Lilly 1Q16 – Humalog revenue down 11% to $606 million; Jardiance driving SGLT-2 class growth with sales of nearly $40 million, up 98% YOY/162% sequentially; Trulicity sales up 8-fold YOY – April 29, 2016

Lilly provided its 1Q16 update this morning in a call led by CEO Mr. John Lechleiter. Total sales for the company’s diabetes portfolio reached $1.3 billion, rising 11% year-over-year (YOY) as reported and falling 10% sequentially. US sales grew 19% YOY and fell 8% sequentially to $818 million. Ex-US sales fell 1% YOY and fell 14% sequentially to $462 million. Once-weekly GLP-1 agonist Trulicity (dulaglutide) experienced an impressive eight-fold YOY growth and a 28% sequential growth to $144 million, from a relatively low base of $18 million in sales in 1Q15. The product accounted for approximately 10% of total sales and over 60% of growth for Lilly’s diabetes portfolio in 1Q16. Sales for the BI-partnered SGLT-2 inhibitor Jardiance (empagliflozin) franchise rose 98% YOY (162% sequentially) to $38 million, from $19 million in 1Q15. Jardiance continues to gain new-to-brand (NBRx) market share within the SGLT-2 inhibitor class and drive overall class growth. BI booked some Jardiance sales as well so the total result here is understated. Revenue for Lilly’s flagship product Humalog (insulin lispro) fell 11% YOY and 10% sequentially to $606 million. Lilly’s other mainstay insulin (somewhat surprisingly) fared better: Humulin (human insulin) sales rose 13% YOY to $240 million. Basaglar (biosimilar insulin glargine, marketed as Abasaglar ex-US) and DPP-4 inhibitor Tradjenta (linagliptin) continued to do well: Basaglar sales grew 49% sequentially to $11 million and Tradjenta sales grew 15% YOY in 1Q16 to $94 million. Both products are also partnered with BI, so Lilly’s reported revenue represents only a portion of total sales.

On the pipeline front, Lilly discontinued development of its phase 2 Transition Therapeutics-partnered GLP-1/glucagon dual agonist LY2944876/TT401 and a phase 1 candidate for diabetic nephropathy. The company also added a phase 1 DGAT-2 inhibitor for dyslipidemia to its pipeline and hinted at interest in developing an oral GLP-1 agonist in Q&A.

In Q&A, Lilly management emphasized the need for products to differentiate themselves and offer a compelling value proposition in the increasingly price-conscious payer and political environment. This echoes many similar comments made by executives from Lilly, Novo Nordisk, and Janssen at GTCBio 2016.

Read on below for an item-by-item overview of highlights from the call, followed by relevant Q&A.

Table 1: 1Q16 Financial Results for Lilly’s Major Diabetes Products

Financial Highlights

• Total sales for Lilly’s diabetes portfolio reached $1.3 billion, rising 11% year-over-year (YOY) as reported. Sequentially, sales fell 10%, against a tough comparison as sales grew 13% sequentially to $1.42 billion in 4Q15. By product, GLP-1 agonist Trulicity (dulaglutide) continued to drive the majority of overall growth in Lilly’s diabetes portfolio, accounting for 62% of growth in 1Q16. Lilly’s human insulin Humulin drove 20% of growth, SGLT-2 inhibitor Jardiance (empagliflozin) drove 9% of growth, DPP-4 inhibitor Tradjenta (linagliptin) drove 6% of growth, biosimilar insulin glargine Basaglar/Abasaglar drove 5% of growth, and Lilly’s glucagon formulation drove 2% of growth. In fact, the only product in Lilly’s diabetes portfolio that did not experience growth was its flagship rapid-acting insulin, Humalog (insulin lispro). By geography, US performance was stronger than ex-US performance. US sales grew 19% YOY and fell 8% sequentially to $818 million. Ex-US sales fell 1% YOY and fell 14% sequentially to $462 million. See the tables above for an overview of 1Q16 financial results for Lilly’s major diabetes products.

Humalog

• Revenue for Lilly’s flagship product Humalog (insulin lispro) fell 8% YOY in constant currencies and 11% as reported to $606 million. Revenue fell 10% sequentially from $799 million in 4Q15, a very tough comparison as revenue rose 13% sequentially in 4Q15 (and marked the first time sequential growth for Humalog reached double-digits since 2013). Performance was stronger outside of the US than in the US. Humalog revenue fell 14% YOY in the US to $362 million. Ex-US sales grew 1% YOY in constant currencies (fell 7% YOY as reported) to $245 million. This is the first time the product has experienced double-digit negative growth worldwide since we began tracking its sales in 2005. That said, Lilly management attributed the lower numbers to a one-time adjustment for estimated rebates and discounts and estimated the underlying revenue growth to be in the mid-single-digit range. Furthermore, Lilly highlighted Humalog as a strong driver of volume growth for the company – the product accounted for 1% of the overall volume growth of all of Lilly’s products (both diabetes and non-diabetes). Humalog was also highlighted as a significant contributor to US volume growth. In addition, IMS Health data included in Lilly’s supplemental presentation slides indicated that Humalog’s total prescription (TRx) market share has been on a slight upswing since 4Q15, rising from ~45% in October 2015 to over 47% as of April 2016. We expect Humalog will experience greater pressures with the introduction of Sanofi’s biosimilar insulin lispro and new ultra-rapid-acting entrants to the class and greater competition from GLP-1 agonists and SGLT-2 inhibitors.

