1Q17-2Q17 Diabetes and Obesity Industry Roundup – GLP-1s drive >50% of growth; Bright spots in CGM (+50% YOY), SGLT-2 (+20%); Insulin flat; declines in BGM & pumps – October 16, 2017

Based on financial results from the nearly 30 public companies that we regularly track, this diabetes/obesity industry roundup provides a bird’s eye view of important trends in 1Q17 and 2Q17 (“1H17”), as well as key details on each major drug class and device category.

This report is divided into four sections for overall industry highlights, diabetes therapy, diabetes technology, and obesity, which you can navigate through the table of contents. We analyze each therapeutic area’s sales performance and provide graphs with current and historical trends. Please note that in many cases, the data we’ve used for our analysis reflects our best estimates, since a number of companies don’t disclose financial information in great detail. We’ve made the basis of our assumptions clear in the sections below, but recognize a number of the estimates may be wrong in magnitude and direction. If you have opinions on how an estimate could be improved, please reach out and let us know!

Now onto the industry highlights…

Overall Industry Performance

1. We estimate the diabetes drug/device industry grew ~5% YOY in 1Q17 (~$11.5 billion) and ~3% YOY in 2Q17 (~$12.5 billion). US sales were flat YOY in 1Q17 (~$5.8 billion) and declined ~4% in 2Q17 (~$6.1 billion). In contrast, OUS sales increased ~4% YOY in 1Q17 (~$5.4 billion) and ~3% YOY in 2Q17 (~$5.9 billion). We attribute these geographical trends, in large part, to the tough pricing environment surrounding diabetes products in the US. A majority of overall industry growth can be attributed to newer products including (i) GLP-1 agonists (55% and 57% share of growth in 1Q17 and 2Q17, respectively), (ii) CGM (18% and 20%), and (iii) SGLT-2 inhibitors (16% and 22%). We note that GLP-1 and CGM contributed a higher than usual share and SGLT-2 and DPP-4 contribution of total growth slowed.

Diabetes Therapy

2. The overall insulin market (basal, rapid-acting, and human) grew 2% YOY in 1Q17 and fell 1% YOY in 2Q17 to $5.1 billion and $5.3 billion, respectively. The basal insulin class fell 2% YOY in 1Q17 ($2.3 billion) and fell 3% YOY in 2Q17 ($2.5 billion) – this decline was driven by Sanofi’s Lantus and Novo Nordisk’s Levemir, while Lilly/BI’s biosimilar Basaglar and next-gen Toujeo (Sanofi) and Tresiba (Novo Nordisk) experienced marked 1H17 growth. Rapid-acting insulins grew 14% YOY in 1Q17 ($1.6 billion), but returned to a modest 1% YOY rise in 2Q17 ($1.6 billion).

3. The GLP-1 agonist class grew substantially in both 1Q17 and 2Q17, with sales rising 35% YOY to $1.4 billion and then 29% YOY to $1.6 billion. This class accounted for 54% of industry growth in 1Q17, despite comprising only 12% of total industry revenue. Similarly, the class accounted for 57% of industry growth but only 13% of industry revenue in 2Q17. Notably, pooled GLP-1 revenue is growing faster from a higher base vs. pooled SGLT-2 inhibitor revenue, despite the latter drug class being newer to the commercial market. GLP-1 agonists are on track to hit $6 billion for the full-year 2017, after narrowly missing the $5 billion mark in 2016.

4. The SGLT-2 inhibitor market grew 18% YOY in 1Q17 to $715 million, followed by 20% YOY growth in 2Q17 to $857 million. SGLT-2 inhibitors drove 16% and 22% of overall diabetes industry growth in 1Q17 and 2Q17, respectively, meanwhile capturing 6% and 7% of total industry revenue. Within this class, it seems that Lilly/BI’s Jardiance (bolstered by positive CVOT data and a new CV indication) is “stealing” share from J&J’s Invokana in terms of volume/sales, while sales of AZ’s Farxiga rise steadily.

5. The DPP-4 inhibitor market fell 3% YOY in 1Q17 and fell 4% YOY in 2Q17, to $2.2 billion and $2.5 billion, respectively. Pooled quarterly revenue has hovered ~$2.4 billion for several consecutive years – this is still a sizeable market, despite minimal growth of late.

Diabetes Technology

6. In BGM, we estimate the “Big Three” (Roche, J&J, and Abbott) pulled in ~$1.0 billion in 1Q17 (down 2% YOY) and ~$1.1 billion in 2Q17 (down 7% YOY) – this excludes our estimates for their pump and CGM revenues, meaning true sales trajectory could look better or worse. This is the first time in our roundup that we have excluded our estimates of FreeStyle Libre sales from Abbott’s revenue.

7. The worldwide CGM market grew to an estimated ~$361 million in 1Q17 (up ~50% YOY) and a record-high ~$399 million in 2Q17 (up ~49% YOY). This includes Dexcom, our best estimates for Medtronic and now Abbott’s FreeStyle Libre, and Senseonics. International momentum is driving the field – we estimate a record-high ~49% of global CGM sales came from outside the US in 2Q17, driving an impressive ~81% of the category’s estimated growth. By our estimates, FreeStyle Libre contributed nearly 60% of the category’s growth in 1H17. Assumptions below!

8. We estimate the insulin pump/delivery devices market fell ~4% YOY in 1Q17 (~$557 million) and ~9% in 2Q17 (~$513 million). Insulet drove all of the industry’s growth (by our estimates) in both quarters, driven by strong 26%-28% YOY worldwide OmniPod growth. We estimate Medtronic pumps saw ~3% and ~7% YOY declines in the two quarters, given that CGM sales have now risen to ~25% of its overall sales (i.e., pumps are becoming a smaller fraction of revenue). Given the recent closing of J&J’s Animas, we’ve estimated sharp ~50% YOY declines in Animas sales in 1H17 – this played a large role in our estimate of the category’s decline. 

Obesity

9. Pooled sales from all major obesity drugs rose 74% YOY in 1Q17 ($122 million) and 60% YOY in 2Q17 ($146 million), although the lion’s share of this growth was driven by Novo Nordisk’s Saxenda. Excluding Saxenda sales, the class grew 31% YOY in 1Q17 ($45 million) and 11% YOY in 2Q17 ($38 million) – still a strong showing, especially considering the many commercial challenges, HCP reluctance, and stigma in this therapeutic area.

Overall Industry Performance

1. Diabetes Industry Sales Rise ~4% YOY, with flat US Sales vs. ~4% OUS Growth; GLP-1s drive Majority of industry growth, followed by CGM and SGLT-2s

• By our calculations, the diabetes drug/device industry grew ~5% YOY in 1Q17 (~$11.5 billion) and 3% YOY in 2Q17 (~$12.5 billion). We estimate US sales were flat YOY in 1Q17 (~$5.8 billion) vs. a 4% YOY decline in 2Q17 (~$6.1 billion). In contrast, ex-US sales increased 4% YOY in 1Q17 (~$5.4 billion), and also grew 3% YOY in 2Q17 (~$5.9 billion). We attribute these geographical trends, in large part, to the tough pricing environment surrounding diabetes products in the US. Pricing pressure has been a recurring theme on earnings calls from pharmaceutical companies in particular, with manufacturers citing cost challenges in the US as a reason for muted growth: These commercial hurdles include higher rebates to PBMs, patient savings programs, greater segment mix with a larger proportion of patients on Medicaid, and other factors that adversely affect realized prices for companies. Indeed, US sales of branded diabetes drugs excluding insulin fell 10% YOY in 1Q17 and fell 12% YOY in 2Q17 ($2.3 billion and $2.5 billion, respectively). International revenue from diabetes drugs excluding insulin rose 14% YOY in 1Q17 ($2.1 billion) and rose 15% YOY in 2Q17 ($2.5 billion). The insulin market experienced OUS growth as well, rising 3% YOY in 1Q17 ($2.4 billion) and 4% YOY in 2Q17 ($2.6 billion); conversely, US sales of branded insulin products were flat in 1Q17 ($2.7 billion) and declined 5% YOY in 2Q17 ($2.7 billion). Note that these calculations only include companies that report revenue publically for branded products, not private companies like BI (though we include estimates of BI revenue for Lilly-partnered products) or the many biosimilar insulin manufacturers in emerging markets.
• We estimate almost all of the diabetes industry’s growth in 1H17 came from GLP-1 agonists, CGM, and SGLT-2 inhibitors.
  
  • The GLP-1 agonist class drove a remarkable ~55% of industry growth in 1Q17 and ~57% of growth in 2Q17, despite comprising only 12%-13% of total industry revenue in the first half of the year. Pooled GLP-1 sales totaled $1.4 billion in 1Q17 (35% YOY growth) and $1.6 billion in 2Q17 (representing 29% YOY growth). Very notably, this class is growing faster from a higher base compared to historic performance; it’s also growing faster and from a higher base than SGLT-2 inhibitors.
  • We estimate CGM drove ~18% of overall industry growth in 1Q17 and ~20% of overall industry growth in 2Q17 – the lone bright spot in diabetes technology, by our estimates. Our model suggests BGM and pumps both declined YOY. Pooled Dexcom, Abbott FreeStyle Libre (estimated), Medtronic (estimated), and Senseonics revenue reached ~$361 million in 1Q17 (up ~50% YOY) and a record ~$399 million in 2Q17 (up ~49% YOY) – obviously we’ve had to make some assumptions for Abbott and Medtronic, so this could over- or even underestimate CGM sales (we would guess the former more than the latter if we had to guess). We estimate a record-high ~49% of global CGM sales came from outside the US in 2Q17, driving an impressive ~81% of the category’s estimated growth. By our estimates, FreeStyle Libre also contributed nearly 60% of the category’s growth in 1H17. We’re very excited for clinicians and patients to see three excellent sensors available and look forward to an uptick in access and prescriptions for this game-changing technology that is quickly becoming standard of care (even though there are major accessibility issues that still remain).
  • The SGLT-2 inhibitor class accounted for ~16% of industry-wide growth in 1Q17 and for ~22% in 2Q17. Combined sales of Lilly/BI’s Jardiance, AZ’s Farxiga, and J&J’s Invokana captured 6% and 7% of overall industry revenue in 1Q17 and 2Q17, respectively. This market continued a relatively strong performance in 1H17 with YOY increases of 18% (to $715 million) and 20% (to $857 million) in Q1 and Q2, respectively, although Jardiance and Farxiga are the clear growth drivers while Invokana sales dropped markedly. 

