Lilly 2Q17 – Diabetes portfolio grows 30% YOY to $1.9B; Trulicity drives 61% portfolio growth with sales >doubling YOY to $480M; Jardiance sales surpass $100M; Humalog revenue declines 3% YOY to $678M – July 26, 2017

Lilly provided its 2Q17 financial update in a call yesterday led by Lilly’s CEO Mr. Dave Ricks. The call was restructured from its typical format, so that management could outline a new R&D strategy in oncology (thus spending less time talking about other disease areas like diabetes).

But have no fear! We listened closely for the relevant highlights on Lilly’s diabetes portfolio and pipeline, and we’ve organized 14 of them into this report. This is much-expanded from the First Look we posted yesterday (those of you with our Closer Look app saw that in real time), now including graphs and summary tables on financials and the pipeline. View the company’s presentation slides here, see the press release here, and listen to a replay of the webcast here.

Read on for our 14 highlights, followed by relevant Q&A.

Table 1: 2Q17 Financial Results for Lilly’s Major Diabetes Products

Financial Highlights

1. Lilly’s overall diabetes portfolio grew 30% year-over-year (YOY) and 13% sequentially to $1.9 billion in 2Q17 – certainly what we’d call a strong quarter for the Lilly diabetes business overall. GLP-1 agonist Trulicity was once again the primary growth driver, accounting for 61% of growth in Lilly Diabetes by our calculations (compared to 25% of diabetes revenue). Biosimilar insulin glargine Basaglar and SGLT-2 inhibitor Jardiance accounted for 15% and 14% of diabetes portfolio growth, respectively (compared to 5% of revenue each), while Tradjenta and Humulin were responsible for 5% and 6%, respectively. Management cited Trulicity, Basaglar, and Jardiance as leading contributors to 8% worldwide volume growth and 15% US revenue growth in Lilly’s overall pharmaceutical business. It is encouraging to see diabetes therapies featured as bright spots in the company’s larger pharmaceutical portfolio.

2. GLP-1 agonist Trulicity (dulaglutide) continued its strong performance, with revenue more than doubling YOY to $480 million – we anticipate it will hit at least $2 billion for the year, compared to $249 million in 2015, and $926 million in 2016. This represents a whopping 29% sequential increase from $373 million in 1Q17. Management highlighted IDEO-designed Trulicity as a major driver of the company’s overall pharmaceutical growth, as well as one of the most valuable players within its diabetes portfolio. In fact, excluding Trulicity sales, Lilly’s diabetes portfolio grew ~13% YOY vs. an impressive 30% YOY with the GLP-1 product factored in. Notably, however, even 13% is still quite strong in diabetes pharma these days – it’s definitely our sense that Trulicity is both “stealing share” as well as benefiting enormously from market expansion. Indeed, Lilly emphasized that Trulicity continues to gain market share in the GLP-1 agonist class, now holding more than 35% of total prescriptions (TRx), up from 20% in 2Q16. Management expressed optimism about the momentum of the GLP-1 agonist class in general, pointing to ~25% YOY US TRx growth in 2Q17, driven by PCP adoption – this last piece was very important to hear, since PCPs haven’t been the HCPs driving uptake to-date.

3. Lilly’s share of revenue from the BI-partnered SGLT-2 inhibitor Jardiance franchise more than doubled YOY, reaching $103 million in 2Q17, and finally achieving this all-important $100 million milestone. This represents another whopping example of very impressive sequential growth – 40%! – following a disappointing 3% sequential decline in 1Q17. Jardiance drove 14% of diabetes portfolio growth, by our calculations, even though it accounted for only 5% of total diabetes revenue. Management attributed these strong sales to both increased market share for Jardiance and to overall growth of the SGLT-2 class, which we’re so pleased to see after underwhelming class growth in the wake of EMPA-REG OUTCOME and the FDA approval of a CV indication for Jardiance in December 2016. We estimate total global sales of Jardiance in 2Q17 at $312 million, though this is speculation since BI’s portion of revenue is not reported publically. In a full-year 2015 diabetes update, BI listed global net sales for the franchise at €165 million, or ~$183 million, while Lilly collected $60 million in revenue from Jardiance in 2015, putting Lilly’s share at ~33%. There was no mention of CANVAS for J&J’s SGLT-2 inhibitor Invokana, which showed near-equivalent risk reduction to Jardiance for CV events but also nearly doubled risk for lower limb amputations (many things were different between the CVOTs, like how amputations were adjudicated, length of trial, etc. so we would urge less rather than more comparison here). During Lilly’s 1Q17 call, management suggested that it was in Lilly’s best interest for CANVAS results to be positive, in line with a cardioprotective class effect, and we imagine that the Invokana data will indeed provide more excitement to HCPs that the CV benefit to SGLT-2 inhibitor therapy is “real”. It’s too soon to tell if the amputation signal will drive patients away from Invokana toward Jardiance, but we’ll have our eyes peeled for these trends in future quarters.

4. Lilly’s flagship product Humalog (insulin lispro) posted $678 million in revenue, down 3% YOY and 4% sequentially. This subdued performance comes on the heels of a very positive 1Q17, when revenue rose 17% YOY, and against a relatively tough comparison of 8% YOY growth in 2Q16. Humalog’s muted 2Q17 was driven by US sales, which fell 7% YOY vs. a 2% YOY increase in international sales. Management cited three potential explanations: (i) pricing pressure in the US insulin market, (ii) segment mix, with a greater proportion of prescriptions going to patients on Medicaid, and (iii) continued competition from SGLT-2 inhibitors and GLP-1 agonists.

5. Sales of Basaglar (biosimilar insulin glargine) rose a remarkable 88% sequentially to $87 million, including $60 million in US revenue and $27 million in ex-US revenue. Basaglar drove 15% of the growth in Lilly’s diabetes portfolio, by our calculations (it accounted for ~5% of diabetes revenue). US sales nearly tripled sequentially from 1Q17, when sales grew only 39% to $22 million (this was disappointing growth from 4Q16, given that Basaglar was only launched in US pharmacies on December 15, 2016, giving the product ~two weeks on the market before end of 2016). There was little discussion of Basaglar on Lilly’s 2Q17 call, but we imagine that strong reimbursement status is playing a role – the biosimilar boasts exclusive positioning over Sanofi’s Lantus on the CVS Health and UnitedHealthcare formularies, plus equal footing to Lantus on the Express Scripts formulary. Indeed, volume and sales growth would depend on patients switching from other basal insulin therapies, which could explain the delay in Basaglar sales growth that Lilly is now seeing.

6. Humulin (human insulin) revenue grew 8% YOY and 14% sequentially to $358 million. This was driven by positive performance in the US, where revenue increased 11% YOY to $227 million. Ex-US sales were up 3% YOY in 2Q17 to $131 million.

