Memorandum

Sanofi 2Q18 – Diabetes portfolio falls 17% YOY to $1.6B driven by 26% YOY Lantus decline; Toujeo +3% YOY to $250+M; GLP-1/basal combo Soliqua +89% sequentially; Praluent CV indication submitted; HF outcomes trial added for sotagliflozin – August 1, 2018

Executive Highlights

  • Sanofi provided its 2Q18 financial update yesterday morning, reporting a 17% YOY decline in diabetes revenue to $1.6 billion, from $1.8 billion in 2Q17, driven by losses in Lantus sales primarily in the US. Overall, the portfolio rose 3% sequentially, indicating that the business’ performance could now be leveling off, as was projected to occur in 2Q18. According to management, this performance is in-line with the company’s financial guidance of a 6%-8% annual loss in diabetes for 2015-2018.

  • Lantus sales continued their downward trajectory following the patent expiry, falling 26% YOY to $1 billion. Lantus quarterly sales are on track to dip below $1B for the first time since 1Q09. US sales dropped nearly 40% YOY to $470 million in the face of Medicare Part D losses and continued pricing pressure. OUS, Lantus is declining more slowly as volume is lost to next-gen Toujeo and biosimilars; OUS revenue of $570 million represented a 9% YOY loss. 

  • Next-gen basal insulin Toujeo rose a disappointing 3% YOY to $253 million. Product revenue fell 30% YOY to $100 million in the US; in contrast, OUS growth was stronger at +49% YOY to $153 million. Exclusions on public and private formularies plus pricing pressure have presented additional challenges for Toujeo in the US.

  • Soliqua (fixed-ratio insulin glargine/lixisenatide) showed very strong growth (+240% YOY and +89% sequentially) from a very low base in 2Q18, climbing to $20 million in its sixth quarter on the market. Notably, we didn’t hear much confirmation from Sanofi management that they were actively working on awareness with HCPs or on reimbursement but we do belive the company will continue to invest in Soliqua’s commercialization - it’s a product that could help so many people with diabetes and on a brief mention, management did brighten when referencing it.

  • On the pipeline front, Sanofi added an 11th trial to the phase 3 program for sotagliflozin in type 2 diabetes: SOLOIST-WHF, a 4,000-participant outcomes trial in patients with worsening heart failure. This joins the SCORED CVOT (n=10,500) as the second outcomes trial for sotagliflozin in type 2. We hope that type 1 patients will also be considered. Notably, Sanofi has a new head of R&D, Dr. John Reed, formerly of Roche – he was very impressive on the call. 

    Sanofi reported 2Q18 financial results this morning in a call led by CEO Mr. Olivier Brandicourt. See the company’s press release, presentation slides, and clinical trials appendix, and listen to a webcast of the call here. This report includes our top eight financial and pipeline highlights from the presentation and concludes with a recap of relevant Q&A from the call.  

    2Q18 Financial Results for Sanofi’s Major Diabetes Products

     

    2Q18 Revenue (millions)

    YOY Growth (reported / CER)

    Sequential Growth (reported)

    Total Diabetes

    €1,366 / $1,595

    -17% / -12%

    3%

    Lantus

    €891 / $1,041

    -26% / -21%

    -2%

    Amaryl

    €87 / $102

    +2% / +10%

    +5%

    Apidra

    €92 / $107

    -1% / +5%

    +1%

    Insuman

    €23 / $27

    -18% / -17%

    -4%

    Adlyxin

    €6 / $7

    -14% / -14%

    +20%

    Toujeo

    €217 / $253

    +3% / +8%

    +10%

    Soliqua

    €17 / $20

    +240% / +260%

    +89%

    Other*

    €33 / $41

    --

    --

    Praluent (not included in Total Diabetes)

    €62 / $72

    +48% / +55%

    +27%

    *Sanofi ceased reporting BGM revenue in 2Q18; this line is assumed to include both BGM and Admelog revenue.

