Memorandum

Lilly 2Q14 – Humalog up 11%; Tradjenta grows a respectable 65%; empagliflozin/metformin FDC submitted – July 24, 2014

Executive Highlights

  • Total diabetes sales reached just under $1.2 billion, up 10% year over year and up 9% sequentially.
  • Worldwide sales of Humalog (insulin lispro) of $700 million rose 11% as reported to in 2Q14, driven by increased US demand; Humulin grew 8% to $352 million helped by strong performance of concentrated U-500.
  • Tradjenta (linagliptin) sales of $90 million grew 65% from 2Q13 and 17% sequentially.
  • Several pipeline updates: empagliflozin/metformin IR FDC submitted in Europe, separate NDA added to glargine filing for cartridges, new topline phase 3 data on peglispro expected in 3Q14 (in type 1 diabetes) with submission expected by end of 1Q15, and oxyntomodulin (a GLP-1/glucagon co-agonist) advanced to phase 2.

Lilly provided its 2Q14 financial update on Thursday in a call led by CEO Mr. John Lechleiter. In the context of the company as a whole still struggling with patent expirations for its antidepressant Cymbalta and antipsychotic Zyprexa, Lilly’s diabetes portfolio and pipeline performed well in 2Q14. Below we list our top ten highlights (and a few honorable mentions) from the presentation, followed by a selection of Q&A. For the last major update from the company, see our coverage of Lilly’s ADA 2014 Investor Call.

1. Global sales of Lilly’s flagship rapid-acting insulin Humalog (insulin lispro) reached $700 million, increasing 11% year-over-year (YOY) and 8% sequentially as reported in 2Q14. US sales in particular rebounded from a sluggish quarter in 1Q14. Continued volume growth as more Express Script patients switched to Humalog was surely one of the factors underlying the franchise’s stronger US growth this quarter.

2. The Humulin franchise grew 8% YOY and 11% sequentially to $352 million in 2Q14; management attributed some of the strong growth to Humulin R U-500, which has faced less pricing pressure than other insulin products due to the lack of concentrated insulin competitors.

3. Tradjenta (linagliptin) sales reached $90 million, up 65%, from a higher base.

4. Management commented on GSK’s aggressive pricing for its once-weekly GLP-1 agonist Tanzeum (albiglutide), suggesting that Lilly may not feel pressed to adopt a similar strategy with dulaglutide due to its differentiated clinical profile (the only once-weekly GLP-1 that comes in a “ready to use” device).

5. During Q&A, management stated that Lilly is “looking at” oral GLP-1 agonists, which it sees as an attractive area. Competitor Novo Nordisk has had focus on this area for some time.

6. Lilly/BI’s SGLT-2 inhibitor Jardiance (empagliflozin) should be launched in the EU in 3Q14 and should receive a regulatory decision from the FDA this summer; a combination with metformin IR was submitted in the EU and will be submitted in the US in 2H14.

7. Lilly/BI’s empagliflozin/linagliptin fixed dose combination continues to lead the race in the exciting SGLT-2/DPP-4 inhibitor combination class.

8. During Q&A management discussed factors affecting the potential approval and launch plans for Lilly/BI’s insulin glargine formulation (LY2963016), including the Sanofi lawsuit, Lantus’ patent expiration, and the addition of a new NDA in the US for cartridges.

9. Management confirmed that topline phase 3 data in type 1 diabetes patients on Lilly’s novel hepatoselective basal insulin peglispro is expected in 3Q14. As of Lilly’s investor meeting at ADA, US/EU submission timing has been pushed back slightly to 1Q15 (or sooner if possible).

10. Lilly’s oxyntomodulin (GLP-1/glucagon co-agonist) was advanced to phase 2.

 

Financial Results for Lilly’s major diabetes products in 2Q14

Product

2Q14 Revenue in Millions

Reported Growth from 2Q13 (YOY)

Reported Growth from 1Q14 (sequential)

Humalog

$700

11.4%

7.7%

Humulin

$352

7.6%

11.4%

Tradjenta

$90

64.8%

17.4%

Glucagon

$26

4.5%

19.4%

Actos

$9

-31.6%

-17.0%

Total Diabetes

$1,181

10.3%

8.6%

Top Ten Highlights

1. Sales of Lilly’s flagship insulin Humalog (insulin lispro) rose 11% YOY and 8% sequentially as reported to $700 million in 2Q14. The return to double-digit growth after a relatively slow quarter in 1Q14 (Humalog sales grew 3% then) was largely attributable to improved performance in the US, which had been unusually hurt by inventory effects last quarter.