7. Lilly’s share of revenue from DPP-4 inhibitor Tradjenta totaled $142 million in 2Q17, up 17% YOY and 26% sequentially – impressive growth considering fluctuating sales for the DPP-4 class in recent years due to increasing competition from newer GLP-1 agonist and SGLT-2 inhibitor agents. We estimate total Tradjenta franchise revenue, including BI’s share, at $394 million. This is based on our estimate of Lilly’s share of revenue at ~36% based on Lilly’s reported Tradjenta franchise sales for 2015 ($357 million) and global net sales for the franchise in 2015 (€909 million, or ~$1 billion) as reported by BI in a diabetes update.

8. Sales of Lilly’s glucagon rose 6% YOY to $32 million in 2Q17, and fell 3% sequentially from $33 million in 1Q17.

Pipeline Highlights

9. Management called attention to Lilly’s recent partnership with KeyBioscience, and to the two dual amylin calcitonin receptor agonists (DACRAs) that have been added to Lilly’s diabetes pipeline as a result. During Q&A, management explained that this new class could offer competitive glucose-lowering efficacy, more durable A1c reductions, superior weight loss, and less nausea vs. existing GLP-1 agonists – we don’t know too much about this emerging therapy class, but we’re eager to learn more.

10. Lilly’s presentation slides made note that the company’s DGAT-2 inhibitor for NASH and dyslipidemia has been discontinued from phase 1. This is unfortunate news, as we were excited about Lilly’s apparent interest in NASH during last year’s R&D update meeting, but we’re glad that the company’s phase 1 GLP-1/glucagon dual agonist remains a contender in the NASH competitive landscape. There was no change in timing that we could see.

11. Management pointed to Lilly’s phase 2 GIP/GLP-1 dual agonist and phase 1 GPR142 agonist as promising candidates in the pipeline, though there was little explicit discussion on either. According to ClinicalTrials.gov, the GIP/GLP-1 dual agonist completed a phase 1 trial in June 2017 and has a phase 2 study listed with expected completion in May 2018. We are so impatient about this GIP/GLP-1 dual agonist class – it’s painful (!) how long we’ve been hearing about it and we’d love to see more movement.

12. There was no mention during prepared remarks or Q&A of Lilly’s phase 3 nasal glucagon or phase 2 ultra-rapid-acting insulin lispro formulation, which we found somewhat surprising, since both therapy candidates presented positive data at ADA 2017. Moreover, there was no mention of the planned outcomes trial for Jardiance in people with chronic kidney disease (CKD), nor is this study yet listed on Lilly’s pipeline page, very unfortunately – we wonder if this means the timing is further out than we initially expected (or hoped).

13. Lilly’s just-announced partnership with Nektar Therapeutics to develop and commercialize phase 1 NKTR-358 was mentioned several times on the call. The companies haven’t yet specified an indication, but this interleukin-2 (IL-2)-based therapy has potential applications in type 1 diabetes.

Big Picture Highlights

14. Notably, management commented in Q&A that it expects an Executive Order from the White House in 2H17 aimed at reducing drug costs. CEO Mr. Dave Ricks underscored Lilly’s commitment to lowering patient out-of-pocket costs, i.e. through discount programs like the one with Blink Health for insulin products. According to Lilly’s 2016 Integrated Summary Report, the company returns 50% of pharmaceutical profits in the form of rebates to PBMs and discounts to patients.

Financial Highlights

1. Diabetes Portfolio Grows 30% YOY to $1.9 Billion on Strength of Trulicity, Basaglar, Jardiance

Lilly’s overall diabetes portfolio achieved $1.9 billion in 2Q17 sales, growing 30% year-over-year (YOY) and 13% sequentially– certainly what we’d call a strong quarter for the Lilly diabetes business overall. US sales of the company’s major diabetes products – including GLP-1 agonist Trulicity, rapid-acting insulin Humalog, biosimilar insulin glargine Basaglar, human insulin Humulin, SGLT-2 inhibitor Jardiance, DPP-4 inhibitor Tradjenta, and glucagon – totaled $1.2 billion and accounted for 65% of global revenue. Meanwhile, international sales totaled $665 million and accounted for 35% of global revenue. Both US and ex-US revenue experienced double-digit growth in 2Q17, up 37% YOY and 20% YOY, respectively. GLP-1 agonist Trulicity was once again the primary growth driver, accounting for 25% of diabetes revenue and for 61% of diabetes portfolio growth by our calculations. Basaglar and Jardiance accounted for 15% and 14% of diabetes portfolio growth, respectively, while Tradjenta and Humulin were responsible for 5% and 6%, respectively. Management cited Trulicity, Basaglar, and Jardiance as leading contributors to 8% worldwide volume growth and 15% US revenue growth in Lilly’s overall pharmaceutical business. It is encouraging to see diabetes therapies featured as bright spots in the company’s larger pharmaceutical portfolio. Moreover, the emphasis on volume growth (which was an undercurrent throughout prepared remarks) is reassuring in the context of pricing pressure surrounding diabetes drugs, since an increase in prescriptions is indication that more patients are accessing effective therapies (regardless of how pricing pressures might be affecting the company’s recorded sales).

2. Trulicity Sales >Double YOY to $480 Million, Accounting for 25% of Total Diabetes Revenue and 61% of Diabetes Portfolio Growth

GLP-1 agonist Trulicity (dulaglutide) continued its strong performance, with revenue more than doubling YOY to $480 million from a base of $201 million in 2Q16. We anticipate it will hit at least $2 billion for the year, compared to $249 million in 2015, and $926 million in 2016. The IDEO-designed GLP-1 agonist accounted for 25% of total diabetes revenue and for 61% of the company’s diabetes portfolio growth, by our calculations. This also represents a 29% sequential increase from $373 million in 1Q17. Management highlighted Trulicity as a major driver of the company’s overall pharmaceutical growth, as well as one of the most valuable players within its diabetes portfolio. In fact, excluding Trulicity sales, Lilly’s diabetes portfolio grew ~13% YOY vs. an impressive 30% YOY with the GLP-1 product factored in. Still, we note that even 13% is quite strong in diabetes pharma these days – it’s definitely our sense that Trulicity is both “stealing share” as well as benefiting enormously from market expansion. This 2Q17 performance is consistent with Lilly’s forecast in its 2017 financial guidance that Trulicity (alongside Humalog, Basaglar, and Jardiance) would be one of the company’s main growth drivers for the year 2017. As we have come to expect for GLP-1 agonists, Trulicity’s growth was largely driven by the US market, where 2Q17 sales totaled $381 million (up nearly 2.5x YOY and 29% sequentially), compared to ex-US revenue of $99 million (up 2.5x YOY and 30% sequentially).