Figure 1: Overall Industry Revenue (1Q12-2Q17)

• The insulin market – though still massive ($5.3 billion in 2Q17) – continues to face pressure. In a rare quarter, branded insulins accounted for 11% of overall industry growth in 1Q17, though on the whole this class hasn’t contributed a substantial share of growth to the diabetes industry since 2014. Recent strength is being driven by next-generation basal insulins. The injectable insulin market grew 2% YOY in 1Q17 but fell 1% YOY in 2Q17, after declining 1% YOY in 2016 overall. Sanofi’s basal insulin Lantus continues to lead the class by value but is also driving negative growth (down 12% YOY in 1Q17, down 18% YOY in 2Q17 to $1.3 billion). On the other hand, the next-generation basal analogs are a definite bright spot – this new class encompasses Sanofi’s Toujeo and Novo Nordisk’s Tresiba, which together posted $569 million in 2Q17, nearly doubling YOY in revenue. Competition from newer therapy classes like GLP-1 agonists and SGLT-2 inhibitors is only growing (this is especially true for rapid-acting insulin products, since both GLP-1 and SGLT-2 agents can address postprandial excursions), as evidenced by their large contributions to overall industry growth in 1H17 (57% for GLP-1 and 22% for SGLT-2 in 2Q17).
  
  • We’re glad to see these advanced agents doing well on the market, as this is one sign that real-world patients/providers are realizing the value of outcomes beyond A1c. Both GLP-1 agonists and SGLT-2 inhibitors promote weight loss, offer possible cardio- and renal protection, and confer much lower hypoglycemia risk compared to insulin. That said, we had hoped to see stronger sales from the highly-anticipated class of basal insulin/GLP-1 agonist fixed-ratio combinations (Novo Nordisk’s Xultophy and Sanofi’s Soliqua), as these agents offer superior glycemic efficacy, a milder side-effect profile, and benefits to outcomes beyond A1c. Pooled sales from Xultophy and Soliqua totaled $19 million in 1Q17 (the first quarter with both on the market) and $34 million in 2Q17. Xultophy captured the lion’s share of these sales, posting $15 million in 1Q17 (79%) and $28 million in 2Q17 (85%), while Soliqua posted $4 million and $6 million in each respective quarter. We’re optimistic about the potential for both these products to enhance diabetes care – they’re still in their early days on the commercial scene, and as the companies build familiarity and better reimbursement status, we expect both drugs could become significant growth drivers. Scroll down to our Diabetes Therapy section for much more detail on each drug class.
• Beyond CGM (see above), we estimate BGM and pump sales both declined in the first half of 2017 – BGM down ~5% in 1H17 and pumps down ~6%. We’d caution that both category’s sales/growth estimates in this report are heavily driven by the following three assumptions: (i) Abbott’s FreeStyle Libre CGM sales; (ii) Animas 1H17 pump sales (we’ve modeled a 50% YOY decline); and (iii) Medtronic’s pump vs. CGM sales split. We dig into these in further detail below.
• The market for obesity pharmacotherapy grew 74% YOY in 1Q17 to $122 million and grew 60% YOY in 2Q17 to $146 million, driven primarily by Novo Nordisk’s Saxenda, which captured 63% and 72% of pooled revenue in Q1 and Q2, respectively. Sales of Saxenda, Orexigen’s Contrave, Vivus’ Qsymia, and Arena/Eisai’s Belviq are not included in our overall diabetes industry analysis. We’re pleased to see high double-digit growth for obesity drugs, although excluding Saxenda, the class grew only 31% YOY in 1Q17 (to $45 million) and only 11% YOY in 2Q17 (to $38 million). Contrave also showed impressive growth in 1H17, which Orexigen management attributed to a new commercial campaign aimed at overturning misconceptions and stigma – the initiative establishes obesity as a treatable, biological disease, which is such an important message to spread far and wide. Qsymia and Belviq posted more sluggish sales in 1H17, which reflects ongoing challenges for obesity pharmacotherapy, from stigma, to under-diagnosis, to reluctance from patients/HCPs to consider non-lifestyle interventions for weight loss.

Diabetes Therapy

2. Insulin Sales Flat YOY; Basal drops ~3% on Lantus and Levemir, while Toujeo, Tresiba, Basaglar Grow Nicely

Overall

• The overall insulin market (basal, rapid-acting, and human) grew 2% YOY in 1Q17 and fell 1% YOY in 2Q17 to $5.1 billion and $5.3 billion, respectively. In 1Q17, all branded insulin products together drove 11% of industry growth (spanning drugs and devices), by our calculations. Within this, the basal insulin market totaled $2.3 billion in 1Q17 (-2% YOY) and $2.5 billion in 2Q17 (-3%), the rapid-acting insulin market totaled $1.6 billion in both 1Q17 (+14%) and 2Q17 (+1%), and the human insulin market totaled $716 million in 1Q17 (-10%) and $776 million in 2Q17 (0%). For context, the overall insulin market was down 1% YOY in 2016 and was down 5% in 2015, plus this market hasn’t contributed substantial growth to the overall diabetes industry since 2014. We attribute the relatively slower decline in the first half of 2017 to the growth of next-generation insulin analogs (specifically, Sanofi’s Toujeo and Novo Nordisk’s Tresiba – much more on this below).
• As it stands in 2Q17, Novo Nordisk holds 47% of the overall insulin market by value, followed by Sanofi with 32% and Lilly with 21%. Of these three major insulin manufacturers, Lilly and Novo Nordisk saw YOY growth for their insulin businesses in 1Q17 (+10% and +5%, respectively) vs. an 8% YOY decline for Sanofi’s insulin products cumulatively. This trend persisted in 2Q17, when Lilly’s and Novo Nordisk’s insulin sales each grew 7% YOY and Sanofi’s declined 14% YOY. Lilly’s performance was buoyed by relatively strong sales of its flagship product Humalog (+17% YOY in 1Q17, -3% YOY in 2Q17) and the continued growth of its biosimilar insulin glargine Basaglar, which more than tripled YOY in 1Q17 and more than quadrupled YOY in 2Q17 following US launch in December 2016. Novo Nordisk’s insulin business was definitely strengthened by next-generation Tresiba, with revenue more than doubling YOY in both 1Q17 and 2Q17. Despite gains for Sanofi’s next-generation counterpart Toujeo (+86% YOY in 1Q17, +49% YOY in 2Q17), the company’s insulin portfolio suffered from continued declines for flagship product Lantus, which sank by double digits in both quarters of 1H17 (-12% in 1Q17, -18% in 2Q17).
• Competitive pricing – particularly in the US – remains the foremost obstacle for the insulin market. The pricing controversy over insulin reached a fever pitch in 2016, with the ADA issuing a resolution and petition calling for increased transparency and access solutions from all stakeholders in the insulin supply chain, the Endocrine Society calling for collaboration among stakeholders to address the diabetes drug pricing crisis, and Senator Bernie Sanders going so far as to call for a Department of Justice investigation into possible insulin price fixing. In response, insulin manufacturers are beginning to take action. We were impressed by a recent statement by Sanofi CEO Mr. Olivier Brandicourt committing to no more than a 5.4% annual increase in list price for the company’s drugs so as not to exceed the national health expenditures (NHE) growth projection, an independent standard measure of spending by US payers. This follows suit with similar position statements or transparency reports from Novo Nordisk and Lilly in the insulin arena. Notably, among insulin companies, Sanofi’s commitment to limiting list price increases to 5.4% is the most generous: Novo Nordisk has committed to no more than single digit annual increases in list price for its medicines and Lilly similarly committed to an annual increase of no more than 10%.

Basal Analogs

• Pooled revenue for the basal insulin market fell 2% YOY in 1Q17 (from a high base of $2.4 billion to $2.3 billion). Whole class sales also declined 3% YOY in 2Q17 (from a high base of $2.6 billion to $2.5 billion). This continues a trend from 2015 and 2016 of flat or modestly declining sales. We note opposing forces within the basal insulin class, with Sanofi’s Lantus (insulin glargine) and Novo Nordisk’s Levemir (insulin detemir) driving negative growth and next-generation products Tresiba (Novo Nordisk’s insulin degludec) and Toujeo (Sanofi’s insulin glargine U300) countering with positive growth. Lantus continues to lead the class by value (capturing 52% of pooled sales in 2Q17 and 56% in 1Q17), but following its exclusion from the CVS Health (effective January 2017) and UnitedHealthcare (effective April 2017) formularies, has experienced major headwinds. Sanofi reported 12% YOY decline in Lantus revenue for 1Q17 (to $1.3 billion), followed by 18% YOY decline in 2Q17 (to $1.3 billion). Novo Nordisk’s earlier basal insulin offering Levemir also posted sluggish sales in 1H17: Global revenue dropped 9% YOY in 1Q17 to $575 million, and fell 16% YOY in 2Q17 to $553 million. In contrast, Tresiba/Toujeo comprise a key bright spot within the basal insulin market. This next-gen sector more than doubled YOY to $419 million in 1Q17, and nearly doubled YOY to $569 million in 2Q17. In 2Q17, Tresiba captured 59% of the next-generation basal insulin market by value (sales more than doubled YOY to $338 million), while Toujeo claimed the remaining 41% by value (sales rose 49% YOY to $231 million). This compares to a more even split of 51% (Tresiba) vs. 49% (Toujeo) in 1Q17, the first quarter in which Tresiba surpassed Toujeo in worldwide revenue. While there are comparisons to be made between these two advanced products, what’s more important in our view is the benefits they offer beyond earlier basals – an improved clinical profile with flatter PK/PD curves, more flexible dosing, and less hypoglycemia (Tresiba has specifically been shown to reduce hypoglycemia relative to Lantus in DEVOTE, SWITCH 1, and SWITCH 2, and many thought leaders see the same returns with Toujeo in their clinical practice). After Lantus with 52% of the $2.5 billion basal insulin market in 2Q17, Levemir held 22%, Tresiba held 13%, Toujeo held 9%, and Lilly/BI’s Basaglar (biosimilar insulin glargine) captured the remaining 3% of pooled sales.
  