Figure 1: Humalog Sales (1Q12-1Q16)

• The overall rapid-acting insulin analog market fell 7% YOY as reported and fell 21% sequentially to $1.4 billion in 1Q16. All three of the major rapid-acting insulins (Humalog, Novo Nordisk’s NovoLog/NovoRapid [insulin aspart], and Sanofi’s Apidra [insulin glulisine]) experienced YOY and sequential declines. By value, NovoLog still leads the rapid-acting insulin market with 49% of sales. Humalog revenue accounted for 44% of the market this quarter and Apidra sales made up 7% of the market. MannKind’s inhaled insulin Afrezza (formerly partnered with Sanofi) has not reported sales for this quarter so it is not included in these calculations, but its sales were flat at $2 million each quarter of 2015 and it likely has a negligible impact on whole-market trends. The rapid-acting insulin market has been contracting for some time now as GLP-1 agonists grow in popularity as an option for basal insulin intensification. We expect the class may be revitalized to some extent with the entrance of new products on the horizon, including Novo Nordisk’s faster-acting insulin aspart, Lilly/Adocia’s BioChaperone insulin lispro, and Sanofi’s biosimilar insulin lispro, but we expect competition from the growing GLP-1 agonist and SGLT-2 inhibitor classes to remain an important factor.

Figure 2: Rapid-Acting Insulin Analog Market (1Q06-1Q16)

Humulin

• Humulin (human insulin) sales rose 16% YOY in constant currencies (13% as reported) to $240 million. Sequentially, sales fell 1%. Humulin accounted for an impressive 20% of the overall growth of Lilly’s diabetes portfolio. The growth in Humulin sales was driven entirely by the US, where it rose 38% YOY (14% sequentially) to $356 million. Management noted that Humulin significantly contributed to US volume growth. That said, as in previous quarters, management still attributed Humulin’s strong performance primarily to price increases rather than demand. These price increases for human insulin have likely contributed significantly to the growing public frustration over rising insulin costs. We remain surprised that Lilly has been able to increase prices for Humulin in the current cost-conscious payer environment and hope that this trend does not continue. We expect that Humulin sales will remain strong in the coming quarters with the launch of the Humulin U500 KwikPen, which is targeted at patients with very high insulin requirements and offers much simpler dosing and greater patient convenience. In the company’s 3Q15 update, Lilly had pointed to demand for the U500 formulation of Humulin in the US as a primary driver of the franchise’s overall performance. Outside of the US, Humulin sales fell 7% YOY and 15% sequentially to $116 million, driven by decreased volume. As in previous quarters, Lilly pointed to the negative impact of foreign exchange and the loss of a government contract in Brazil for this weaker ex-US performance. On the flip side, Lilly noted that Humulin drove volume growth in Europe.

Figure 3: Humulin Sales (1Q11-1Q16)

• Lilly highlighted the US launch of its Humulin U500 KwikPen, which was approved in January. The list price at our local CVS was $295 per pen, compared to $109.20 per pen for the Humulin U100 KwikPen and $115.40 per pen for the Humalog U100 KwikPen. Per unit of insulin, the Humulin U500 KwikPen is less expensive than the U100 KwikPen and is less expensive than the Humalog insulin analog as well (as expected). The Humulin U500 KwikPen holds 1,500 units of insulin each (five times as many as the Humulin U100 KwikPen) and will dial in five-unit increments. Lilly management has previously shared that development of the U500 KwikPen began in response to increased demand for the U500 formulation of Humulin, presumably due to the rise of insulin resistance.

Trulicity

• GLP-1 agonist Trulicity (dulaglutide) experienced an impressive 8-fold YOY sales growth and a 28% sequential growth to $144 million, from a relatively low base of $18 million in sales in 1Q15. Trulicity has experienced a strong launch year and Lilly management highlighted it as one of the main drivers of growth for the company. Trulicity sales accounted for 11% of the company’s overall diabetes sales and for a whopping 62% of the total growth for Lilly’s diabetes products. Both US and ex-US sales contributed to this growth – Trulicity accounted for 55% of overall US growth of Lilly’s diabetes portfolio and 61% of overall ex-US growth.