• Management emphasized that Trulicity continues to gain market share within the GLP-1 agonist class, now holding more than 35% of total prescriptions (TRx), up from 30% at the end of 1Q17. Management expressed optimism about the momentum of the GLP-1 agonist class in general, pointing to ~25% YOY US TRx growth in 2Q17, driven by PCP adoption. For more on the dynamics of the GLP-1 class, see our 4Q16 and 2016 Diabetes Industry Roundup or our 1Q17 pooled analysis of the GLP-1 market. We’ll be back with our 2Q17 pooled analysis following quarterly updates from AZ (Bydureon and Byetta), Sanofi (Lyxumia), GSK (Tanzeum), and Novo Nordisk (Victoza).
• Competition is on the horizon, however, with Novo Nordisk’s semaglutide and Intarcia’s ITCA 650 (implantable exenatide mini-pump) submitted to the FDA. Once-weekly, injectable semaglutide has already potential demonstrated cardioprotective benefits in the SUSTAIN 6 trial, though Novo Nordisk will likely initiate a larger CVOT post-FDA approval to support a label update. Lilly management acknowledged that semaglutide is clearly a very potent molecule, and is thinking ahead about strategies to retain Trulicity’s market share within the GLP-1 agonist class: Head of Diabetes as well as Senior Vice President at Lilly Mr. Enrique Conterno pointed out the retinopathy signal in SUSTAIN 6, though Dr. Tina Vilsbøll suggested at ADA 2017 that this risk will be manageable with proper patient selection/education on semaglutide. Lilly’s own CVOT for dulaglutide, the REWIND trial, is expected to complete in July 2018. When pressed during Q&A, management commented that it is “dangerous to speculate when it comes to CVOTs,” but noted that “we like our chances” – particularly given Lilly’s experience in designing and executing diabetes CVOTs (EMPA-REG OUTCOME was the first positive CVOT for a diabetes drug, and was certainly groundbreaking). Accumulating evidence suggests that cardioprotection is not a class effect for GLP-1 agonists, or that GLP-1 agents are not all alike in this regard. ELIXA for Sanofi’s lixisenatide showed CV neutrality, as did topline EXSCEL results for AZ’s Bydureon (exenatide once-weekly). With the bar for diabetes drugs at an all-time high, we believe demonstrating CV benefit will be something near critical for a GLP-1 agonist, especially with LEADER for Novo Nordisk’s Victoza (liraglutide) already published and potentially supporting a new CV indication. We eagerly anticipate REWIND results, and full results from EXSCEL to read out at EASD 2017.
• Lilly is taking steps to further differentiate Trulicity from other GLP-1 agonists on the market:
  
  • Data from the AWARD-10 trial assessing co-administration of Trulicity with Jardiance is expected “at an upcoming conference.” AZ’s DURATION-8 trial has demonstrated superior benefits in A1c reduction and weight loss with a Bydureon (exenatide once-weekly)/Farxiga (dapagliflozin) combination vs. either monotherapy, and we wonder whether the same will be true for the Trulicity/Jardiance combination. Interestingly, Dr. John Buse has expressed some concern about GLP-1/SGLT-2 co-administration given differential effects of these two agents on glucagon response, so we’ll be curious to see data to this end from DURATION-8 and AWARD-10 as well.
  • Also in the vein of combination therapy, Trulicity recently received a  label update supporting co-administration with basal insulin for adults with type 2 diabetes, based on positive data from the AWARD-9 trial which demonstrated the agent’s beneficial effects as an add-on to insulin glargine (Sanofi’s Lantus). This label update allows providers to dose Trulicity and basal insulin independently and flexibly, in contrast to fixed-ratio combinations of a basal insulin/GLP-1 agonist (namely Sanofi’s Soliqua and Novo Nordisk’s Xultophy). Trulicity’s once-weekly dosing makes it an especially compelling add-on to basal insulin – the combination of Trulicity and basal insulin would only require eight injections per week, just one more than the seven injections per week of daily fixed-ratio combinations. Lilly is also investigating a phase 1 fixed-ratio basal insulin/dulaglutide combination – see our pipeline updates section for more on this.
  • According to Lilly’s May 2016 R&D update, the company seeks to investigate the effect of Trulicity at higher doses to see greater weight and A1c reductions. This is seemingly a winning strategy given Novo Nordisk’s success in marketing high-dose liraglutide (3.0 mg) for obesity, branded Saxenda. That said, steep challenges remain in the obesity market to the tune of poor reimbursement, low prescription rates, and pervasive stigma regarding obesity pharmacotherapy. We hope to hear an update on this strategy from Lilly management soon, since we’re not sure the status of clinical progress on high-dose dulaglutide.

Figure 1: Trulicity Sales (4Q14-2Q17)

3. Jardiance Surpasses $100 Million Milestone, Continues to Benefit from CV Indication

Lilly’s share of revenue from the BI-partnered SGLT-2 inhibitor Jardiance franchise more than doubled YOY, reaching $103 million in 2Q17, and finally achieving this all-important $100 million milestone. This represents very impressive sequential growth of 40%, following a disappointing 3% sequential decline in 1Q17. We’re so pleased to see this positive sequential comparison after underwhelming class growth in the wake of EMPA-REG OUTCOME and the FDA approval of a CV indication for Jardiance in December 2016. This return to high sales growth reflects Lilly/BI’s concerted efforts to educate providers about the indication for reduction of CV death, which understandably, took some time to implement on a broad scale (and are perhaps just now impacting revenue). We estimate total global sales of Jardiance in 2Q17 at $312 million, though this is speculation since BI’s portion of revenue is not reported publically. In a full-year 2015 diabetes update, BI listed global net sales for the franchise at €165 million, or ~$183 million, while Lilly collected $60 million in revenue from Jardiance in 2015, putting Lilly’s share at ~33%. The franchise – including standalone Jardiance (empagliflozin), fixed-dose combination Synjardy (empagliflozin/metformin), and fixed-dose DPP-4/SGLT-2 combo Glyxambi (linagliptin/empagliflozin) – drove 14% of diabetes portfolio growth, by our calculations, despite accounting for only 5% of total diabetes revenue. Management attributed these strong sales to both increased market share for Jardiance and to overall growth of the SGLT-2 class (up 18% YOY to $715 million in 1Q17). As of June 2017, Jardiance captured 55% of new SGLT-2 therapy starts among endocrinologists and 41% among PCPs (slide 41).

• There was no mention of the CANVAS CVOT for J&J’s SGLT-2 inhibitor Invokana (canagliflozin), which showed near-equivalent risk reduction to Jardiance for CV events but also nearly doubled risk for lower limb amputations. During Lilly’s 1Q17 call, management suggested that it was in Lilly’s best interest for CANVAS results to be positive, in line with a cardioprotective class effect, and we expect that the Invokana data will indeed provide more excitement to HCPs that the CV benefit to SGLT-2 inhibitor therapy is “real.” On balance, we think the CANVAS findings should bolster Jardiance in particular – the two have comparable CV benefits, but the EMPA-REG-OUTCOME data lacks the worrisome and unexpected safety signals, including amputations, seen in the CANVAS data (which Lilly reinforced in June). However, it should be noted that many things were different between the CVOTs, including how amputations were adjudicated and the length of trial. While EMPA-REG OUTCOME did not show an increase in amputations, it was a shorter trial in a more homogeneous population. Ultimately, it’s too soon to tell if the amputation signal will drive patients away from Invokana toward Jardiance, but we’ll have our eyes peeled for these trends in future quarters. Right now, we urge less rather than more comparison here (at least until the CANVAS amputation data is further elucidated, as we expect it will be in future post-hoc analyses).
  
