with type 2. 

Diabetes Therapy

4. Speaking to a packed room, Intarcia CEO Mr. Kurt Graves unveiled a brand-new partnership with Calibr (California Institute of Biomedical Research) to develop a combination peptide product for diabetes and obesity – the third diabetes-related candidate to join Intarcia’s burgeoning pipeline. Mr. Graves also outlined a number of strategies to differentiate and competitively position ITCA 650 within the robust diabetes market. He also chatted about the recent Gates (!) Foundation partnership.

5. In a conversational fireside chat type of talk, Merck CEO Mr. Ken Frazier expressed an extremely positive outlook on the company’s DPP-4 inhibitor franchise and its upcoming SGLT-2 inhibitor franchise, despite continued pricing pressures and a competitive commercial landscape. Companies dream of franchise like Januvia – it’s been a very commercial success to date despite the slowdown and we also look forward to the drug being generic one day and available to many more patients even while Merck will have next-gen drugs available. 

6. In what was a pretty big surprise to us, ViaCyte appears to be de-emphasizing its phase 1/2 PEC-Encap beta cell encapsulation therapy in favor of its preclinical PEC-Direct therapy.

7. Amgen’s presentation centered on the highly-anticipated upcoming FOURIER cardiovascular outcomes data for the PCSK9 inhibitor Repatha (evolocumab), which are to be presented at the ACC conference in March – this will be a very big deal. In the ensuing breakout session, Amgen management expressed strong support for the recent US District Court ruling banning the sale of Repatha’s main competitor, Sanofi/Regeneron’s Praluent (alirocumab).

8. Regeneron CEO Dr. Leonard Schleifer discussed the currently unfolding legal situation surrounding its Sanofi-partnered PCSK9 inhibitor, Praluent (alirocumab), emphasizing that Regeneron will do everything in its power to make sure that Praluent remains accessible to the patients who need it.

9. Novartis’ CEO Mr. Joseph Jimenez discussed the company’s investments in NASH as part of a “bolt on strategy” to strengthen the pipeline. Very notably, Mr. Jimenez shared that the company is developing an SGLT-1/2 dual inhibitor for NASH and that this candidate may move into phase 2 studies soon. Mr. Jimenez also highlighted an aim to “turn around Alcon.”

10. Takeda announced its decision to restrict its R&D focus strictly to oncology, gastrointestinal disease, and diseases of the central nervous system – diabetes and obesity are notably not included on this list.

11. Mr. Alex Gorsky, CEO of J&J, shared no major updates on the diabetes front (or otherwise for that matter).

Big Picture Highlights

12. CMS Acting Administrator Mr. Andy Slavitt excitedly announced that, for the first time in the 50-year history of Medicaid, there will be a comprehensive data platform containing claims and pharmacy data. The first release will include data from the majority of the states, which will contribute information on a monthly basis, but eventually encompass all 50 states.

13. Three pharma powerhouses, Bristol-Myers Squibb CEO Mr. Giovanni Caforio, Novartis CEO Mr. Joseph Jimenez, and CEO of PhRMA Mr. Stephen Ubl, participated in an engaging panel discussion on drug pricing.

14. Venrock’s Mr. Bob Kocher led off a panel discussion on value-based care with a grim overview of healthcare economics: $3.3 trillion dollars are spent on healthcare in the US every year, with two-thirds of the spend going toward wages, and abysmal average margins of -3%. Four value-based care experts on the panel discuss how technology and alternative payment models can help address this financial burden.

15. Very special guest Vice-President Joe Biden spoke movingly on the need to modernize the healthcare and research system to realize the promise of the “cancer moonshot.” Much of his speech highlighted the near-universal drive and commitment to fight and even cure cancer.

Diabetes Technology Highlights

1. Medtronic MiniMed 670G full US launch in May-October, with initial training launch by April; Guardian Connect and Sugar.IQ with Watson Delayed to May-October

Medtronic CEO Omar Ishrak gave a diabetes pipeline update, headlined by news that the full US launch of the MiniMed 670G hybrid closed loop will now occur in May-October of this year, with only an initial “customer training launch” to occur by the end of this April. Medtronic will still technically hit the previously planned “Spring 2017” and “April 2017” timing with the “customer training launch,” though it’s now clearer than ever that this initial rollout will be very deliberate and go slower than many expect. The slide’s layout did imply that the full 670G launch will be closer to May than October (see below), though it’s hard to know for sure. Mr. Ishrak emphasized that the device is a “major breakthrough in diabetes,” but will “require some care in the launch.” A controlled 670G launch is definitely in line with Medtronic’s press release following the September FDA approval (“system availability increasing over time”), though this is the first we’ve heard of plans for the initial “customer training launch” (de-emphasized and hardly readable in the pipeline slide), followed by a full launch in the May-October time frame (called out on the slide in a big, bold box). We wonder how big that initial customer launch will be, what might be learned, and if it will change Medtronic’s subsequent marketing, training, or launch plans. Certainly, the company MUST manage expectations and training carefully, and it is still ahead of the nearest competition (see our latest AID landscape here). It’s also possible that certain pieces of the launch plan are taking longer than expected (e.g., patient and HCP education, reimbursement, manufacturing), a good reminder as other companies plan timelines for this new class of diabetes devices. There is a lot to execute on here. An international launch of the MiniMed 670G is also slated for this May-October, the first launch timing we’ve heard – as of September’s FDA approval, we only knew that international regulatory “approval” was expected in “summer 2017.” On the sensor side:

• Medtronic’s new standalone mobile CGM, Guardian Connect with Guardian Sensor 3, is now slated for a US launch in May-October, behind the previous plan to launch by this April. This is a direct competitor to Dexcom’s G5 and an important Medtronic foray into CGM for MDIs.
• The Sugar.IQ app with IBM Watson has also been pushed back to a US launch in May-October, a significant delay from the earlier plan to launch by the end of 2016. This cool app was demoed and beta launched in September at Health2.0. We wonder if the full launch has been pushed back to coincide with the Guardian Connect launch – Medtronic has long maintained that this app will be focused more on standalone CGM users than pumpers.

2. Insulet on the Competition and Payer Landscape: Differentiated OmniPod Business Model a Big Advantage

Insulet CEO Patrick Sullivan gave a condensed version of the November Investor Day deck and confirmed the same pipeline timing, including a mid-2017 FDA submission of the new Dash Android PDM (launch by end of year). We most enjoyed the insightful and convincing commentary in Q&A on the payer landscape and competition. The fast-paced, standing-room-only Q&A emphasized the OmniPod’s differentiated business model from other pumps – a big advantage as the company talks to payers and defends against the near-term competitive noise from Medtronic’s MiniMed 670G. Mr. Sullivan persuasively noted that Insulet’s revenue model is a recurring stream, and in any given quarter, just 8%-10% of new revenue comes from new patient starts. President Shacey Petrovic added that the OmniPod business model is really an at-risk model with payers already – the startup OmniPod cost ($500-$600) is one-tenth of traditional tubed pumps, and if patients stop using the OmniPod, Insulet loses the revenue. In other words, a traditional tubed pump is a riskier upfront investment for payers. Meanwhile, Insulet continues to gather real-world data on outcomes through its very successful Glooko partnership and has doubled the size of its market access team. Mr. Sullivan called the MiniMed 670G a market “distraction” for Insulet, but not a “disruption” as it has been for other pump companies (e.g., Tandem) – indeed, Insulet reported a strong 3Q16 and we expect the momentum to continue into 4Q16 based on today’s optimistic commentary (nothing specific shared on guidance or sales). The presentation reiterated that 80% of Insulet’s new patients are from MDI, a clear sign it is expanding the market and also less likely to lose many patients to the 670G – the hybrid closed loop will be a big jump for the majority of type 1s on MDI and fingersticks. Analysts pressed management in Q&A about the Ypsomed international distribution partnership, which expires in mid-2018; management said it may renew the agreement, go direct on its own (better margins and more control), or do some combination. (As a reminder, Ypsomed is currently launching its own tubed Ypsopump in Europe.) Last, an update on Medicare reimbursement is expected “early this year,” and management had even been hoping to share news today; we’ll likely hear more on the 4Q16 call in February. Overall, we remain impressed with the new team and the strategy, even with all the competition and pressure in insulin pumps. See quotable quotes from the Q&A below.