Figure 4: Trulicity Sales (4Q14-1Q16)

• Lilly shared that Trulicity is now the second most-prescribed brand in the GLP-1 agonist class, with a TRx share of 17%. Management attributed this in part to Trulicity’s improved formulary access compared to last year; commercial and Part D access is now over 70%. Notably, Lilly once again suggested that Trulicity is responsible for growing the class as a whole and highlighted the strong 30% volume growth of the underlying class. This represents a very strong recovery from the ~8% volume growth for the class at the beginning of 2015. According to data presented in Novo Nordisk’s 1Q16 update, Victoza led the class with 54% TRx share in the US GLP-1 agonist market as of March 2016 (down from 64% the previous year). AZ’s combined exenatide franchise (Bydureon and Byetta) held 21% TRx share, GSK’s Tanzeum (albiglutide) held 9%, and Sanofi’s Lyxumia (lixisenatide, only marketed ex-US) held 1%.
• By value, the GLP-1 agonist class grew 26% YOY to $1.1 billion in 1Q16, though it fell 3% sequentially. Within the class, Trulicity held 13% of the market share by value. Novo Nordisk’s Victoza (liraglutide) continued to lead the class with 64% of the market share by value. Byetta (exenatide twice-daily) and Bydureon (exenatide once-weekly) held 6% and 13% market share, respectively, Tanzeum held 3%, and Lyxumia held 1%.

Figure 5: GLP-1 Agonist Market (1Q06-1Q16)

• During Q&A, Lilly management suggested that Trulicity has been a catalyst for the rebound of the GLP-1 agonist class. Furthermore, the company characterized the patient feedback for Trulicity as “truly exceptional.” Trulicity is widely regarded as one of the most patient-friendly GLP-1 agonists on the market, with its long-acting once-weekly dosing and its IDEO-designed delivery pen. We see the GLP-1 agonist class continuing to grow, especially with fixed-ratio combinations (Novo Nordisk’s Xultophy [insulin degludec/liraglutide] and Sanofi’s LixiLan [lixisenatide/insulin glargine]) and innovative delivery mechanisms (Intarcia’s ITCA 650 implantable exenatide mini-pump and Novo Nordisk’s oral semaglutide) on the horizon.
• Lilly sees the positive LEADER results demonstrating a cardiovascular benefit for Novo Nordisk’s competing GLP-1 agonist Victoza as a huge positive for the class as a whole. During Q&A, management suggested the results will serve as a catalyst to further grow the entire class. Based on the impact of EMPA-REG OUTCOME on the SGLT-2 inhibitor class, we would expect LEADER to drive some overall class growth but produce disproportionate gains for Victoza, at least until other GLP-1 agonist CVOTs report positive results. We imagine that Victoza’s status as the market leader, its already strong formulary positioning, and the heterogeneity in GLP-1 agonist CVOT results (ELIXA for Lyxumia and FREEDOM-CVO for ITCA 650 have both reported neutral results) will work to Novo Nordisk’s advantage on this front, driving more patients to Victoza (and eventually semaglutide) than to other GLP-1 agonists. Lilly also expressed optimism at Trulicity’s chances of demonstrating a cardioprotective benefit in its own cardiovascular outcomes trial, REWIND, as the trial was designed to demonstrate cardiovascular superiority.
  
  • In Q&A, management shared that interim results for REWIND are expected this year and that the trial will complete in late 2018. This is a slightly accelerated timeline from the expected completion date of April 2019 previously listed on ClinicalTrials.gov. However, Novo Nordisk’s upcoming entrant to the class, once-weekly semaglutide, already has positive CVOT data available. Novo Nordisk expects to submit semaglutide for regulatory review in both the US and EU in 4Q16 and expects a 2018 launch for the product. Thus, it’s possible that any positive CVOT data for Trulicity may come too late to strongly impact its market share given that there will be at least two other GLP-1 agonists on the market with known cardioprotective benefit. Intarcia’s ITCA 650, while it has not demonstrated positive CV outcomes results, will likely also be a threat to Trulicity due to its adherence advantages and likely lower price