  • We were fortunate to speak with BI’s Dr. Hans-Juergen Woerle at ADA 2017, and he emphasized that we should not put too much weight on class effects. In his expert view, canagliflozin and empagliflozin are two different medicines with several unique properties, not the least of which may be risk conferred for lower-extremity amputations. We anticipate that management from Lilly, BI, and J&J alike will continue to address the amputation signal, questions of CVOT design, etc. going forward, and we were glad to get a head start on this commentary from Dr. Woerle.
• Combined 2Q17 revenue from J&J’s SGLT-2 inhibitor Invokana and Jardiance totaled $398 million. Notably, Invokana experienced a much more challenging 2Q17, with sales falling 23% YOY. We’ll be back with a full pooled analysis on Thursday, after AZ reports sales for its SGLT-2 inhibitor Farxiga (dapagliflozin). For now, we note a trend of Jardiance “stealing share” from Invokana, which might be amplified in the wake of CANVAS results. In 1Q17, Jardiance captured 31% of the market by value vs. Invokana’s 40%. For comparison, in 2Q16, Jardiance held only 17% of the market by value vs. Invokana’s 54%. The AZ-sponsored CVD-REAL study showed Invokana to be the leading SGLT-2 inhibitor by volume in the US, but Lilly’s 2Q17 presentation highlighted Jardiance as the market leader with 45% of new-to-brand prescriptions (NBRx) in the US. Some thought leaders, including Dr. Daniel Drucker, have predicted a gradual attrition of Invokana prescriptions, with patients looking to start SGLT-2 therapy opting for Jardiance instead. But to be clear, the field is far from consensus on the Jardiance vs. Invokana, EMPA-REG OUTCOME vs. CANVAS issue, and others like Dr. Anne Peters have suggested that they won’t necessarily stop using Invokana in their clinical practice. Dr. Peters also shared that anecdotally, she’s found Invokana to have better glucose-lowering and weight loss effects vs. Jardiance, and emphasized that much of these decisions will eventually come down to formularies.

Figure 2: Jardiance Sales (3Q14-2Q17)

4. Humalog Sales Fall 3% YOY to $678 Million

Lilly’s flagship product Humalog (insulin lispro) posted $678 million in revenue, down 3% YOY and 4% sequentially. This subdued performance comes on the heels of a very positive 1Q17, when revenue rose 17% YOY, and against a relatively tough comparison of 8% YOY growth in 2Q16. Humalog’s muted 2Q17 was driven by US sales, which fell 7% YOY to $390 million vs. a 2% YOY increase in international sales to $288 million. Management cited three potential explanations for Humalog’s challenges: (i) pricing pressure in the US insulin market, (ii) segment mix, with a greater proportion of prescriptions going to patients on Medicaid, and (iii) continued competition from SGLT-2 inhibitors and GLP-1 agonists. Notably, J&J has also cited segment mix as a challenge for its Invokana business in the US, and in both cases, we hope this means that more patients in-need are accessing essential therapies. Humalog’s TRx share of the rapid-acting insulin market has been on the rise since January 2016, stabilizing between 47%-49% after a long plateau at 44%. Moreover, Humalog holds a sizeable value share of the market, capturing 45% of the market by value in 1Q17, neck-and-neck with Novo Nordisk’s NovoRapid (insulin aspart) at 48% (Sanofi’s Apidra accounts for the remaining 7%). Against this backdrop, however, Lilly’s presentation slides depict slowing growth for the overall rapid-acting insulin market. In contrast to consistent 6%-8% YOY TRx growth in 2014, 2017 is marked by only 1%-2% YOY growth for the rapid-acting insulin market (slide 46). The sales numbers match this: Though pooled class sales for rapid-acting rose 14% YOY to $1.6 billion in 1Q17, this growth followed several consecutive quarters of low or negative market growth (-7% in 1Q16, 1% in 2Q16, -6% in 3Q16, and -2% in 4Q16). Prescriptions lost to SGLT-2 inhibitors and GLP-1 agonists have been repeatedly cited as a commercial challenge for mealtime insulin products, since agents from both these newer classes decrease postprandial glucose excursions. We’ll be back with a pooled class analysis on rapid-acting insulin for 2Q17 once Novo Nordisk reports on August 9.

• Humalog’s muted showing in 2Q17 runs contrary to Lilly’s prediction in its 2017 financial guidance that Humalog (alongside Trulicity, Basaglar, and Jardiance) would be one of the company’s growth main drivers for 2017. Humalog accounted for 24% of Lilly’s diabetes portfolio growth in 1Q17 and for 43% of total diabetes revenue, while in 2Q17, the product made no contribution to portfolio growth and accounted for a smaller 36% of total diabetes revenue. Of course, it remains to be seen what the rest of the year will hold for Humalog – clearly the insulin market is very complex and this underwhelming 2Q17 performance does not predict trends for the rest of the year. To this end, management noted in Q&A that the company “expects some volatility around US Humalog sales” since the financial guidance is based on estimates for rebates and discounts that are inevitably uncertain to some degree. Management has previously acknowledged that Humalog formulary access in 2017 is “slightly reduced” compared to other Lilly diabetes products at ~65% commercial coverage – this is likely driven by the widespread use of exclusive formularies in the rapid-acting insulin market. As the 2017 formulary landscape currently stands, as in past years, Humalog has exclusive positioning within Express Scripts and UnitedHealthcare but is excluded from CVS Health’s formulary in favor of NovoLog and Apidra.
• During Q&A, management also underscored that the rapid-acting insulin class continues to face competitive pressure from increased uptake of GLP-1 agonists and SGLT-2 inhibitors to address postprandial excursions. We add basal insulin/GLP-1 agonist combinations (like Sanofi’s Soliqua and Novo Nordisk’s Xultophy) to the list of newer drugs that may compete with rapid acting insulin. In our view, the GLP-1 agonist, SGLT-2 inhibitor, and basal insulin/GLP-1 agonist combination classes offer compelling alternatives to insulin therapy for many patients – not only do these more advanced agents 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 will also be interested to see how Humalog fares once Novo Nordisk’s next-generation prandial insulin Fiasp (faster-acting insulin aspart) enters the US market (it is already approved in the EU and Canada, but is pending FDA approval on its second submission, after an unexpected Complete Response Letter in October 2016).