3. Baxter Peritioneal Dialysis Launches “Very Successful”; THERANOVA to Launch Within 2 Years

Baxter CEO Mr. José Almeida said that the ongoing launches of AMIA (US) and CLARIA (outside of the US), both peritoneal dialyzers that include the SHARESOURCE connectivity platform, have been “very successful.” He later expressed that “the new dialyzer, THERANOVA, by itself is probably the closest to human kidney performance you get in a dialyzer…We are confident that it will launch in the next two years.” He was presumably referring to US launch timing, as the system has already obtained regulatory clearance in Europe, Australia, and New Zealand. In less exciting news, Mr. Almeida shared that Baxter had been developing a home hemodialysis machine, but opted to cancel and reinvest due to their belief that the return on investment wouldn’t be optimal. Nevertheless, successful launches of AMIA and CLARIA mean that more people with renal complications are getting the therapy they need, and THERANOVA seems to be cause for further hope.

Diabetes Therapy Highlights

4. Intarcia Announces Collaboration with Calibr, Outlines Strategic Plan for ITCA 650 Launch

Speaking to a packed – albeit moderately-sized – room, Intarcia CEO Mr. Kurt Graves unveiled a brand-new partnership with Calibr (California Institute of Biomedical Research) to develop a combination peptide product for diabetes and obesity – the third diabetes-related candidate to join Intarcia’s burgeoning pipeline. The collaboration will pair Calibr’s “Stapled-Peptide Platform Technology” with Intarcia’s implantable GLP-1 agonist ITCA 650 (exenatide mini-pump, submitted to the FDA in Novemer) to develop a dual peptide therapy. For background, “stapled peptides” have a synthetic brace (“staple”) that stabilizes the peptide in a specific confirmation, which can increase target affinity, increase cell penetration, and protect against proteolytic degradation. It’s unclear what the therapeutic target of this second peptide is at this point. Intarcia is developing an antibody-based peptide SGLT-2 inhibitor in collaboration with Numab, which we imagine could be a strong candidate for co-administration with ITCA 650. Indeed, Mr. Graves especially highlighted the potential of GLP-1 agonist and SGLT-2 inhibitor combinations for patients with diabetes and obesity, given their weight-loss benefits and cardioprotective potential. In addition, as part of its acquisition of Phoundry Pharmaceuticals, Intarcia is developing glucagon and next-generation amylin candidates, which we imagine could also be co-formulated with ITCA 650 using Intarcia's Medici Technology. There is much industry interest in GLP-1/glucagon dual agonists and GLP-1/GIP dual agonists within the diabetes and obesity field and we’d be excited to see Intarcia enter this arena as well. Mr. Graves suggested that Intarcia’s dual peptide efforts will benefit from greater flexibility than competitors because Intarcia will be able to adjust the quantities of GLP-1 agonist and other peptides in the mini-pump throughout the development process, rather than being bound to specific ratios. In addition to announcing the Calibr partnership, Mr. Graves outlined a number of strategies to differentiate and competitively position ITCA 650 within the robust diabetes market – see our detailed discussion and commentary for more on this as well as background on Calibr.

5. Merck: Optimistic about SGLT-2 (ertugliflozin), DPP-4 Januvia (sitagliptin)

In a conversational fireside chat, Merck CEO Mr. Ken Frazier expressed an extremely positive outlook on the company’s DPP-4 inhibitor franchise and its upcoming SGLT-2 inhibitor franchise, despite continued pricing pressures and a competitive commercial landscape. This includes DPP-4 inhibitor products Januvia (sitagliptin) and Janumet (sitagliptin/metformin) – mainstays of Merck’s diabetes business – as well as Pfizer-partnered SGLT-2 inhibitor products ertugliflozin, ertugliflozin/metformin, and ertugliflozin/sitagliptin, all three of which were submitted to the FDA in late 2016. When asked during the breakout session how the recent expansion of the Jardiance label to include reduction of cardiovascular (CV) death would affect prospects for ertugliflozin (and, more broadly, what a four-product SGLT-2 inhibitor market might look like), Mr. Frazier demonstrated confidence in the new addition to the class. In fact, he suggested the company’s 10 plus years of experience with Januvia positions Merck ideally to make the ertugliflozin franchise another success. He was especially optimistic about an ertugliflozin/sitagliptin combination: “When you put an SGLT-2 inhibitor together with the diabetes market leader (Januvia), that could be a very important combination that gets more people to their A1c goal.” Notably, SGLT-2 inhibitor/DPP-4 inhibitor combinations haven’t seen much commercial success to date (see our recent coverage of Lilly/BI’s Glyxambi [empagliflozin/linagliptin] and AZ’s saxagliptin/dapagliflozin), but we imagine that the popularity of Januvia (along with its reassuring cardiovascular safety data from TECOS) and the phase 3 clinical profile of ertugliflozin, coupled with Merck’s longstanding marketing expertise in the diabetes field, might well strengthen the field’s enthusiasm for this particular class of combination agents (it is not our sense that there is not excitement as much as it is our sense that the payors haven’t yet recognized the value). Mr. Frazier added that the company has used EMPA-REG OUTCOME to inform the study design of ertugliflozin’s CVOT, VERTIS CV, scheduled to complete in 2019. He acknowledged that pricing pressures have been particularly volatile in the diabetes space, but suggested that this debate is more so focused on insulin rather than DPP-4 inhibitors, and further emphasized that Januvia’s growth in share of total prescriptions (TRx) continues to offset any pricing pressures in the US. Merck will report its 4Q16 earnings on February 2, and we look forward to additional details on the ertugliflozin submission as well as financial results from Januvia/Janumet.

• Mr. Frazier also spoke positively about Merck’s up-and-coming biosimilar insulin glargine business in MK-1293. However, there was no mention of the ongoing Sanofi lawsuit over patent infringement of Lantus (insulin glargine). An FDA decision on MK-1293 was expected in June 2017, but we anticipate that this may be delayed pending a lawsuit settlement. We were slightly disappointed that there was no mention of Merck’s glucose-responsive insulin MK-2640 but we know investors tend to care more about near-term candidates – the phase 1 trial of the candidate appeared to finally complete in August but we have not heard any commentary on the results from Merck management since.