Jardiance/Glyxambi/Synjardy

• Sales for the BI-partnered SGLT-2 inhibitor Jardiance (empagliflozin) franchise rose 102% YOY in constant currencies (98% as reported) and 162% sequentially to $38 million, from $19 million in 1Q15. These figures include sales for Synjardy (empagliflozin/metformin) and Glyxambi (empagliflozin/linagliptin) in addition to standalone Jardiance. The very strong sequential growth was against an easy comparison as Jardiance sales fell 5% sequentially last quarter. Indeed, Jardiance experienced a sequential decline in 3Q15 (100%) and 2Q15 (43%) as well. The rebound in Jardiance sales is likely due to the positive EMPA-REG OUTCOME results demonstrating an unprecedented cardiovascular benefit for the drug. Despite the upswing, Jardiance sales only accounted for 9% of the growth of Lilly’s overall diabetes portfolio (compared to 62% of growth for GLP-1 agonist Trulicity and 20% of growth for Humulin). For comparison, 1Q16 sales of J&J’s Invokana (canagliflozin) totaled $325 million worldwide and sales of AZ’s Farxiga (dapagliflozin) totaled $165 million worldwide. Jardiance may still be suffering in terms of sales due to its status as the third-to-market SGLT-2 inhibitor in both the US and Europe. That said, Lilly’s share of Jardiance revenue does not fully represent the product’s actual performance, as the revenue is split between Lilly and BI.
  
  • By geography, Lilly’s Jardiance sales approximately doubled YOY in both the US and outside of the US to $30 million and $9 million, respectively. Sequentially, sales of Jardiance more than tripled in the US, against an easy comparison of a 26% sequential decline to $10 million in 4Q15. Outside of the US, Jardiance revenue rose 70% sequentially, from a tougher comparison as ex-US sales doubled sequentially to $5 million in 4Q15.

Figure 6: Jardiance Franchise Sales (1Q14-1Q16)

• Jardiance continues to make inroads in terms of new-to-brand prescription  (NBRx) market share, which is now up to 28%. Management emphasized that the product’s NBRx share is now nearly double the 15% share it held in 1Q15. The 28% NBRx share also represents a slight increase from the 26% share it held as of the company’s 4Q15 update at the end of January. During this call, management noted that an increase in prescriptions from both endocrinologists and primary care physicians contributed to the uptick in NBRx share. The supplemental presentation slides for the update showed that NBRx share among endocrinologists reached ~37% as of April 8, while NBRx share among primary care physicians reached ~25%. According to the graph, NBRx share for Jardiance among endocrinologists peaked at just over 40% in January. During Q&A, management also drew attention to Jardiance’s ex-US performance, noting that Jardiance holds over 30% of the market in Germany, 22% in Spain, over 40% in Italy, and 10% in the UK. Overall, management characterized the company’s approach to Jardiance as “bullish.”
• By value, the SGLT-2 inhibitor market continues to be dominated by J&J’s Invokana. At $325 million, Invokana’s 1Q16 sales accounted for 62% of the global SGLT-2 inhibitor market. AZ’s Farxiga held 31% of the market share by value with $165 million in sales in 1Q16. Lilly’s portion of Jardiance revenue accounted for only 7% of the total reported revenue of the global SGLT-2 inhibitor market. However, Lilly’s reported sales for Jardiance do not include BI’s portion of the revenue, so it’s quite possible that Jardiance holds a larger portion of the market than the numbers suggest.
• The EMPA-REG OUTCOME results served as a catalyst for strong 41% YOY growth of the overall SGLT-2 inhibitor class to $528 million in 1Q16. Lilly also shared that total prescription volume for the class rose ~45% in 1Q16. Management suggested that inclusion of EMPA-REG OUTCOME data on the Jardiance label and updated treatment guidelines that reflect the results will serve to grow the overall class even further going forward. Lilly management has previously focused on the impact of these two events on Jardiance sales and it seems that there is a greater acknowledgement that the EMPA-REG OUTCOME findings are proving beneficial for the other products in the class as well. We wonder if the overall class growth can be attributed to an assumption among prescribers that the results represent a class effect and superior formulary positioning for the other, earlier-to-market products. That said, Lilly management emphasized that over 85% of the commercial market and 65% of the Part D market has access to Jardiance. Indeed, J&J’s market-leading Invokana experienced a 13% sequential decline in sales in 1Q16 that J&J management attributed partially to increased competition for formulary positioning. This could mean that J&J was forced to accept higher rebates to defend its position against inroads from Jardiance. Invokana’s revenue drop drove a 2% sequential dip in SGLT-2 inhibitor sales for the class overall.
• On the more negative side, management also shared that new patient growth for the SGLT-2 inhibitor class as a whole is only in the single digits. This is rather surprising as some might even suggest that SGLT-2 inhibitors could be an appropriate first-line therapeutic option or the preferred second-line option, at least in certain high-risk patients matching the EMPA-REG OUTCOME participant profile. We wonder if this may partially be due to lingering concerns about DKA (despite an AACE/ACE consensus that the risk/benefit profile “overwhelmingly favors” continued use of SGLT-2 inhibitors in type 2 diabetes). It could also be due to lack of familiarity with the drugs among PCPs, as the class has only been on the market for approximately three years. We imagine this might change if future treatment guidelines place the class in a privileged position over other second-line treatment options, though the consensus appears to be that this will not occur without a second positive SGLT-2 inhibitor cardiovascular outcomes trial.

