Memorandum

Lilly 1Q17 – Diabetes portfolio up 30% YOY to $1.7 billion; Trulicity drives 54% of growth with sales more than doubling YOY to $373 million; Jardiance nearly doubled YOY to $74 million – April 26, 2017

Executive Highlights

  • Lilly’s overall diabetes portfolio grew 30% year-over-year (YOY) on a very easy comparison and fell 6% sequentially to $1.7 billion. As in recent quarters, GLP-1 agonist Trulicity was the primary growth driver, accounting for 54% of growth by our calculations. Rapid-acting insulin Humalog was responsible for 24% of growth (benefiting from a very easy comparison), while biosimilar insulin glargine Basaglar and SGLT-2 inhibitor Jardiance were each responsible for 8% of growth. Tradjenta and glucagon rounded out growth with 4% and 1% share, respectively.
  • Once-weekly GLP-1 agonist Trulicity (dulaglutide) continued its strong performance, with revenue more than doubling YOY as reported to $373 million. This represents an 11% sequential increase from $337 million in 4Q16. Trulicity continues to make gains in terms of GLP-1 agonist market share and accounted for 22% of revenue and, as noted, an impressive 54% of Lilly’s overall portfolio growth in 1Q17.
  • Lilly’s share of revenue from the BI-partnered Jardiance franchise nearly doubled YOY to $74 million, and the overarching commentary from management was that the SGLT-2 inhibitor class is now returning to high growth margins (following underwhelming growth in the wake of EMPA-REG OUTCOME) since the FDA approval of a CV indication for Jardiance in December. We estimate total global sales of Jardiance at $224 million, though this is speculation since BI’s portion of revenue is not reported publically. We expect Jardiance to be a blockbuster in 2017.
  • Lilly’s flagship product Humalog (insulin lispro) brought in $708 million in revenue, up 17% YOY from $606 million in 1Q16, which had been a week result. This was driven by the drug’s performance in the US market – US sales increased 24% in 1Q17, on a very easy comparison to 1Q16. Competitive pricing in the US insulin market continues to have a major impact on Humalog’s performance.
  • On the pipeline front, notably, Lilly advanced a novel once-weekly basal insulin into phase 1 and discontinued an undisclosed phase 1 diabetes asset.

Lilly recently provided its 1Q17 earnings update in a call led by CEO Mr. Dave Ricks – see the company’s press releasewebcast replay, and presentation slides. Below we provide our commentary on the performance of Lilly’s diabetes products and the progress of its diabetes pipeline.

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

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

Product

1Q17 Revenue (millions)

Year-Over-Year Reported (Operational) Growth

Sequential Reported Growth

Humalog

$708

17% (9%)

-14%

Humulin

$315

-12% (-12%)

-12%

Tradjenta

$113

20% (20%)

7%

Jardiance/Glyxambi

$74

94% (94%)

-3%

Trulicity

$372

160%

11%

Basaglar/Abasaglar

$46

322%

17%

Glucagon

$33

10% (9%)

26% 

Total Diabetes

$1,662

30%

-6%

Financial Highlights

1. Lilly’s overall diabetes portfolio grew 30% year-over-year (YOY) on an easy comparison but fell 6% sequentially to $1.7 billion. As in recent quarters, GLP-1 agonist Trulicity was the primary growth driver, accounting for 54% of growth by our calculations. Rapid-acting insulin Humalog represented 24% of 1Q17 growth, while biosimilar insulin glargine Basaglar and SGLT-2 inhibitor Jardiance were each responsible for 8%. Management also cited Trulicity as a leading contributor to 8% worldwide volume growth and 16% US revenue growth in Lilly’s overall pharmaceutical business, and highlighted “new products” including Trulicity, Jardiance, and Basaglar as “the engine” of worldwide volume growth, accounting for 10% of growth. We’re pleased to see strong performance from these products within diabetes and in the context of Lilly’s larger pharma portfolio as well.

2. Once-weekly GLP-1 agonist Trulicity (dulaglutide) continued its strong performance, with revenue more than doubling YOY as reported to $373 million, representing 22% of revenue and 54% of growth in 1Q16. This represents an 11% sequential increase from $337 million in 4Q16. Trulicity continues to make gains in terms of GLP-1 agonist market share. Management noted that the drug’s new-to-brand prescription (NBRx) share among endocrinologists in the US is comparable to that of Novo Nordisk’s Victoza (liraglutide), the current market leader in the GLP-1 agonist arena – total prescription (TRx) share for Trulicity reached close to 30% as of March 2017. Lilly also continued to express optimism about the momentum of the GLP-1 agonist class in general, pointing to ~25% YOY growth in total prescriptions (TRx) in 1Q17, driven by primary care physician adoption especially – that said, class growth represents a slowdown from ~35% YOY growth in 1Q16.

3. Lilly’s share of revenue from the BI-partnered Jardiance franchise nearly doubled YOY to $74 million, and the overarching commentary from management was that the SGLT-2 inhibitor class is now returning to high growth margins (following underwhelming growth in the wake of EMPA-REG OUTCOME) since the FDA approval of a CV indication for Jardiance in December. We estimate total global sales of Jardiance at $224 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%). Speaking to upcoming CANVAS data (the CVOT for J&J’s SGLT-2 inhibitor Invokana) to be presented at ADA 2017, the insightful and highly-respected Head of Diabetes Mr. Enrique Conterno emphasized that it’s in Lilly’s best interest for results to be positive, in line with a cardioprotective class effect.

4. Sales of Basaglar (biosimilar insulin glargine) totaled $46 million, including $22 million in US revenue and $24 million in ex-US revenue. US sales increased only 39% sequentially from a base of $16 million in 4Q16, which represents rather modest growth given that 4Q16 revenue only included two weeks of sales since Basaglar’s launch in US pharmacies on December 15, 2016. That said, management remains positive about the product’s commercial, especially given its exclusive positioning on the CVS Health and UnitedHealthcare formularies, and noted that volume and sales growth has been driven largely by patients switching from other basal insulin therapies. We're in a "watch and wait" phase as we haven't yet heard many perspectives from PCPs, endos, CDEs, or patients.