6. ViaCyte De-Emphasizes Leading PEC-Encap Beta Cell Encapsulation Therapy in Favor of Less-ambitious PEC-Direct Beta Cell Replacement Therapy

ViaCyte appears to be de-emphasizing its phase 1/2 PEC-Encap beta cell encapsulation therapy in favor of its preclinical PEC-Direct therapy. CEO Dr. Paul Laikind’s presentation very clearly differentiated ViaCyte’s two beta cell encapsulation and replacement therapies. The more advanced candidate, PEC-Encap (formerly known as VC-01), encapsulates ViaCyte’s stem cell-derived PEC-01 islet cells in an Encaptra Device, which protects the cells from the immune system and is meant to eliminate the need for the immunosuppressive therapies that are currently required to cadaver islet transplants. The candidate has been in a phase 1/2 trial since 2014 and Dr. Laikind shared that the PEC-Encap demonstrated good cell survival when implanted in human subjects. Unfortunately, he acknowledged that the response has been hugely varied across participants in the trial and that the efficacy of PEC-Encap is inhibited by the foreign body response that many participants exhibits to the encapsulation device. As such, he suggested that ViaCyte will have to further refine the encapsulation and protection from immune response technology. As such, Dr. Laikind anticipates that the PEC-Direct will be the first product to market – a phase 1/2 trial for the candidate in patients with type 1 diabetes and hypoglycemia unawareness is expected to initiate in 1Q17. Unlike PEC-Encap, PEC-Direct features direct vascularization relatively small number of carefully placed ports – this minimizes the foreign body response to allow for better cell growth but also requires the patient to take immunosuppressive therapies, much as they would for donor islet transplantations. That said, PEC-Direct utilizes the same PEC-01 stem cell-derived islets, which address many of the supply and availability issues associated with islet transplantation. The first cohort in the phase 1/2 trial of PEC-Direct will enroll three to six participants and employ a limited dose to demonstrate safety. The second cohort will enroll 40 participants and feature an efficacy primary endpoint of signification production of insulin, as measured by C-peptide levels. ViaCyte expects to complete this trial and initiate a phase 3 trial in mid-2018, with approval projected for 2020 or beyond. The company expects to seek both an Orphan Drug and a Breakthrough Therapy designation, which should help speed the regulatory process. Overall, Dr. Laikind characterized PEC-Direct as posing a relatively low technical/execution risk. That said, he acknowledged that PEC-Encap’s indication will likely encompass a broader indication as it represents as a functional cure for patients with type 1 diabetes, whereas the immunosuppressive therapies required for PEC-Direct likely limits its application to only those patients with severe hypoglycemia unawareness.

• We’re disappointed that ViaCyte seems to be de-prioritizing its more ambitious PEC-Encap project for now, though we understand that PEC-Encap is a much more technically difficult proposition and acknowledge ViaCyte for advancing the field forward nonetheless. Sernova is currently developing Cell Pouch, a thin, implantable device that provides a vascularized environment for beta cells and the company hopes to eventually develop microencapsulation technologies to locally protect cells within the device. We’re curious if ViaCyte’s PEC-Direct may be an early foray into the development of a similar microencapsulation device for a broader type 1 diabetes indication – a combination of the best of both worlds of PEC-Encap and PEC-Direct, if you will. ViaCyte holds an advantage in this approach in that it already holds an unlimited cell source (PEC-01 cells) for its replacement therapies, while Sernova is still currently using donor islets in its device and is investigating several unlimited cell source options. Additionally, despite the somewhat disappointing results, ViaCyte’s is likely gaining valuable information from the PEC-Encap trial. Defymed’s preclinical MAILPAN “bioartificial pancreas” features a similar macroencapsulation approach as PEC-Encap and recently partnered with Dr. Doug Melton’s Semma Therapeutics for an unlimited stem cell-derived beta cell source – it remains to be seen if the MAILPAN system will run into similar issues as the PEC-Encap. Regardless, Cell Pouch and MAILPAN are both still pre-IND and ViaCyte remains the most advanced company in the beta cell replacement therapy field – we’re excited to see where each of these companies and therapies will be in one, five, and ten years.

7. Amgen Anticipates Positive CVOT Data and Improved Access for Repatha in 2017

Amgen’s presentation centered on the highly-anticipated upcoming FOURIER cardiovascular outcomes data for the PCSK9 inhibitor Repatha (evolocumab), which are to be presented at the ACC conference in March. Also on the subject of Repatha data, management expressed particular enthusiasm for the recent approval of the Pushtronex once-monthly Repatha delivery system by the FDA and EMA, as well as the recently-presented GLAGOV trial findings from AHA 2016, in which patients randomized to statin plus Repatha (n=423) experienced a mean 95% reduction in percent atheroma volume (the amount of abnormal fatty material in the artery), while patients randomized to statin monotherapy (n=423) experienced a mean 5% increase in this primary endpoint (p<0.0001). The GLAGOV trial results, obtained using intravascular ultrasound techniques are also published in JAMA. The high cost of Repatha remains a steep hurdle (about 75% of patients who are prescribed Repatha end up not taking it due to high cost, according to Q&A during the breakout session), and management discussed improving access as a major priority for 2017. Amgen anticipates that the expected positive data from the FOURIER CVOT may strengthen Repatha’s value proposition in the eyes of payers, and we certainly hope this is the case, for the sake of so many patients who cannot afford Repatha at its current price. We also hope that positive outcomes data can help expand the indication of Repatha to include primary prevention for those at high risk for cardiovascular events, such as the many patients with diabetes in whom residual cardiovascular risk is not adequately addressed currently.

• In the ensuing breakout session, Amgen management expressed strong support for the recent US District Court ruling banning the sale of Repatha’s main competitor, Sanofi/Regeneron’s Praluent (alirocumab). More on this surprising turn of events can be found below in our coverage of Regeneron’s presentation. 

8. Regeneron Discusses Next Steps in Response to the Controversial Legal Ban of Praluent

Regeneron CEO Dr. Leonard Schleifer discussed the currently unfolding legal situation surrounding its Sanofi-partnered PCSK9 inhibitor, Praluent (alirocumab). Late last week, the US District Court of Delaware banned the sale of Praluent, following a previous lawsuit in which Regeneron was shown to have infringed on two of Amgen’s patents covering the PCSK9 inhibitor class. The banning of Praluent from the US market came as quite a surprise; many believed that the court would simply penalize Regeneron by requiring the company to pay a royalty on sales of Praluent back to Amgen. Following the decision, Regeneron’s partner Sanofi immediately announced via press release that it will appeal this decision. However, the US District Court today issued a denial of Sanofi/Regeneron’s motion to stay the injunction. This extends the date by which Sanofi/Regeneron will be able to seek appellate review of the Court’s order to 45 days (from the original 30 days). Dr. Schleifer emphasized that Regeneron will do everything in its power to make sure that Praluent remains accessible to the patients who need it. Despite Dr. Schleifer’s positive commentary, this court decision appears to be a big blow to both Sanofi and Regeneron – many have blockbuster expectations for Praluent and at one point, albeit some time ago, Sanofi was positioning Praluent to be the new crown jewel of its combined Diabetes and Cardiovascular business unit, following flagging Lantus (insulin glargine). Sanofi presents at JPM 10 am on Tuesday and we look forward to the company’s take on this decision. This story is certainly not over yet … from our view, the CVOT results are the big deal in this field for all the companies. 

• In more positive news, management briefly highlighted the initiation of a large scale genetic sequencing project by the Regeneron Genetics Center. The project will involve the sequencing of more than 150,000 de-identified DNA samples to determine the possible targets of PCSK9 inhibitors – an excellent step forward, in our view, to better understand which patients stand to benefit most from this promising new drug class.
• Dr. Schleifer additionally expressed high hopes for Regeneron’s Bayer-partnered Eylea (aflibercept) for diabetic retinopathy (DR) with diabetic macular edema (DME). The product generated $3.32 billion in US sales in 2016 and global sales reached over $5 billion. Near-to-mid-term growth seems promising for Eylea, as increased diagnosis rates expand the market for diabetic eye disease treatments.