Figure 7: SGLT-2 Inhibitor Market (1Q13-1Q16)

• Management expressed satisfaction with the 2016 update to the treatment guidelines issued by the Canadian Diabetes Association (CDA), which places Jardiance in a privileged position as a second-line therapy for patients with clinical cardiovascular disease. The guidelines recommend an “SGLT-2 inhibitor with demonstrated CV outcome benefit” for patients with cardiovascular disease if they are not at target on metformin therapy. In the guidelines’ more detailed discussion of diabetes drug classes, the document notes that only empagliflozin has demonstrated a cardiovascular benefit. The guidelines also noted that this recommendation is based on the most rigorous Grade A, Level 1A standard of evidence. Lilly referred to the CDA guidelines, released just this month, as the first guideline update to be released since the EMPA-REG OUTCOME results were made public. The AACE/ACE diabetes treatment guidelines were updated in early January – these guidelines mentioned a “possible benefit” of SGLT-2 inhibitors on cardiovascular disease but did not make any major changes to prescribing recommendations. In its 4Q15 update, Lilly management argued that the AACE/ACE update “really did not fully incorporate the EMPA-REG OUTCOME data as they were looking at those guidelines in early January.” Given the unprecedented nature of the EMPA-REG OUTCOME results, we imagine that guidelines committees may need more time to digest the results before issuing any radical updates. As mentioned above, we also expect that many guidelines committees will want to wait for results from other SGLT-2 inhibitor CVOTs before making significant changes.
• In Q&A, Lilly shared that it has requested and fully expects an updated indication on the Jardiance label in response to the recent FDA submission of the EMPA-REG OUTCOME data. Management noted that mere inclusion of the data on the label, rather than an indication, would be a disappointment and would “fall short of expectations.” Simple inclusion of the data would limit Lilly’s efforts to promote the product, whereas an updated indication would offer a much stronger value argument for payer negotiations. An FDA decision on the label is expected by late November 2016.
• Lilly drew attention to the two recently announced trials of Jardiance in patients with heart failure. The company is in the planning stages of the trials and hopes to initiate both studies within the next 12 months. The trials will enroll patients who have heart failure both with and without type 2 diabetes.
• Lilly did not break out sales of Synjardy (empagliflozin/metformin) or Glyxambi (empagliflozin/linagliptin). Neither product received any mention during prepared remarks or in the press release. Lilly management commented in Q&A that the EMPA-REG OUTCOME data has been submitted for a potential label update for Jardiance and Synjardy, but not Glyxambi. We assume this is because cardiovascular outcomes data for the DPP-4 inhibitor linagliptin component of Glyxambi is not yet available.
• Lilly noted that its BI-partnered empagliflozin/metformin extended-release (XR) fixed-dose combination has been submitted to the FDA. Assuming a standard ~12 month timeline from submission to approval, we would expect the product to be approved in late 2016 or early 2017. The combination will be the third in its class to market, after AZ’s Xigduo XR (already on the market) and J&J’s canagliflozin/metformin XR (submitted in November 2015). Extended-release metformin is not approved in the EU. The empagliflozin/metformin XR combination will offer dosing convenience (with once-daily rather than twice-daily dosing), though we wouldn’t expect any substantial improvements over Synjardy and wonder if the added convenience would be accompanied by a pricing premium – we’re assuming at least a small one to help cover development costs. We’re also curious if Lilly will include the EMPA-REG OUTCOME results in the data package for the empagliflozin/metformin XR combination, as the data was submitted for a label update for Synjardy.

Tradjenta

• Sales of Lilly/BI’s DPP-4 inhibitor Tradjenta (linagliptin) grew 18% YOY in constant currencies (15% as reported) and fell 7% sequentially in 1Q16 to $94 million. These figures also include sales for Jentadueto (linagliptin/metformin). The product received little mention during the call. By value, Tradjenta accounted for 6% of the growth of Lilly’s diabetes portfolio. By volume, Tradjenta drove 0.3% of the growth of Lilly’s entire portfolio (both diabetes and non-diabetes). During prepared remarks, Lilly highlighted Tradjenta as a contributor to growth in the US and Japan, specifically. US sales of Tradjenta grew 20% YOY to $38 million and fell 7% sequentially. Ex-US sales of Tradjenta grew 11% YOY as reported (17% in constant currencies) and fell 11% sequentially to $56 million.

Figure 8: Tradjenta Sales (2Q11-1Q16)

• A linagliptin/metformin XR combination is under regulatory review in the US with a decision expected in 2016. The extended-release combination would presumably offer more convenient once-daily dosing (as opposed to twice-daily dosing). The combination has been under regulatory review since the beginning of the year and, assuming a standard review cycle, a decision is expected in the second half of 2016.