    Financial Highlights

    1. Diabetes Portfolio Falls 17% YOY to $1.6 Billion, Driven by US Lantus Decline; Levels Out with +3% Sequential Growth

    Sanofi’s overall diabetes portfolio fell 17% YOY as reported (-12% operationally) to €1.4 billion ($1.6 billion) from €1.6 billion ($1.8 billion) in 2Q17. Sequentially, diabetes revenue rose 3% against an easy comparison, a 13% QOQ drop in 1Q18, when the portfolio totaled €1.3 billion ($1.6 billion). Management highlighted strong diabetes growth in emerging markets (+12% YOY in constant currencies to €401 million/$468 million), which combined with stable sales in Europe (flat YOY at €325 million/$380 million) helped offset a 30% YOY decline in US diabetes revenue to €525 million ($613 million). According to Sanofi, OUS sales (+6% YOY) now comprise 62% of its diabetes franchise. Management emphasized that the drop in total diabetes revenue is in-line with the company’s guidance for 2015-2018 – that is, while 2Q18 was weak, it was expectedly so. Sanofi’s 2015-2018 financial guidance stipulated a 6%-8% annual loss in diabetes over these years; the portfolio climbed 4% in 2015, fell 3% in 2016, and then fell 11% in 2017 overall. In 1Q18, when the portfolio fell 20% YOY, Sanofi projected another 9% YOY decline in the full year 2018, but we’ll have to wait and see how these changes annualize. CEO Mr. Olivier Brandicourt continued to highlight in this most recent call that, as Lantus comprises an increasingly smaller proportion of Sanofi Diabetes (now just <30%), the impact of its losses will lessen. That said, in light of the rest of the portfolio’s weak 2Q18 performance, we’re not forecasting that the company will recoup all of Lantus’ losses – the patent expiry was a major hit and it came at a challenging time outside this loss (pricing pressure, challenges with diabetes reimbursement generally, etc.). Sanofi’s real growth prospects lie in Toujeo, Soliqua, and Admelog, in our view: that said, Toujeo posted disappointing 3% YOY growth in 2Q18, with a discouraging US performance (-30% YOY) and we’d say there is much greater potential here to be realized as the product is so highly considered by many. Soliqua did have strong YOY growth at 240% though from a high base – quarterly sales reached $20 million. Biosimilar mealtime insulin Admelog will eventually help, but it’ll likely be a few quarters before those revenues start to add up; sales weren’t broken out for 2Q18 and the field is moving more toward GLP-1 and SGLTs rather than mealtime insulin. SGLT-1/2 dual inhibitor sotagliflozin will eventually offer another new revenue stream but will enter the market for type 1 diabetes mid-2019 at the earliest, pending an approval in the first half of 2019. If all of these pieces start working better, Sanofi could see some meaningful growth in its diabetes business over the next few years, but we expect it’ll take a much bigger change in terms of reimbursement and awareness efforts among providers; too, there will be some luck involved on the SGLT 1 / 2 front. We have no question that this compound will be approved but when is still a question and investment in the franchise that isn’t offset by revenue will be required near-term.  

    • We note that Sanofi’s gross profit margin is still quite high, now at >71%. During prepared remarks, management referenced improvements in product mix (likely greater utilization in commercial channels) and "relativity improvements." This is still below Lilly’s gross margin of 76% and AZ’s of 80% for 2Q18; Novo Nordisk’s (yet to report) was an even higher 84% in 1Q18 (that was what led to a higher net margin for them). Importantly, we don’t have any diabetes-specific information on net profitability for Sanofi; while some concede that drug manufacturers are not solely or even primarily responsible for soaring “net” drug costs, they do maintain a sizable profit margin of ~25%. Our guess is that this varies wildly among programs although Novo Nordisk’s is very high in diabetes; in our view, all stakeholders, including pharma, could be doing more to invest in affordability programs and in changing dynamics on the individualized diabetes management front. We also acknowledge that the current players could easily leave diabetes just as others have done including Amgen, BMS, Genentech, Gilead, Novartis, and others – this has also not helped the industry overall in our view so we’d prefer that the community remain constructive.

    Sanofi Diabetes Portfolio Sales (1Q05-2Q18)

    2. Lantus Sales Fall Another 26% YOY to $1 Billion, Driven by US Losses; Formulary Exclusions & Biosimilar Competition Pose Strong Headwinds

    Lantus sales continued to steadily decline, falling 26% YOY as reported (-21% operationally) to €891 million ($1.0 billion) from a base of €1.2 billion ($1.3 billion) in 2Q17. This also represents a 2% sequential decline from €911 million ($1.1 billion) in 1Q18. On this trajectory, Sanofi’s flagship product is set to fall below $1 billion in quarterly revenue for the first time since 1Q09 (nearly a decade ago!). Of course, this drop in revenue is in no way surprising, as Lantus faces biosimilar competition, US pricing pressure, and exclusions from multiple formularies, including CVS Health, UnitedHealthcare, and Medicare Part D, in favor of Lilly/BI’s biosimilar Basaglar. Management mentioned all of these headwinds in Sanofi’s 2Q18 update. Notably, most of these factors apply exclusively to the US, where Lantus’ commercial performance is particularly sluggish. While sales are certainly falling from a higher base stateside, revenue has held much steadier OUS. US Lantus revenue fell 39% YOY as reported (-34% operationally) to €403 million ($470 million) in 2Q18, down from €660 million ($726 million) in 2Q17; these sales fell 2% sequentially from €413 million ($509 million) in 1Q18. Sanofi cited Part D losses (specifically naming a loss of five million lives) and lower net price as the primary drivers of this dynamic. By comparison, OUS sales fell only 9% YOY to €488 million ($570 million) from €537 million ($591 million) in 2Q17; this revenue dropped 2% sequentially from €498 million ($614 million) in 1Q18. In explaining OUS performance, management mentioned switching to Toujeo (Sanofi’s next-gen basal insulin offering) and Basaglar as the main cause of reduced revenue. Indeed, Sanofi actually references losses from “US Lantus” rather than “Lantus” as a whole in its slides. Interestingly, sales in emerging markets rose 1% YOY operationally to €244 million ($285 million). Throughout 2Q18 earnings season so far, we’ve noticed that older products (e.g. DPP-4 inhibitors) are doing much better in emerging markets, and we might have even expected a stronger performance from Lantus in this geography. In our view, the fact that Lantus revenue only climbed 1% YOY in emerging markets speaks to how strongly the product is being squeezed in the insulin market. We also note that insulin use in emerging markets is far lower than in the EU and US.  