9. Novartis: Onward with Alcon and NASH

Novartis’ CEO Mr. Joseph Jimenez discussed the company’s investments in NASH as part of a “bolt on strategy” to strengthen the pipeline. Very notably, Mr. Jimenez shared that the company is developing an SGLT-1/2 dual inhibitor for NASH and that this candidate may move into phase 2 studies soon. We could not find any mention of this candidate on the company’s pipeline page, but are very excited by this announcement nonetheless. Lexicon/Sanofi are currently developing phase 3 SGLT-1/2 dual inhibitor sotagliflozin for type 1 and type 2 diabetes, but this is the first we’ve heard of a company developing such a candidate for NASH. Additionally, Mr. Jimenez provided an overview of several FXR agonists in clinical development for NASH within Novartis’ development pipeline – both Intercept Pharmaceuticals and Gilead have FXR agonists under development for NASH as well, in phase 3 and phase 2, respectively. Novartis’ presentation also highlighted its recent partnership with Conatus Pharmaceuticals to develop emricasan (a phase 2 oral pan-capase inhibitor). “Our goal is to build a portfolio of products in NASH that people can take from the early to the end stages of this disease,” Mr. Jimenez shared, referring to NASH an “underappreciated area.” We’re certainly glad to see this commitment to NASH, a common comorbidity of type 2 diabetes and an area of high unmet need, from a pharma giant like Novartis, although Mr. Jimenez underscored that the company will proceed cautiously – “accelerating these pipeline products will really depend on the strength of phase 2 data.” Still, we were happy to note substantial discussion of the NASH pipeline at this meeting. We look forward to even more on this during the company’s 4Q16 earnings call on January 25.

• Mr. Jimenez highlighted an aim to “turn around Alcon,” though he acknowledged that reversing the decline of Alcon, the company’s Verily-partnered ophthalmology division, was also one of five top priorities outlined at JPM 2016 last January. But he maintained optimism – growth is coming, but is merely taking longer than expected. Mr. Jimenez pointed to a couple bright spots: (i) In 2Q16, Novartis transferred all ophthalmology drugs to the pharmaceutical division and sharpened Alcon’s focus on surgical and vision care, which according to Mr. Jimenez will save $1 billion between now and 2020; (ii) 2Q16 and 3Q16 marked two consecutive quarters of sales growth for Alcon’s contact lenses. That said, we’ve heard nothing but radio silence for more than a year on the glucose-sensing contact lens that Novartis is said to be developing with Verily – we think this means the project must be further back on the development timeline (if at all), which is quite disappointing given how Novartis continues to prioritize Alcon as a whole (growing this division was cited as a company priority in 1Q16, 2Q16, and 3Q16).

10. Takeda Announces Strategic Restructuring

Takeda announced its decision to restrict its R&D focus strictly to oncology, gastrointestinal disease, and diseases of the central nervous system – diabetes and obesity are notably not included on this list. This represents a dramatic change for Takeda: up until this point, the company applied a “disease-agnostic” business model focused primarily on developing small molecule therapies for a range of conditions, but has now shifted 180 degrees to become disease-specific, pursuing therapies including and beyond small molecules for exclusively cancer, GI, and CNS targets. As part of the new strategy, Takeda will consolidate its R&D facilities to only those in Osaka, Japan and Boston, MA. Management noted that this company-wide transformation has made “great progress” and is progressing ahead of schedule. Company representatives explained that this move has “been on the radar screen” for quite some time – an observation that was perhaps foreshadowed by the fact that Takeda’s past earnings updates have consistently downplayed the company’s diabetes portfolio. Indeed, Takeda’s DPP-4 inhibitor Nesina (alogliptin) and TZD Actos (pioglitazone) were not mentioned during either the company’s main presentation or the corresponding breakout session. The company exited obesity when its partner Orexigen acquired all US rights to Contrave (naltrexone/bupropion extended-release) from Takeda in March 2015. We are disappointed (though not surprised) to see this reduced emphasis on diabetes – this strategic move further underscores the increasingly high bar for new diabetes drugs and the challenging market for obesity pharmacotherapies. We’re curious to learn more about how Takeda’s existing diabetes products will be impacted by the restructuring. As of the company’s 3Q16 update, Nesina sales grew 12% year-over-year (YOY) as reported but fell 7% in constant currencies to $114 million (11.6 billion JPY). Actos’ sales have not been broken out for two consecutive quarters.

11. J&J: No Updates on Medical Devices, Consumer Devices, or Pharmaceuticals

Mr. Alex Gorsky, CEO of J&J, shared no major updates on the diabetes front (or otherwise for that matter). In fact, he remained very vague throughout his fireside chat as well as the breakout session, not mentioning any specific product by name and commenting only on healthcare in the broadest sense. The breadth of J&J’s business across medical devices, consumer devices, and pharmaceuticals is part of what has allowed the company to excel, Mr. Gorsky remarked. We were ultimately disappointed in the lack of substantive discussion on any therapeutic area, let alone diabetes, where of course we would have loved to hear about SGLT-2 inhibitor Invokana (canagliflozin) and the CANVAS cardiovascular outcomes trial set to report at ADA 2017, about the LifeScan/WellDoc partnership (we look forward to hearing from WellDoc tomorrow), about plans for closed loop (we last heard in November that Animas is still in discussions with FDA regarding pivotal trial design), and the list goes on … we continue to wonder about the management structure for diabetes devices, where the P&L goes to the managed device arena at J&J but the management is out of Consumer. Our ears will be peeled for these updates during J&J’s 4Q16 earnings call on January 24.

Big Picture Highlights

12. CMS’ Slavitt Announces Comprehensive Medicaid Database

CMS Acting Administrator Mr. Andy Slavitt excitedly announced that, for the first time in the 50-year history of Medicaid, there will be a comprehensive data platform containing claims and pharmacy data. The first release will include data from the majority of the states, which will contribute information on a monthly basis, but eventually encompass all 50 states. This represents a major de-siloing of masses of data. Mr. Slavitt, Nuna’s Ms. Jini Kim (who’s company built the platform), and UCSF’s Dr. Atul Butte were all very enthusiastic about the development. The potential impact of this data set is immense: It can alert public health workers to regional epidemics (“The next time there’s a water crisis in Flint, I don’t want to wait a damn year to find out. I want to know that day.” – Mr. Slavitt), give companies the opportunity to detect problems and create innovative solutions to offer to Medicaid beneficiaries (potentially in a concerted effort with the government), and open up avenues for natural experiments (which facets of Medicaid work and which don’t?) and epidemiological studies (particularly when this data set is merged with others). For diabetes, this data set could help inform where organizations should target population-level health interventions – where are the most people diagnosed? Where is that rate increasing the most rapidly? Where do people experience the most complications? Which factors could be responsible for elevated prevalence of diabetes and diabetes-related complications?