  • In the US, Humalog sales rose 17% YOY and 10% sequentially to $413 million, driven by increased demand (likely largely from Express Scripts switches). When asked about the large discrepancy between the double-digit growth this quarter and the 1% decline in 1Q14, management commented that the underlying script growth was comparable in the two quarters but other external factors had different impacts on growth. Specifically, in 1Q14, inventory issues had a significant negative impact (8-9%) on growth, whereas in 2Q14 managed Medicaid true-ups positively impacted growth by ~4%.
  • Outside the US, Humalog sales rose 4% YOY and 8% sequentially to $287 million. In Lilly’s press release, management attributed the strong overseas growth to both increased volume and higher prices.
  • Last year, Lilly won a major 2014 formulary contract with the pharmacy benefit management company Express Scripts for Humalog, beating out Novo Nordisk’s NovoLog. Management did not comment directly on how this contract had impacted sales in 2Q14, but we imagine that it largely fed the increase in US demand; in Lilly’s 1Q14 earnings call, management suggested that some of the increased volume from the agreement had been offset by the discounting necessary to win the contract. Continued volume growth as more Express Script patients switched to Humalog was surely one of the factors underlying the franchise’s stronger US growth this quarter.

2. Sales of Lilly’s human insulin Humulin grew 8% YOY and 11% sequentially to $352 million in 2Q14, driven (interestingly) by the US. In the US, sales were $182 million, up 15% YOY and 17% sequentially after a relatively sluggish performance in 1Q14 (in which sales were relatively flat). The press release attributed the domestic strength to higher prices and (to a lesser extent) increased demand. Outside the US, sales increased 1% YOY and 6% sequentially to $171 million, driven by increased volume and partially offset by foreign exchange and lower prices. Management attributed some of the improved performance to the more concentrated Humulin U-500, which has experienced significant growth without facing as much pricing pressure as other insulin products (since it lacks competitor concentrated insulins). Knowing this, Humulin’s strength in the US is perhaps less surprising: the US market leans strongly in favor of analogs, but the rise in severe obesity (and, likely as a corollary, severe insulin resistance) means that more concentrated insulin formulations may be best for many patients. It is possible that some of the inventory and managed Medicaid effects that impacted Humalog sales had an impact on Humulin’s domestic performance as well. The Express Scripts decision (which added Humulin in addition to Humalog) was also likely a factor here.

3. Tradjenta (linagliptin), Lilly/BI’s DPP-4 inhibitor franchise, grew to $90 million, a respectable 65% YOY rise (but still slower growth than in previous quarters). The 17% sequential growth did represent a recovery after the 12% decline from 4Q13 to 1Q14, but the 65% in YOY growth in 2Q14 was the lowest the franchise has seen since its launch, though much of that is likely due to a rising base (see table below) and the overall DPP-4 inhibitor market slow down from higher market saturation and penetration of SGLT-2 inhibitors .

Tradjenta YOY growth

 

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

Growth

500%

230%

320%

180%

120%

80%

65%

Sales (m)

$40

$43

$55

$65

$87

$77

$90

  • Some plateauing of growth rates is expected as Tradjenta becomes more established (due to a growing base), but the performance may also have been affected by the overall slowdown in the DPP-4 inhibitor class in recent quarters. This downward trend has been primarily attributed to higher market saturation, a slowdown of patient switches from TZDs and sulfonylureas, and the introduction of SGLT-2 inhibitors as another oral alternative. In the US in particular, we believe that significant pricing pressure as well as the tail of the pancreatitis scare and the rise of a heart failure debate started last year have had a meaningful impact on sales though we believe this is dissipating.
  • Tradjenta was not brought up during the call, and not mentioned in detail in the press release.