5. Lilly’s flagship product Humalog (insulin lispro) brought in $708 million in revenue, up 17% YOY from $606 million in 1Q16, a very easy comparison given that 1Q16 revenue fell 11% YOY. This was largely driven by the drug’s performance in the US market – US sales increased 24% in 1Q17 whereas international sales increased 6%. Despite Humalog’s strong YOY growth, revenue declined 14% sequentially from $820 million in 4Q16 sales (a tough comparison, given 28% sequential growth in 4Q16). Competitive pricing in the US insulin market continues to have a major impact on Humalog’s performance.

6. Humulin (human insulin) revenue fell 12% YOY and sequentially to $315 million. Despite historically stronger performance in the US market, US sales fell 15% YOY to $205 million whereas ex-US sales fell 6% YOY to $109 million.

7. DPP-4 inhibitor Tradjenta posted $113 million in global sales, up 20% YOY and 7% sequentially. We estimate total Tradjenta franchise revenue in 1Q17, including BI’s share, at $314 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 released in 1H16.

8. Sales of Lilly’s glucagon rose 10% YOY as reported to $33 million in 1Q17. Sequentially, sales rose 26%, against an easy comparison of 43% sequential decline in 4Q16.

Pipeline Highlights

9. Lilly has advanced a long-acting, once-weekly basal insulin into phase 1 development. We’re pleased to see positive momentum for the candidate and it’s clear that Lilly envisions continued innovation in insulins and injectables moving forward. Lilly’s pipeline also includes a phase 2 ultra-rapid insulin, a separate phase 1 insulin lispro ultra-rapid formulation, and phase 1 once-weekly basal insulin/dulaglutide combination.

10. In Q&A, Lilly management reiterated its commitment to developing oral GLP-1 agonists. These candidates remain preclinical and we’re eager to learn more as they advance in development. The company clearly has a long-term, vested interest in incretin development – Lilly’s pipeline also includes phase 1 GIP/GLP-1 and GLP-1/glucagon dual agonists.

11. In more disappointing news, the company has discontinued development of an undisclosed phase 1 diabetes candidate. It’s not completely clear which candidate is Lilly’s rather extensive phase 1 pipeline has been discontinued – based on our tracking of the pipeline, we think it might be the ghrelin O-acyltransferase (GOAT) inhibitor that was announced during Lilly’s R&D update in May 2016.

Financial Highlights

1. Sales of All Major Diabetes Products Sums to $1.7 Billion; Portfolio Grows 30% YOY Driven by Trulicity, Humalog, Basaglar, and Jardiance

Lilly’s overall diabetes portfolio grew 30% year-over-year (YOY) but fell 6% sequentially to $1.7 billion. 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 $1.1 billion and accounted for 66% of global revenue. Meanwhile, international sales totaled $565 million and accounted for 34% of global revenue. Both US and ex-US revenue experienced double-digit growth in 1Q17, up 34% YOY and 22% YOY, respectively. As in recent quarters, Trulicity was the primary growth driver for worldwide diabetes sales, accounting for 54% of growth by our calculations. Humalog was responsible for 24% of growth, while Basaglar and Jardiance were each responsible for 8%. Tradjenta and glucagon rounded out growth with 4% and 1% share, respectively. Management also cited Trulicity as a leading contributor to 8% worldwide volume growth and 16% US revenue growth in Lilly’s overall pharmaceutical business, and highlighted “new products” including Trulicity, Jardiance, and Basaglar as “the engine” of worldwide volume growth, accounting for 10%. On the whole, it’s great to see YOY growth in US sales for almost all of Lilly’s major diabetes products (with the exception of Humulin, down 12%), given the challenges of pricing pressure in the US market – this controversy has reached a boiling point recently with regard to insulin, but affects all diabetes drugs to some extent. We also find it notable that management attributed strong sales to underlying volume growth for the majority of its pharmaceutical products, including diabetes medicines – hopefully, this means that more people with diabetes in the US are accessing effective therapies, from insulin, to GLP-1 agonists, to SGLT-2 inhibitors. There is still tremendous room for improvement, of course, and we see a long road ahead in tackling the issues surrounding high cost of prescription drugs for diabetes (among other diseases). We commend Lilly for providing some pricing transparency in its 2016 Integrated Summary Report, and we hope that other players in healthcare (other manufacturers as well as PBMs) follow suit. Beyond Lilly’s transparency efforts, we’ve also 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 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. For now, we recognize 1Q17 as another successful quarter for Lilly Diabetes, and we’re pleased to see solid performance from these diabetes products within the context of Lilly’s larger pharma portfolio as well.

2. Trulicity: Revenue more than doubles to $373 million, accounting for 54% of diabetes portfolio growth

Once-weekly GLP-1 agonist Trulicity (dulaglutide) continued its strong performance, with revenue more than doubling YOY as reported to $373 million, representing 22% of revenue and 54% of growth. This represents an 11% sequential increase from $337 million in 4Q16. As is typical for GLP-1 agonists, this growth was largely driven by the US market, where 1Q17 sales totaled $296 million (up 2.5-fold YOY and 11% sequentially), compared to ex-US revenue of $77 million (tripling YOY and up 11% sequentially). By our calculations, Trulicity accounted for an impressive 54% of Lilly’s overall diabetes portfolio growth in 1Q17. This is consistent with Lilly’s forecast in its 2017 financial guidance update at the end of 2016 that Trulicity (alongside Humalog, Basaglar, and Jardiance) would be one of the company’s main drivers of growth for 2017.