• Mr. Slavitt spoke passionately at the end of the session on the potential for repeal and replace of ACA: “There should be no pride issue on anything related to the ACA. Whether an idea comes from a Republican or Democrat, we should all hop on board. I’m sick and tired of this partisan approach. We are going to support this thing, but it will have to improve the lives of Americans. Ill support it if four things are met: (i) It covers the same amount or more people than before; (ii) The quality is just as good if not better; (iii) The cost curve is bent so Americans aren’t paying more; and (iv) It is fiscally responsible. If not, no thanks. But I will say this: Repeal and whatever – we want to see the damn plan. Show it to us. Let’s take a step back and not vote just to say we voted a certain way.”

13. Panel of Pharma Powerhouses on Pricing

Three pharma powerhouses, Bristol-Myers Squibb CEO Mr. Giovanni Caforio, Novartis CEO Mr. Joseph Jimenez, and CEO of PhRMA Mr. Stephen Ubl, participated in an engaging panel discussion on drug pricing. Mr. Ubl argued that the recent hyper-focus on drug prices is “myopic.” Instead, he suggested that we focus on “super users” of healthcare, or those with chronic conditions such as diabetes, hypertension, and heart disease who rack up healthcare costs with hospital visits and emergency care. While the high cost of drugs should not be overlooked, Mr. Ubl explained how nearsightedness leads to missing other pieces of the puzzle – the breakthrough cure for hepatitis C, for example, means fewer liver transplants, a lower incidence of liver cancer, more people returning to work and paying taxes, all of which adds to the value of the product. Moreover, playing the blame game with pharmaceutical companies over price distracts from the important role industry plays in promoting innovation. Mr. Caforio agreed with this last point – arguing that there remain many unmet medical needs that must be pursued with rigorous science – and we tend to agree as well. We certainly see in our daily work how industry pushes forth the next generation of advanced therapies to better treat diseases and to better serve patients. That said, this narrative has been a party line for the pharmaceutical industry and has done little to quell the rising public and political furor over drug prices that boiled over in 2016. The high cost of drugs is becoming too blatant to ignore, and we hope that the pharmaceutical industry can work collaboratively with other stakeholders (including the major pharmacy benefits managers) to address this problem swiftly. Recent position statements on price from Novo Nordisk and announcements of discount insulin programs from Lilly are a good start, but just that – a start.

• We were intrigued by Mr. Jimenez’s perspective on outcomes-based pricing. Novartis is involved in a number of US-based contracts for heart failure drug Entresto through which the company gets paid based on the agent’s ability to lower hospitalization rates. There are barriers to outcomes-based pricing, namely the administrative burden for a payer to monitor and quantify specific outcomes, but Mr. Jimenez suggested that this is the direction the industry is moving, slowly but surely. Eventually, all pharmacotherapies will be priced according to outcomes, he forecasted, and Novartis hopes to be a frontrunner. We’ll be very curious to see how outcomes-based pricing will work for diabetes therapies – Lilly and Harvard Pilgrim are engaged in a value-based contract for GLP-1 agonist Trulicity (dulaglutide) and Aetna and Merck have a similar agreement for DPP-4 inhibitor Januvia (sitagliptin).

14. Healthcare Economics – Hope From Technology & Value-Based Care

Venrock’s Mr. Bob Kocher led off a panel discussion on value-based care with a grim overview of healthcare economics: $3.3 trillion dollars are spent on healthcare in the US every year, with two-thirds of the spend going toward wages, and abysmal average margins of -3%. He added that technology can help by increasing labor productivity, engaging patients, and helping payers capture quality and cost arbitrages. Each of the panel members heads up a value-based venture, and common themes that ran through all of their pitches were: (i) when incentives are properly aligned, value-based care is significantly more effective; (ii) healthcare has to be made easy, especially for underserved/elderly populations; and (iii) current infrastructure and technology was designed for fee-for-service care models, and would require significant revamping. See below for a number of quotable quotes from the panel along with descriptions of the presenter’s intriguing companies.

• Each of the panelist heads up or works for companies that are experimenting with value based care – we find the premises interesting, and the data is encouraging:
  
  • Dr. Christopher Chen (CEO, ChenMed, Miami Gardens, FL): ChenMed designed a high-touch concierge-like clinical model to focus on high-cost Medicare populations. Where the average PCP sees 2,300 patients for an average of nine minutes per year, ChenMed PCPs see 450 for an average of 168 minutes per year over the course of 13 visits. The program reduces hospitalizations by 38%-49%.
  • Mr. Adam Boehler (CEO, Landmark Health, Huntington Beach, CA): Landmark is a risk-based provider for “complex patients.” It delivers primary care to wherever its 40,000+ patients are – hospital, nursing home, home, etc.
  • Mr. Shawn Leavitt (SVP of Total Rewards, Comcast, Philadelphia, PA): Comcast has 153,000 employees, 90% of which make less than $60,000 per year. Mr. Leavitt has overseen a progressive project to provide better service for employees, with a hyperfocus on getting people to where they need to be to get the right care. The >$1 billion plan has a 93% actuarial value (the plan covers 93% of healthcare expenses) and $250 deductible.
  • Mr. Noah Lang (CEO, Stride Health, San Francisco, CA): Stride Health provides benefits to the growing segment of the population who doesn’t receive benefits through their job (e.g. Uber, Etsy, and Walmart employees). Stride focuses on convenience, offering services to help consumers navigate complex reimbursement and care landscapes, and engages with them where they receive paychecks. Mr. Lang said that 25% of the Stride population are weekly active users, who save an average of $400 per year in care alone.
• Curiously, Mr. Kocher said that wearables/sensors, personalized medicine, and big data/AI will “probably not” help to improve healthcare. He did not elaborate, though we’d have to disagree here, especially on the wearables/sensors point – widespread use of CGM, in our view, could drive more cost-effective remote care models, enable population tracking and prioritize care delivery, help customize therapies, and drive better insights through AI and big data. How else can meaningful outcomes be tracked between visits? How can a one-size-fits-all therapy work with equal efficacy for every patient? And how can we possibly hope to learn about population trends and begin to individualize therapy if not via big data and AI? Perhaps he is not sold yet, or perhaps he thinks of wearables/sensors as Fitbit-like consumer devices, but we see big potential here in diabetes.

15. Vice-President Joe Biden on the Future of the Cancer Moonshot

Very special guest Vice-President Joe Biden spoke movingly on the need to modernize the healthcare and research system to realize the promise of the “cancer moonshot.” Much of his speech highlighted the near-universal drive and commitment to fight and even cure cancer. We were struck by the sense of urgency surrounding cancer, as highlighted by Vice-President Biden’s anecdotes of gatherings with world leaders on topics such as nuclear proliferation that inevitably turned to his efforts in cancer due to the strong global concern and commitment to this cause. Vice-President Biden also highlighted the research funding procured for cancer and other indications by the 21^st Century Cures Act, which he characterized as “perhaps the last bi-partisan deal” – in sum, he stated “cancer is still a bi-partisan issue.” Throughout the eloquent presentation, we wondered to ourselves how we can similarly create a sense of global urgency surrounding diabetes – we’d love to hear your thoughts.