    • Management emphasized for the first time that the worst is behind them when it comes to the Lantus business. US Lantus sales now comprise only 30% of global diabetes revenue, so the negative impact of this flagship product on the overall portfolio is starting to diminish. YOY losses have not slowed in 2Q18, but sequential performance has improved. Moreover, we see potential for Admelog, Toujeo, and Soliqua to contribute their own growth to Sanofi Diabetes.

    Lantus Sales (1Q05-2Q18)

    • Management was fairly vague when questioned about looming biosimilar competition, pointing to OUS performance of Toujeo and the growth potential of Admelog and Soliqua. While we, too, are optimistic about these other products and future growth, the potential impact of having multiple biosimilars on the market is clearly going to be a factor in growth – far more people globally should, of course, be on insulin and we’ll see how this plays out. Sanofi has issued patent infringement lawsuits to delay two more biosimilar glargine market entries: (i) Merck’s Lusduna Nexvue (tentatively approved by FDA) and (ii) Mylan/Biocon’s candidate (Semglee outside the US, received a Complete Response Letter from FDA and resubmission is planned for 2019). Neither product can launch in the US prior to lawsuit resolution; Lilly/BI’s Basaglar faced a similar lawsuit and did not become available for ~30 months following initiation of Sanofi’s patent disputes. We note that, in Sanofi’s bringing Admelog to market, Lilly chose not to file a patent infringement lawsuit against the company. Having two or more effective “generics” in the basal insulin category should drive down prices and patients’ out-of-pocket costs (as we understand it, two or more generics are often needed to meaningful decrease what patients are paying). Clearly, insulin affordability is a pressing issue in US healthcare, as we expect it to be a lightning rod on the electron front - we’re excited about the promise of more accessible basal analogs for a wider range of patients and particularly for them to get Lantus. FDA just scheduled a public hearing on biosimilars for September 9 this year, and we look forward to hearing about plans to (i) increase efficiency of the biosimilar development/approval process and to (ii) support market competition by reducing unfair gaming of FDA requirements; both of these items are primary goals of the FDA’s recently released 11-part biosimilar action plan.

    3. Toujeo Grows 3% YOY to $253 Million; OUS Sales (+49% YOY, $153 Million) Continue to Buoy US Losses (-30% YOY, $100 Million) in Medicare Part D, Net Price

    Sales of Sanofi’s next-gen basal insulin Toujeo rose a disappointing 3% YOY as reported (+8% operationally) to €217 million ($253 million) from €210 million ($231 million) in 2Q17. Sequentially, Toujeo sales grew 10% against an easy comparison of 9% QOQ decline to €197 million ($243 million) in 1Q18. This modest growth is not what we’d hope to see from an advanced basal insulin, one that offers meaningful benefits over first-generation basal insulin analogs (less hypoglycemia risk, flatter PK/PD profile, etc.) and we believe this is partly as a result of continued pressure from managed care on the reimbursement front – we also see this as an awareness problem and a problem associated with time-pressured HCPs. Of note, sales are trending oppositely in the US vs. OUS. In 2Q18, US sales of Toujeo dipped 30% YOY as reported (-23% operationally) and climbed 1% sequentially, clocking in at €86 million ($100 million). This is a disappointing performance stateside: A 30% YOY decline in the US is a bit worse than Lantus’ 26% YOY drop worldwide, suggesting that Sanofi has been unable to combat pricing pressure in the US basal insulin market, which is unsurprising for an insulin whose patent has just expired. Both Lilly/BI’s Basaglar (biosimilar glargine) and Novo Nordisk’s Tresiba (insulin degludec) are preferred over Toujeo and Lantus on Medicare Part D for 2018, which is clearly suppressing Sanofi’s insulin glargine franchise overall. This storm of headwinds in the US is balanced by a bit stronger Toujeo performance OUS, particularly in Europe and emerging markets though in many geographies where the growth is higher, this is from a lower base. Overall OUS sales rose an impressive 49% YOY as reported to €131 million ($153 million) from €88 million ($97 million) in 2Q17, also climbing 17% sequentially from €112 million ($138 million) in 1Q18. In Europe, 2Q18 Toujeo sales totaled €75 million ($88 million), rising just under 40% YOY operationally; product revenue from emerging markets totaled €37 million ($42 million), jumping 75% YOY operationally (striking, though we note the smaller base). Toujeo only came up once during Sanofi’s call, when management responded to a question about basal insulin competition by reinforcing a company commitment to Toujeo and focusing on the product’s performance in Europe and emerging markets. As for the disappointing US performance, we see this as a symptom of a larger, systemic problem with drug pricing in the US, both weighing down commercial performance across diabetes therapies and hindering patients from getting on the best therapy for them. We see tons of room for Toujeo and Novo Nordisk’s Tresiba (the two next-gen basals) to keep growing or return to growth and to make it into far more patient hands. We look forward to volume details from Novo Nordisk’s 2Q18 update on August 8.