Figure 3: Humalog Sales (1Q12-2Q17)

5. Basaglar Business Grows 88% Sequentially to $87 million, Driven by Strong Formulary Positioning

Lilly’s share of Basaglar (biosimilar insulin glargine) sales more than quintupled YOY and rose a remarkable 88% sequentially to $87 million, including $60 million in US revenue and $27 million in ex-US revenue. Basaglar drove 15% of the growth in Lilly’s diabetes portfolio, by our calculations, compared to 5% of total diabetes revenue. US sales nearly tripled sequentially from $22 million 1Q17, when sales grew only 39% to $22 million (this was disappointing growth from 4Q16, given that Basaglar was only launched in US pharmacies on December 15, 2016, giving the product ~two weeks on the market before end of 2016). There was little discussion of Basaglar on Lilly’s 2Q17 call, but we imagine that strong reimbursement status is playing a role – the biosimilar boasts exclusive positioning over Sanofi’s Lantus on the CVS Health and UnitedHealthcare formularies, plus equal footing to Lantus on the Express Scripts formulary. Indeed, volume and sales growth would depend on patients switching from other basal insulin therapies, which could explain the delay in Basaglar sales growth that Lilly is now seeing. The company’s presentation (slide 42) showed that Basaglar has captured 20% NBRx share (new-to-brand prescriptions) and 6% TRx share (total prescriptions) in the US. Impressively, this puts Basaglar on par with Novo Nordisk’s Levemir (insulin detemir) for US NBRx, and on par with Novo Nordisk’s next-generation basal insulin Tresiba (insulin degludec) for US TRx (not too shabby!). We’ll be including a pooled class analysis of the basal insulin market as part of our Novo Nordisk 2Q17 coverage on August 9 – stay tuned for the latest on these very interesting market dynamics, affected especially by the insulin pricing controversy in the US.

• A second biosimilar insulin glargine candidate may soon join Basaglar: Last week, the FDA granted tentative approval to Merck’s Lusduna Nexvue, pending an unresolved patent infringement lawsuit from Sanofi. Lilly/BI faced a similar lawsuit over Basaglar, which was eventually settled with an agreement to delay US launch and a royalty deal in exchange for license of the disputed insulin glargine patents. Basaglar was then launched in US pharmacies mid-December 2016 as the first biosimilar insulin product stateside (the product has been marketed as Abasaglar in Europe since 3Q15). While the introduction of another biosimilar to the insulin market would certainly mean more competition for Lilly’s insulin glargine formulation, we’re ultimately enthusiastic about Lusduna Nexvue’s potential to grow the class and to expand patient access to basal insulin by offering a lower-cost option. We want to emphasize that this could be a tremendous win for patients, and for the basal insulin class as a whole, as we see more than enough room for two affordable biosimilars on the market. Further, past experience in the generic marketplace suggests that two or more generics must reach a market in order to drive down prices – we’re certainly optimistic for greater discounting with these biosimilars in the future as patients continue to struggle with the financial burden of insulin.

Figure 4: Basaglar Sales (3Q15-2Q17)

6. Humulin Sales Rise 8% YOY, 14% Sequentially to $358 Million

Humulin (human insulin) revenue grew 8% YOY and 14% sequentially to $358 million. This was driven by positive performance in the US, where revenue increased 11% YOY to $227 million. Ex-US sales were up 3% YOY in 2Q17 to $131 million. Management attributed this growth to increased volume and higher realized prices.

• Despite Humulin’s solid performance in 2Q17, the product’s TRx share in the US has been declining in recent months. In June 2017, Humulin’s TRx share dropped below 52% for the first time since June 2014. This comes after TRx share hit a high point >54% in 4Q16. We suspect these volume losses are to Novo Nordisk’s human insulin, which was the only human insulin on the market to experience positive growth in 4Q16 (though this was tempered in 1Q17). We also note the backdrop of decline for this particular therapy class: The overall market for human insulin as measured by TRx has been falling 4%-6% YOY since January 2016, and is currently at a low of nearly -7% YOY as of June 30, 2017 (slide 50). It comes as a bit of a surprise that this combination of diminishing TRx in a shrinking market has not had a more negative effect on Humulin’s 2Q17 revenue, which only underscores the complexity of the insulin pricing environment.
• An additional variable in Humulin’s performance is the different dynamics between its U-500 and U-100 formulations. Management specified during Q&A that Humulin’s growth in 2Q17 was driven by sales of its U-500 formulation, which grew ~20% YOY. The U-500 formulation accounts for ~60% of all Humulin revenue. By contrast, U-100 revenue actually declined in 2Q17, though management did not specify the precise YOY change.

Figure 5: Humulin Sales (2Q15-2Q17)

7. Tradjenta Sales Grow 17% YOY to $142 Million

Lilly’s share of revenue from DPP-4 inhibitor Tradjenta (linagliptin) totaled $142 million in 2Q17, up 17% YOY and 26% sequentially. We estimate total Tradjenta franchise revenue, including BI’s share, at $394 million. This is based on our estimate of Lilly’s share of revenue at ~36% based on Lilly’s reported Tradjenta franchise sales for 2015 ($357 million) and global net sales for the franchise in 2015 (€909 million, or ~$1 billion) as reported by BI in a diabetes update. Also by our calculations, Tradjenta was responsible for 5% of growth and for 8% of revenue for Lilly Diabetes in 2Q17. By geography, US sales increased 24% YOY to $60 million, while ex-US sales rose 13% YOY to $82 million. This growth is particularly impressive considering the drug’s well-established status on the market (launched in 2011) and considering fluctuating sales for the DPP-4 class in recent years due to increasing competition from newer GLP-1 agonist and SGLT-2 inhibitor agents. On the other hand, DPP-4 inhibitors come with a well-studied safety profile, tolerability corroborated through their history on the market, and an important familiarity factor among patients/providers – advantages over GLP-1 and SGLT-2 products. DPP-4 inhibitors remain an important part of diabetes treatment algorithms, and they continue to be the preferred therapy for many elderly patients, for people with diabetes and renal impairment, and for individuals early in the course of disease. Given this crucial niche for DPP-4 inhibitors within diabetes care, we’re glad to note a strong quarter for Lilly’s Tradjenta. AZ, in contrast, has explicitly de-prioritized its DPP-4 inhibitor Onglyza in favor of SGLT-2 inhibitor Farxiga. We’ll be back with a pooled class analysis of DPP-4 inhibitors after all companies report their 2Q17 earnings: Novartis already reported Galvus (vildagliptin) sales of $310 million for 2Q17 (flat YOY), and we await updates from Merck on Januvia (sitagliptin), from Takeda on Nesina (alogliptin), and from AZ on Onglyza (saxagliptin). According to our 1Q17 pooled analysis for the DPP-4 inhibitor class, the Tradjenta franchise (which also includes a fixed-dose combination with metformin, branded Jentadueto) captured 14% of the market by value, second to Januvia as the clear frontrunner with 61%.