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

  • Trulicity continues to make gains in terms of GLP-1 agonist market share. Management noted that the drug’s new-to-brand prescription (NBRx) share among endocrinologists in the US is comparable to that of Novo Nordisk’s Victoza (liraglutide), the current market leader in the GLP-1 agonist arena – total prescription (TRx) share for Trulicity reached close to 30% as of March 2017 (slide 24). Lilly also continued to express optimism about the momentum of the GLP-1 agonist class in general, pointing to ~25% YOY growth in total prescriptions (TRx) in 1Q17, driven by primary care physician adoption especially – that said, class growth represents a slowdown from ~35% YOY growth in 1Q16. For more on the dynamics of the GLP-1 agonist class, refer to our 4Q16 and 2016 Diabetes Industry Roundup. We’ll be back with an updated 1Q17 analysis of the GLP-1 agonist class following Sanofi’s quarterly update on April 27 and Novo Nordisk’s  update on May 3.
    • Management forecasted that regardless of Trulicity’s strong performance in the GLP-1 agonist arena, competition is on the horizon with both Novo Nordisk’s phase 3 injectable and oral formulations of GLP-1 agonist semaglutide. The injectable version has already 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 to reflect this cardioprotective effect. Management acknowledged that semaglutide is clearly a very potent and efficacious molecule, but pointed out that the retinopathy findings in SUSTAIN 6 may be a concern and that how this data is treated in the label will be very important. Trulicity’s own CVOT, the REWIND trial, is expected to complete in April 2018. The oral formulation of semaglutide will likely represent a new level of patient-friendliness for the GLP-1 agonist class, though Lilly underscored that Trulicity itself is a trailblazer on this front with its very patient-friendly IDEO-designed pen. Management even went as far as to say that this “is almost redefining the injection experience” because patients don’t have to touch or see the needle. Nonetheless, the company highlighted Lilly’s own preclinical development program for an oral GLP-1 agonist (more on this and Lilly’s other pipeline efforts below).
  • Lilly highlighted the recent label update for Trulicity supporting co-administration of the agent with basal insulin for adults with type 2 diabetes. The updated labeling is based primarily 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). Trulicity (dulaglutide) and basal insulin therapy achieved statistically significant reductions in A1c, body weight, and daily required insulin dose compared to basal insulin alone (p<0.001 for all interactions). The updated label also includes results from AWARD-8, comparing Trulicity vs. placebo in combination with a sulfonylurea. Lilly management emphasized that the label update will allow 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 – Trulicity+basal would only require eight injections per week to the seven injections per week of daily fixed-ratio combinations. That said, Lilly also has a once-weekly basal insulin/GLP-1 agonist fixed-ratio combination in its pipeline – more on this below.

3. CV Indication Propels Jardiance to $74 Million, Nearly Doubling YOY

Lilly’s share of revenue from the BI-partnered Jardiance (empagliflozin) franchise nearly doubled YOY to $74 million. Lilly’s reported revenue in the US rose 61% YOY to $48 million, while ex-US sales more than tripled YOY to $26 million. We estimate total global sales of Jardiance at $224 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%). Notably, Lilly’s portion of revenue for Jardiance actually fell 3% sequentially YOY, albeit against a tough comparison of 60% sequential growth in 4Q16. Nonetheless, the overarching commentary from management was that the SGLT-2 inhibitor class is now returning to high growth margins (following underwhelming growth in the wake of EMPA-REG OUTCOME) since the FDA approval of a CV indication for Jardiance and the ADA’s endorsement of empagliflozin for patients with type 2 diabetes at high-risk for CV events in its 2017 Standards of Care. Indeed, Lilly management had expressed disappointment during the company’s 3Q16 update that quarterly sales were only $48 million, falling short of expectations that a demonstrated CV benefit would spike dramatic growth. That said, busy endocrinologists and primary care physicians (PCPs) rely on drug labels and professional guidelines to inform treatment decisions, so we’re not entirely surprised that it took a new indication and updated guidelines to truly boost Jardiance volume and sales. We do hear cardiologists are starting to clamor for the drug and that isn’t really reflected in forecasts at this point, to the best of our knowledge.

Figure 2: Lilly’s Reported Jardiance Sales (3Q14-1Q17)