    Toujeo Sales (1Q15-2Q18)

    • There was no spoken mention of positive hypoglycemia results from BRIGHT (presented at ADA), though these were noted in Sanofi’s press release. Given the recent label update for Novo Nordisk’s Tresiba to include hypoglycemia data vs. Lantus from the DEVOTE CVOT, we might expect Sanofi to place more explicit emphasis on Toujeo’s own demonstrated hypoglycemia benefit. An ADA poster on BRIGHT showed that Toujeo offered less hypoglycemia risk vs. Tresiba during the study’s titration period (first 12 weeks); while there was no difference overall in the 24-week study period and the p-values for superiority in the titration phase were not as robust as they might have been, Toujeo was certainly non-inferior to Tresiba. We have asked management for what Sanofi intends to do with these data and we look forward to learning more. All in all, we think the hypoglycemia benefit both next-gen basal insulins offer over first-generation basal insulin analogs is abundantly clear. We would love to see payers take this into greater consideration (neither Toujeo nor Tresiba should be restricted on a formulary, for example), and for Sanofi and Novo Nordisk to continue HCP-targetted education to raise awareness of these hypoglycemia benefits.

    4. Soliqua >Triples YOY and Grows 89% Sequentially to $20 Million: Strong Growth from a Very Low Base in Sixth Quarter on the Market

    Sales of fixed-ratio combination Soliqua (basal insulin glargine/GLP-1 agonist lixisenatide) more than tripled YOY (+240% as reported, +260% operationally) to €17 million ($20 million), from a low base of €5 million ($6 million) in 2Q17. Soliqua revenue rose an impressive 89% sequentially from €9 million ($11 million) in 1Q18, and we think this comparison is more telling, since this product is still relatively early in its launch cycle and had especially poor reimbursement in 2017. With these numbers, Soliqua posted the strongest performance in Sanofi’s overall diabetes portfolio, though as noted this growth also came from the lowest base. Our enthusiasm for this performance remains very high; we have also realized the system challenges are much larger than we initially realized (combo therapy is far less common than we realized). The product experienced 0% sequential growth in 1Q18, only its fifth quarter on the market (launched to US pharmacies in January 2017, followed by a limited European launch). Moreover, 2Q18 saw the highest-ever sequential growth rate for Soliqua, which showed smaller QOQ growth margins of +25%, +60%, and +13% in 2Q17, 3Q17, and 4Q17, respectively. The majority of Soliqua sales in 2Q18 once again came from the US – €14 million ($16 million) – with €2 million ($2 million) coming from Europe and €1 million ($1.2 million) coming from emerging markets.

    • We’re still disappointed by low real-world uptake of Soliqua, and it’s difficult to fully enumerate the barriers that fixed-ratio combinations have faced. CEO Mr. Olivier Brandicourt acknowledged at JPM that launch has progressed more slowly than expected and this seems to have continued. We have learned more about the environment and specifically that fixed-ratio combinations don’t have an established place in treatment algorithms or everyday clinical practice – this is an even bigger negative than we had realized. Recently, Newcastle’s Professor Philip Home explained to us that prescribers continue to view GLP-1 agonists as a “pre-insulin” therapy, making fixed combination of the two seemingly illogical; the set combinations are rigid in terms of which therapies are combined and what ratio they’re titrated in (i.e. HCPs couldn’t combine Lantus with Victoza, and they may want to, since these are leading products in each monotherapy class). What’s more, the US labels for both Soliqua and Novo Nordisk’s Xultophy (insulin degludec/liraglutide) require patients to already be on basal insulin or the specific GLP-1 included in the combo before starting the fixed-ratio injection, which severely limits the eligible patient population. At ADA 2018, Tulane’s Dr. Vivian Fonseca advocated that FDA change these labels, elevating fixed-ratio combination products to a first injectable therapy in diabetes care. Given the extremely low use of standalone GLP-1 agonist lixisenatide (see below), it’s not surprising how few patients have started Soliqua (we suspect most patients come from Lantus). Exact prescription volume hasn’t been disclosed for Soliqua or for Xultophy – we’d love to know. Going forward, we hope for Sanofi to place an even greater emphasis on Soliqua, and we can’t wait for expanded European launch. Novo Nordisk has demonstrated with Xultophy that this class can be successful, particularly in Europe (we note that product labels are far less restrictive there). Both these products offer a remarkable clinical profile, including glucose-lowering on par with basal-bolus therapy but with a milder side-effect profile (less hypoglycemia, less weight gain or even weight loss, less GI discomfort) and greater patient convenience/lower injection burden. Of all therapy classes, we want to see more patients on this one.

    • Sales of standalone GLP-1 Adlyxin (lixisenatide) dropped 14% YOY as reported and operationally but rose 20% sequentially to €6 million ($7 million). This is par for the course for Adlyxin, which has never collected more than $12 million in a quarter and has never been a significant player for Sanofi Diabetes or the GLP-1 agonist market. Sanofi has virtually disregarded this product in favor of Soliqua and phase 3 once-weekly GLP-1 agonist efpeglenatide. In fact, we believe the plan for lixisenatide was always to make it more commercially successful as a fixed-ratio combination rather than a GLP-1 agonist of its own (in other words, we’re by no means surprised by the lack of emphasis on Adlyxin).