  • By volume, Lantus captured 50% of market share in terms of total prescriptions (TRx) in 2Q17, while Levemir held 23%, Toujeo held 9%, Tresiba held 8%, and Basaglar held 4% (according to slide 8 of Novo Nordisk’s 2Q17 presentation). Novo Nordisk management forecasted in the company’s 2Q17 update that Tresiba’s TRx would reach 10% by year-end. Sanofi has maintained 50% of its Lantus volume among patients on CVS Health as of 2Q17, in part due to patient savings programs, though realized price and revenue for the flagship product dropped substantially as a result. Management expects the decline in Lantus prescription volume to accelerate in 2H17 and beyond as co-pay cards expire and as the full force of the recently-implemented UnitedHealthcare exclusion sets in.
• Basaglar posted strong sales in 1H17: Lilly’s share of revenue more than quadrupled YOY to $46 million in 1Q17 (growing 17% sequentially) and more than quintupled YOY to $87 million in 2Q17 (rising 88% sequentially). We attribute Basaglar’s success largely to its strong reimbursement status, as the biosimilar boasts exclusive positioning over Lantus on the CVS Health and UnitedHealthcare formularies, plus equal footing to Lantus on the Express Scripts formulary. This favorable formulary status will continue into 2018. Lilly management emphasized that Basaglar had captured 20% share of new-to-brand prescriptions (NBRx) for basal insulin in the US by the end of 2Q17, placing the product on par with well-established Levemir – this is quite impressive for its third quarter on the US market. As for upcoming biosimilars, Merck’s candidate Lusduna Nexvue (biosimilar insulin glargine) received tentative FDA approval in July. Pending resolution of Sanofi’s patent infringement lawsuit, we imagine this second biosimilar could follow in Basaglar’s footsteps and make waves in the basal insulin market as well, especially since past experience tells us that at least two generics are needed to see appreciable commercial price changes.

Figure 2: Basal Insulin Market (1Q05-2Q17)

Rapid-Acting Analogs

• The rapid-acting insulin market fared well in 1Q17, growing 14% YOY to $1.6 billion, but returned to its pattern of low to negative growth in 2Q17, when pooled revenue remained at $1.6 billion, representing a modest 1% YOY increase. By product, 1Q17 sales rose robustly for all three major mealtime insulins (albeit, against easy comparisons, since the market was down in 2016 overall): Novo Nordisk’s NovoLog (insulin aspart) posted $761 million in sales (up 15% YOY), Lilly’s Humalog (insulin lispro) posted $708 million (up 17% YOY), and Sanofi’s Apidra (insulin glulisine) posted $104 million (up 15% YOY). Performance was more mixed in 2Q17, with NovoLog revenue growing 4% YOY to $782 million, but Humalog sales falling 3% YOY to $678 million and Apidra sales remaining flat YOY at $102 million. As of 2Q17, NovoLog continues to lead with 50% market share by value, ahead of Lilly’s Humalog at 43%. Sanofi’s Apidra captured the remaining 7% of pooled sales in 2Q17: It seems that this product has never quite taken off commercially, and we wonder if the company will make biosimilar insulin lispro (approved as Insulin lispro Sanofi in the EU, tentatively approved as Admelog in the US) a higher commercial priority ahead of glulisine going forward. Admelog could still be some ways away from US pharmacy shelves, and we imagine it will be some time before this product begins to meaningfully impact revenue – for Sanofi’s diabetes business and for the rapid-acting insulin class – but we’re certainly excited by the prospect of this first-to-market biosimilar mealtime insulin as a lower-cost option for patients. Access and reimbursement are also critical issues for this class. Though MannKind’s inhaled mealtime insulin Afrezza is not included in our pooled analysis due to comparatively low sales ($1.5 million in 2Q17), this product offers a key example of reimbursement challenges, as it is restricted on the UnitedHealthcare formulary in favor of NovoLog. The CVS Health formulary also has NovoLog listed as a preferred product over Humalog or Apidra, while the Express Scripts formulary holds Humalog in preferred status over its major in-class competitors.

Figure 3: Rapid-Acting Insulin Market (1Q06-2Q17)

• All three major manufacturers of rapid-acting insulin have cited similar commercial hurdles for their respective products: (i) the tough US pricing environment surrounding insulin (and diabetes drugs in general), as well as (ii) increasing competition from SGLT-2 inhibitors and GLP-1 agonists, advanced agents that address postprandial excursions. In our view, the GLP-1 and SGLT-2 classes offer compelling alternatives to intensified insulin therapy for many patients – not only do these newer therapies improve glycemic control, but their benefits extend to outcomes beyond A1c, including reduced body weight, lower risk of hypoglycemia, and potential cardioprotection and renal protection. We imagine this challenge will only grow with the emergence of basal insulin/GLP-1 agonist fixed-ratio combinations like Sanofi’s Soliqua (insulin glargine/lixisenatide) and Novo Nordisk’s Xultophy (insulin degludec/liraglutide). This new combo class offers one injection instead of two, one co-pay instead of two, and lower therapeutic complexity (whereas the addition of mealtime insulin to a medication regimen comes with dosing/titration complexity, extra work for the patient around meals, and greater hypoglycemia risk).
• We are immensely curious to see how Fiasp affects the rapid-acting insulin market, now that it’s both EMA- and FDA-approved (US launch scheduled for late 4Q17 or 1Q18). Novo Nordisk has yet to break out Fiasp sales individually, but the advanced product was incorporated into the company’s new-generation insulin portfolio in 2Q17, and based on the >doubling YOY and 47% sequential growth for this portfolio, we imagine Fiasp is performing well where it has launched. We wonder whether this faster-acting therapy could revitalize the mealtime insulin class. We’d like to think so, but we’re also aware that Fiasp will not be immune to pricing pressure in the US or to competition from GLP-1 agonists and SGLT-2 inhibitors as alternative basal insulin intensification strategies.

Human Insulin

• Sales of human insulin from all three manufacturers (Novo Nordisk, Lilly, and Sanofi) fell 10% YOY in 1Q17 to $716 million and were flat YOY at $776 million in 2Q17. By product, 1Q17 revenue totaled $373 million for Novo Nordisk’s human insulin (-5% YOY), $315 million for Lilly’s Humulin (-12% YOY), and $29 million for Sanofi’s Insuman (-16% YOY). In 2Q17, these reported sales values were $387 million (-6% YOY), $358 million (+8% YOY), and $31 million (-18% YOY), respectively. As of 2Q17, Novo Nordisk’s human insulin leads the human insulin market with 50% share by value, followed by 46% share for Humulin and 4% for Insuman.

3. GLP-1 Agonists Rise Marked ~32% YOY, driving ~56% of industry Growth; Faster Growth From a Higher Base vs. SGLT-2s

• The GLP-1 agonist class grew substantially in both 1Q17 and 2Q17, with sales rising 35% YOY to $1.4 billion and then 29% YOY to $1.6 billion. We’re pleased to see strong, double-digit whole class growth given how much we know patients who take this improve, as long as their HCPs know how to prescribe and dose. Very notably, pooled GLP-1 revenue is growing faster from a higher base vs. pooled SGLT-2 inhibitor revenue, despite the latter drug class being newer to the commercial market. Moreover, the SGLT-2 class itself showed a strong performance in 1H17, making this comparison all the more impressive for GLP-1 agonists. In fact, 35% YOY in 1Q17 was the highest growth margin for this class since 2013. The GLP-1 agonist market is on track to hit $6 billion for the full-year 2017, after narrowly missing the $5 billion mark in 2016. This therapy class accounted for 55% of industry growth in 1Q17, despite comprising only 12% of total industry revenue (spanning drugs and devices). Similarly, the class accounted for 57% of industry growth but only 13% of industry revenue in 2Q17.
  • ​By product, Novo Nordisk’s Victoza (liraglutide) remains the market leader by value, capturing 57% of pooled sales in 1Q17 (when the GLP-1 agonist posted $824 million, up 25% YOY) and 56% of pooled sales in 2Q17 ($887 million, up 17% YOY). That said, market share for Lilly’s once-weekly Trulicity (dulaglutide) is on the rise, hitting 26% in 1Q17 (global sales of $372 million, more than doubling YOY) and 30% in 2Q17 (global sales $480 million, again, more than doubling YOY) – Novo Nordisk management has explicitly acknowledged this “intense” in-class competition from dulaglutide. As we see it, Trulicity has a host of factors working in its favor, including a patient-friendly, IDEO-designed autoinjector, once-weekly dosing, and preferred positioning on both the Express Scripts and CVS Health formularies. On the other hand, we imagine the FDA-approval of once-weekly semaglutide (expected in 4Q17) would come as a substantial boost to Novo Nordisk’s GLP-1 agonist business. All this said, only a small fraction (~5% in 2013) of patients with type 2 diabetes in the US are prescribed a GLP-1 agonist, and we see plenty of room for multiple products to succeed commercially. Rounding out the market, AZ’s Bydureon (exenatide once-weekly) captured 11% of pooled sales in 1Q17 and 9% in 2Q17, AZ’s Byetta (exenatide twice-daily) captured 3% of pooled sales in both 1Q17 and 2Q17, GSK’s Tanzeum (albiglutide) captured 2% of pooled sales in both 1Q17 and 2Q17, and Sanofi’s Lyxumia (lixisenatide) accounted for <1% of overall sales in both quarters. Lyxumia has never quite taken off commercially, and Sanofi seems more focused on its basal insulin/GLP-1 combination product Soliqua (insulin glargine/lixisenatide). In a major announcement during GSK’s 2Q17 earnings call, management shared plans to withdraw support from Tanzeum. Although next steps were left somewhat vague, management outlined that the company will cease manufacturing Tanzeum, will complete clinical studies as agreed with regulators, and will work with HCPs to transition patients to alternative treatments.