Detailed Discussion and Commentary

Diabetes Technology

Medtronic

Omar Ishrak (CEO, Medtronic, Minneapolis, MN)

Medtronic CEO Omar Ishrak gave a diabetes pipeline update, headlined by news that the full US launch of the MiniMed 670G hybrid closed loop will now occur in May-October of this year (“first half of FY18”), with only an initial “customer training launch” to occur by the end of this April (“second half of FY17”). Medtronic will still technically hit the previously planned “Spring 2017” and “April 2017” timing with the “customer training launch,” though it’s now clearer than ever that this initial rollout will be quite deliberate. The slide’s layout did imply that the full 670G launch will be closer to May than October (see below), though it’s hard to know for sure. Mr. Ishrak emphasized that the device is a “major breakthrough in diabetes,” but will “require some care in the launch.” A controlled 670G launch is definitely in line with Medtronic’s press release following the September FDA approval, though this is the first time management has shared plans for an initial “customer training launch” (de-emphasized and hardly readable in the pipeline slide), followed by a full launch in the May-October time frame (called out on the slide in a big, bold box). We wonder how big that initial customer launch will be and if it will change Medtronic’s subsequent marketing or launch plans. Certainly, the company MUST manage expectations and training carefully, and it is still ahead of the nearest competition (see our latest AID landscape here). On the other hand, it’s also possible that certain pieces of the launch plan are taking longer than expected (e.g., patient and HCP education, reimbursement, manufacturing) – there is a lot to execute on here and it’s a reminder that ambitious timelines may be hard to hit for this new class of device. An international launch of the MiniMed 670G is also slated for this May-October, the first launch timing we’ve heard – as of September’s FDA approval, we only knew that international regulatory “approval” was expected in “summer 2017.” The slide also indicated two delays in the CGM pipeline:

• Medtronic’s new standalone mobile CGM, Guardian Connect with Guardian Sensor 3, is now slated for a US launch in May-October, behind the previous plan to launch by this April. This is a direct competitor to Dexcom’s G5 and an important Medtronic foray into CGM for MDIs.
• The Sugar.IQ app with IBM Watson has also been pushed back to a US launch in May-October, a significant delay from the earlier plan to launch by the end of 2016. This cool app was demoed and beta launched in September at Health2.0. We wonder if the full launch has been pushed back to coincide with the Guardian Connect launch – Medtronic has long maintained that this app will be focused more on standalone CGM users than pumpers.
• The iPro3 professional CGM is still running on schedule, slated to launch by April 2018 (on par with the June 2016 Analyst Meeting).
• See the pipeline slide below (diabetes is on the far right). H2FY17 means a launch by April 31, 2017, H1FY18 means a May 1 –October 31, 2017 launch, and H2FY18 means a launch by April 31, 2018.

• Mr. Ishrak reiterated diabetes growth guidance from the 3Q16 call: “mid-to-high single digit” growth in the second half of FY17 (i.e., by April 2017), ramping from Q3 to Q4 (presumably as the initial 670G launch occurs).
• A slide on value-based healthcare mentioned diabetes first, noting that Diabeter now cares for 2,000+ type 1s at five Netherlands-based clinics “with a pipeline of UK, MEA, and US prospects.” This expansion plan was also mentioned at the June 2016 analyst meeting, though the patient base number has grown from 1,500+ as of the acquisition in April 2015. We’re not sure of the revenue here, though we could imagine the model eventually expanding to a network of Medtronic-owned type 1 diabetes clinics.
  
  • The same slide also mentioned obesity, noting the NOK acquisition for bariatric surgery care (35,000 patients treated). This division currently has eight Netherlands-based clinics and a roadmap to future expansion. The slide noted “standardized nutritional and medical support” and “increased patient engagement and more durable weight loss.”

Insulet

Patrick Sullivan (CEO, Insulet, Billerica, MA)

Insulet CEO Patrick Sullivan gave a condensed version of the November Investor Day deck and confirmed the same pipeline timing, including a mid-2017 FDA submission of the new Dash Android PDM (launch by end of year). We most enjoyed the insightful and convincing commentary in Q&A on the payer landscape and competition. The fast-paced, standing-room-only Q&A emphasized the OmniPod’s differentiated business model from other pumps – a big advantage as the company talks to payers and defends against the near-term competitive noise from Medtronic’s MiniMed 670G. Mr. Sullivan persuasively noted that Insulet’s revenue model is a recurring stream, and in any given quarter, just 8%-10% of new revenue comes from new patient starts. President Shacey Petrovic added that the OmniPod business model is really an at-risk model with payers already – the startup OmniPod cost ($500-$600) is one-tenth of traditional tubed pumps, and if patients stop using the OmniPod, Insulet loses the revenue. In other words, a traditional tubed pump is a riskier upfront investment for payers. Meanwhile, Insulet continues to gather real-world data on outcomes through its very successful Glooko partnership and has doubled the size of its market access team. Mr. Sullivan called the MiniMed 670G a market “distraction” for Insulet, but not a “disruption” as it has been for other pump companies (e.g., Tandem) – indeed, Insulet reported a strong 3Q16 and we expect the momentum to continue into 4Q16 based on today’s optimistic commentary (nothing specific shared on guidance or sales). The presentation reiterated that 80% of Insulet’s new patients are from MDI, a clear sign it is expanding the market and also less likely to lose many patients to the 670G – the hybrid closed loop will be a big jump for the majority of type 1s on MDI and fingersticks. Analysts pressed management in Q&A about the Ypsomed international distribution partnership, which expires in mid-2018; management said it may renew the agreement, go direct on its own (better margins and more control), or do some combination. (As a reminder, Ypsomed is currently launching its own tubed Ypsopump in Europe.) Last, an update on Medicare reimbursement is expected “early this year,” and management had even been hoping to share news today; we’ll likely hear more on the 4Q16 call in February. Overall, we remain impressed with the new team and the strategy, even with all the competition and pressure in insulin pumps. See quotable quotes from the Q&A below.

• On the MiniMed 670G: “With the 670G back in September, there was some distraction for us in what was going on in the market. The impact has been a “distraction.” Our business model, is very, very different than other tubed pumps companies. Our revenue is largely related to ongoing, recurring revenue. In any quarter or year, our new patient starts are a very small percentage, 8%-10% of revenue. The business model is just different. For other, the 670G may be more of a disruption.” – Mr. Sullivan
• On the payer landscape and preferred agreements like UHC/Medtronic: “The OmniPod was not impacted by the UHC decision. That was to make Medtronic a preferred tubed pump. Our access is the same through UHC. We have doubled the size of our market access team and have a growing footprint in understanding the payer landscape. What are payers looking for in diabetes? There is a demand to look at outcomes and real-world data to conclusively demonstrate how these systems impact A1c, time-in-range, quality of life, etc. That is an area where we have made and continue to make significant investment. We will deliver data through clinical trials. Through our partnership with Glooko, we can also look at certain payers’ populations – How is OmniPod performing? We would consider shared risk, but we really don’t have to do that – our business model is an at-risk business model. With a tubed pump, it’s $5,000-$7,000 upfront, and the payer hopes the patient is compliant and they get an outcome. For the OmniPod, it’s $500-$600, one tenth or less of the upfront cost, and then ongoing pods are the revenue model – that’s very attractive to most payers. It’s a natural at-risk model. They are going to pay for compliance and as they get results.” – Ms. Petrovic
• On new business models with the Horizon Automated Glucose Control system: “We don’t anticipate the economics to change. We’re talking about a 2019 launch, so we’re still working out the details of the business plan .It’s a little early to comment in a detailed fashion.” – Ms. Petrovic
• On the renewing the Ypsomed partnership: What’s assumed in our guidance is continuing with the Ypsomed arrangement as it exists today. There is likely upside if we went direct. Our agreement with Ypsomed expires in mid-2018. We are going to do the best thing for our patients in Europe and for the business. That could be continuing with Ypsomed, going direct, or some combination.” – Ms. Petrovic
• On Medicare coverage: “I was hoping to have something by this conference – actually by the end of last year – but we didn’t get any news from Medicare. My birthday is Wednesday [laughter]. I know that CMS is working to resolve this short-term. I would expect something early this year. We will hopefully hear before the change in administration, but that won’t have an impact on what needs to get done. We are working closely with Medicare, and I’m very confident we will get coverage at some point. I just don’t know when [...] in total, Medicare and Medicaid represent a 30% increase in our market opportunity. If you talk about 1.7 million patients in the US, 30% of that are the additional patients in Medicare and Medicaid not available to us today.” – Mr. Sullivan
• On BD’s Investor Day announcement of a type 2 patch pump: Our focus right now is totally on our new PDM with Dash and the pod together. I think there has been a lot in this market of patch pumps about “developing” a product. That’s half the battle. The real battle is in manufacturing 18 million of these on an annual basis. That is not trivial. You need a nuclear grid supply chain that highly reliable to manufacture those products over and over again. There has been some additional movement in patch pumps, but for coming to market, the barriers to entry are not trivial.” – Mr. Sullivan