    5. Little Mention of Admelog (Biosimilar Insulin Lispro) After First Quarter on US Market; Estimated ~$18 Million Sales

    Sales of Admelog, the first-to-market biosimilar mealtime insulin (biosimilar lispro, based on Lilly’s Humalog), were not broken out for 2Q18. However, based on the €33 million discrepancy in total and broken out diabetes sales, plus typical BGM sales of ~€15 million per quarter, we estimate 2Q18 Admelog revenue very roughly at ~€15 million ($18 million). This is highly speculative, and we have asked Sanofi for a more precise number. Admelog was noticeably absent from Sanofi’s press release and presentation, but we see this mainly as a reflection of the product’s ongoing launch. Following December 2017 FDA approval, Sanofi launched Admelog to US pharmacies in 2Q18, in tandem with the Insulin VALyou Savings Program, which caps out-of-pocket expenses at $99/vial or $149/pen pack. EMA approval came in July 2017, and Insulin lispro Sanofi (the product’s EU name) has been available in Europe for some time (though we’re not sure in which countries, specifically). Management has been very clear that Admelog is not expected to be a real source of revenue for the company’s diabetes portfolio until 2019, after Sanofi has a chance to build reimbursement for the product; indeed, Admelog only came up on today’s call when management emphasized during Q&A that they’re still waiting to see the “full benefit” of the new biosimilar. Of note, during Sanofi’s 1Q18 update, EVP of Diabetes & Cardiovascular Mr. Stefan Oelrich expressed excitement about the early interest Medicaid has demonstrated in Admelog (resulting in the first coverage agreements for the product). Mr. Oelrich outlined that Medicaid reimbursement for Admelog is the priority for 2018, commercial plans in 2019, and Medicare in 2020.

    • We would tentatively expect that Sanofi will have a good amount of success in securing formulary positioning for Admelog: In 2017, Basaglar (Lilly/BI’s first-to-market biosimilar basal insulin) was preferred over standard of care Lantus on the CVS Health and UnitedHealthcare formularies; Medicare Part D joined this list of preferring Basaglar over Lantus in 2018. Biosimilars promise cost-savings for payers and patients alike. While we’ve heard that Basaglar hasn’t been priced quite as low as some expected, we do know its lower list price has helped the product gain quality access; the same principles could aid Admelog uptake. At our local Walgreens, a box of five Humalog pens is listed at $708.29 while an equivalent box of Admelog pens is $544.79; however, when we checked at a local CVS, the prices were nearly equivalent, at ~$540 each. This reflects the important caveat that list prices vary between pharmacies, and, of course, list price only means so much before reimbursement and other patient discounts are applied. It remains to be seen how the rapid-acting insulin market’s pricing pressure (to our understanding, the most intense pricing pressure in diabetes) will affect Admelog’s price and affordability, but we’re hopeful that the biosimilar will end up being a more affordable mealtime insulin option for many patients and a boon for Sanofi’s struggling diabetes franchise. We do point out that GLP-1 and SGLTs are also slowing growth in this traditionally strong category.

    6. Praluent Climbs 48% YOY to $72 Million, Claims 33% of $220 Million PCSK9 Market in 2Q18; Optimism on Access/Price Trade-Off in Face of Continued Reimbursement Headwinds in US

    In 2Q18, sales of Regeneron-partnered PCSK9 inhibitor Praluent climbed 48% YOY as reported (+55% operationally) to €62 million ($72 million) from €42 million ($46 million) in 2Q17, also rising 27% sequentially from €49 million ($60 million) in 1Q18. Growth was particularly strong in Europe, where sales exactly doubled YOY as reported and operationally, from €11 million ($12 million) in 2Q17 to €22 million ($26 million) in 2Q18; sequentially, European revenue climbed 16%, building on strong 27% QOQ growth in 1Q18. Praluent sales grew a milder 20% YOY as reported (+28% operationally) in the US, rising to €35 million ($41 million) in 2Q18 from €29 million ($32 million) in 2Q17; US revenue also rebounded from a 26% sequential drop in 1Q18 with 35% QOQ growth in 2Q18. Sales in emerging markets and the rest of the world remain nominal, at €2 million ($2 million) and €3 million ($4 million) for 2Q18, respectively. We’re still underwhelmed by Praluent’s commercial performance, in light of the remarkable LDL-lowering efficacy it offers and proof of CV benefit from the ODYSSEY Outcomes CVOT. These sales trends indicate that poor US reimbursement continues to hold Praluent back significantly. Indeed, US sales continue to comprise a smaller and smaller portion of global Praluent revenue: In 2Q17, the US accounted for 69% of total Praluent sales, and that has fallen to 56% over the past year. These commercial challenges are not unique to Praluent (alirocumab), but rather affect the PCSK9 inhibitor class as a whole, which also includes Amgen’s Repatha (evolocumab).

    • On a pooled basis, PCSK9 inhibitor sales summed to $220 million in 2Q18, rising 71% YOY from $129 million in 2Q17. Sequentially, the PCSK9 market grew 21% from $182 million in 1Q18. Praluent’s share of the market by value has declined over the past year, from 36% in 2Q17 to 33% in 2Q18, with Amgen’s Repatha claiming the other 67%; that said, this breakdown of pooled sales is the same as it was in 1Q18. From our perspective, it does seem like Repatha has seen relatively more success, climbing 78% YOY to $148 million in 2Q18, but Amgen is also facing the same obstacles of pricing pressure and a tough reimbursement landscape; higher rebates on Repatha went into effect on July 1. We see serious headroom both in the US and abroad for PCSK9 inhibitors (considering how few people – with diabetes and without – are reaching their LDL goals), and we expect continued growth as Sanofi/Regeneron and Amgen figure out the best setup for pricing and reimbursement. We’d love to see the companies work together on securing payer coverage, and on spreading awareness of CV benefit with these therapies, to the extent that this is allowed.