Figure 6: Tradjenta Sales (2Q11-2Q17)

8. Glucagon Sales Up 6% YOY, Down 3% Sequentially to $32 Million

Sales of Lilly’s glucagon rose 6% YOY to $32 million in 2Q17. Sequentially, sales fell 3% against a tough comparison of 26% sequential growth in 1Q17. As in previous quarters, glucagon revenue was driven primarily by US sales, which summed to $31 million (up 6% YOY and down 2% sequentially). Meanwhile, ex-US sales accounted for the remaining $1 million (up 7% YOY and down 17% sequentially), and have hovered between $1-$2.6 million in quarterly revenue since 1Q12. Lilly seems well-positioned for innovation and growth in glucagon, as it has acquired phase 3 nasal glucagon from Locemia (with FDA submission expected by 1H18, per Dr. Jessica Castle’s DTM 2016 presentation) and also has a stable soluble glucagon candidate in phase 1. We saw promising real-world data on Lilly’s nasal glucagon candidate at ADA 2017, showing that 96% of patients experiencing severe hypoglycemia recovered within 30 minutes following treatment and that most of caregivers were highly-satisfied with the device (more on this in our pipeline highlights section down below). Several other innovative glucagon candidates for hypoglycemia rescue and/or dual hormone pumps are on the horizon as well – see our  glucagon competitive landscape for an overview.

Pipeline Highlights

9. Enthusiasm Abounds for DACRA Candidates Acquired through Recent Partnership with KeyBioscience

Management called attention to Lilly’s recent partnership with KeyBioscience, and to the two dual amylin calcitonin receptor agonists (DACRAs) that have been added to Lilly’s diabetes pipeline as a result. DACRA-089 is listed as phase 1. DACRA-042 was the most advanced candidate acquired from KeyBioscience through this deal, and is listed as phase 2 on Lilly’s pipeline page. No timing was shared for these phase 1 or 2 studies, but during Q&A, management explained that these agents could offer competitive glucose-lowering efficacy, more durable A1c reductions, superior weight loss, and less nausea vs. existing GLP-1 agonists. We don’t know too much about this emerging therapy class, but we’re eager to learn more. Lilly seems very focused on amylin as a therapeutic target for diabetes – with management emphasizing how the DACRA family of molecules enhances insulin sensitivity in addition to lowering blood sugar, thereby restoring glycemia closer to a physiological state – but we’re also very intrigued by the weight loss effects of this new therapy class. Zealand/BI and Novo Nordisk are investigating amylin analogs specifically for obesity (both candidates in phase 1). As we learned from Dr. Daniel Drucker shortly after the Lilly/KeyBioscience collaboration was announced, amylin has been associated with robust weight loss and improvements to metabolic health. He argued that it’s the logical next step as a therapeutic target for chronic conditions like type 2 diabetes and obesity, adding that he also sees potential therapeutic value for inflammatory conditions like NASH. DACRA-089 and -042 are currently under clinical development with a diabetes indication in mind, but we wonder if Lilly might consider studies in NASH further down the line (especially considering the discontinuation of a DGAT-2 inhibitor for NASH in 2Q17 – more on this directly below). An amylin analog (Symlin, marketed by AZ) is already available as an adjunct therapy for type 1 diabetes, though it has never quite taken off commercially due to the challenge of dosing injections at every meal and adverse side-effects such as GI symptoms and hypoglycemia. That said, we’re extremely eager to see how amylin as a target might fare in type 2 diabetes, obesity, and NASH and what impact the calcitonin aspect of these DACRA candidates will have on their clinical profile.

10. DGAT-2 Inhibitor Discontinued from Phase 1

Lilly’s presentation slides made note that the company’s DGAT-2 inhibitor for NASH and dyslipidemia has been discontinued from phase 1. This is unfortunate, as we were excited about Lilly’s apparent interest in NASH during last year’s R&D update meeting, but we’re glad that the company’s phase 1 GLP-1/glucagon dual agonist remains a contender in the NASH competitive landscape. NASH is a common comorbidity of type 2 diabetes, and it persists as a therapeutic area of high unmet need, with no FDA-approved drugs to-date. We’re cautiously optimistic, however, given the bustling competitive landscape of NASH candidates. With extensive expertise in both clinical and commercial development of diabetes drugs (coupled with the undeniable overlap between NASH and diabetes), we think Lilly could be quite successful bringing a NASH therapy to market, and we’d love to see that happen. Many other companies have doubled-down on their NASH investments recently, including Novartis and Novo Nordisk. Ionis is still developing a phase 1 DGAT-2 inhibitor for NASH, while GSK also has a DGAT-1 inhibitor in phase 1.

11. GIP/GLP-1 Dual Agonist and GPR142 Candidates Advance

Management pointed to Lilly’s phase 2 GIP/GLP-1 dual agonist and phase 1 GPR142 agonist as promising candidates in the pipeline, though there was little explicit discussion on either. According to ClinicalTrials.gov, the GIP/GLP-1 dual agonist completed a phase 1 trial in June 2017 and has a phase 2 study listed with expected completion in May 2018. The candidate, LY3298176, was first-announced during Lilly’s R&D update meeting in May 2016, and was later added to the pipeline officially in 2Q16. We are so impatient about this GIP/GLP-1 dual agonist class – it’s painful (!) how long we’ve been hearing about it and we’d love to see more movement. The GIP/GLP-1 dual agonist competitive landscape is not quite as robust as the related GLP-1/glucagon dual agonist field, but both Novo Nordisk and Sanofi have phase 1 GIP/GLP-1 candidates in their phase 1 pipelines, while Zealand has a preclinical candidate. Previously, Novo Nordisk discontinued a separate phase 2 GIP/GLP-1 candidate, as did Roche.

12. Diabetes Pipeline: What Wasn’t Said

There was no mention during prepared remarks or Q&A of Lilly’s phase 3 nasal glucagon or phase 2 ultra-rapid-acting insulin lispro formulation, which we found somewhat surprising, since both therapy candidates presented positive data at ADA 2017. The great Dr. Elizabeth Seaquist presented real-world findings on nasal glucagon, emphasizing that 96% of patients experiencing severe hypoglycemia were able to recover within 30 minutes, and that caregivers found the device extremely easy to use. FDA submission of this product is slated for 1H18, and management has told us previously that Lilly will file nasal glucagon in other geographies shortly thereafter. There is so much room for improvement in hypoglycemia treatment – the only options available to patients right now require a somewhat clunky, somewhat error-prone reconstitution process – and we’ll be happy to see Lilly forge ahead in advancing this aspect to diabetes care. Xeris and Zealand also have novel glucagon formulations in phase 3. Rapid-acting insulin is another therapy area with substantial room for improvement, in our view, and to this end we were excited to see two posters on Lilly’s novel insulin lispro formulation at ADA 2017. This candidate has been receiving much more attention since January, when Lilly terminated its partnership with Adocia around BioChaperone Lispro. Lilly’s internally-developed formulation features citrate and trepostinil to speed insulin lispro absorption, creating a prandial therapy with faster-onset and faster-offset. This speed is key to reducing the hypoglycemia risk associated with many current mealtime insulin options, although once on the market, this candidate will likely face in-class competition from next-generation prandial insulin Fiasp (Novo Nordisk’s faster-acting insulin aspart, already approved in Europe, with an FDA decision expected in 3Q17).