Figure 4: GLP-1 Agonist Sales (1Q06-2Q17)

• As more CVOTs read out, the GLP-1 agonist class is increasingly differentiated by demonstrated cardioprotection. Currently, Victoza is the only GLP-1 agonist with an indication from the FDA and EMA for CV risk reduction. EXSCEL results for Bydureon were recently presented at EASD 2017, showing convincing safety and narrowly missing the threshold for CV efficacy vs. placebo (HR=0.91, 95% CI: 0.83-1.00, p<0.001 for non-inferiority, p=0.06 for superiority) on the primary outcome of three-point MACE (non-fatal MI, non-fatal stroke, or CV death). Previously, Sanofi’s Lyxumia showed CV safety but no benefit in ELIXA. Lilly’s CVOT for Trulicity, REWIND, is expected to complete in July 2018 – positive findings could be critical, as the bar for diabetes drugs continues to rise, and as Novo Nordisk forges ahead with Victoza’s CV indication. GSK’s HARMONY trial for Tanzeum is expected to complete in March 2018. In our view, the jury’s still out on whether or not CV benefits are a GLP-1 class effect, since many thought leaders are attributing EXSCEL’s neutral result to its pragmatic trial design (no run-in period, low medication adherence in the study, larger primary prevention cohort vs. LEADER, etc.) rather than to the exenatide molecule. That said, from a commercial standpoint, we do see value in being able to promote a GLP-1 agonist’s cardioprotective properties, as patients/providers look for therapies that not only lower A1c, but that really improve health outcomes. We’ll be curious to see if and how EXSCEL data is incorporated onto the Bydureon label, and in the meantime, we do expect that the new CV indication for Victoza might drive a spike in sales.
• Potential new market entries could bring significant innovation to the GLP-1 agonist class over the next few years. Novo Nordisk’s semaglutide is closest around the corner, with an FDA decision expected in 4Q17. The once-weekly candidate offers higher potency compared to current GLP-1 agonists in terms of A1c-lowering and weight loss (see our coverage of topline SUSTAIN 7 results, comparing semaglutide head-to-head vs. dulaglutide), and has already demonstrated CV benefit in SUSTAIN 6. Novo Nordisk is also investigating an oral formulation of semaglutide in the phase 3 PIONEER program, which could improve patient quality of life and adherence to GLP-1 agonist therapy. Intarcia’s ITCA 650 (implantable exenatide mini-pump) recently received a Complete Response Letter (CRL), though the company has expressed fierce commitment to meeting with FDA and addressing any issues to get this very innovative option into patient hands (the mini-pump offers continuous subcutaneous release with no need for daily or weekly injections, circumventing the adherence issue entirely).
• We’re also seeing innovation with fixed-ratio basal insulin/GLP-1 agonist combinations. Novo Nordisk’s Xultophy (insulin degludec/liraglutide) and Sanofi’s Soliqua (insulin glargine/lixisenatide) were both approved by the FDA in 4Q16 (on the same day!). In 2Q17, Xultophy posted $28 million (82% share of sales) while Soliqua posted $6 million (18% share), for a class sum of $34 million (up 79% sequentially from $19 million in 1Q17). These combo therapies have impressive efficacy and side-effect profiles – Dr. John Buse has gone so far as to call Xultophy “the most effective anti-hyperglycemic agent on the planet” – but they seem to be facing substantial commercial challenges, namely that HCPs (especially in the US) are unfamiliar with fixed-ratio combinations and are hesitant to prescribe them. As Novo Nordisk reps mentioned at Diabetes UK, the components of Xultophy are themselves very new to many real-world providers, and the company has to first establish familiarity with insulin degludec and liraglutide. Both Novo Nordisk and Sanofi will have to build strong reimbursement status for their respective products as well, to make these advanced drugs more accessible.

4. SGLT-2 Inhibitors Rise ~19% YOY, Driving ~19% of Industry growth; Jardiance Stealing Share from Invokana

• The SGLT-2 inhibitor market grew 18% YOY in 1Q17 to $715 million, followed by 20% YOY growth in 2Q17 to $857 million. SGLT-2 inhibitors drove 16% and 22% of overall diabetes industry growth in 1Q17 and 2Q17, respectively. The upward trajectory continues for this class, currently comprised of J&J’s Invokana (canagliflozin), Lilly/BI’s Jardiance (empagliflozin), and AZ’s Farxiga (dapagliflozin). That said, we find these low double-digit increases underwhelming. Quarterly SGLT-2 sales rose on the order of 40%-50% for much of 2016, and we expected a steeper climb in the wake of EMPA-REG OUTCOME and Jardiance’s new indication for the reduction of CV death (with this label update, Lilly/BI are able to promote the agent’s CV benefits, which we imagine could spur greater uptake for the whole class). Of course, the market dynamics here tell a slightly more nuanced story. Invokana revenue fell 13% YOY in 1Q17, then dove another 23% YOY in 2Q17 to $295 million. The Jardiance franchise appears to be the primary driver of whole class growth, more than compensating for Invokana’s sluggish performance in the first half of 2017. By our calculations, worldwide Jardiance revenue totaled $224 million in 1Q17, representing 93% YOY growth (a near-doubling), and totaled $312 million in 2Q17, more than doubling YOY. Notably, these Jardiance figures are estimated (since only Lilly’s portion of revenue is reported publically): In a 2015 diabetes update, BI listed total Jardiance sales for that year at €165 million ($183 million), while Lilly collected $60 million in Jardiance revenue that year, leading us to approximate Lilly’s share at ~33%. In between the crisscrossing trajectories of Invokana and Jardiance, the Farxiga franchise experienced low double-digit growth in 1H17, mirroring overall class trends. According to AZ’s 1Q17 and 2Q17 financial updates, Farxiga sales grew 26% YOY (reaching $207 million) and 19% YOY (reaching $250 million), respectively. So it seems that Jardiance – bolstered by positive CVOT data and a revised label – is “stealing” some share from Invokana, while Farxiga revenue rises steadily, as does combined SGLT-2 revenue. In fact, 2Q17 marked the first quarter with Jardiance sales surpassing Invokana sales. Lilly/BI’s product captured 36% of the market by value in 2Q17, while J&J’s product held 34%. In 1Q17, Jardiance’s value share was still below Invokana’s – 31% and 40%, respectively. Meanwhile, Farxiga’s market share by value was steady at 29% in both 1Q17 and 2Q17.

Figure 5: SGLT-2 Inhibitor Sales (1Q13-2Q17)

• Looking at market share by volume, Jardiance also appears to be “stealing” SGLT-2 prescriptions from Invokana, while Farxiga maintains its hold of ~40% TRx. AZ’s presentation slides for both quarterly updates highlighted Farxiga as the leading SGLT-2 inhibitor by volume. These same slides listed 29% TRx for Jardiance and 23% TRx for Invokana in 1Q17, 30% TRx for Jardiance and 22% TRx for Invokana in 2Q17 – note the wider gap in Q2 vs. Q1.
• CANVAS data was a harbinger of both good news and bad for the SGLT-2 inhibitor class when presented at ADA in June. On the (very) bright side, canagliflozin was associated with a 14% risk reduction for three-point MACE (non-fatal MI, non-fatal stroke, or CV death) vs. placebo (p=0.0158 for superiority). Empagliflozin showed a similar 14% risk reduction for this primary endpoint in EMPA-REG OUTCOME (p=0.038 for superiority), and together, these two studies make a compelling case for a cardioprotective class effect. Renal outcomes were similarly positive in both CVOTs, and we’ve noticed excitement brewing in the field for the renal protective effects of SGLT-2 inhibitors. On the other hand, CANVAS found a nearly two-fold risk for lower limb amputations associated with canagliflozin (HR=1.97, p<0.001 vs. placebo) – 71% of these were at the level of the toe or metatarsal, but a small proportion occurred above the ankle or above the knee. In line with this safety data, in May, the FDA issued a boxed warning on all canagliflozin-containing medicines to reflect amputation risk, and the EMA has the same warning for the whole class (we call this the “better safe than sorry” approach). Soon after CANVAS results were made public, Lilly/BI released pooled data to reinforce no amputation signal associated with empagliflozin. Despite this, CVS Health has excluded Jardiance in favor of Invokana on its 2018 formulary, which we expect could be a big tailwind for J&J’s SGLT-2 business next year. We imagine that J&J’s negotiations with the PBM around price/rebates for Invokana spurred the new exclusion of Jardiance, though this is only our speculation. Farxiga will maintain its preferred status on the CVS Health formulary in 2018, its positioning unaffected by the Invokana/Jardiance switch.
• Merck/Pfizer’s ertugliflozin is a potential new market entry for the SGLT-2 inhibitor class, with an FDA decision expected by year-end. This fourth-to-market SGLT-2 agent will expand choice within the drug class, which is great news from the patient perspective. Importantly, we see plenty of room for multiple products in this class to be commercially successful (provided their safety/efficacy is compelling), as far more people with diabetes could benefit from these advanced therapies than are currently on them. In other words, there’s definitely potential for ertugliflozin to stimulate underlying class growth. Manufacturers are also showing interest in expanded indications for their SGLT-2 inhibitors – for CV risk reduction in the near term (J&J has also filed an sNDA for a new CV indication on the Invokana label, FDA decision expected by 4Q18), but also for chronic kidney disease, heart failure, and possibly type 1 diabetes. AZ’s DECLARE CVOT for Farxiga, scheduled to read out in 2H18, will be another milestone for the class: We expect all eyes to be on the risk reduction for three-point MACE (will these results further corroborate the CV class effect?), the risk reduction for heart failure hospitalization, and the frequency of amputations between dapagliflozin vs. placebo groups. Merck/Pfizer’s VERTIS CV study for ertugliflozin is expected to complete in October 2019.