    • As expected, discussion of Praluent on today’s call focused on pricing and access; Sanofi management emphasized that they’re in active discussions with a number of payers to simplify utilization management criteria and expand access in exchange for a lower price. In May, Sanofi inked the first of these deals with Express Scripts. While management doesn’t expect success in all plans, they have “improved” utilization management criteria for ~30% of covered commercial lives, according to comments shared today – quite impressive, in our view, though we’ll wait to see how this impacts volume. As Mr. Olerich outlined during Q&A, Sanofi expects to see a prompt increase in total prescriptions for Praluent, but it will take time for that to translate to significant revenue gains given the price concessions the company is offering. We appreciate that Sanofi is willing to take price cuts in the short term to improve Praluent access (we certainly expect that this is intended to be, long-term, a more profitable strategy). However, PCSK9s have become a case study in the issue of cost-effectiveness, inasmuch as there is controversy about demonstrating value, and our observation is that providers remain a bit uncertain about when they should prescribe these costly medications. This signals to us that there’s a need for stronger HCP education on lipid-lowering and CV risk management as well – there are also as we understand it issues related to whether or not patients who want Praluent really “need” it (we imagine this is quite complicated for patients).

    • In 2Q18, Sanofi/Regeneron submitted an sBLA to FDA and EMA requesting Praluent’s CV indication, based on positive ODYSSEY Outcomes results. This filing came on time with what Sanofi has shared previously (during the company’s 1Q18 update, management moved up the timeline for submission from 3Q18 to 2Q18). Depending on whether the sBLA receives priority review, a decision is broadly expected sometime from 4Q18 to 2Q19. A CV indication would be a significant win, hopefully improving Praluent access and volume. For comparison, after Amgen’s Repatha received a CV indication in December 2017, the utilization management criteria under CVS Health dropped from 45 to 33 questions, and that product has also seen relatively greater commercial success, at least partly on the strength of this indication. During Sanofi’s 1Q18 update, Mr. Oelrich shared that 65%-75% prior authorizations for Praluent are still rejected upfront by payers, so there’s certainly room for improvement across the board on multiple components of access.

    Pipeline Highlights

    7. New Outcomes Trial, SOLOIST-WHF, to Investigate Sotagliflozin in T2D + Worsening Heart Failure; Joins SCORED CVOT as Second Outcomes Trial for SGLT-1/2 Dual Inhibitor

    While 2Q18 featured little movement in Sanofi’s diabetes pipeline overall, we were intrigued to see a new phase 3 outcomes study for sotagliflozin posted to ClinicalTrials.gov. SOLOIST-WHF (n=4,000) will investigate the SGLT-1/2 dual inhibitor in patients with type 2 diabetes and worsening heart failure. The study is expected to complete in January 2021. Accompanying SOLOIST-WHF is a smaller phase 2 PD/safety study of sotagliflozin (n=81) in patients hospitalized with worsening heart failure, set to complete in November 2019. Neither Sanofi nor partner Lexicon commented on the addition of this trial in 2Q18 updates, though it was mentioned in Sanofi’s presentation appendix (slide 37). Another outcomes trial, in addition to the 10,500-person SCORED CVOT, is a big financial commitment on top of the already-robust >15,000 patient phase 3 program for sotagliflozin in type 2 diabetes. This reinforces Sanofi’s commitment to the candidate. Based on Lexicon’s 2Q18 update, it’s clear that the companies are working to differentiate sotagliflozin within the SGLT-2 inhibitor class. Lexicon management spoke to sotagliflozin’s potential in people with DKD, because the molecule could be renal protective and maintain its glucose-lowering efficacy at a lower eGFR (as opposed to SGLT-2 inhibitors, which also seem to confer renal benefit but show attenuated glycemic efficacy with falling eGFR). To this end, the SCORED CVOT is enrolling patients with ~stage 3 CKD (eGFR ≥25 and ≤60 ml/min/1.73 m2). Demonstrating heart failure benefit could also be key for sotagliflozin’s future commercial success on the market for type 2 diabetes. SOLOIST-WHF joins Dapa-HF (for AZ’s Farxiga) and the EMPEROR HF-Preserved and EMPEROR HF-Reduced (for Lilly/BI’s Jardiance) trials as a fourth outcomes trial in heart failure for SGLTs, but our sense is that Sanofi is targeting a slightly different population than those investigations. SOLOIST-WHF will enroll patients with type 2 diabetes who also have prior heart failure and who recently experienced worsening heart failure – this sounds like a more urgent, “more sick” patient population compared to those recruited for Dapa-CKD and EMPEROR, though we’re not experts on these intricacies. Filing sotagliflozin for a heart failure indication, pending positive results, is slated for 2021. We’re excited to have another robust study of SGLTs in heart failure, as this complication and especially HFpEF (heart failure with preserved ejection fraction) is highly morbid and strongly associated with type 2 diabetes/obesity. SCORED and SOLOIST both have secondary renal endpoints, but we don’t believe they would support an indication for preservation of renal function. That said, this is an interesting nuance in Sanofi/Lexicon’s strategy: Pursuing an indication for use in patients with moderate to severe renal impairment is different from an indication to preserve renal function. Ideally, sotagliflozin would have both, but the companies’ strategy so far is to target the former.