• There was no mention of the planned outcomes trial for Jardiance in people with chronic kidney disease (CKD), nor is this study yet listed on Lilly’s pipeline page. We wonder if this means the timing is further out than we initially expected (or hoped) when the study was announced by Lilly/BI on June 12. The companies plan to enroll people with and without diabetes to investigate empagliflozin’s renal protective effects (a surprise positive finding from EMPA-REG OUTCOME was the 39% risk reduction for diabetic nephropathy), and if positive, this trial could be the basis for an sNDA (Supplemental New Drug Application) requesting a new renal indication for Jardiance. The study joins CREDENCE (for J&J’s Invokana, expected to complete June 2019) and Dapa-CKD (for AZ’s Farxiga, expected to complete November 2020) in evaluating an SGLT-2 inhibitor therapy for CKD. We see this effort by Lilly/BI as yet another sign of confidence in Jardiance, and indeed, BI’s Dr. Hans-Juergen Woerle characterized it as such during a meeting with us at ADA 2017. Dr. Woerle underscored that empagliflozin is clearly an incredibly potent molecule with a multitude of effects, and he suggested that both companies have invested in the agent because of its strong clinical profile, which has been supported from the very earliest stages of research on the molecule. We’ve been pleasantly surprised by the sheer amount of positive data that has come from the empagliflozin clinical program, and it was fascinating to hear Dr. Woerle’s description of how even the earliest evidence pointed to this. Moreover, we note that SGLT-2 inhibitor treatments now account for nearly half of all phase 3 candidates on the diabetic nephropathy competitive landscape (to be sure, an area of persistent unmet need). We hope to hear more specifics from Lilly management on the CKD trial in the near-future.
• The initiation of the EMPEROR HF trials investigating Jardiance for heart failure were listed on the company’s presentation slides as major milestones accomplished so far in 2017, though there was no commentary on this new clinical program during prepared remarks or Q&A. The 35% risk reduction for heart failure hospitalization (p=0.002 vs. placebo) was a significant, surprise win from EMPA-REG OUTCOME. An expanded indication to include heart failure would be another substantial boost to the already-thriving Jardiance business, though the two outcomes trials EMPEROR HF-Preserved and EMPEROR HF-Reduced aren’t expected to complete until 2020 (you’ll have to excuse our forward-thinking speculation, because the combined therapeutic value of glucose-lowering, weight loss, less CV death, and less heart failure is just too exciting.) During a meeting with us at ADA in San Diego, BI’s Dr. Hans-Juergen Woerle underscored the company’s expertise in cardiovascular medicine, which makes BI an ideal strategic partner for Lilly’s diabetes products with cardioprotective potential. That Jardiance is now being investigated outside the context of diabetes, but in heart failure, is a sure sign of this potential, according to Dr. Woerle.
• There were no updates on Lilly’s basal insulin/dulaglutide fixed-ratio combination with potential for once-weekly dosing, first-announced in 4Q16. We were thrilled to note this addition to the pipeline, given Trulicity’s resounding commercial success so far and the potency dulaglutide has shown in clinical trials and through anecdotal evidence. On top of that, this therapy would offer lower injection burden compared to basal insulin/GLP-1 agonist combos already on the market: Novo Nordisk’s Xultophy (insulin degludec/liraglutide) and Sanofi’s Soliqua (insulin glargine/lixisenatide) both require once-daily injections.

Table 2: Lilly Diabetes Pipeline Summary

13. Management Highlights Lilly/Nektar Deal

Lilly’s just-announced partnership with Nektar Therapeutics to develop and commercialize phase 1 NKTR-358 was mentioned several times on the call. The companies haven’t yet specified an indication, but this interleukin-2 (IL-2)-based therapy has potential applications in type 1 diabetes. The candidate targets the IL-2 receptor complex to stimulate regulatory T-cell proliferation, thereby increasing inhibitory immune cells and restoring immune system balance. This mechanism fits logically with many autoimmune conditions, including type 1 diabetes, and we’d definitely be excited to see later-stage clinical trials focused on type 1. For now, NKTR-358 remains very early-stage. Nektar will oversee the remainder of phase 1 development for the autoimmune therapy, while Lilly/Nektar will split costs of phase 2 trials 75%/25%. Nektar can participate in phase 3 development on an indication-by-indication basis, as per the terms of the strategic agreement. See our report on the new partnership for more.

Big Picture Highlights

14. Lilly Discusses Pharma’s Role in Reducing Out-of-Pocket Drug Costs

Management commented in Q&A that it anticipates an Executive Order from the White House in 2H17 aimed at reducing drug costs. CEO Mr. Dave Ricks underscored Lilly’s commitment to lowering patient out-of-pocket costs, i.e. through discount programs like the one with Blink Health for insulin products. According to Lilly’s 2016 Integrated Summary Report, the company returns 50% of pharmaceutical profits in the form of rebates to PBMs and discounts to patients. This report provided transparency around pharmaceutical drug pricing, and outlined how rebates have increased in parallel to list prices: In 2012, the average discount offered to patients for a Lilly pharmaceutical product was 28%, which grew to 41% in 2014 and to 50% in 2016, offset by lower net list price increases of 13%, 12%, and 14%, respectively. Other companies have followed suit with position statements or transparency reports – we were glad to see these from Novo Nordisk,  Sanofi, and J&J, and we hope to see PBMs take similar measures to unravel the complicated scheme of drug pricing in the US. Novo Nordisk’s statement commits to only single-digit price increases annually for its drugs, in addition to working toward transforming the complex pricing system and reducing out-of-pocket costs for patients. J&J’s statement echoes this commitment to single-digit price increases. Sanofi goes even further, committing to no more than a 5.4% annual increase in list price for its drugs so as not to exceed the national health expenditures (NHE) growth projection, a measure of spending by US payers. On top of this, we appreciate that Sanofi has set lower drug list prices from the start. This is best exemplified by the pricing strategy for recently-launched Soliqua (insulin glargine/lixisenatide), which Sanofi priced on par with existing GLP-1 agonists.