4. During Q&A, management was questioned on how GSK’s decision to price its new once-weekly GLP-1 agonist Tanzeum/Eperzan (albiglutide) at a steep discount vs. existing GLP-1 agonists might affect Lilly’s pricing for its once-weekly GLP-1 agonist dulaglutide (currently under review in the US and EU). For background, during its 2Q14 presentation yesterday, GSK announced that it is launching Tanzeum this week, and noted that the wholesaler acquisition cost will be $326 for a 28-day supply – third-party sources suggest that this is substantially lower than the comparable costs for the high dose of Novo Nordisk’s Victoza (liraglutide), a bit lower than the mid-dose for Victoza, and well below AZ’s Bydureon (exenatide). During Lilly’s Q&A, analysts questioned whether GSK’s decision might prompt Lilly to consider a lower price for dulaglutide. Although the company (as expected) did not share any definitive plans on dulaglutide’s pricing, management subtly made the argument that Tanzeum’s pricing is reflective of its clinical profile, which (according to Lilly’s hints) might be less strong than dulaglutide’s (see the bullet below). Ultimately, after providing the caveat that it is difficult to predict exactly how the GLP-1 agonist market will play out, management expressed doubt that Tanzeum will capture a large share of the market – this contrasts with commentary from GSK management yesterday that it has seen substantial interest already from payers regarding Tanzeum’s pricing.

  • Phase 3 data on Tanzeum from the Harmony 3 trial presented at ADA demonstrated superior A1c reductions with Tanzeum over Merck’s DPP-4 inhibitor Januvia (sitagliptin) and the sulfonylurea glimepiride. Equally notable, perhaps, was the fact that Tanzeum did not demonstrate a significant weight benefit over sitagliptin, although it seemed to be associated with a relatively low incidence of GI tolerability issues, which could be a real plus for patients. However, when it comes to efficacy comparisons vs. the market-leading Victoza (liraglutide), dulaglutide has the upper hand against Tanzeum, as dulaglutide demonstrated non-inferiority in AWARD-6 whereas Tanzeum just missed non-inferiority in Harmony 7. Dulaglutide also holds the advantage of being the only once-weekly GLP-1 agonist under review or on the market that is available as a ready-to-use suspension that does not require reconstitution.

5. President of Lilly Diabetes Mr. Enrique Conterno stated briefly that Lilly sees oral GLP-1 agonists as an “attractive” area that the company is “looking at.” This represented a slight, albeit meaningful, step up from commentary during the company’s ADA update – then, management also stated that the area is attractive but fell short of saying that the company is considering getting into the game. At the moment, the oral GLP-1 agonist field lists Novo Nordisk, Oramed, Biocon, Generex, and Aphios as competitors (among others) – see our Novo Nordisk 1Q14 Report for more details. Given Lilly’s substantial resources and expertise with both insulin and oral drugs for diabetes, they are a prime contender to enter the race, although we imagine it will take effort to catch up to the phase 2 candidates from Novo Nordisk in particular.

6. Lilly/BI’s SGLT-2 inhibitor Jardiance (empagliflozin) continues to progress towards a launch in the EU and approval in the US. The EMA approved Jardiance in late May, and management stated during prepared remarks that a European launch is slated for 3Q14 (management previously stated that the UK and Germany will be the first European launch markets). In the US, management confirmed that its class 1 resubmission for Jardiance entails a two-month review, meaning that the agency is expected to provide a final decision in the next few weeks. We had been disappointed to hear about the FDA’s initial Complete Response Letter for empagliflozin in March, fearing that it would mean a protracted delay for the candidate, but since then we have been impressed by how quickly Lilly and BI have been able to get the product back on the rails. If approved in this application cycle, Jardiance would become the third SGLT-2 inhibitor to market in the US (as it was in the EU).