5. DPP-4 Inhibitor Sales Decline ~4% YOY, with Quarterly revenue of ~$2.4 billion holding steady

• The DPP-4 inhibitor market fell 3% YOY in 1Q17 and fell 4% YOY in 2Q17, to $2.2 billion and $2.5 billion in pooled sales, respectively. Sequentially, sales dropped 8% in 1Q17 but rebounded 13% in 2Q17, which reflects an overall trend of fluctuation for the DPP-4 inhibitor class. Pooled quarterly revenue has hovered ~$2.4 billion for several consecutive years – without a doubt, this is still a sizeable market, despite minimal growth of late. By our calculations, Merck’s Januvia (sitagliptin) held 61% of the market by value in both 1Q17 and 2Q17. Januvia remains the clear frontrunner among DPP-4 inhibitors. Lilly/BI’s Tradjenta (linagliptin) came in at a distant second with 14% market share by value in 1Q17 and 16% in 2Q17. Novartis’ Galvus (vildagliptin) accounted for 13% of whole class sales in both 1Q17 and 2Q17, while AZ’s Onglyza (saxagliptin) held 7% in 1Q17 and 6% in 2Q17, and Takeda’s Nesina (alogliptin) held 5% in both 1Q17 and 2Q17. Notably, these value share estimates are based on our calculations for total Tradjenta revenue, since only Lilly’s share is reported publically. (We approximate Lilly’s share of franchise revenue at ~36%, since the company reported Tradjenta revenue of $357 million in 2015, the same year that BI reported global net sales for Tradjenta at €909 million, or ~$1 billion, in a diabetes update.) DPP-4 inhibitors continue to face competitive pressure from more advanced agents like GLP-1 agonists and SGLT-2 inhibitors: Both of these newer therapy classes boast positive CVOT data, while the DPP-4 CVOTs were resoundingly neutral for MACE events, with Onglyza showing a significant risk for heart failure in SAVOR-TIMI. Moreover, many GLP-1 agonists and SGLT-2 inhibitors offer superior glycemic control and better weight loss vs. DPP-4 inhibitors (which are weight neutral, for the most part). This clinical data has led some thought leaders, including Drs. Jay Skyler and Steven Nissen, to de-prioritize DPP-4 agents in their clinical practice, though other experts including Drs. Robert Ratner and Lawrence Leiter have defended DPP-4 inhibitors for their long history of safety/tolerability, making them ideal agents for the elderly and for patients with renal impairment. The FDA recently updated the product label for Januvia to reflect a possible risk for heart failure hospitalization, and a similar warning is also on the Onglyza, Nesina, and Tradjenta labels (Galvus is only marketed ex-US). This is overly conservative, in our view, since only one of these agents showed a statistically significant heart failure signal (Nesina also trended in the wrong direction for this endpoint in EXAMINE, but Januvia produced a compelling neutral hazard ratio of 1.00 in TECOS). We wonder if any DPP-4 inhibitor will experience an adverse impact of this label change in terms of volume or sales, though in general, we believe this class will be a mainstay of diabetes management into the foreseeable future. 

Figure 6: DPP-4 Inhibitor Sales (1Q07-2Q17)

Diabetes Technology

6. Big 3 BGM Sales Decline ~5% YOY in 1H17, Excluding FreeStyle Libre

• Pooled global revenue for the “Big Three” BGM companies (Roche, J&J, and estimated Abbott) totaled an estimated ~$1.0 billion in 1Q17 (down ~2% YOY) and ~$1.1 billion in 2Q17 (down ~7% YOY). Both YOY comparisons were  easy – 1Q16 saw a 15% decline in the US, while 2Q16 saw a 4% decline in the US – but we’d note the drops this year were softer. From the graph below, BGM sales have been on a steady decline since the peak in 2011, although the market may be starting to improve after bottoming out in 1Q16 (the only time in our model that Big 3 BGM revenue has come in under $1 billion). By our estimates, total BGM sales have declined nearly 30% between 2Q12 and 2Q17, with J&J faring the worst (35% lower sales from 2Q12 to 2Q17), Abbott coming in second at -33%, and Roche at -30%.
  
  • These BGM figures are highly estimated for Abbott, J&J, and Roche. Abbott has FreeStyle Libre (which we’ve classified as CGM in this report), J&J has Animas pumps, and Roche has Accu-Chek pumps; therefore, the Big 3 numbers here reflect our estimate of their BGM businesses. See the CGM and pumps sections for specifics on the assumptions. BGM growth and sales might look better or worse than what we’ve reported here, given how accurate our assumptions are on the other segments of the business (FreeStyle Libre CGM, J&J Animas pumps, Roche Accu-Chek pumps).

Figure 7: Pooled BGM Sales by Geography (1Q12 – 2Q17)

• US BGM continues to be challenging – we estimate sales were flat YOY in 1Q17 (~$267 million) and down ~5% YOY in 2Q17 (~$302 million). In our model, US sales have now fallen in 19 of the past 20 quarters. This consistent softening in sales is in part due to CMS’ oft-criticized competitive bidding program, though competitive dynamics, higher CGM adoption in high-frequency users, and other pricing pressures are presumably at play. On the plus side, Roche did see a 21% YOY increase in estimated US BGM sales in 1Q17 (albeit against a big 56% YOY decline in 1Q16) and Abbott saw estimated US BGM growth of 9% (1Q17) and 11% (2Q17), though both were  on easy comparisons. From what we can tell, J&J is largely driving the overall decline in US BGM revenue, reporting YOY decreases of 10% and 3% in 1Q17 and 2Q17 respectively. Roche also saw a staggering 22% YOY decline in 2Q17. All three companies are in different phases of transition in what is a declining (but still large) market – Abbott into a sensor-based company with FreeStyle Libre, Roche into more digital approaches with mySugr and CGM with Senseonics, and J&J possibly selling/divesting/exiting the business entirely.
• The Big Three fared slightly better internationally, with estimated BGM sales down ~3% YOY in 1Q17 (~$713 million) and down 9% YOY in 2Q17 (~$796 million. Given the estimated sales growth for FreeStyle Libre – effectively cannibalizing the core business – we have modeled a notable decline in Abbott’s OUS BGM business (-15% in 1Q17 and -20% in 2Q17). (Assumptions are noted in the CGM section.) Indeed, Abbott is the only member of the Big Three that did not report YOY international growth. Roche was the most successful abroad, reporting estimated ~9% YOY growth in 1Q17 and 2% YOY growth in 2Q17. J&J’s LifeScan BGM sales increased 4% and declined 5% YOY in 1Q17 and 2Q17 respectively.

Figure 8: Estimated BGM Sales by Company – Roche, Abbott, J&J (1Q12 – 2Q17)

• Abbott’s BGM business had the greatest decline in 1H17, with estimated BGM revenue of ~$423 million down ~8% YOY. Abbott sales declined 7% and 9% in 1Q17 and 2Q17 respectively, with corresponding estimated BGM revenues of $202 million and $221 million – the former being the lowest Abbott has seen since we began keeping track in 1Q12. It’s important to note that this is the first quarter we’re estimating the impact of FreeStyle Libre revenue – a step we felt was necessary given the major success the Libre has seen overseas (now 400,000+ users) and it’s clearer inclusion in the CGM category. Hopefully Abbott will begin to share distinct revenue streams, as Libre uptake will only continue to grow, given the recent approval in the US (not to mention Libre Pro in the US) and partial or full reimbursement in 17 countries, with latest additions including the UK in September, Japan in August, and France in May. We wonder to what degree, if at all, Abbott will deprioritize the core BGM lines moving forward, especially with a next-gen Libre featuring real-time communication in development (per the Bigfoot partnership announcement). How many patients have switched to Libre from Abbott BGM? What is the payer appetite to put a wide spectrum of type 2s on Libre instead of intermittent fingersticks? Read our Abbott 2Q17 and FreeStyle Libre FDA approval reports.
• Roche reported an ~5% decline in 1H17 on total estimated BGM revenue of ~$884 million. Estimated BGM sales rose 1% YOY in 1Q17 (~$407 million) followed by a 10% decline in 2Q17 (~$477 million) The big news for Roche in 1H17 was its acquisition of mySugr in June, demonstrating clear interest in prioritizing digital technology and reinventing its overall diabetes business as an integrated “ecosystem.” mySugr is being positioned as key part of the new-look business, with a number of components including the Accu-Chek Guide BGM, Senseonics’ Eversense implantable CGM, connected pen Pendiq, and a slew of apps/platforms. There is obvious potential for decision support and new subscription/integrated business models, though few specifics to share (see our EASD coverage of the Roche symposium and in the exhibit hall). We think this is a logical  pivot for the traditional BGM company, though it will need more speed and strong interoperability to succeed in the digital world. As for mySugr, the patient-facing bolus calculator is under FDA review (see our Health 2.0 coverage), and a direct-to-consumer Pro bundle soft-launched in the US last month (it includes unlimited test strips, an Accu-Chek Guide BGM, the Roche mySugr app, and 24/7 CDE access for $39.99/month). We wonder how this bundle will fit into the grander business plan moving forward in both the US and OUS. In BGM, the Accu-Chek Guide officially launched in the US in May and has extended into additional major markets including Germany; we are big fans of the Simple Pay program, which offer high accuracy strips at a strong price point without insurance. See our Roche 2Q17 coverage.
• We estimate J&J reported a ~3% decline in BGM sales in 1H17 on total estimated BGM revenue of ~$772 million. Our model puts BGM sales in 1Q17 down ~2% YOY (~$371 million), with a further 4% YOY decline in 2Q17 (~$401 million). Note: this estimate is particularly influenced but the ~50% YOY decline we’ve modeled for Animas pumps in 1H17; see the section below for more. J&J LifeScan has been on a consistent decline for some time, and the fact that the company is still exploring strategic options for the rest of its Diabetes segment following the recent closing of Animas doesn’t instill confidence. Is there a buyer for the LifeScan business? Who might take on or partner with J&J on the BGM business? Unless there is something compelling in the J&J LifeScan pipeline, this business may be a tough sell to most players. The WellDoc integration of BlueStar software with the OneTouch Verio Flex BGM and Reveal App has received FDA clearance and could help a lot of people with type 2 diabetes, but the expected 1Q17 launch is in the rear-view mirror with no updated timing (though the technical aspects are live). See our reports on J&J 2Q17 and Animas’ closing.     
• Will BGM business models evolve into more subscription and/or coaching add-ons? What is the future of the field as CGM slowly becomes standard of care? Where will BGM be in 5 years? One Drop, mySugr, and Livongo are pushing forward with direct-to-consumer and payer subscription business models that encompass strip delivery and coaching. Are these a path forward for the bigger players? CGM is obviously on a roll (see below), but it is still highly underpenetrated in type 1s – let alone type 2s. In the highly engaged T1D Exchange, CGM still only has 24% penetration, per Dr. Roy Beck’s presentation two weeks ago. Now-private Ascensia (formerly Bayer) is taking a stronger digital and partnership strategy (including with Voluntis, Dexcom, and Insulet) and is regarded as one of the most accurate meters on the market. Meanwhile, Bluetooth connectivity is a must, and basal and/or bolus titration is certainly ripe for innovation from one of the big players – though there is nothing actually available yet from anyone. BGM is certainly here to stay for at least the next 5 years in type 1, and probably many more in type 2. Which begs the question: where is innovation going to happen in BGM? Can this market be resurrected? Could BGM + coaching/education replicate outcomes of CGM?