Diabetes Therapy

Intarcia

Speaking to a packed – albeit moderately-sized – room, Intarcia CEO Mr. Kurt Graves unveiled a brand-new partnership with Calibr (California Institute of Biomedical Research) to develop a combination peptide product for diabetes and obesity – the third diabetes-related candidate to join Intarcia’s burgeoning pipeline. The collaboration will pair Calibr’s “Stapled-Peptide Platform Technology” with Intarcia’s implantable GLP-1 agonist ITCA 650 (exenatide mini-pump, submitted to the FDA in Novemer) to develop a dual peptide therapy. For background, “stapled peptides” have a synthetic brace (“staple”) that stabilizes the peptide in a specific confirmation, which can increase target affinity, increase cell penetration, and protect against proteolytic degradation. It’s unclear what the therapeutic target of this second peptide is at this point. Intarcia is developing an antibody-based peptide SGLT-2 inhibitor in collaboration with Numab, which we imagine could be a strong candidate for co-administration with ITCA 650. Indeed, Mr. Graves especially highlighted the potential of GLP-1 agonist and SGLT-2 inhibitor combinations for patients with diabetes and obesity, given their weight-loss benefits and cardioprotective potential. In addition, as part of its acquisition of Phoundry Pharmaceuticals, Intarcia is developing glucagon and next-generation amylin candidates, which we imagine could also be co-formulated with ITCA 650 using Intarcia's Medici platform. There is much industry interest in GLP-1/glucagon dual agonists and GLP-1/GIP dual agonists within the diabetes and obesity field and we’d be excited to see Intarcia enter this arena as well. Mr. Graves suggested that Intarcia’s dual peptide efforts will benefit from greater flexibility than competitors because Intarcia will be able to adjust the quantities of GLP-1 agonist and other peptides in the mini-pump throughout the development process, rather than being bound to specific ratios.

• Under the terms of the agreement, Calibr will receive Intarcia equity upfront and additional shares vesting and cash payments over time based on key development, regulatory, and sales milestones. In addition, Calibr will be eligible for royalties on product sales. Calibr is a nonprofit biomedical research institute based in La Jolla, CA – we first heard about the organization at the JDRF Mission Summit in January 2016, during which Calibr unveiled a number of fascinating pipeline projects related to type 1 diabetes, including a number of beta cell proliferators, a novel glucose-responsive insulin, a liver-targeted insulin, and some work on selectie immune modulators. With this collaboration, Intarcia joins the ranks of Calibr’s partnerships that include Merck, JDRF, BMS, Pfizer, the Gates Foundation, the Wellcome Trust, and CIRM.
• Mr. Graves emphasized Intarcia’s commitment to demonstrating ITCA 650’s value proposition and superiority relative to other diabetes oral and injectable medications through head-to-head studies. The phase 3 FREEDOM-2 trial already demonstrated striking superiority for ITCA 650 compared to Merck’s DPP-4 inhibitor Januvia (sitagliptin) in terms of A1c and weight. Mr. Graves further shared that Intarcia intends to initiate a head-to-head trial of ITCA 650 against an SU and an SGLT-2 inhibitor in 2017 and that the company intends to conduct real-world head-to-head trials of ITCA 650 against “leading orals and even the leading injectable GLP-1” post-approval. We’re certainly eager to see how ITCA 650 stacks up against Novo Nordisk’s market-leading Victoza (liraglutide) or Lilly’s patient-friendly Trulicity (dulaglutide). We’d also love to see a comparison between ITCA 650 and Novo Nordisk’s next-generation, highly-potent once-weekly semaglutide, though this may be some time away considering that semaglutide is still under regulatory review as well. Overall, Mr. Graves was very clear that Intarcia intends to position ITCA 650 as the best drug to use with metformin as a second-line therapy, echoing the company’s longstanding position that it hopes to move GLP-1 agonist therapy to earlier in the treatment algorithm through this product.
• Mr. Graves further outlined a number of additional strategies to differentiate and competitively position ITCA 650 within the robust diabetes market. In particular, he intriguingly hinted that Intarcia would pursue a highly innovative, outcomes-based reimbursement model with payers for ITCA 650. Mr. Graves suggested that current players in the diabetes field have been somewhat reluctant to fully engage in value-based reimbursement contracts because adherence cannot be guaranteed with traditional medications and thus manufacturers can’t ensure replication of clinical trial outcomes (though Lilly and Harvard Pilgrim have a highly interesting agreement for Trulicity, as have Merck and Aetna for Januvia – clearly the field is slowly moving in this direction). Mr. Graves also shared that Intarcia will eschew the traditional “army of sales representatives” model to promote ITCA 650 upon launch and will instead focus on engaging 5,000-10,000 early-adopter physicians. Finally, the company remains incredibly focused on the customer experience of ITCA 650 for patients – Mr. Graves shared that both the insertion and removal procedures for the product can be performed in under 60 seconds (!), down from 15 minutes such a few years ago.
• Notably, Mr. Graves shared that Intarcia’s ultimate goal is to develop therapies to prevent or delay the onset of type 2 diabetes. We would be excited to see Intarcia expand into a prediabetes indication. Pharmacotherapies such as metformin are currently underutilized as prediabetes interventions, despite strong evidence that it can delay the onset on type 2 diabetes. We expect that this underutilization is due to both a combination of provider reluctance to prescribe pharmacotherapies for prediabetes and patient reluctance to take a twice-daily pill for disease prevention – we imagine the latter could be addressed through a once- or twice-yearly medication implantation for prevention. As an early step in this direction, Mr. Graves highlighted Intarcia’s recently-announced partnership with the Gates Foundation to develop once- or twice-yearly prevention therapies for HIV. We’re glad to see Intarcia’s platform gain validation and support from the Gates Foundation and were pleased to hear Mr. Graves connect this new partnership back to Intarcia’s core goals within diabetes.

Merck Breakout Session

Q: Can you comment on the Jardiance label expansion? How are you thinking about SGLT-2 vs. DPP-4?