Basaglar/Abasaglar

• Basaglar (biosimilar insulin glargine, marketed as Abasaglar ex-US) sales grew 49% sequentially to $11 million, up from $7 million in 4Q15. Lilly highlighted Basaglar as one of its drivers of growth, along with its other new products (Trulicity, Jardiance, Cyramza [ramucirumab, for lung and gastric cancer], and Portrazza [necitumumab, for lung cancer]). Basaglar sales accounted for 5% of the overall growth of Lilly’s entire diabetes portfolio.
• Management emphasized that Basaglar is early in its launch cycle and that there is a wide spread in the percent market share it holds from country to country: the product holds 17% market share in Slovakia, 11% in Japan, 4% in the Czech Republic, and just 2% in Germany. This represents an increase from the 11%, 5.5%, and 3% market share Basaglar held in Slovakia, Japan, and the Czech Republic, respectively, in 3Q15. Lilly has previously noted that the market share in Slovakia in particular is likely at least partially due to switches from Sanofi’s Lantus (insulin glargine), which is not reimbursed well there. In the countries where it has launched, Basaglar is generally priced at a 10%-20% discount relative to Lantus. We’re a bit surprised that the product’s market share isn’t larger in the very cost-conscious Germany, though we assume that it is still early in its launch cycle there and sales may ramp up (especially given the withdrawal of Novo Nordisk’s next-generation basal insulin Tresiba [insulin degludec] from that market). On the other hand, it is possible that Germany’s strict comparative effectiveness rules might hurt Basaglar by denying it any premium over human insulin (this was the impetus for Novo Nordisk’s withdrawal of Tresiba). 
• Basaglar will launch in the US after December 15, 2016, as per the terms of Lilly’s patent lawsuit settlement with Sanofi.

Other Products

• Sales of Lilly’s glucagon formulation rose 16% YOY in constant currencies (15% as reported) to $30 million. Sequentially, glucagon revenue rose 23% from $25 million in 4Q15. Glucagon drove 2% of the overall growth of Lilly’s diabetes portfolio. As usual, the vast majority of the product’s 1Q16 sales were in the US ($29 million vs. $1 million outside of the US).

Figure 9: Glucagon Sales (1Q12-1Q16)

• Lilly did not break out its share of revenue from Actos (pioglitazone) in 1Q16. Actos sales have been on a steady decline for at least the last five years, largely due to the loss of patent exclusivity and concerns about heart failure, bone fractures, and bladder cancer.

Pipeline Highlights

• Lilly shared that it is interested in developing an oral GLP-1 agonist. During Q&A, management shared that the company is interested in the idea of oral GLP-1 agonists and is investing in the area. That said, the company acknowledged that it is far behind Novo Nordisk’s phase 3 oral semaglutide on this front and it will have “to try to catch up.” Furthermore, management emphasized that oral GLP-1 agonists still have to prove their efficacy and tolerability and that there are questions about the profitability of the class, especially outside the US, given the bioavailability issues surrounding oral peptide delivery. In phase 2 trials, it took a ~280x oral dose of semaglutide to match the efficacy of injectable semaglutide. Despite this, Novo Nordisk clearly felt that it would be able to make the math work, as it is investing in a 10-trial, 9,300+ patient PIONEER phase 3 development program for the candidate. vTv Therapeutics also has a small molecule oral GLP-1 agonist in phase 2; bioavailability would presumably pose less of a challenge for this small molecule alternative. In addition, vTv Therapeutics presented promising safety and tolerability data for the candidate at the Keystone Symposia on New Therapeutics for Diabetes and Obesity demonstrating notably low rates of nausea and vomiting and suggested that the small molecule formulation would be easier to combine into fixed-dose combinations (such as an SGLT-2 inhibitor/GLP-1 agonist combination). We wonder if Lilly would be interested in licensing this or another early-stage oral GLP-1 agonist product to jumpstart their efforts in this area. Oramed also has an oral exenatide formulation in its pipeline, though it has not yet initiated the phase 2 trials it had originally planned to begin by the end of 2015 and our confidence in this company continues to be very low.
• Lilly dropped several early- and mid-stage candidates from its pipeline in 1Q16. The company recently announced its decision not to advance the Transition Therapeutics-partnered GLP-1/glucagon dual agonist LY2944876/TT401 into phase 3 trials. This was fairly disappointing given that it was the lead candidate in an increasingly crowded competitive landscape for the class – this is just the latest illustration of the increasingly high bar for the field. Transition Therapeutics retains the option to advance the candidate into phase 3 on its own or with a new partner. In Lilly’s early-stage pipeline, a phase 1 candidate for diabetic nephropathy was dropped. We assume this is the undisclosed biologic Lilly had been investigating for the indication, which the company has now revealed was an anti-VEGF-1 monoclonal antibody. Lilly is still investigating rheumatoid arthritis drug baricitinib in a phase 2 trial for diabetic nephropathy. The competitive landscape for this area of great unmet need remains fairly crowded.
• Lilly added a phase 1 DGAT-2 inhibitor for dyslipidemia to its pipeline. Ionis Pharmaceuticals added a DGAT-2 inhibitor to its own phase 1 pipeline in 3Q15 and is investigating the molecule for NASH. Lilly has yet to publicly enter the NASH competitive landscape (a fast-growing area of interest for many pharmaceutical companies) and we imagine this new phase 1 candidate could eventually be investigated for NASH as well. Interestingly, the company chose to list the new candidate within its diabetes pipeline, rather than its cardiovascular pipeline. Ionis has previously suggested that it may investigate its DGAT-2 inhibitor for type 2 diabetes in addition to NASH and we certainly hope Lilly is considering this option as well.
• There were no updates on Lilly’s other pipeline products. The company’s intranasal glucagon acquired from Locemia remains in phase 3. The Adocia-partnered ultra-rapid-acting BioChaperone Lispro remains in phase 2. Lilly’s phase 1 pipeline includes two undisclosed candidates for diabetes (one biologic and one chemical) and an additional candidate for hypoglycemia. PCSK9 inhibitor LY3015014 continues to remain in phase 2.