  • Jardiance is also making steady gains in terms of volume. Since Lilly/BI launched their campaign to spread awareness of the CV indication (we’ve noticed these promotional efforts at diabetes meetings like ENDO 2017 as well as cardiology conferences like ACC 2017), Jardiance’s share of new-to-therapy starts (NTS Rx) within the SGLT-2 class has increased 75% (!) according to management. According to Lilly’s supplementary slides, Jardiance accounts for 44% of NTS Rx among endocrinologists and 34% among primary care physicians. Interestingly, management mentioned during Q&A that PCPs are responsible for ~80% of SGLT-2 inhibitor prescriptions and that endos are responsible for the remaining ~20% – while cardiologists are “a significant source of authority” on Jardiance’s CV effects, they haven’t yet started prescribing the drug in any meaningful quantity. It’s important to keep in mind, however, that the updated label indicating Jardiance for the reduction of CV death is only ~four-months-old, and BI management previously acknowledged that educating cardiologists would take some time. We’ll be curious to see how prescribing habits and trends across endos, PCPs, and cardiologists change with more time. Of course, primary care physicians greatly outnumber specialists and the majority of patients with diabetes – especially those with earlier-stage diabetes who are more likely to be taking oral medications – are treated by primary care physicians and it’s thus reassuring to see an upward trend in Jardiance uptake among PCPs. Management also remarked that formulary positioning for Jardiance is “very strong,” with preferred access on ~90% of commercial plans and ~70% of Medicare Part D plans. Continuing on, management asserted that Lilly’s SGLT-2 business has not been affected by “segment mix,” or a greater proportion of Medicaid vs. managed care patients, which is exactly what J&J management cited to explain the disappointing 13% YOY decline for Invokana (canagliflozin) in 1Q17. These are dynamic market trends to be sure, and we wonder how access to Jardiance vs. Invokana compares for people on Medicaid. Above all else, we hope to see expanded patient access to these advanced agents, whether through improved reimbursement or enhanced patient discount programs. We’ll be back with a pooled class analysis of SGLT-2 inhibitors on Thursday (April 27), following AZ’s 1Q17 earnings call and reported sales for Farxiga (dapagliflozin).
  • Speaking to upcoming CANVAS data (the CVOT for J&J’s SGLT-2 inhibitor Invokana) to be presented at ADA 2017, the insightful and highly-respected Head of Diabetes Mr. Enrique Conterno emphasized that it’s in Lilly’s best interest for results to be positive, in line with a cardioprotective class effect. “If outcomes were to be negative or neutral, that would probably be the worst case scenario for us,” Mr. Conterno emphasized. “We believe that our data is highly-compelling, but we could also greatly benefit from that tailwind of having another SGLT-2 inhibitor show similar data.” In our view, a second CVOT highlighting CV benefits to SGLT-2 inhibitor therapy could boost sales for all products in the class, including AZ’s Farxiga, and would also make a more compelling case to payers on the value and long-term cost-savings of these advanced agents. We have our fingers crossed for positive results come ADA in June, although radio silence from J&J management on CANVAS has us worried. By this point, it’s typical for a company to announce topline data from a positive CVOT several months ahead of presentation at a scientific meeting (as was the case for EMPA-REG OUTCOME, LEADER, and SUSTAIN 6). And while J&J management was extremely optimistic during the company’s 3Q16 earnings call that CANVAS results would resemble EMPA-REG OUTCOME results, the lack of comment since then raises eyebrows. Moreover, we heard skepticism on this front from Dr. David Nathan at ENDO 2017, when he hinted that CANVAS may in fact show neutral CV effects of Invokana. CANVAS enrolled fewer patients than EMPA-REG OUTCOME (4,300 vs. 7,000) and included some lower-risk patients, so it’s possible that the trial did not accumulate enough CV events to demonstrate CV superiority… We don’t think neutral results in such a trial would necessarily rule out CV benefit for either Invokana or other agents in the class, though it would certainly complicate the story. Speculation aside, we eagerly and impatiently await the full results presentation on Monday, June 12 at ADA 2017. The DECLARE CVOT for AZ’s Farxiga is scheduled to complete in April 2019, while the VERTIS CV trial for Merck/Pfizer’s SGLT-2 inhibitor candidate ertugliflozin (currently awaiting FDA approval) is scheduled to complete in October 2019.
  • Management highlighted the initiation of two trials in the EMPEROR HF heart failure program for Jardiance as a key Lilly milestone. We’re also very excited to follow progress on the EMPEROR HF clinical trial program – two trials, one enrolling heart failure patients with preserved ejection fraction and the other enrolling patients with reduced ejection fraction (n=7,000 across both studies), are expected to complete in 2020. Notably, the trials will enroll both patients with and without diabetes. Given the surprise 35% reduction in hospitalization for heart failure associated with Jardiance vs. placebo in EMPA-REG OUTCOME (p=0.002), Lilly/BI are forging ahead toward a separate heart failure indication for this SGLT-2 inhibitor. Even before these trials were initiated, we heard some cardiologists express the view that Jardiance is a cardiovascular drug with some glucose-lowering benefit, rather than a glucose-lowering drug with CV benefit. It’s both, of course. And, both of these events – the EMPEROR HF studies and Synjardy XR’s official release – signal Lilly/BI’s commitment to the empagliflozin family of products, as the companies invest in further clinical development as well as commercial pursuits. This is music to our ears, given the pronounced glucose-lowering and weight loss efficacy of empagliflozin, not to mention the now well-supported CV benefit.
  • While EMPA-REG OUTCOME also demonstrated an impressive renal benefit, management suggested that a Jardiance label claim for renal protection would likely require a dedicated renal outcomes trial. It’s unclear whether or not Lilly is interested in pursuing a dedicated renal outcomes trial at this time. We understand the immense investment it would take, which would come on top of the EMPEROR HF program and the EASE-2 and EASE-3 studies ongoing for empagliflozin in type 1 diabetes. At the same time, subsequent analyses of EMPA-REG OUTCOME have demonstrated compelling evidence for kidney benefit – a 39% risk reduction for diabetic nephropathy that is sustained across various subgroups – and we’d love to see further confirmation of this, to better understand mechanism of renal protection, and to accelerate the initiation of empagliflozin therapy for diabetes patients at high-risk for nephropathy or other kidney events. We hope further investigation of empagliflozin’s renal effects isn’t off the docket completely, even if it’s not a near-term priority for Lilly/BI right now. J&J is currently conducting two renal outcomes trials for Invokana: CREDENCE (which features hard renal endpoints and is expected to complete in January 2020) and CANVAS-R (which is a renal biomarker study and will report results along with the CANVAS CVOT at ADA 2017). We expect we’ll learn a great deal about the long-term renal benefits of SGLT-2 inhibitors from the J&J trials and we’re looking forward to the results. AZ also has an ongoing trial of Farxiga in patients with type 2 diabetes and chronic kidney disease (DERIVE), though the primary endpoint is A1c rather than a renal endpoint.
  • Lilly highlighted two key events for combination Synjardy (empagliflozin/metformin) in 1Q17: EU approval of a CV death indication for Synjardy and FDA approval of once-daily Synjardy XR. The updated label for Synjardy in the EU will include both an expanded indication for the reduction of CV death, as well as the CV death data from EMPA-REG OUTCOME. Notably, this labeling differs from the FDA-approved label for Synjardy – the US labels for Synjardy, Synjardy XR, and Glyxambi (empagliflozin/linagliptin) include the EMPA-REG OUTCOME data but do not feature an expanded indication. The inclusion of an updated indication is a major win for Lilly and BI in Europe, as well as patients and providers. On this side of the Atlantic, the launch of Synjardy XR (fixed-dose combination of empagliflozin/metformin extended-release) is also a major win for patient convenience and pill burden. Synjardy XR joins a class with J&J’s Invokamet XR (canagliflozin/metformin extended-release) and AZ’s Xigduo XR (dapagliflozin/metformin extended-release). It offers patients a more convenient dosing regimen with lower pill burden, and notably, is priced on par per-tablet with twice-daily Synjardy tablets, making it more affordable as well (a one-month 30-tablet supply of Synjardy XR costs half as much as a one-month 60-tablet supply of Synjardy).
  • The third major product in the Jardiance franchise, SGLT-2 inhibitor/DPP-4 inhibitor combination Glyxambi, did not receive any mention in Lilly’s update. Our sense is that sales for this product have been sluggish and it has not been a major focus for Lilly since its 2015 launch. We’re eager to learn how AZ’s newly-approved combination Qtern (saxagliptin/dapagliflozin) is faring during AZ’s 1Q17 update this Thursday, April 27.