  • As we had mentioned in our ADA coverage, we noticed that earlier this year, the estimated primary endpoint for empagliflozin’s CVOT (EMPA-REG OUTCOME; ClinicalTrials.gov Identifier: NCT01131676) was moved from March 2018 all the way up to April 2015 this fairly astounding change of nearly three years means that the timing of empagliflozin’s CVOT results jumps ahead of those from the two canagliflozin studies, CANVAS and CANVAS-R (which are estimated to complete in early 2017). Dapagliflozin’s CVOT DECLARE is expected to end in early 2019. We are trying to get more information on the change to make sure we understand it.
  • Management shared that an empagliflozin/metformin IR fixed-dose combination (FDC) has been filed in the EU, and should be filed in the US in 2H14. Because the combination utilizes the immediate-release formulation of metformin, it will have to be dosed twice daily, similarly with AZ’s current Xigduo (dapagliflozin/metformin) and J&J’s Vokanamet. AZ has developed a dapagliflozin/metformin formulation using the extended-release (XR) version of metformin that can be dosed once daily – a regulatory decision in the US is expected in 4Q14.
    • There is one ongoing phase 3 trial on ClinicalTrials.gov investigating different doses of empagliflozin/metformin. It has an estimated enrollment of 1,397 type 2 diabetes patients, is no longer recruiting, and has an estimated primary completion date of November 2014. It appears that the trial’s results are not gating for European filing (since the combination is already under review there), but we wonder if the US submission will need to wait until after the completion of this trial.
  • Empagliflozin had a fairly strong showing at this year’s ADA, with two long-term studies demonstrating superiority over Merck’s Januvia (sitagliptin) and the sulfonylurea glimepiride. These findings were notable because, at a previous time point, the study vs. sitagliptin had failed to demonstrate a significant difference in favor of empagliflozin, but between weeks 24 and 52 a difference emerged. The comparison vs. a sulfonylurea, in our view, was a fairly easy one to win, perhaps more due to the substantial hypoglycemia and weight benefits than the more modest A1c difference. 
  • A phase 2 trial testing empagliflozin in type 1 diabetes patients was completed earlier this year. We have not heard much more from Lilly management since then about plans for developing the candidate for type 1 diabetes. We saw a poster at ADA from another trial investigating empagliflozin in 40 type 1 diabetes patients – the effects seen there were more modest than we had expected, although the small size of the trial might have been a factor.
  • Even though Jardiance has not launched yet, Lilly has already created a row for it in its financial workbook. This gives us reason to hope that we will get sales data right from Jardiance’s launch – we are very excited about this and very much admire such direct reporting

7. Management noted that the SGLT-2/DPP-4 inhibitor fixed-dose combination (FDC) empagliflozin/linagliptin is significantly ahead of the competition (AZ’s saxagliptin/dapagliflozin). Lilly/BI submitted empagliflozin/linagliptin in the US in 1Q14 (European submission is expected in 2015), whereas AZ expects to submit saxagliptin/ dapagliflozin in 4Q14 in the US and EU. During Q&A, to illustrate the potential that this combination class has, management noted that currently about 25% of patients on an SGLT-2 inhibitor are using it on top of a DPP-4 inhibitor. The benefits in terms of adherence stand to be sizeable for patients, due to the convenience of fewer pills as well as the consolidation of copays. We also believe this will be helpful for providers, since patients will be more amenable to this. In terms of higher profitability for Lilly from the fixed dose combinations compared to selling the two drugs separately, we aren’t yet sure about the impact, though the volume impact will surely be meaningful.  

  • At this year’s ADA in June, we got our first look at detailed phase 3 data on both empagliflozin/linagliptin and saxagliptin/dapagliflozin. The results were impressive, with A1c reductions in the range of 1.1%-1.5%, although not quite additive over the components’ individual efficacy. In both cases, the efficacy appeared to largely be driven by the SGLT-2 inhibitor component – in one of empagliflozin/ linagliptin’s studies, the high-dose combination group (empa 25 mg/lina 5 mg) did not see a statistically greater A1c reduction than the empagliflozin 25 mg monotherapy group, but did get a greater percentage of patients to an A1c goal of 7% (55% vs. 42%).

8. Management discussed timeline factors for Lilly/BI’s insulin glargine formulation (LY2963016), which is currently under review in Europe and the US. In Europe, the candidate received a positive CHMP opinion at the end of last month, meaning that approval is likely around the corner (although launch would wait until Lantus’ patent expires – we presume in 2015 but management declined to specify launch timing). In the US, Lilly still expects a tentative FDA approval in 2014, but the situation is more complex – a Sanofi intellectual property lawsuit resulted in a temporary pause in the US regulatory process, either until the case is resolved in Lilly’s favor, or 30 months after the filing of the lawsuit (which would push final approval back into 2016). Management strongly re-emphasized today that it does not believe that it has infringed upon any of Sanofi’s patents, and that it is possible that the lawsuit could be resolved before 30 months, although there is no way in the US or the EU that the product would be launched before Lantus’ patent expires in 2015. One analyst raised the possibility of an at-risk launch (involving a launch after the 30-month stay has expired, but before the litigation issues have been fully resolved), but management declined to comment on whether that would be possible.