7. CGM Sales Rise ~50% YOY to $399 million, Driving Impressive ~19% of INdustry Growth; International Sales and FreeStyle Libre (EST) Accelerate Category

• By our estimates, the worldwide CGM market grew to ~$361 million in 1Q17 (up ~50% YOY) and a record-high ~$399 million in 2Q17 (up ~49% YOY). This includes Dexcom, our best estimates for Medtronic and now Abbott’s FreeStyle Libre, and Senseonics. Assuming typical sequential growth in 2H17, and provided these FreeStyle Libre assumptions are in the ballpark, CGM is poised to cross ~$1.5 billion in sales in 2017, growing ~30% YOY and perhaps much more. We’re excited for three great sensors to be widely available and access to improve – even in type 1 diabetes, CGM is still wildly under-prescribed. Dexcom’s growth is off to a slightly slower start in 1H17 (see below), though its 2Q17 sales ($171 million) still comprised ~43% of the worldwide estimated CGM market, including ~70% of the US market. This is the first roundup where we’ve included sales estimates for Abbott’s FreeStyle Libre in the CGM category, which we pegged at roughly ~$90 million in 1Q17 and ~$115 million in 2Q17 - assumptions are in the Abbott bullet below, and we caution these might over- or underestimate FreeStyle Libre’s actual global sales. Given Libre’s enormous user base (400,000+ as of September), it is abundantly clear that the factory-calibrated sensor is really growing the continuous glucose sensor market. (Our CGM model shown below is revised to include historical sales estimates back to Libre’s launch in Europe in fall 2014.) Meanwhile, Medtronic told us that its CGM sales are now ~25% of its Diabetes sales, up from ~20% two years ago – this too shows category expansion. We include a company-by-company analysis below.
• International CGM growth really carried the field in 2017: we estimate a record-high ~49% of CGM sales came from outside the US in 2Q17, driving an impressive ~81% of the category’s growth. Remarkably, the geographies are now almost equal in terms of estimated sales – as recently as 2Q16, we estimated US sales were ~$80 million higher. This international momentum reflects: (i) strong adoption of Abbott’s FreeStyle Libre in 40+ countries and continued expansions in the global user base (see table below); (ii) Dexcom’s much stronger 53% international growth in 1H17 vs. slower 18% growth in the US; (iii) Medtronic Diabetes’ stronger international vs. US growth, particularly in 2Q17; (iv) no availability of FreeStyle Libre in the US; (v) no availability of Medtronic’s Guardian Connect in the US and only limited availability of the improved Guardian Sensor 3/670G. We think an especially big international impact is coming from national Libre reimbursement in France and Dexcom adoption in Germany.

Figure 9: Pooled CGM Revenue, Estimated (1Q12 – 2Q17): Dexcom, Abbott (estimated), Medtronic (estimated), Senseonics

• Will the CGM category see stronger US momentum in 2H17? We think so. 4Q17 will see the US launch of FreeStyle Libre in US pharmacies, for which we believe there is some pent-up US demand (more on that below). Meanwhile, Dexcom expects a pretty strong 2H17, including Medicare shipments hopefully starting to scale and the typical seasonality. It’s hard to know if Medtronic will see a meaningful CGM uptick in the US in 2H17 – the ongoing sensor shortage won’t be resolved until April 2018, and 670G’s broader launch to Priority Access Program participants likely brings slight upside.

Figure 10: CGM Sales by Company (1Q12-2Q17) – Dexcom, Abbott (estimated), Medtronic (estimated), Senseonics

• Dexcom sales totaled $142 million in 1Q17 (up 22% YOY) and a near-record-high $171 million in 2Q17 (up 24% YOY). Both quarters faced very tough YOY comparisons to 1Q16-2Q16’s growth (48%-60% YOY). In a positive for expanding the base, ~2/3 of Dexcom’s new patients in 2Q17 were from MDI – this bodes well for the market’s growth ahead and shows the investment in DiaMonD is paying off. Thus far, the year has been a tale of two geographies for Dexcom. In 2Q17, US sales grew a softer 18% YOY ($141 million), while international sales hit a record-high for the third straight quarter, rising 69% YOY ($30 million). Dexcom has guided for 2017 sales of $710-$740 million (+25%-30% YOY), meaning the second half of the year needs to see the typical seasonality in a more competitive market. A broader launch of the G5 Medicare bundles are expected by end of year, assuming the first summer shipments are processed properly (a whopping 20,000+ Medicare patients are in the pipeline). We don’t expect any major Dexcom launches the rest of this year – the touchscreen receiver is expected this fall, but we assume it will have a fairly minor/no impact on revenue. (Though some upside on profitability, since it is lower cost.) If all goes well, G6 is on track for a 2018 launch – the pivotal just wrapped up and an FDA filing was expected last month. This key sensor upgrade (10-day wear, one calibration per day after startup) will also include the exciting one-touch inserter and 30% lower profile transmitter, which were withdrawn from FDA as of the 2Q17 call. Read our Dexcom 2Q17 report.
• We estimate worldwide sales of Abbott’s FreeStyle Libre were ~$90 million in 1Q17 and ~$115 million in 2Q17 – both more than doubled YOY, given the user base trends. These sales figures reflect our best estimates based on a number of assumptions – many of which could be incorrect. We detail our thinking below, followed by a table with the past five quarters of data we’ve used to inform our model. It’s been excellent to see the success of this well-priced, easy to prescribe, easy to order, and easy to use product! We can’t wait to see how Libre real-time fares in the US with the slight FDA approval modifications (10-day wear, 12-hour warmup, prescription only). It is launching into a more competitive/reimbursed market than it did in Europe in 2014, meaning adoption could be slower here. Read our Abbott 2Q17 report.
  
  • User base: We’ve used the publicly announced global FreeStyle Libre user base figures, when available – see the table below. In the case of 2Q17 (no update), we used ~350,000, which is the midpoint of 1Q17’s user base (“300,000”) and the most recent update in September (400,000+).
  • Pricing: We’re using flat Libre sensor pricing of ~$120 per month, which obviously does not account for discounts, different geographies/currencies, payer relationships, etc. We’re also excluding one-time reader sales (~$60 each).
  • Utilization: We’re assuming that 100% Libre sensor utilization is unlikely – i.e., every user globally buying two sensors per month. Our model estimates 90% utilization, which would reflect the vast majority of users (but not all) wearing Libre 100% of time. We then rounded the final revenue number up/down to the nearest $5 million increment, just to emphasize that these are estimates and far from exact. For instance, 350,000 users * $120/month * 3 months * 90% = $113 million, which we rounded up to ~$115 million. This level of utilization is in line with what Insulet has reported in the past for the Omnipod, though obviously Libre could be different –  lower utilization (e.g., 75%) would drive a lot less revenue.
  • What we still don’t know or haven’t estimated: How does Abbott define a “user” – are all of these people currently wearing and ordering FreeStyle Libre, or is this base those who meet broader conditions (e.g., have ordered from Abbott at least once)? If the latter, revenue would obviously be less. How widely used is FreeStyle Libre Pro, and does the worldwide “user” number include professional sensor wear? (We assume not, but aren’t sure.) We’re also unsure of how pricing differs (if at all) in cases where FreeStyle Libre is reimbursed. Last, we haven’t accounted for sales from readers (~$60 each), though assume they are small. 

*Abbott’s 2Q17 call did not give an update on the size of the FreeStyle Libre user base. However, the 1Q17 update shared that there were “about 300,000” global Libre users. Subsequently, September’s FDA approval shared there were 400,000+ global Libre users. We felt the midpoint of the two was a reasonable assumption for 2Q17’s base.