4. Basaglar Posts $46 Million; A Story of Good Reimbursement Status, High Patient Switching, and Growing Share of New-to-Brand Prescriptions

Sales of Basaglar (biosimilar insulin glargine) more than quadrupled YOY to $46 million, including $22 million in US revenue and $24 million in ex-US revenue. The 17% sequential growth was driven by US sales (up 39% sequentially from a base of $16 million in 4Q16 – this is rather modest growth, given that 4Q16 revenue included a mere two weeks of sales, after Basaglar’s launch in US pharmacies on December 15, 2016). Ex-US revenue was flat sequentially. Despite Basaglar’s fairly modest US performance its first full quarter on the market, management highlighted a few key reasons to remain optimistic about commercial prospects for the product: (i) Basaglar has good reimbursement status, with exclusive positioning on the CVS Health and UnitedHealthcare formularies and with equal footing to Sanofi’s Lantus (insulin glargine) on the Express Scripts formulary. (ii) In line with this, management noted that sales growth has been driven largely by switching from other basal insulin therapies onto Basaglar, which makes sense since many CVS Health and UnitedHealthcare patients on Lantus would have been switched to the biosimilar at the start of 2017. The list price of Basaglar is also at a ~15% discount to Lantus, which has likely prompted some of the patient switches. (iii) Lastly, management pointed to Basaglar’s growing share of new-to-brand prescriptions (NBRx), now at 20%, which exceeds the NBRx share of next-generation basal insulins Tresiba (insulin degludec, from Novo Nordisk) and Toujeo (insulin glargine U300, from Sanofi), and which is approaching the NBRx share of Novo Nordisk’s Levemir (insulin detemir). This means that basal insulin-naïve patients are more often starting Basaglar than Tresiba or Toujeo, and are almost as often starting Basaglar as Levemir, which is the trend we’d expect given the lower cost of the biosimilar option and the reigning popularity of insulin glargine over other basal options. We’re eager for an updated look at the basal insulin market dynamics in Novo Nordisk’s 1Q17 update next Wednesday (May 3). We do note that there are still many questions looming over biosimilar insulin – the discounts haven’t been as large as initially hoped for by some, and providers will need to be convinced over time and with real-world experience of the comparable safety and efficacy to Lantus. We're in a "watch and wait" phase as we haven't yet heard many perspectives from PCPs, endos, CDEs, or patients.

Figure 3: Basaglar Sales (3Q15-1Q17)

5. Humalog: Revenue rises 17% YOY, bouncing back from a challenging 4Q16 thanks to strong US market performance

Lilly’s flagship product Humalog (insulin lispro) brought in $708 million in revenue, up 17% YOY from $606 million in 1Q16, a very easy comparison as 1Q16 revenue fell 11% YOY. This was largely driven by the drug’s performance in the US market – US sales increased 24% in 1Q17 whereas international sales increased 6%. Despite Humalog’s strong YOY growth, revenue declined 14% sequentially from $820 million in 4Q16 sales (a tough comparison, given 28% sequential growth in 4Q16). Competitive pricing in the US insulin market continues to be a major influencer for Humalog’s performance, particularly given that a majority of Humalog sales come from the US: in 1Q17, US revenue for Humalog totaled $449 million, versus $259 million in international sales. 

Figure 4: Humalog Sales (1Q12-1Q17)

  • Humalog’s TRx share of the rapid-acting insulin market has been on the rise since January 2016, stabilizing between 48%-49% after a long plateau at 44%. As of 4Q16, Lilly’s Humalog (insulin lispro) led the rapid-acting insulin market, capturing 48% of the market by value, followed by Novo Nordisk’s NovoLog/NovoRapid (insulin aspart) at 46% and Sanofi’s Apidra (insulin glulisine) at 6%. Notably 4Q16 also marked the first quarter in several years where Humalog surpassed NovoLog in terms of market share (posting $820 million vs. NovoLog’s $794 million) and we will be interested to see, based on the coming earnings updates from Sanofi and Novo Nordisk, if this upward trend for Humalog has continued into 1Q17.
  • Humalog accounted for 24% of Lilly’s diabetes portfolio growth in 1Q17, consistent with Lilly’s prediction in its 2017 financial guidance update at the end of 2016 that Humalog (alongside Trulicity, Basaglar, and Jardiance) would be one of the company’s main drivers of growth for 2017. Humalog accounted for 0.5% of the 8% worldwide volume growth for Lilly’s entire pharmaceutical portfolio (slide 12), translating to approximately 6% share of growth. We will be interested to see if this growth for Humalog continues for the rest of the year; 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 on Express Scripts’ and UnitedHealthcare’s formularies but is excluded from CVS Health’s formulary in favor of Novo Nordisk’s NovoLog (insulin aspart) and Sanofi’s Apidra (insulin glulisine).
  • The rapid-acting insulin class continues to face intense pricing pressure, as well as competitive pressure from the increased uptake of GLP-1 agonist and SGLT-2 inhibitor therapy to address postprandial excursions, a challenge that will only grow with the launch of basal insulin/GLP-1 agonist combinations (like Sanofi’s Soliqua and Novo Nordisk’s Xultophy). According to Lilly’s presentation slides, the overall rapid-acting insulin market has remained fairly steady at ~2%-3% TRx growth throughout the year (slide 32). This steady volume growth further underscores the impact of pricing pressures on net price/revenue erosion for rapid-acting insulins – while the market has growth by volume, sales for the class fell 5% YOY in 2016 (to $6.1 billion). That said, the ~3% volume growth for the class represents a significant decline from the peak growth of 7%-8% in 2014, which we attribute to the growing popularity of non-insulin medications to address postprandial glucose. In our view, the GLP-1 and SGLT-2 classes offer compelling alternatives to insulin therapy for many patients – not only do these newer, 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 be interested to see how Humalog fares in this challenging environment, especially given the progress of Novo Nordisk’s next-generation prandial insulin Fiasp (faster-acting insulin aspart), which is approved in the EU and Canada and submitted under an NDA in the US (it’s second, after an unexpected CRL from the FDA in October 2016), with approval expected by the end of 2017. We are not sure this next-generation prandial insulin will present a truly disruptive advance to the rapid-acting insulin market the way next-generation basal insulins Tresiba and Toujeo did versus older basal analogs. Lilly recently terminated its partnership with Adocia for the development of phase 3-ready BioChaperone ultra rapid-acting Insulin Lispro in favor of its own internal ultra-rapid-acting candidates in phase 1 and 2 – we haven’t seen any clinical data for these candidates yet and it’s possible that they represent a substantial step forward. 

6. Humulin: Revenue down 12% YOY and sequentially

Humulin (human insulin) revenue fell 12% YOY and sequentially to $315 million. Despite historically stronger performance in the US market, this decline was largely driven by a challenging quarter in terms of US sales. US revenue fell 15% YOY as reported (14% operationally) to $205 million whereas ex-US sales fell 6% YOY as reported and operationally to $109 million. Management attributed the fall in US sales to a change in the government rebate which had previously bolstered 2016 sales.