A: Let me start by saying that Januvia has >70% share of the US market, and is doing well on a global basis. This is a very comfortable product profile, and we expect it to continue to be a mainstay of diabetes treatment. There’s always room for additional oral antidiabetic products. This is, indeed, what we set out to create with Pfizer. I’ll talk about the size of the Jardiance market to give some perspective: ~20% of patients have both type 2 diabetes and CV disease, but half of those may have renal impairment, so you’re left with ~10% of the type 2 diabetes patient population who benefits from this label expansion. Of that 10%, a vast majority of patients aren’t at A1c goal. When you put an SGLT-2 inhibitor together with the diabetes market leader (Januvia), that could be a very important combination that gets more people to their A1c goal. We’ll have to see over time how this plays out; we’ll have to wait for additional CVOTs, including our own. But ultimately, we think SGLT-2 is an important market for us to be involved in. We recently modified our study (VERTIS CV), trying to take advantage of what we learned from EMPA-REG OUTCOME. We expanded the study and changed it somewhat. It’s an outcomes study, so I can’t predict exactly when it will read out, but most likely in 2019.

Big Picture

Digital Health Panel

Adam Boehler (CEO, Landmark Health), Chris Chen, MD (CEO, ChenMed), Noah Lang (CEO, Stride Health,), Shawn Leavitt (SVP of Total Rewards, Comcast,), and Bob Kocher (Partner, Venrock,)

Venrock’s Mr. Bob Kocher led off a panel discussion on value-based care with a grim overview of healthcare economics: $3.3 trillion dollars are spent on healthcare in the US every year, with two-thirds of the spend going toward wages, and abysmal average margins of -3%. He added that technology can help by increasing labor productivity, engaging patients, and helping payers capture quality and cost arbitrages. Each of the panel members heads up a value-based venture, and common themes that ran through all of their pitches were: (i) when incentives are properly aligned, value-based care is significantly more effective; (ii) healthcare has to be made easy, especially for underserved/elderly populations; and (iii) current infrastructure and technology was designed for fee-for-service care models, and would require significant revamping. See below for descriptions of the presenter’s intriguing companies.

• Each of the panelist heads up or works for companies that are experimenting with value based care – we find the premises interesting, and the data is encouraging:
  
  • Dr. Christopher Chen (CEO, ChenMed): ChenMed designed a high-touch concierge-like clinical model to focus on high-cost Medicare populations. Where the average PCP sees 2,300 patients for an average of nine minutes per year, ChenMed PCPs see 450 for an average of 168 minutes per year over the course of 13 visits. The program reduces hospitalizations by 38%-49%.
  • Mr. Adam Boehler (CEO, Landmark Health): Landmark is a risk-based provider for “complex patients.” It delivers primary care to wherever its 40,000+ patients are – hospital, nursing home, home, etc.
  • Mr. Shawn Leavitt (SVP of Total Rewards, Comcast): Comcast has 153,000 employees, 90% of which make less than $60,000 per year. Mr. Leavitt has overseen a progressive project to provide better service for employees, with a hyperfocus on getting people to where they need to be to get the right care. The >$1 billion plan has a 93% actuarial value (the plan covers 93% of healthcare expenses) and $250 deductible.
  • Mr. Noah Lang (CEO, Stride Health): Stride Health provides benefits to the growing segment of the population who doesn’t receive benefits through their job (e.g. Uber, Etsy, and Walmart employees). Stride focuses on convenience, offering services to help consumers navigate complex reimbursement and care landscapes, and engages with them where they receive paychecks. Mr. Lang said that 25% of the Stride population are weekly active users, who save an average of $400 per year in care alone.
• Curiously, Mr. Kocher said that wearables/sensors, personalized medicine, and big data/AI will “probably not” help to improve healthcare. He did not elaborate, though we’d have to disagree here, especially on the wearables/sensors point – widespread use of CGM, in our view, could drive more cost-effective remote care models, enable population tracking and prioritize care delivery, help customize therapies, and drive better insights through AI and big data. How else can meaningful outcomes be tracked between visits? How can a one-size-fits-all therapy work with equal efficacy for every patient? And how can we possibly hope to learn about population trends and begin to individualize therapy if not via big data and AI? Perhaps he is not sold yet, or perhaps he thinks of wearables/sensors as Fitbit-like consumer devices, but we see big potential here in diabetes.
• Quotable Quotes
  
  • “Everyone chases the new shiny object. A health plan needs to be an ecosystem – connect the right patient to the right provider at the right price. We’ve created ecosystems of service to ensure that’s what happens to our employees and their families so they don’t get the wrong service. How do we make this easy to make the right decision and hard to make the wrong one?” – Mr. Leavitt
  • “Can you guess how many PCPs know when their patients were at the hospital? Probably close to zero. In our environment, everything is in one space at the point-of-care. That type of technology – claims, risk-based integration – is not available yet. That’s what doctors need to fundamentally change and improve risk.” – Dr. Chen
  •  “You can’t do value-based care without someone quarterbacking the care team. In business, the quickest way to fail is to make sure no one is accountable. As soon as you make the point person accountable, there is a much higher chance of improving the overall result.” – Dr. Chen
  •  “Because we aligned incentives by taking on risk, we can do things that fee-for-service providers can’t. We would lose money if we did fee-for-service. Doctors wouldn’t have the incentive to do what we do if we were fee-for-service. By taking risk, we align incentives. We pay doctors well and align incentives around healthcare utilization and patient satisfaction. The economics have to work. We’re not non-profits. Overwhelm patients with a model they love. Our Net Promoter Score is 93. We deliver care to them when they need it.” – Mr. Adam Boehler
  • “There are hospitals out there that are hardwired. They invested a lot to be good at what they do. When they go to fundamentally change the philosophy care, it’s going to be big challenge. I think the majority of hospitals won’t be successful, and a minority will in that transition.” – Dr. Chen
  • “Technology today is designed to optimize fee-for-service care. There are fundamental differences in workflows for fee-for-service and full-risk models.” – Dr. Chen
  • “Most of what we learn in medical school is how to practice fee-for-service medicine. When Adam and I hire caregivers, we look for people who can fundamentally change the risk of a patient. An unstable heart failure patient is expensive, but a stable one is much less expensive. None of us who have gone to medical school are on the hook for these things. This is an evolving field of improving outcomes.” – Dr. Chen
  • “Benefits professionals are notoriously risk-averse. If they’re putting their jobs on the line, it’s likely not going to happen. They’re not generally good at selling to the C-suite. If you don’t know how to talk to your CEO, CFO, leadership team about investing for value, you’re not going to be able to go in and sell like we have done. It’s an investment – added cost, but the payback is powerful. It requires that you think like a business-person. Lots of people in my chair don’t do that.” – Mr. Leavitt
  • “For health plans to survive in the long run, they will need to rethink what they demand from primary care doctors. We need organizations that think about primary care differently, come up with payment models that are not fee-for-service, but reward organizations for health management. Not a reactive approach, but a health management approach. And pay for that. If they don’t pay for that, someone else will.” – Mr. Leavitt
  •  “There is a rumor that the difference between fee-for-service and value-based care is 80% same, 20% different; just tweak the model. Well, the person saying that probably doesn’t know what value-based care looks like. It’s totally different. It’s more like 80% different, 20% same.” – Dr. Chen
  •  “In our data, we have been able to analyze our employee data and analyze who has what level of stress. Those 15% with high financial stress spend $1100 more per year in healthcare costs, have 42 days of unplanned absence compared to 14, and on an individual productivity basis, there is a $44 million delta in productivity between individuals with high and low financial stress. Financial stress has a huge impact on individuals’ physical health.” – Mr. Leavitt

--by Adam Brown, Abigail Dove, Helen Gao, Brian Levine, Payal Marathe, and Kelly Close