Questions and Answers

Q: Could you talk about the drug pricing headwinds debate? You've been obviously very proactive in defending the industry and calling attention to the big difference between list and realized price. I don't know if politicians understand that yet, but I think it's an important story to be told. How sustainable is the 4% price that you took or were able to sustain in the first quarter? What do you see with respect to realized price going forward for the industry? Could you comment on whether or not there has been a change in gross to net in various therapeutic categories? Specifically, I think we've seen some differences in diabetes.

A: I think a bit of the irony to me is as we hear a lot of rhetoric about drug prices increasing in the lay press, I don't think that there's been a time when this marketplace in the U.S. has ever been more competitive. I think that means ultimately that medicines that provide clear differentiation and clear value propositions are going to fare better in the future here than medicines that can be easily commoditized, which really don't adequately differentiate themselves from lower-cost alternatives.

Obviously there are different dynamics going on within different categories. For Lilly and for most companies, diabetes tends to be one of the most price-competitive parts of the business. I think we've seen that and felt that with respect to net-realized prices on our insulins, for example, over a rather prolonged period of time. Clearly we get better pricing in commercial plans by far than we get from government programs where there's largely a much greater discount realized, based on regulatory mandates.

So to answer your question, rather than to say there's going to be different pressure in different therapeutic areas, I think it's going to come down more to the products that are competing against one another. We believe that a number of the products we're launching really do differentiate themselves and therefore while uptake, as you know, tends to be somewhat slower today based on getting listed on formularies because of the way the calendar often works, we nonetheless remain very optimistic about the prospects for those new products.

Q: On Jardiance, obviously the product has a natural tailwind because of EMPA-REG, but other SGLT-2s are presumably trying to preserve their positioning in the market. If I look at slide 38 on Jardiance new-to-brand share of the market, it suddenly seems kind of flat from the start of 2016. Can you talk about the dynamics in 2016 in terms of formulary shifts and possible price competition as other companies like J&J are trying to hold share here?

A: We are pretty enthusiastic about our prospects with Jardiance overall, not just in the US but outside of the US. Probably the most significant aspect to our overall growth for this important product is going to be the overall class growth. We are pretty pleased with the type of share growth that we have seen when it comes to new patient share on total prescriptions, and there are indeed some dynamics at the beginning of the year when it comes to switching and so forth, but our overall access is very good. It's 85% plus in commercial and over 65% when it comes to Part D access.

Now the one piece that we have to watch out for is that even though total prescriptions are still growing above 45% year-to-date, when we look at new patient growth, that is basically in single digits. Now we may recall that last year we saw the class starting to slow its growth with some of the reports about DKA. With the EMPA-REG OUTCOME data, we saw some rebound in overall class growth when it comes to new patients.

So overall I think we have to wait and see. It is critical that we see both a new label and new treatment guidelines. Each of these independently will represent important inflection points. I do want to provide a little bit of color on Jardiance outside of the US because we are seeing some acceleration of the overall class growth outside of the US and we see our share growing, whether it's Germany at over 30%, Spain at 22%, Italy at over 40%, and in the UK and Canada over 10% a few months after launch. All of the trends are very positive and we're very bullish when it comes to Jardiance overall.

Q: Given the excitement over the EMPA-REG OUTCOME's cardiovascular benefit and the rapidity of how quickly the curves diverged in that trial, I imagine recruitment for the heart failure trials would be fast. These trials, if there is a real treatment effect in heart failure, could be completed very quickly. So do you think you could get a heart-failure label for Jardiance by the end of 2020 or somewhere around that timeframe? Also, do you plan to include Entresto in the control arm in either of those two planned trials?