Figure 5: Humulin Sales (2Q15-1Q17)

  • Humulin’s TRx share in the US has been declining in recent months, dropping below 53% for the first time since the beginning of 2016. This comes after Humulin’s TRx share hit a high point of nearly 54.5% in 4Q16. We imagine these TRx losses are due to Novo Nordisk’s human insulin, which was the only human insulin on the market to experience positive growth last quarter in 4Q16. Humulin’s falling TRx share is occurring against the backdrop of overall declines in the human insulin market. The overall market for human insulins as measured by TRx has been falling 4%-6% YOY since January 2016, after hitting a low of ~7% YOY decline in November 2015 (slide 36).
  • 1Q17 marks the first full year of revenue for the Humulin U500 KwikPen. We had previously predicted that this new device, which holds five times as much insulin at a lower cost per unit of insulin, would drive continued market share growth for Humulin. The KwikPen is a much safer administration device for the only concentrated human insulin on the market. Despite the increased demand for concentrated insulins from the growing population of patients with high insulin requirements, this appears not to have been the case given Humulin’s double digit YOY revenue decline.

7. Lilly’s Tradjenta Sales Grow 20% YOY to $113 Million

Lilly’s recorded revenue from DPP-4 inhibitor Tradjenta (linagliptin) totaled $113 million, up 20% YOY and 7% sequentially. We estimate total Tradjenta franchise revenue in 1Q17, including BI’s share, at $314 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 4% of growth in Lilly’s diabetes portfolio in 1Q17. US sales increased 19% YOY to $45 million, while ex-US sales rose 21% YOY to $68 million. All major products in the DPP-4 inhibitor class have experienced fluctuating sales of-late, partly due to heightened competition from GLP-1 agonists and SGLT-2 inhibitors. Still, DPP-4 inhibitors have an important role to play in diabetes care – these agents are safe, well-tolerated, and highly-familiar to patients/providers, which makes them preferred therapy for many elderly patients, people with diabetes and renal impairment, and individuals earlier in the course of their disease. We’re thus glad to see a relatively strong quarter for Lilly’s Tradjenta business. We’ll be back with a pooled class analysis of DPP-4 inhibitors after all companies report their 1Q17 earnings: This includes revenue from Novartis’ Galvus (up 1% in 1Q17 to $286 million), Merck’s Januvia, Takeda’s Nesina, and AZ’s Onglyza. In 4Q16, the Tradjenta franchise captured 12% of the DPP-4 inhibitor market by value, coming in third after Januvia with 64% and Galvus with 13%, although it seems that total Tradjenta sales (including BI’s portion) have surpassed Galvus sales in 1Q17.

Figure 6: Lilly’s Reported Tradjenta Sales (2Q11-1Q17)

8. Glucagon: Sales up 10% YOY and 26% sequentially to $33 million

Sales of Lilly’s glucagon rose 10% YOY as reported to $33 million in 1Q17. Sequentially, sales rose 26%, against an easy comparison of 43% sequential decline in 4Q16. As was also the case in previous quarters, glucagon revenue was driven primarily by US sales, which accounted for $32 million (up 8% YOY and up 25% sequentially). For comparison ex-US sales accounted for the remaining $2 million (up 50% YOY and up 64% sequentially) and have hovered between $1-2.5 million in quarterly revenues since the product’s launch in 1Q12. Glucagon accounted for 1% of the growth of Lilly’s overall diabetes portfolio. Lilly seems well positioned for innovation in glucagon, as it owns the phase 3 intranasal glucagon from Locemia (FDA submission expected by 1H18, per Dr. Jessica Castle’s DTM 2016 presentation) and a phase 1 soluble glucagon. We think these could drive the glucagon market substantially, though several other innovative glucagon candidates for hypoglycemia rescue and/or dual-hormone pump are on the horizon as well – see our competitive landscape for an overview.

Pipeline Highlights

9. Once-weekly Basal Insulin Advanced into Phase 1

Lilly management shared that in-human trials for a long-acting basal insulin have initiated and the candidate has been added to the company’s phase 1 clinical development pipeline page. Lilly did not provide any additional details on this candidate. That said, we assume that this is the once-weekly basal insulin that Lilly announced as part of its preclinical development pipeline during its R&D update in May 2016. No additional details on the molecular structure or mechanism of action for this candidate were shared at the time of announcement. ClinicalTrials.gov lists a new Lilly-sponsored phase 1 trial of LY3192767 in healthy participants with insulin glargine and basal insulin peglispro as active comparators – we think this is very likely the first in-human trial for the once-weekly basal insulin, though the ClinicalTrials.gov page is very sparse on details for LY3192767’s mechanism of action, dosing, etc. The trial initiated on March 13 and plans to enroll 85 participants, with an expected completion date of September 2017. In Q&A, Lilly management emphasized that, despite the fact that the company’s first marketed basal insulin analog is a biosimilar, its core strategy in diabetes overall is to “innovate above and beyond the benefits of glargine in basal insulin.” In many ways, Basaglar helped round out Lilly’s insulin portfolio by adding a basal insulin, but it’s clear that Lilly envisions continued innovation in insulins moving forward (this contrasts with commentary that we’ve heard from some suggesting that current next-generation basals like Novo Nordisk’s Tresiba are already nearly ideal – of course, we view a once-weekly basal as a tremendous improvement for many patients, all else equal). Overall, we’re very excited to see Lilly making strides in basal insulin development. Both Novo Nordisk and Sanofi have once-weekly basal insulins in phase 1 as well, while AntriaBio is developing a preclinical once-weekly insulin – it seems that once-weekly dosing will be the next great frontier in basal insulin development. For a complete overview of insulins in development, see our competitive landscape.