• On the potential Executive Order, management noted that such action likely “won’t end the discussion about drug pricing.” Lilly management has discussed potential solutions with President Trump and believes the pharmaceutical industry can “leverage the power of marketplace and competition to help consumers with their out-of-pocket costs.” We certainly hope this is true, though without many specifics it is difficult to gauge how much of an impact an Executive Order could have on this complex issue. Further uncertainty surrounds how the potential repeal of the ACA (which cleared the Senate in a vote just hours ago) might influence this dynamic. We fear this will only exacerbate the existing challenges in drug accessibility, given that the new GOP healthcare bill in its current form is projected to leave millions more people uninsured, and it’s unlikely that patient assistance programs will be able to fully bridge the unmet need.
• “The battle will never be over” when it comes to the ongoing US drug pricing debate, but Lilly management expressed a commitment to advocating for strategies that bring down out-of-pocket patient costs, since people still “aren’t receiving enough of a benefit at the pharmacy counter.” Beyond Lilly’s transparency efforts, we’ve been impressed by the concrete action the company has taken to alleviate the out-of-pocket financial burden of insulin for patients with diabetes, including its direct discount program through Express Scripts and its ongoing negotiations with payers to create a separate, copay-free benefit category for insulin.  We hope other stakeholders similarly come to the table to devise collaborative solutions.

Questions and Answers

Q: Do you have any initial outlook or commentary on 2018 access and pricing? As we go through this contracting season, do you foresee any major changes for the diabetes portfolio heading into next year?

Mr. Enrique Conterno (Head of Diabetes, Lilly): We do have good access when we look across our brand. We have strong performance, which helps our competitive position as we look at the sales in 2018. The negotiations at this stage are not finalized, so it would be premature to discuss them. We typically allow payers to make their announcements before we would comment on changes – it won’t come until the August or September timeframe, most likely.

Q: How can industry help to shed additional light on the 50% Lilly gives back in the form of rebates, discounts to patients, etc.? Is there any thought about how you can do that for contracting with PBMs going forward?

Mr. Dave Ricks (CEO, Lilly): On the pricing debate in the US, of course, the battle will never be over. We need to continue to explain the value proposition we offer and defend the business model. We continue to remain focused in Washington and in states on advocating for strategies that bring down out-of-pocket costs for consumers. We published the 50% number earlier this year, but patients aren’t receiving enough of that benefit at the pharmacy counter. We’ve aggressively advocated, along with our pharma colleagues, regarding the Part D program – passing through rebates in the doughnut hole in some form. That’s still on the table. We do see growing interest in the same idea in commercial plans from large employers. Patient out-of-pocket costs are accelerating rapidly. We’ve been a leader in prodding the system through programs, like ours with Express Scripts, but I can also see other PBMs active in the space providing a discount program that works outside the insurance system and provides PBM-like rebates directly to patients. We’ve done this in our insulin business with Blink Health and the direct Express Scripts program. But I don’t expect this to go away overnight and we’ll remain focused on it.

Q: What is the dynamic behind Humalog vs. Humulin pricing pressures?

Mr. Conterno: We expect some volatility around our US Humalog sales, given that we make estimates on rebates and discounts at the end of each quarter. We do not learn about the actual utilization until later periods. The best way to characterize Humalog is to basically try to look at the underlying performance and try to normalize it for some of these changes that are related to prior periods. When we normalize, Humalog sales are declining ~5% with growth in the low single-digits when it comes to volume, but price is basically declining in mid- to high-single digits. Why is price declining? Because of pressure from increased rebates, and also continued shifts toward a mix with more patients coming from Medicaid. In the case of Humulin, things are a bit different. We grew 11% in the US. We have to keep in mind that now 60% of Humulin revenue is coming from U-500 and only the rest from U-100. They have very different trends – U-100 is declining but U-500 is basically increasing our revenue by about 20%.

Q: Could you remind us of your expectation for the SUSTAIN 7 study? I think you’ve said before that you expect semaglutide to show better efficacy but maybe worse safety than Trulicity. If SUSTAIN 7 is positive, how do you maintain market share of Trulicity?

Mr. Conterno: We have to wait for the result, of course, but based on some of the modeling we’ve done we expect they’re going to show a difference when it comes to weight and a small difference on A1c. We have to weigh all of that against any labels, and that’s up to the regulators. But you’re likely aware of a signal in SUSTAIN 6 for retinopathy. We need to wait for the totality of the data and further discussions that Novo Nordisk will have with the FDA. We view semaglutide as an important competitor to us, and we’re prepared to continue growing Trulicity going forward.

Q: How might DACRA be differentiated from Trulicity (and the GLP-1 agonist class of therapies)?

A: This is an interesting new class of agents that potentially could demonstrate superior weight loss with competitive glucose-lowering. That’s one way of describing it. There is potentially less nausea as well. The key thing here could be insulin sensitization – this agent is different from GLP-1 agonists, since it effectively enhances sensitization for insulin, which could mean better durability of the glucose-lowering effect.

Q: You made a reference to Humalog volume being up, but the class of rapid-acting insulins as a whole seems to be continuously down. Is that all about price, or does it reflect some level of a decline in overall demand – what are those patients moving toward instead of rapid-acting agents?

Mr. Conterno: The main impact here for the mealtime insulin class is really related to pricing. When we look at growth rates of that class, these have come down. The class is still growing, but it’s growing less than it was two or three years ago. This is part of increased utilization of SGLT-2 inhibitors and GLP-1 agonists.

Q: On the REWIND study – how do you feel about the fact that other CVOTs around GLP-1 agonists failed to show benefit? Is there anything that suggests that the probability of success was more than a coin toss? When can we expect the results from AWARD-10, evaluating Trulicity and Jardiance?

Mr. Conterno: It’s really dangerous to speculate when it comes to CVOTs. We do have very good experience with CVOTs in diabetes space – I think Lilly probably has designed and conducted more trials than anyone else in this space. We feel confident that we’ve designed the trial in the right way. If you look at the different GLP-1 agonists, I would say that not all of them are comparable, so we continue to like our chances. As far as AWARD-10, we should be presenting that at an upcoming medical conference.

Q: It seems like the Trump Administration and Congress are focused on matters other than drug pricing, but what is your updated perspective and outlook on the focus in Washington. Is there any development you think investors should be anticipating with respect to drug pricing in the second half of this year?

Mr. Ricks: We’ve responded to the concerns over drug pricing as an industry and as a company – pretty well, I think, in terms of putting proactively aligned ideas from across industry on the table that can leverage the power of the marketplace and competition to help consumers with their out-of-pocket costs. We’ve talked about some of this over time, whether it be rebates passed through in the doughnut hole, outcomes-based pricing, FDA speeding up the backlog of generic approvals, and the like. We do expect an Executive Order on drug pricing in the second half of the year, and we hope that it includes many of the ideas we put forward. My personal view is that it won’t end the discussion about drug pricing. There is still quite a bit of risk in the environment and I wouldn’t want anyone to think otherwise.

-- by Ann Carracher, Abigail Dove, Payal Marathe, Helen Gao, and Kelly Close