A: Clearly, we are very excited about the opportunity to conduct both trials when it comes to heart failure for Jardiance. I'm not in a position at this stage, as we're finalizing our protocols, to comment on whether we're going to be looking at Entresto and so forth. As you can imagine, all of those are important considerations and we're finalizing that. Clearly, we are trying to expedite this trial as much as possible. We did see a very fast separation of the curves in EMPA-REG OUTCOME. Will that repeat itself in the heart failure trial? The hypothesis is likely yes, but we do need to conduct the trial and I don't want to speculate on what the indication will be. We really need to conduct these trials and see what the results are, and then we can discuss more appropriately. I'm unable to provide timing, but given what we've seen, you can expect that we're going to conduct this in an as expedited fashion as possible.

Q: Data continues to emerge for the oral GLP-1s, mainly out of Novo Nordisk, that look pretty good. If they continue to look that good, could that cause some type of an existential threat to the injectable GLP-1 business like Trulicity?

A: First I’d like to provide some context on Trulicity, because I think it's important as we look at the type of acceptance that the product is having right now. We're seeing excellent sequential growth: $74 million in Q3, $113 million in Q4 and $144 million in Q1 of 2016. Class growth is exceptional, higher than we had expected. You may recall before Trulicity launched, we were in high-single digits hovering around 10%. So we did see Trulicity as a catalyst for the growth of the overall class, and that has actually exceeded our expectations.

We are now at 18% when we look at the total prescription growth. But the one element that I do want to share is that the feedback that we see from patients and physicians who are adopters of the product is truly exceptional. Unprecedented rates in terms of overall satisfaction and reception of the product.

Now, what does that mean with we look at oral GLP-1s? We like where Trulicity stands. We do believe it's going to be a very important option long term for us, regardless of whether oral GLP-1s come into the market or not. Oral GLP-1s are going to have to show appropriate efficacy and tolerability. I think given the bioavailability of some of the options out there, you have to question what is going to be the relevance outside of the US from a cost of products sold; how profitable is that going to be? Having said all of that, we do like oral GLP-1s but we are behind Novo. It is an area of interest and one that we are investing in to try to catch up.

Q: Can you clarify what you've submitted to the agency with Jardiance? Specifically, are you requesting an indication and a claim or just inclusion of efficacy data in the clinical section? Can you just help us understand how promotion in the US can differ with an indication versus just inclusion in the label and what your base-case planning assumptions are?

A: We are requesting an indication for Jardiance and Synjardy. We believe we have the data to be able to request that. I'm not going to speculate in terms of what the indication would read, but if it were just adding the data on the label from an efficacy perspective, it would really fall short of the expectations that we have. There are differences in terms of what we can do, in terms of the value and how payers will see that and also in terms of how we will be able to promote the product. Of course we plan for different types of scenarios, but right now our expectation is that the data warrants a full indication for the product.

Q: On Jardiance and the two heart failure trials, have the companies been able to identify, aside from the diuretic effect, what other effect is occurring that could potentially benefit heart failure patients here pre-clinically?

A: Jardiance had an impressive reduction in hospitalization for heart failure, which was kind of an unexpected finding. We are now planning to perform studies in both types of heart failure patients, both with a preserved ejection fraction where the filling is a problem and the reduced ejection fraction, where it's more contractility of the heart that is a problem. And we will do these not only in type 2 diabetics, but also in non-diabetes patients to see if we see similar benefits there.

Regarding the mechanism, as you know, Jardiance reduces blood pressure. It causes diuresis, which together then could be an overall volume reduction benefit. Other vascular effects could still be characterized. We should also emphasize that Jardiance not only has an effect on CV outcomes, but it also has kidney benefits that I think need to be characterized further. Overall, we are very excited about this opportunity but there is more to be learned about the exact mechanism.

Q: How are you thinking about the Victoza CV outcome study? It clearly seems for the class, and to the extent you're studying it as well, it's a positive. But I'm more interested in the near-term dynamics as you're ramping Trulicity and as you think about a competitor with CV outcomes data, how that plays into the nearer term ramp of the drug?

A: We view the CV result of liraglutide in a positive way. We think this is going to be a huge positive overall – it's going to be a huge catalyst for the overall GLP-1 class. We view it with optimism because of REWIND. REWIND, our CV trial for Trulicity, is powered for superiority. We expect to have an interim look sometime later this year and the trial is expected to be concluded sometime in late 2018. Before I can comment on any type of near-term impact of LEADER, I'd like to see the data, which is going to be released in detail at ADA.

-- by Helen Gao, Emily Regier, and Kelly Close