  • Notably, the once-weekly basal insulin candidate is separate from Lilly’s “basal insulin-Fc/next gen basal insulin” that also supports once-weekly dosing and is currently in phase 1 development in combination with GLP-1 agonist dulaglutide (Trulicity). This fixed-ratio combination was added to the company’s phase 1 pipeline in its 4Q16 update. It’s unclear if the standalone next gen basal insulin remains under investigation – we hope so, given our strong belief in combo therapy.
  • Lilly is continuing to innovate in the rapid-acting insulin field as well. While the call did not include any updates on Lilly’s internally-developed phase 2 ultra-rapid insulin candidate, LY900014, initiation of the phase 3 trials for the candidate remains an expected milestone for 2017. ClinicalTrials.gov does list a new phase 1 insulin pump trial of LY900014 in patients with type 1 diabetes – the trial, which plans to enroll 30 participants, began in February and has an expected completion date of June 15, 2017. Few details on LY900014’s mechanism of ultra-rapid action and its phase 1/2 data are available and we look forward to Lilly hopefully sharing more information in future updates. As background, Lilly terminated its partnership with Adocia for the development of BioChaperone Lispro in January of this year in favor of further developing its internal LY900014 ultra-rapid candidate. Prior to this decision, Lilly’s discussion of its efforts in this area almost exclusively focused on its partnership with Adocia for BioChaperone Lispro – Lilly had highlighted BioChaperone Lispro during its May 2016 R&D update and its pipeline page only referred to BioChaperone Lispro. We’re hoping that some of the phase 1/2 data for LY900014 might be presented at ADA 2017 so that we might learn more about this mysterious insulin. In addition to this fairly advanced ultra-rapid candidate, Lilly has posted three phase 1 trials for a separate ultra-rapid insulin lispro formulation on ClinicalTrials.gov (NCT02623478, NCT02623452, NCT02623465), all with January 2018 start dates.

10. Continued Commitment to Development of Oral GLP-1 Agonists

In Q&A, Lilly management reiterated its commitment to developing oral GLP-1 agonists. These candidates remain preclinical and we’re eager to learn more as they advance in development. The company acknowledged that Trulicity and the company’s GLP-1 agonist business will likely soon face competitive pressure from Novo Nordisk’s injectable and oral semaglutide formulations. It’s clear that Lilly intends to maintain its leadership in the GLP-1 agonist field through the development of its own oral formulations, as well as incretin dual agonists and basal insulin/GLP-1 agonist fixed-ratio combinations. To that end, in addition to the fixed-ratio combination mentioned above, Lilly’s phase 1 pipeline includes a GIP/GLP-1 dual agonist and a GLP-1/glucagon dual agonist. Lilly certainly has the broadest marketed portfolio of injectable and oral diabetes products in the field currently and we think the company’s pipeline is well-positioned to continue Lilly’s flow of innovation in the years to come.  

11. Phase 1 Diabetes Candidate Discontinued

In disappointing news, the company has discontinued development of an undisclosed phase 1 diabetes candidate. It’s not completely clear which candidate is Lilly’s rather extensive phase 1 pipeline has been discontinued – based on our tracking of the pipeline, we think it might be the ghrelin O-acyltransferase (GOAT) inhibitor that was announced during Lilly’s R&D update in May 2016. Lilly’s GOAT inhibitor was the only candidate of this class in phase 1 development that we were aware of and its discontinuation further underscores the challenges of ghrelin as a therapeutic target, as well as the increasingly high bar for new diabetes drugs. Nonetheless, Lilly maintains a robust clinical development pipeline. In addition to the insulin and incretin candidates discussed above, Lilly’s diabetes-related pipeline includes a phase 3 intranasal glucagon (licensed from Locemia), a phase 2 PCSK9 inhibitor, a phase 1 soluble glucagon, a phase 2 DGAT-2 inhibitor, and a preclinical long-acting once-weekly glucagon. See below for a table of Lilly’s clinical development efforts of which we are aware.

Table 2: Lilly Diabetes Pipeline

Candidate

Phase

Timeline/Notes

Jardiance (empagliflozin) in type 1 diabetes

Phase 3

EASE-2 and EASE-3 trials ongoing, completion expected in October 2017 and September 2017, respectively

Jardiance (empagliflozin) in heart failure

Phase 3

EMPEROR HF-Preserved and EMPEROR HF-Reduced trials initiated in March 2017, both expected to complete in June 2020

Intranasal glucagon

Phase 3

Acquired from Locemia; FDA submission expected by 1H18

LY900014 (ultra-rapid insulin)

Phase 2

Phase 1b studies complete; Phase 3 initiation expected by end of 2017

LY3015014 (PCSK9 inhibitor)

Phase 2

Highlighted in May 2016 R&D update; Potential for greater durability and less frequent dosing than others in class

GIP/GLP-1 dual agonist

Phase 1

Announced in May 2016 R&D update; Added to pipeline 2Q16

Soluble glucagon

Phase 1

Announced in May 2016 R&D update; Candidate is a short-acting, soluble, stable glucagon; Potential use in bi-hormonal closed-loop systems

DGAT-2 inhibitor

Phase 1

Added to pipeline in 1Q16; Under development for NASH and dyslipidemia

Basal insulin/dulaglutide fixed-ratio combination

Phase 1

Likely a combination of once-weekly “next-generation basal insulin” and once-weekly Trulicity to support once-weekly dosing; Added to the pipeline in 4Q16

GLP-1/glucagon dual agonist (once-weekly)

Phase 1

Announced in May 2016 R&D update; Oxyntomodulin analog; Under development for type 2 diabetes and NASH; Advanced into phase 1 in 4Q16

Once-weekly insulin

Phase 1

Announced in May 2016 R&D update

Novel insulin lispro ultra-rapid formulation

Phase 1

Three phase 1 trials (NCT02623478, NCT02623452, NCT02623465) expected to initiate in January 2018

Next-generation basal insulin

Preclinical (unclear if standalone development is still ongoing)

Announced in May 2016 R&D update; Potential for combination with Trulicity

Long-acting once-weekly glucagon

Preclinical

Announced in May 2016 R&D update; Potential for co-formulation with Trulicity or with GIP/GLP-1 dual agonist

Oral GLP-1 agonist(s)

Preclinical

Announced in 1Q16, confirmed in May 2016 R&D update

Discontinued in 1Q17

Candidate

Phase

Timeline/Notes

Ghrelin O-acyltransferase (GOAT) inhibitor

Phase 1

Announced in May 2016 R&D update

Questions and Answers

On Jardiance

Q: On Jardiance, could you outline the rate limiting steps for this product, both in terms of SGLT-2 inhibitor class awareness and the upcoming CANVAS results from J&J?