• We estimate Medtronic’s worldwide CGM sales totaled ~$128 million in 1Q17 (up ~29% YOY) and ~$112 million in 2Q17 (up ~24% YOY). Medtronic told us last week that roughly 25% of its Diabetes sales now come from CGM, up from 20% as of late 2015 - our model now assumes Medtronic’s sales mix from CGM rose to 25% in 1Q17 and 2Q17, with 15%-20% used in 2016 and 2015. The mix likely varies from quarter to quarter and by geography. Medtronic may also have flexibility on how it recognizes “CGM revenue,” since the receiver is actually the pump – that could mean “CGM sales” over-represent sensor sales and active user base. Medtronic’s estimated CGM sales seem to be growing nicely, but overall performance this year has come below expectations – and CGM has played a central role. Worldwide Medtronic Diabetes sales rose a modest 3% YOY in 1Q17 and declined 1% YOY in 2Q17. The latter was the only sales decline in our Medtronic model, which dates back to 2005 (!). Per the 2Q17 call, sensor shortages were in large part responsible for the weakness, which impacted overall US sales heavily – down 8% YOY and down 20% sequentially. International sales growth was robust in 2Q17 (9% YOY) thanks to 640G and Guardian Connect adoption. Medtronic now expects more muted 1%-4% YOY Diabetes growth in FY18 (May 2017-April 2018), a very significant drop from the super ambitious 10%-12% growth they guided for last quarter. This is a huge change in expectations and came as a shocker to us, given the first-to-market MiniMed 670G hybrid closed loop and upside for Guardian Connect (standalone CGM). Launch of Guardian Connect and the IBM Watson-partnered Sugar.IQ app are expected “later this year” in the US – this could drive upside in the US CGM business, assuming Sugar.IQ makes the sensor compelling. From what we’ve seen, Guardian Connect’s accuracy, calibrations, and on-body experience will lag behind G5 and Libre. Read our Medtronic 2Q17 report.
• Senseonics reported revenue of $600,000 in 1Q17 and $800,000 in 2Q17, marking two straight quarters of sequential gains after $300,000 in initial 4Q16 sales (the first quarter when revenue was reported). Management expects Eversense availability in 14 countries by the end of the year and reiterated guidance for $6-$7 million in 2017 revenue, implying a substantial increase in sales in 2H17 ($4-$6 million). As of June 30, Senseonics reported ~$34 million in cash, up from $14 million at 1Q17, following a $41 million raise led by Roche Finance in June. There is solid upside from the pipeline: Senseonics just received a CE mark for the 180-day Eversense XL, enabling a possible 4Q17 launch Europe. Meanwhile, the sensor remains under FDA review, with the 2Q17 call expecting approval in 4Q17 – if an advisory committee does happen (the company expects one), the timing will be very, very tight and makes 4Q17 feel quite ambitious. Partner Roche placed a definite focus on Senseonics in its EASD symposium, and we’ll be interested to see how the glucose monitoring giant helps scale distribution and revenue. Read our Senseonics 2Q17 report.

Estimated CGM Market Shares by Sales (2Q17)

• In the US, Dexcom remains the dominant player by our estimates, retaining ~70% of the US CGM market by sales. This seems in the ballpark based on Dexcom’s share in the diabetes market research company dQ&A Diabetes Connections USA patient panel (contact CEO Richard Wood) and 77% share of the T1D Exchange registry (per Dr. Roy Beck’s presentation at the T1D Exchange’s fall 2017 Annual Meeting). This mix could change as Abbott and Medtronic launch more competitive products.
• Internationally, our sales estimates suggest Abbott is the dominant CGM player (58%), followed by Medtronic (26%) and Dexcom (15%). If we are overestimating Abbott’s sales, the share numbers would obviously look more balanced. 

8. Insulin Pumps And Patch Delivery Devices Decline Estimated ~6% Yoy, With Slower Growth For Medtronic And Likely Big Declines For Animas

• We estimate the insulin pump and delivery devices market fell ~4% YOY in 1Q17 (~$557 million) and ~9% YOY in 2Q17 (~$513 million). This includes sales from Medtronic (estimated), Insulet, Tandem, Animas (estimated), Roche (estimated), Valeritas, and Cellnovo. For this roundup in particular, two factors drove our estimate of a decline in the pump market: (i) rising Medtronic CGM sales (from ~20% of total sales previously to ~25% in 1H17) + modest overall Medtronic sales means corresponding falling Medtronic pump sales; and (ii) a significant modeled decline for Animas, given the business’ closing. We’d caution that this entire category is heavily weighted on these assumptions, which may be off in magnitude.
• By our estimates, pooled pump sales in 1H17 fell in both the US and internationally: -9% in the US and -3% OUS. The lone bright spot in the six-month period was Insulet, as the OmniPod recorded 60%+ YOY international growth and growth in the mid-teens in the US. The only other positive quarter in our model is Medtronic’s estimated 2% international pump growth in 2Q17. The chart below suggests that US declines have hurt the overall market since 4Q16. The pump market feels as fragile as it’s ever been, as evidenced by two major players, Animas and Roche, ceasing sales in the US this year. Moving forward, we believe product and business model innovation will have equal roles to play in the formation of successful, sustainable, and hopefully profitable pump companies.
• Assuming Medtronic and Animas indeed saw YOY declines in pumps, Insulet drove the industry’s growth in 1H17, propelled by strong 28% and 26% YOY worldwide OmniPod growth. Every other company in our model turned in sales declines in both quarter: Medtronic pumps fell an estimated ~3% and ~7%, Tandem fell 13% and 7%, Cellnovo fell 57% and 10% (though from a very low base), and Valeritas fell 8% and 2%. Overall, Medtronic still hauled in nearly 70% of pump revenue, and we see this number likely increasing as more patients get on the 670G (there were 35,000 in line to upgrade from 630G to 670G as of August), 640G momentum continues overseas, a sensor supply shortage is resolved (more below), and Animas directs its 90,000 former patients to Medtronic pumps.

Figure 11: Pooled Insulin Pump Revenue, Estimated (1Q12 – 2Q17)