    • As a reminder, sotagliflozin (intended brand name Zynquista) has been submitted to and accepted for review by FDA and EMA for adults with type 1 diabetes. A decision from FDA is anticipated in 1Q19 (PDUFA data March 22, 2019), and a CHMP opinion from the EU is expected in the same quarter. Sanofi/Lexicon are preparing for an Ad Comm in the early 2019 timeframe. Sanofi will lead the filing for type 2 diabetes, and the company is aiming for an EMA submission in 2H19 and an FDA submission in early 2020. Get more on sotagliflozin in our Lexicon 2Q18 report.

    Phase 3 Program for Sotagliflozin in Type 2 Diabetes

    Trial

    Estimated Enrollment

    Comparator/Design

    Estimated Completion

    Sotagliflozin as monotherapy

    400

    Placebo

    January 2019

    Sotagliflozin as add-on to metformin

    500

    Placebo, metformin alone

    March 2019

    Sotagliflozin as add-on to a sulfonylurea

    500

    Placebo, metformin alone, SU alone

    May 2019

    SOTA-INS (add-on to insulin)

    560

    Insulin glargine (Sanofi’s Lantus)

    May 2019

    SOTA-CKD3 (in patients with moderate renal dysfunction)

    780

    Placebo

    September 2019

    SOTA-CKD4 (in patients with severe renal dysfunction)

    276

    Placebo

    September 2019

    SOTA-GLIM (head-to-head vs. SU)

    930

    Glimepiride

    May 2019

    SOTA-EMPA (head-to-head vs. empagliflozin)

    700

    Empagliflozin (Lilly/BI’s Jardiance)

    May 2019

    SCORED

    10,500

    CVOT vs. placebo

    March 2022

    SOLOIST-WHF

    4,000

    HF outcomes trial vs. placebo

    January 2021

    8. Dr. John Reed Takes the Helm as Sanofi’s Global Head of R&D After Five Years at Roche

    On July 1, Dr. John Reed officially joined Sanofi as the company’s new Global Head of R&D, following the retirement of Dr. Elias Zerhouni. Dr. Reed comes from Roche, where he was Global Head of Pharma Research & Early Development for five years after being recruited from his role leading the Sanford-Burnham Medical Research Institute in La Jolla, CA. On today’s call, Sanofi management seemed quite proud to be bringing in Dr. Reed, and we certainly share in that enthusiasm. When asked by CEO Mr. Olivier Brandicourt what he would want to change about Sanofi R&D, Dr. Reed mentioned shifting the program further toward differentiated, best-in-class candidates and addressing unmet needs. He praised the work Sanofi has done in R&D setup and antibody platforms, pointing to the January 2018 acquisitions of Bioverativ and Ablynx. He also reinforced Sanofi’s recent movement toward internal candidate development and shared his hopes to improve on this front (~50% of early-stage molecules are original Sanofi creations right now). We were interested to hear Dr. Reed highlight the breadth of therapeutic modalities (10 of them) housed in Sanofi’s pipeline, from small molecules to gene therapies. Only time will tell if Dr. Reed can help return Sanofi’s overall portfolio, and especially diabetes, to meaningful growth, and we’re encouraged by the optimism and energy he expressed to this end.

    The table below reflects the latest updates, as far as we are aware, on Sanofi’s diabetes/obesity pipeline products. Items highlighted in yellow indicate notable changes to the pipeline in 2Q18.

    Candidate

    Phase

    Timeline/Notes

    Sotagliflozin (SGLT-1/2 dual inhibitor)

    Phase 3

    Submitted to FDA and EMA for type 1 diabetes, decisions expected 1Q19; Positive phase 3 results in type 1 (led by Lexicon) presented at ADA and EASD 2017; Phase 3 program in type 2 underway, readouts/FDA filing expected 2019; New heart failure trial announced 2Q18

    SAR341402 (rapid-acting insulin)

    Phase 3

    GEMELLI 1 (open-label vs. Novo Nordisk’s NovoLog) expected to complete January 2019; Type 1 pump study to complete October 2018; FDA submission slated for 2019; Added to pipeline in 4Q16

    Efpeglenatide (once-weekly GLP-1 agonist)

     

    Phase 3

    Phase 3 trial initiated in 4Q17 (delayed from 4Q16) and expected to complete February 2020; CVOT to complete April 2021; Filing anticipated 2021; Licensed from Hanmi

    SAR425899 (GLP-1/glucagon dual agonist)

    Phase 2

    Phase 3 trials in obesity scheduled to begin 2H18 (but newfound tolerability issues could cause delays); Phase 2 proof-of-concept in NASH scheduled for 2018 study start; Phase 2 in type 2 diabetes completed December 2017; Filing anticipated in 2022+; Promising phase 1 results presented at ADA 2016

    SAR438335 (GLP-1/GIP dual agonist)

    Phase 1

    Added to pipeline in 3Q15

    GLP-1/GIP/glucagon tri-agonist

    Preclinical

    Mentioned during Q&A on 1Q18 call; Supposedly “entering clinical development right now”

    Once-weekly LAPSInsulin-115/efpeglenatide combination

    Preclinical

    Acquired from Hanmi in November 2015; Hanmi is leading early development efforts and Sanofi will revisit this candidate in ~2019 or later

    Select Questions and Answers

    Q: What are your thoughts on the HHS blueprint on drug pricing?