A: We received the cardiovascular indication for Jardiance in December, and we launched this label in mid-January. In just three months since the launch of this indication, we've seen a 70% percent increase in new patient starts. Also in this time, the class overall has grown about 30%; the class was actually flat before Jardiance received this indication. As we look at the four-week growth versus the previous year, we're now at an encouraging 16%. In a certain way, Jardiance is a paradigm shift when it comes to treating diabetes, in particular, for managing the risks of death for people with type 2 diabetes and established cardiovascular disease. Therefore, for us, peer-to-peer channels are hugely important. We are very excited about our level of activity, interest, and attendance to these peer-to-peer sessions.

There are lots of questions when it comes to the outcomes from J&J’s CANVAS trial We basically see three possible outcomes: (i) if the CANVAS outcomes are negative, that probably would be the worst outcome for us. That being said we believe our CVOT data for Trulicity is highly compelling; (ii) if the CANVAS data is positive but not as positive as ours, that is probably the best-case scenario for us; (iii) it would also be quite positive if the CANVAS data looks similar to ours. We have a lot of momentum with our product so we are hoping that they have a positive trial.

Q: Given Jardiance’s extraordinary cardiovascular benefit, which is actually better than many drugs that are solely approved for cardiovascular disease, I would have thought that Lilly would have gone to payers and said, “we need to reduce our rebate payments to you.” Obviously from an ethical standpoint, Jardiance has to be tier 2 irrespective of rebates.  I'm hoping you could provide a little bit more color on why Lilly has to enhance rebates for such an extraordinary drug.

A: I agree that the Jardiance position did compel value for payers. I'm not able to discuss what our rebate strategy is, but in the case of Germany, we have a higher price for Jardiance based on the indication. We did not get the price cut. We got a minor positive price adjustment, but yes, we do believe that this product offers compelling value to payers and to patients.

Q: Certainly Jardiance had some significant renal benefits. Are you doing anything with the agency to further quantify the benefits to try secure that within the Jardiance label?

A: Clearly the renal data for Jardiance is quite encouraging. We’ve had a number of discussions with the regulatory authorities. It is clear that for us to be able to make a claim on the label it is quite likely that we would need to do an additional trial.

Q: Can you talk about payer trends in the SGLT category?

A: The SGLT-2 inhibitor class is highly managed from a formulary perspective, and we are in a unique position given our CVOT data and Jardiance’s newly updated label. Our formulary positioning was very strong even prior to this label update, and we currently have nearly 90% access on commercial plans and about 70% in part D. We're advocates for open access, and we are excited about the early trends that we're seeing for our products.

Q: Can you give a sense of the share now for the SGLT-2 inhibitors and the GLP-1 agonists coming from primary care physicians as well as specialists?

A: SGLT-2 inhibitors and other oral diabetes medications are pretty alike insofar as we see primary care driving about 80% of overall prescriptions. What about cardiologists? In the case of Jardiance, cardiologists are a significant source of authority; while we have seen an increase in their prescriptions of Jardiance, the base of prescribing is extremely small. I don't have the actual split for the GLP-1 agonists and I'm cautious about estimating it because that class has been evolving very quickly. In general, what we see is huge growth there when it comes to primary care, but that class used to be split about 50/50 between primary care and specialists.

On Trulicity

Q: Trulicity is doing well. What is your outlook particularly from the oral GLP-1 agonist in phase 3?

A: We are very excited about the overall growth of the GLP-1 agonist class. We see significant expansion of the class continuing and, of course, Trulicity has superior share performance within this arena. One of the great benefits of Trulicity is that it is almost redefining the injection experience because patients don't have to touch the needle or see the needle. And the feedback we get from the experience is just fantastic. We are actively working on oral GLP-1 agonists, but we do see additional competition coming in with semaglutide. What type of label will this product get? Clearly the efficacy of semaglutide is very good, but it also has a negative retinopathy signal.

Q: I get a lot of questions from investors on the sustainability of pricing in the GLP-1 agonist segment. Can you gaze into the crystal ball a little bit to the upcoming formulary contracting? How will it look one to two years out?

A: Our access on Trulicity is outstanding. Trulicity is now added in most insurance plans and I think it reflects the excellent clinical and business performance of the product. Our access in both commercial insurance plans and Medicare part D is 80%. Unfortunately, I'm unable to provide forward-looking expectations in terms of pricing.

On Insulins

Q: The revenue generated for Basaglar relative to the prescriptions came in a bit below our expectations. What market dynamics would cause this?

A: At this point in time, we do think that the revenue and prescriptions are aligned with our expectations. As I see it, revenue is basically tracking given the prescription level. As we had expected, right now we are 20% NBRx share. Importantly, switches drive a big part of that and we've seen some formularies choose Basaglar as an exclusive option. We are encouraged when we look at the prescription share of new patients to a basal insulin, where we are now at 7%.

Q: With more biosimilars coming to market in 2018 and 2019, can you compare and contrast some of the dynamics of the rapid-acting insulin market versus what we're seeing right now with the basal market following Basaglar’s launch? In other words, how will you ensure that you protect your Humalog franchise from rapid-acting biosimilars?

A: We think about Humalog fairly differently; it encompasses not just the rapid acting market but also mixtures, which are about 30% of volume. Clearly, we do have a strong position when it comes to payers, and importantly the contracting already is on exclusive status for every insulin across all of the major plans. That is different from the type of contracting for basal insulins, we had a number of products in the formulary. Any time you narrow the formulary, there's an opportunity for a payer to have an economic benefit from a larger rebate, so the dynamics here are a little bit different.

Q: On Humalog, how comfortable are you about the sustainability of the exclusive arrangements that you have with payers? Because the economic benefit that you mentioned from the rebates, that's obviously has come under increased scrutiny. What are the risks?

A: In the case of Humalog, it's always difficult to say what will happen as we go through the contract negotiations. Looking historically, once a payer has made a decision on a particular product, they typically continue with their initial choice when it comes time to renew – especially when there are not new entrants coming in. We see this not only in diabetes but in other therapeutic classes.

Q: What are your longer-term views on diabetes pricing? The street is concerned; we've had a market that's been in flux over the past few years. Lilly has obviously benefitted from its extensive diabetes portfolio, but your competitors have struggled. Over the longer term, do you see the pricing dynamics stabilizing or are you preparing for an environment where things continue to be challenging?

A: When it comes to diabetes pricing, what we basically see in 1Q17 is a continuation of the current trends; we don't see significant step changes. Clearly, we are pretty well-positioned given the breadth of our portfolio and really strong share and momentum that we have with our product, which is key as different payers make the formulary decisions. 

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