• Medtronic’s estimated worldwide insulin pump sales were ~$384 million in 1Q17 (down ~3% YOY) and ~$337 million in 2Q17 (down ~7% YOY). This approximation is based on an email from Medtronic sharing that roughly 75% of its overall Diabetes sales now come from pumps, with the remaining 25% from CGM. CGM has accelerated in the past couple years, since the stated split was 80% pumps-20% CGM in 2015. [At the same time, we believe that a portion of price paid for every Medtronic pump goes to CGM hardware, so actual CGM revenue may be lower. There is no way to know for sure.] 2Q17 was particularly surprising and came well under expectations – estimated pump sales of ~$337 million were the lowest in several years. Moreover, overall Medtronic Diabetes sales declined for the first quarter in over a decade. The CGM sensor supply constraint – a result of higher-than-expected global demand – has stymied new shipments of the long-awaited 670G, but should be remedied in February-April 2018 once FDA approval for new manufacturing lines is obtained. Despite the shortage, global CGM revenue grew in the mid-to-high 20% range in both quarters in 1H17 (see CGM section above). The 640G continues to do well internationally – we were surprised to not see Medtronic in the Lisbon exhibit hall at EASD – while demand for 670G in the US seems to be higher than management had expected. There were “close to 35,000” people enrolled in the MiniMed 630G to 670G Priority Access Program in August – fulfillment to all of these customers was expected to wrap up shortly (“later this fall” as of August), and shipments to non-Priority Access customers could begin in F3Q18 (November 2017-January 2018). We’ll be interested to see if Hurricane Maria damage to a key Medtronic plant in Puerto Rico may further delay rollout of the 670G, especially to non-Priority Access customers. In a very surprising update, management expects 1%-4% YOY Diabetes growth in FY18 (May 2017-April 2018), a highly significant drop-off from the ambitious 10%-12% growth they previously guided for in May. The sensor shortage must be partially responsible for the diminished guidance, though competitive dynamics, especially from Insulet, are likely also at play. Read our Medtronic 2Q17 report.
• Insulet’s Omnipod saw record 2Q17 sales of $92 million (up 26% YOY); 1Q17, also an Omnipod record at the time, totaled $85 million (up 28% YOY). The Q2 performance was a record for both the US ($65 million; +16% YOY) and international ($27 million; +60% YOY) geographies. Management expects strong uptake to continue, guiding for 25% YOY growth in the global installed base, with 15% YOY growth still expected in the US and 40% growth expected OUS (up from 30%). This would put global user base at ~135,000 by the end of 2017. The Insulet team is definitely eager to go direct in Europe fin mid-2018 following the July announcement that the company would not be renewing its agreement with Ypsomed. Notably, going direct will drive a 50%+ revenue increase over what Insulet receives from Ypsomed, meaning 2018 will see a “material increase” in international revenue (and margins). On the pipeline side, the Bluetooth-enabled OmniPod Dash PDM and pod, which debuted at ADA, is on track for a 4Q17 FDA submission – we imagine a quick regulatory review will enable a 1Q18 launch. We expect this could materially accelerate Ominpod uptake next year, as it is a really nice hardware improvement from the current clunky PDM. As of AADE, the OmniPod Horizon Automated Glucose Control System had been tested in 92 patients, amounting to 4,584 hours of closed loop and 120 nights, in two IDE studies (see a summary here). A new outpatient five-day hotel study (n=48) should wrap up this month. Per the 1Q17 call, a launch of the system is expected in 2019 following a pivotal trial next year, potentially putting Insulet second, third, or fourth to market with an automated system (depending on Tandem and Bigfoot’s timing, among others; see our automated insulin delivery competitive landscape here). Read our Insulet 2Q17 report.
• Tandem had a rough 1H17, with sales declines in both quarters – down 13% to $18 million in Q1, down 7% to $21 million in Q2. On the plus side, both came on very tough comparisons to t:slim G4 momentum a year ago. We expect a strong back half of the year as t:slim X2/G5 rolls out. On the bright side, 2Q17 did see encouraging 22% sequential growth, and revenue is actually holding steady in the face of strong competitive headwinds. At the year’s midpoint, Tandem had $38 million of cash on hand – only enough for at least a couple of quarters given current rate of cash burn – though the company had just filed for an at-the-market public stock offering and has announced the pricing of a $16.2 million underwritten public offering (enough for ~one additional quarter). Though pump sales declined markedly in both quarters (30% and 25% respectively), it is encouraging that 60% of new patients came from MDI – a positive sign for investors that Tandem continues to grow the market . We imagine 2H17 will see acceleration with the recent Animas closing and t:slim X2 with G5 approval and launch. The company does have lofty guidance for full-year sales of $100-$107 million (12%-20% YOY growth), meaning serious momentum is needed in the year’s latter months. The t:slim X2/G5 launch was also the first step needed for Tandem to leverage remote software updates, critical as the predictive low glucose suspend (PLGS) product started its pivotal study in August and is expected to launch in summer 2018. As for the second-gen automated product with TypeZero’s treat-to-range algorithm and Dexcom’s G6, a launch is expected by the end of 2018, possibly putting Tandem second-to-maker with a hybrid closed loop product. The sensor shortages that have delayed broader 670G shipments could work in Tandem’s favor –  will patients waiting for the 670G go for Tandem instead? Will the remote software update feature de-risk choosing Tandem over Medtronic? Read our Tandem 2Q17 report.
• We’re not sure of Animas’ pump sales or growth, but this roundup estimates 1H17 sales fell ~50% YOY to just under $30 million in 1Q17 and ~$20 million in 2Q17. These could be off in both magnitude and direction, as J&J does not disclose these numbers, but we assume the business has taken a hit in recent quarters. For context, combined LifeScan/Animas sales declined 7% in 1Q17 and declined 10% YOY in 2Q17, though is no shortage of challenges in BGM. Of course, if Animas’ YOY run rate is similar between 1H16 and 1H17, the overall pump category did better than this report implies. Read our reports on Animas’ exit J&J’s 2Q17.
  • J&J sadly announced earlier this month that Animas would be closing operations and exiting the pump business, following the news in January that strategic options were being evaluated. The company will no longer manufacture and sell the Animas Vibe and OneTouch Ping insulin pumps in the US and Canada, and rest-of-world timing is pending (but presumably coming soon). Animas is directing its 90,000 customers to Medtronic, a safe choice for the partnership, though we wish they had offered other options (Tandem and Insulet did offer their own transition programs). See our report for detailed implications of the close – we assume that there wasn’t a suitable buyer for the business, underscoring the fragility of the pump business as a whole and wariness to enter/remain in the field. The bar for product excellence, pace of innovation, and creative thinking regarding business models continues to rise for diabetes devices – hopefully this is a win for patients long term (accelerated innovation), but diminished choice is a definite concern, especially if more exclusive payers deals become the norm.  
  • J&J will continue to evaluate potential strategic options for LifeScan and Calibra. The still-not-launched OneTouch Via bolus-only patch insulin delivery device remains promising in our view – we believe it could be game-changing for some patients, particularly given the challenges of mealtime injections. It is arguably the most appealing and has the highest upside of J&J remaining diabetes device offerings, given the patient/HCP enthusiasm for this discreet way of delivering bolus insulin. A launch may be imminent (per conversations at EASD), though reps haven’t been able to say exactly when that might happen. Alternatively, LifeScan may not ever launch the device if a suitable buyer comes in to scoop it up.
• We’d like to acknowledge at the outset of the Roche discussion that we’re not sure of Roche’s pump sales or growth. This roundup estimates sales fell ~8% YOY in 1Q17 and ~16% YOY in 2Q17, both to just under $40 million. These could be off in both magnitude and direction, as Roche does not disclose these numbers. For context, worldwide overall Roche Diabetes sales grew 1% YOY in 1Q17 on an easy comparison and declined 7% YOY (-27% YOY in North America) in 2Q17. As a reminder, Roche halted shipments of new Accu-Chek pumps in the US effective the beginning of 2017 to focus efforts on the Accu-Chek Guide BGM, and the company stopped directly selling pump supplies in the US August 31. This wasn’t unexpected, but served as yet another reminder of the fragile pump ecosystem and competitive environment. In a July email, a rep didn’t rule out a future re-entry into the US pump market, but the company continues to pivot to a more integrated, digital diabetes ecosystem – including mySugr, Senseonics’ Eversense implantable CGM (prioritized over the Accu-Chek Insight CGM), connected pen Pendiq, and a number of apps/platforms – see our EASD coverage of the Roche symposium and the exhibit hall. In exciting news for the pump business, Roche established an R&D agreement with Senseonics and TypeZero to develop an automated insulin delivery system with Senseonics’ 180-day sensor. The system will be tested in an arm of the NIH-funded iDCL trial at three EU centers, with enrollment opening in early 2018 and wrapping up later in 2018 to support a CE mark. We’re not sure if this system will be commercialized in the US – the hardware components aren’t available in the US at the moment, though Senseonics hopes for FDA approval of Eversense in 4Q17. At this stage, this partnership’s focus is on the European market. We expect there would be interest in a 180-day automated insulin delivery system that requires minimal sensor intervention (i.e., no CGM changes for six months), assuming it works, is accurate, and especially if Senseonics can bring a factory-calibrated sensor to market. Read our Roche 2Q17 report.
• Sales of Valeritas’ V-Go insulin delivery device have been relatively flat over the past two years: Sales fell 8% YOY to $4.6 million in 1Q17 and 2% YOY to $4.8 million in 2Q17. However, management is confident that the new capital-efficient sales and marketing strategy (reduced sales force focusing on a smaller number of high-volume insulin prescribers) will deliver strong and sustained growth, though ambitious 1Q17 guidance for double-digit full-year growth has been revised meaningfully to ~2% full-year growth. There is still a lot to prove here on scaling the business and driving awareness. A successful IPO in March that raised $49 million left Valeritas with $42 million in the bank at 2Q17’s end, allowing runway through mid-3Q18 at the current burn rate – we hope this puts some wind in the company’s sails. The connected V-Go Link and the pre-filled V-Go are still reportedly advancing, and the Link is expected to hit the market before the pre-filled (no timing was specified). This product has a lot of upside, and Valeritas studies – including a recent prospective, real-world trial presented at ADA – continue to demonstrate positive A1c data with less insulin in type 2 diabetes. If the business model can scale and Valeritas can drive awareness, we see a lot of potential here. Patients that get on this product love it, from what we’ve heard. Read our Valeritas 2Q17 report.
• Cellnovo’s sales totaled €0.19 million in 1Q17 (down 49% sequentially) and €0.29 million in 2Q17 (up 55% sequentially). We look more at the sequential trend rather than YOY growth, given the low sales base in these early days of commercialization. The slow 1H17 (-37% YOY) can be attributed to very low pump shipments – just 97 in six months. A recent press release shared that the cartridge manufacturing ramp-up with Flex is still ongoing, with a potential impact on 2H17 sales. The manufacturing transition was previously expected to complete in August, so things are running behind. Also possibly affecting 2H17 sales is an FDA review delay for the patch pump system. A 510(k) submission was filed with FDA in November 2016, but the company shared last month that the Agency has requested a second set of further information. No updated timing was shared, but a US launch will obviously be delayed from the previously-proposed 4Q17. On the plus side, financial resources are now expected to last to mid-2019, and the company’s two closed loop bets are expected to possibly launch in Europe in 2018 (Cellnovo+ TypeZero and Diabeloop). Read our Cellnovo 2Q17 report.

Obesity

9. Sales Rise ~66% in 1H17, with Majority of Growth Coming from Novo Nordisk’s Saxenda

• Total sales for all major obesity drugs rose 74% YOY in 1Q17 and 60% YOY in 2Q17, although it’s important to recognize that the majority of this growth was driven by Novo Nordisk’s Saxenda (liraglutide 3.0 mg). Excluding Saxenda sales, the class grew 31% YOY in 1Q17 and 11% YOY in 2Q17. With Saxenda, pooled obesity pharmaceutical revenue totaled $122 million in 1Q17 and $146 million in 2Q17 vs. $45 million and $38 million without Saxenda. Novo Nordisk recorded $77 million in Saxenda sales for 1Q17 (more than doubling YOY) and $105 million for 2Q17 (up 82% YOY) – this translates to a 63% market share by value in 1Q17 and a 72% market share by value in 2Q17. There’s no questioning Saxenda’s frontrunner status, but Orexigen’s Contrave (naltrexone/bupropion extended-release) also fared well in 1H17, capturing 16% of pooled sales in both 1Q17 ($19 million revenue, up 36% YOY) and 2Q17 ($23 million revenue, up 90% YOY). Vivus’ Qsymia (phentermine/topiramate extended-release) and Arena/Eisai’s Belviq (lorcaserin) have shown more sluggish financial performance in 2017 so far. Qsymia revenue increased 42% YOY in 1Q17 to $18 million before plummeting 33% YOY in 2Q17 to $9 million. Vivus’ obesity drug held 15% and 6% of the market by value in 1Q17 and 2Q17, respectively. Belviq sales were up 2% YOY to $8 million in 1Q17, when the product captured 7% of the market by value, but were down 6% YOY to $9 million in 2Q17, when the product captured 6% of the market by value. We do see enormous potential for overall growth in this market, as only a very small proportion of the approximately one in three adults who have obesity are receiving medical treatment (Novo Nordisk management estimated the proportion of patients receiving obesity care at 2% of the 600 million people with obesity worldwide). That said, there are also key commercial challenges that manufacturers will have to overcome. Patients/providers remain reluctant to consider pharmacological interventions for weight loss, perhaps due to persistent weight-based stigma. Obesity is often not recognized or diagnosed as a life-threatening disease, and these drugs are frequently inaccessible due to poor reimbursement status – as Dr. Lee Kaplan shared at Obesity Week 2016, many people won’t even check under the assumption that obesity pharmacotherapy won’t be covered. To confront these obstacles, Orexigen has launched a large-scale marketing initiative aimed at dispelling misconceptions related to obesity treatment, and Novo Nordisk has also allocated a sizeable portion of its R&D budget to obesity education/awareness.

Figure 12: Total Obesity Market Sales (1Q13-2Q17)

-- by Payal Marathe, Brian Levine, Ann Carracher, Abigail Dove, Maeve Serino, Adam Brown, and Kelly Close