  • Management shared that the company has actually filed two NDAs to the FDA for LY2963016: one for a pre-filled pen, and one for cartridges. An analyst during Q&A questioned whether the addition of the cartridge NDA was meant to circumvent patents on Sanofi’s SoloStar pen, but management shared that Lilly has been sued on both the pen and cartridge NDAs, meaning they are both temporarily halted by the lawsuit.
  • During ADA, we saw the results of the ELEMENT I and ELEMENT II phase 3 trials for Lilly/BI’s insulin glargine, which found no major differences in pharmacokinetic or pharmacodynamic profile vs. Lantus. Dr. Philip Home (Newcastle University, Newcastle upon Tyne, UK) during the recent Keystone Conference characterized the overall data package as strong, although he found some issues with individual aspects of the data (especially the PK data for type 1 diabetes patients, which in his view were highly variable). In the absence of a better way to monitor the manufacturing standards for biosimilar insulin, Dr. Home noted, clinicians will likely have to make a proxy judgment based on the reputation of the manufacturer – good news for Lilly, with its long insulin heritage.

9. Management confirmed that it expects to disclose topline phase 3 data on Lilly’s novel basal insulin peglispro in type 1 diabetes patients in 3Q14. This follows the topline type 2 diabetes data released in May. Management highlighted those findings during prepared remarks, emphasizing that all three type 2 diabetes trials proved statistical superiority (in terms of A1c reductions) over Lantus (a striking result) along with a nocturnal hypoglycemia benefit and possible weight benefits. For background, peglispro acts through a hepatoselective mechanism that more closely mimics the action profile of endogenous insulin. However, phase 3 data we have seen so far has confirmed that peglispro is also associated with some potentially worrying side effects, including elevations in liver enzymes, HDL, and triglycerides (those issues did not come up during the call). The efficacy, weight, and hypoglycemia profiles we have seen are quite compelling; that said, those safety signals portend a robust discussion during a (likely) FDA AdComm.

  • Consistent with previous guidance, Lilly still expects to submit peglispro in the US and EU by 1Q15. During prepared remarks, management remarked that submission could in fact happen sooner. Looking on ClinicalTrials.gov, it appears that seven of the eight IMAGINE trials have been completed – the last of the seven to finish were IMAGINE 6 (comparing peglispro to NPH in type 2 diabetes patients) and IMAGINE 7 (testing fixed vs. variable dosing with peglispro in type 1 diabetes patients). The only trial listed as ongoing is IMAGINE 8, which was registered only in May of this year, with a primary completion date estimated as March 2015. The trial is investigating double doses of peglispro vs. double doses of insulin glargine – the trial design is fairly complex (it appears designed to examine hypoglycemia in particular), and we wonder if this trial was mandated by regulators or was driven by the company. If the company plans to file in 1Q15, then the completion of this trial does not seem gating for the filing.

10. There were a few notable developments in Lilly’s early-stage pipeline. We were excited to see that oxyntomodulin (a GLP-1/glucagon co-agonist) was advanced to phase 2. A 375-person phase 2 trial is registered on ClinicalTrials.gov comparing it to the GLP-1 agonist Bydureon and to placebo, slated to complete in May 2015. Other companies developing GLP-1/glucagon dual agonists include Xenetic Biosciences (phase 1 PSA-oxyntomodulin), Prolor/OKPO (preclinical long-acting oxyntomodulin), and Zealand Pharma/BI (Zealand now in sole control of phase 1 ZP2929; new lead candidate being selected for BI partnership). Lilly also has another GLP-1/glucagon dual agonist in partnership with Transition Therapeutics, TT401, in phase 2.

  • An undisclosed small molecule for type 1 diabetes was dropped from Lilly’s pipeline. There is a chance that this represents the recent out-licensing of the glucokinase activator LY2608024 announced in July to China-based Yabao Pharmaceuticals, although it might represent a different compound. Lilly completed phase 1 trials of LY2608024 in the US in 2011, but there has been no further development visible on ClinicalTrials.gov since then except for a withdrawn phase 2 study.