    Mr. Olivier Brandicourt (CEO): We have engaged with a large range of stakeholders from across the health care system, including members of Congress, state legislators, patient organizations and of course the Administration. Our answers to the request for information were all about trying to incentivize or recommend putting policies in place that could improve access and affordability for patients. In the long-term, we are advocating for a system where a large part of the $150 billion this industry is giving through rebates between the list and net prices – a large part of that should go to the patient in the end.

    We are very much in favor of creating incentives for lower list prices, reduced patient out-of-pocket costs, and policies with limited price increases that will ultimately benefit the patient at the end of the chain.

    We've been the first company to tie the price increase of our medicine to what we believe to be a meaningful benchmark – national health expenditure – which is calculated by the HHS. As a result, we had no increase in 2017 on 56 of our 85 prescription medicines. Overall, we had a price increase of less than 2% and a net price decrease of around 8%. I think that is significantly different from what we have seen from our competitors, and we have committed to not increase prices for the rest of 2018.

    Q: Are Sanofi’s changes to drug pricing strategy driven internally or is it an effect of the external market and loss of pricing power within the drug industry?

    Mr. Brandicourt: With increasing gross-to-net tendency of the last years, the benefit we are receiving from net price increases has diminished tremendously, and payers have put restrictions on some of those price increases in their contracts. I think the environment and the power shifting to payers in the US marketplace needed a transformation and a change in policy at the company level, and it's exactly what we did ahead of everybody else. And I think it has remained a good policy in the sense that we said we wanted to justify our prices at launch. Even before talking about price increases, we said we would work as much as we can in the US with the HTA, hence what we did with ICER when it comes to Praluent and Dupixent, which I think has been well received by payers and patients. And so overall, I think that was a good move. It doesn't mean that our prices are going to be set by ICER each time we are launching a product, but I thought it was an important move. We don't want to be ashamed of our prices at launch anywhere in the world. That's very important to us.

    And second of all, taking into account what was happening in terms of gross to net payer, we felt that price increases needed to be at the level maximum of the medical inflation, which has been determined in 2017 at 5.8% or 6%. This year it's 5.8%, and we've been very careful not automatically going up to the 5.8%. We have been very, very careful in increasing only a very small fraction of our products in the last two years.

    To repeat, we are advocating that companies trying to limit their price increases on the listing price should, along with their patients, get the benefit of that good policy and behavior, and that has not automatically been the case in the past. But I think it's changing very quickly as we speak. As you have seen, the administration now is very serious with the blueprint to try to find a different system in the US.

    Q: On Praluent, could you elaborate on prescriptions with payers and doctors in the Europe and in the US? When do you believe that we should see an inflection point in the prescriptions and sales – after the ODYSSEY label update?

    Mr. Stefan Oelrich (EVP Diabetes & CV): So far, as you know, we are still waiting for the label update. We've submitted for approval the outcomes data from ODYSSEY and we should, depending on whether we get priority review or not, have it either towards the end of the year or on the first quarter of next year. In terms of our commercial strategy, despite not having the update yet, we're making good progress talking to payers and providers not only about the benefits of our medicine but also of relieving utilization management criteria with payers, especially in the United States. We've had some good progress on UM criteria. We're approximately at this point at about 30% of total U.S. commercial lives for the current year, which should translate into approximately, at this point, 45% of what we would have as commercial sales in the U.S. We're still ongoing in our negotiations with payers, so we'll give you a more complete update on that in the third quarter. And as it comes to an inflection point in our sales, of course, this will have some level of impact, but be reminded that the utilization management relief also comes with some potential price concessions. So we will see an inflection most likely on the volumes. This may not be followed as quickly on the value side.

    Q: Next year, do you believe that there will be the same magnitude of headwind, albeit from a slightly lower base, for Lantus and possibly Toujeo given that there may well be some more generic competition coming in?

    Mr. Brandicourt: Diabetes becomes very different looking forward in the sense that the dynamics of that franchise now differ very much by region, and you have emerging countries starting to play a very significant role. We have achieved double digit growth in emerging markets – more specifically in China. We have stabilized our business in Europe, but of course this is still not sufficient to offset the 30% decline in the U.S. sales, which has been a continuation of what we have said during the first quarter, due to a combination of pricing pressure and the loss of the 5 million lives in the Medicare Part D business. However, the non-U.S. sales were up altogether by 6% and they are now representing 62% of that franchise. I think that's an important number to keep in mind. On the other side of that equation, our U.S. sales now represent about 30% of our global diabetes franchise. This is much less than the 50% it was in the same quarter in 2016, which was much larger. So, you can see why we expect these headwinds to diminish quite significantly in the coming quarters. Over time, the balance between these factors should result in a reduction of the rate of decline. Now, I can't tell you exactly what's happening next year. You mentioned the further biosimilar competition, which is one dimension. But on the positive end, Toujeo is doing very well in Europe and emerging markets. We see an upswing with Soliqua, and we still need to get the full benefit of Admelog. So, there are a lot of moving pieces in the diabetes franchise, but we remain optimistic that the U.S. decline will definitely become a much lesser factor.

     

    -- by Ann Carracher, Martin Kurian, Peter Rentzepis, Payal Marathe, and Kelly Close