Honorable Mentions

  • During Q&A, management commented briefly on the company’s phase 2 PCSK9 inhibitor, which is currently roughly fourth in the class (Amgen’s evolocumab and Sanofi’s alirocumab lead the pack). Lilly believes that its candidate has the room to differentiate itself from the candidates that are in phase 3. During Lilly’s 1Q14 update, management noted that Lilly’s PCKS9 inhibitor might be able to take advantage of less frequent dosing than the other candidates in the field. During the 2Q14 update Q&A, management noted that based on phase 2 results, the company will decide whether to proceed “full speed ahead,” share the risk with a partner, or divest itself of the candidate.
  • Lilly also reported financial results for some of its other diabetes products. Sales of Lilly’s glucagon product rose 4.5% YOY to $26 million in 2Q14. Lilly’s share of Actos (pioglitazone) revenue fell 32% YOY to $9.3 million, all of which came from outside the US.
  • Management did not comment on the ongoing litigation regarding Takeda’s TZD Actos (pioglitazone) and bladder cancer in which Lilly is a co-defendant with Takeda. In April, a Louisiana jury found Takeda and Lilly liable for a whopping $9 billion ($3 billion from Lilly) in punitive damages and $1.5 million in compensatory damages) in the case of Terrence Allen, et al. vs. Takeda. According to news reports, lawyers for Takeda have filed a motion requesting a new trial, claiming that such an extreme verdict could not have been based on evidence alone. This case was the first of thousands of lawsuits Takeda (and, in some cases, Lilly) face in the US, and the final verdict will likely set a precedent for how courts will respond to similar arguments in future cases. Lilly’s marketing agreement with Takeda requires Takeda to fully indemnify Lilly for all losses and expenses resulting from the Actos litigation, but Takeda notified Lilly in April that it is challenging that stipulation. Read our report on the initial case for more details.

Questions and Answers

Q: We’ve seen price competition in diabetes in various ways starting last year, and GSK recently launched their GLP-1 agonist at a pretty big list price discount to existing therapies, which you rarely see drug companies do. Could you address the impact on dulaglutide’s pricing? This is a worrisome trend, not just for dulaglutide and Lilly, but also for other products and other categories for a variety of companies.

A: As we all know, pricing in the US diabetes arena has become extremely competitive. This is driven both by payers and competition. I think in this particular case, pricing also reflects the profile of the specific products. We are certainly confident in the profile that we bring with dulaglutide and the number of trials that we have conducted, so we think we have a very strong value proposition. We are a proponent of choice, we believe choice is important for patients, and we are seeking basically dual access in the diabetes arena whenever possible.

Q: On dulaglutide, there’s no question that you have a best-in-class asset, but what portion of the GLP-1 market would be receptive to a modestly effective but less expensive product from GSK? Is that portion 10% or 30%?

A: I’m going to quote you on dulaglutide as a best-in-class asset – we certainly believe so. On your specific question, there are different types of profiles in the GLP-1 class, and some look less efficacious. I’ll be honest: I think the value proposition for those products is very complicated. We do know that improved glycemic control leads to a reduction in complications. That is a very strong value proposition, and that’s why we seek that. So it is difficult for me to say what type of share those products will get, but I do not believe it’s going to be very much.

Q: Can you give us a sense of where we are as we move toward a potential action date on dulaglutide from the FDA? Do we have the facilities, have they been inspected, how is inventory building? And how would you recommend that we assess the dulaglutide launch given recent product launches and perhaps access? I would think that Lilly might have a bit of a better opportunity given its ability to leverage the portfolio.

A: With dulaglutide, we are expecting that the trade name is going to be Trulicity. We are very much on track. The action date for both the US and Europe is this year, so our launch preparations are very much ongoing. There’s not much more really that I can discuss at this stage with regard to pricing or inspections.

Q: Would you consider an at-risk launch for the insulin glargine following the expiration of the 30-month stay?

A: We are expecting tentative approvals this year. And clearly we do have the 30-month stay in the US. I can’t make many comments about the ongoing litigation, but clearly we do not believe that we’re infringing any of the patents, so we are hopeful that we can resolve this as soon as possible, hopefully even before the 30-month stay, and if that is not the case, we will be planning to launch at that time.

Q: On GLP-1s, we should soon data for Novo Nordisk’s oral GLP-1 in 2Q15. Could you give us your thoughts on this approach and how you view it as a potential competitive threat to the GLP-1 market as well as to the DPP-4s and SGLT-2s?

A: We have said that this is an area that is attractive, and it’s an area that we’re very much looking at as well. Your question is probably more appropriate for one of our competitors.

Q: How are you thinking about the opportunities in fixed-dose combinations?

A: If you’re referring to the fixed-dose combination between the GLP-1 and insulin, we clearly see that as an important therapy. We believe with dulaglutide and our insulin portfolio, we can provide very significant value when it comes to providers and failures. We do believe that the restriction on dosing with a fixed-dose combination in this particular case does take away from the flexibility that endocrinologists want and need, given how insulin is titrated.

I will also comment about the SGLT-2/DPP-4 fixed-dose combination. We do believe this is an important product for us. Of course, we are developing this with BI, we have submitted this in the US, and we believe we are significantly ahead of our competition. Today about 25% of the SGLT-2 use is on top of a DPP-4, so that gives you a sense of the possibilities for overall class growth and branded growth and the impact that this combination could have.

Q: In terms of the SGLT-2/DPP-4 combination, you’re actually about a year ahead. Heading toward the review, how confident are you of launching that product after the PDUFA date in early 2015?

A: We have shared that we have submitted the SGLT-2/DPP-4 combination early this year, which basically puts us with an action date of early 2015.

Q: For the basal insulin peglispro, you said the US filing is going to be 1Q15 or earlier. What are the factors that could lead to an earlier filing? How soon could this be?

A:  That is a possibility, but at this stage what we’re saying is that we will file by 1Q15. Clearly we are working on getting the readout for our type 1 studies, and we expect that we’re going to be seeing that later this quarter, with a press release.

Q: Can you give us a bit more color on why you added the 3 ml cartridges to your insulin glargine filing, and does this relate to getting around some of the SoloStar patents? Can you update us a bit more on the timing of the European launch for the insulin glargine and what kind of device the product would be presented in?

A: We have submitted two separate NDAs, one for pre-filled pens and one for insulin for cartridges. Clearly those are two independent NDAs. We have been sued on each one of them, so that’s all I will say at this stage. We’re intending to basically oppose the patent expirations and resolve the ongoing litigation to be able to bring both of those to the market. In Europe, the patent expiration for Lantus is in 2015, and we’re expecting tentative approval this year. We are very much in preparation, but that’s as much as I can comment. Of course, we take the patents that are in place very seriously, and we will launch after those patents have expired.

Q: I wanted a clarification for the glargine product in Europe – I expect from your comments that it will be launched in 2Q15?

A: When it comes to glargine, as I mentioned, we are expecting to launch after the patent expiration in Europe. I do not believe that I provided an exact date on that, but clearly we are undertaking all of the preparations so that we can do that.

Q: On the insulin products, were there any major changes in the quarter? Humalog and Humulin seem to be bouncing around in the first and second quarter quite a bit relative to what I would have thought the scripts were doing. Could you give us a sense of what’s going on there?

A: You are correct; when we look at the underlying script growth for insulin in the US, 1Q14 and 2Q14 are very comparable, but we do see in terms of our reported sales, we were at -1% growth for Humalog in 1Q14 and 17% growth for 2Q14, so there’s a big difference there. Let’s remember that in 1Q14, we had a significant wholesaler destocking that impacted the growth rate in the case of Humalog. That impact was eight to nine percentage points in 1Q14, so that explains part of the difference. In 2Q14, we just discussed managed Medicaid. In the case of Humalog, that impact was 4%. So we had some very unique impacts in each of those quarters.

Q: It looks like Humulin had very strong growth in the US with price, and I want to understand that in the context of the Express Scripts negotiations – getting on the formulary but still being able to drive some price. I wonder if that price is coming from customers outside that formulary or if that formulary still allows for some pricing power.

A: A big part of our Humulin insulin franchise is our very unique product Humulin U-500, which has significant growth and the pricing pressures are not as high as the rest of the insulin franchise. You basically see some of that reflected in terms of both price and volume.

Q: There was a comment earlier in the call about an adjustment in the US for managed Medicaid. How big was that adjustment? Can you explain what happened there?

A: As we got additional receipts in from customers, we were able to true-up the accruals and the provisions on our book. Dollar wise, it’s about $60 million, which in effect was about two percentage points of growth in the US.

 

-- by Manu Venkat, Emily Regier, Jessica Dong, and Kelly Close