Lilly 2Q15 – Humalog down 7% as reported, flat operationally at $654 million; Continued strong performance for Trulicity; Sequential decline for Jardiance – July 23, 2015

Lilly provided its 2Q15 update this morning in a call led by Lilly’s highly influential and beloved CEO Mr. John Lechleiter. Total sales for the company’s diabetes portfolio declined 4% year over year (YOY) as reported. Sales of Lilly’s flagship rapid-acting insulin Humalog (insulin lispro) fell 7% as reported (flat in constant currencies). The company’s two newest products – the once-weekly GLP-1 agonist Trulicity (dulaglutide) and the SGLT-2 inhibitor Jardiance (empagliflozin) franchise (including SGLT-2/DPP-4 inhibitor combination Glyxambi) – took very different paths after bringing in essentially equal revenue in 1Q15. Trulicity continued its strong trajectory, growing sequentially from $18 million to $44 million and making gains in terms of coverage, while Jardiance/Glyxambi declined sequentially from $19 million to $11 million as part of what management described as an overall SGLT-2 inhibitor class slowdown – we were surprised to hear that.  

On the R&D side, this quarterly update brought the disappointing news that Lilly has discontinued development of its phase 2 glucagon receptor (GCGR) antagonist LY2409021. This came as a surprise to us given that the company has repeatedly characterized the candidate as one of the most promising in its diabetes pipeline – yet another illustration of how high the bar has risen for new drugs in this field and how fast things can change. The company has also discontinued two undisclosed phase 1 candidates in diabetes, though its early-stage pipeline is still relatively full.  With regard to later-stage products, management stated that BI has submitted a response to the FDA’s Complete Response Letter (CRL) for Synjardy (empagliflozin/metformin) and that a decision is expected within two months – the product was recently approved in Europe. There was little mention of Lilly’s novel basal insulin peglispro (which received significant attention during the company’s ADA Diabetes Business Update) and no mention of Lilly/BI’s biosimilar insulin glargine formulation, but management later confirmed that it is still slated to launch in Europe this summer. Read on below for an item-by-item overview of highlights from the call, followed by relevant Q&A.

Financial results for Lilly’s major diabetes products

Financial Highlights

• Total sales for Lilly’s diabetes portfolio decreased 4% year-over-year (YOY) as reported to $1.14 billion in 2Q15.  This was a fairly challenging comparison against the 10% growth in 2Q14. By product, new GLP-1 agonist Trulicity (dulaglutide) accounted for the vast majority (80%) of quarterly growth, with Jardiance (empagliflozin) contributing the other 20%. Performance was significantly stronger in the US (6% growth) than ex-US (15% decline). The relatively weaker international performance was likely due to the effects of foreign exchange rates – for the whole endocrinology portfolio, growth in constant currencies was around 8% better than growth as reported. Sequentially, sales for the portfolio declined 1% as reported against an easy comparison (1Q15 sales declined 8% sequentially). See the table above for an overview of financial results for Lilly’s major diabetes products.

Insulins (Humalog and Humulin)

• Humalog sales declined 7% YOY as reported and were flat in constant currencies to $654 million in 2Q15. This was a challenging comparison with an 11% YOY growth in 2Q14. As with the diabetes portfolio as a whole, ex-US sales (down 11%) were significantly weaker than US sales (down 3%). Sequentially, sales declined 4% overall (-5% in the US and -3% ex-US). Regarding the performance in the US, management cited lower net effective selling prices, de-stocking in 2Q15, and a one-time positive accounting adjustment in 2Q14 related to managed Medicaid that impacted the 2Q15 comparison by around 5%. The unfavorable impact of foreign exchange rates (partially offset by increased volume and higher prices) was implicated in the ex-US decline.
  
  • Management remained positive about Humalog’s overall prospects, citing one-time events that impacted this quarter’s results. During Q&A, diabetes head Mr. Enrique Conterno asserted that the “business fundamentals are good.” Emerging markets head Mr. Alfonso Zulueta also noted that Lilly’s analog insulin business in China has grown 12% this year to date, despite the overall slowdown for pharmaceutical sales in China discussed in detail in our Novartis 2Q15 report.
  • During Q&A, one analyst raised concerns about the impact of pricing pressure from a more conservative payer environment. In response, Mr. Conterno noted that mealtime insulins were among the first drug classes to come under price pressure due to narrower formularies and asserted that Humalog has been able to maintain fairly stable or even slightly higher net prices since that pricing pressure began in 2009. As a reminder, Humalog won a major Express Scripts formulary contract at Novo Nordisk’s expense going into 2014, though it likely had to accept a very high level of rebates to do so. Management has repeatedly stated that Lilly is firmly in favor of more choice for patients – that is a bit hard to see given the competition for sole-source contracts. Lilly shared during the company’s 2015 guidance call in January that Novo Nordisk appeared to have made the greater formulary gains this cycle – it is hard to know how those have affected Humalog’s performance. Mr. Conterno explicitly stated that there have been no significant changes in terms of contracting or pricing pressure “over and above what we’ve seen before.” It’s hard to get great optics on net prices for insulins given the simultaneous increases in list prices and rebates. In addition to pressure from payers, we imagine that sales of Humalog and other rapid-acting insulins may have been hurt in recent years by the introduction of other drug classes (i.e. GLP-1 agonists and SGLT-2 inhibitors) that offer a safer means of addressing postprandial glucose in type 2 diabetes.
• This discussion of pricing pressure made for an interesting contrast with the increasing frustration among patients and clinicians over rising insulin prices. As one recent example, the conversation during a Lilly-sponsored dinner at Keystone turned to passionate commiseration about the skyrocketing cost of insulin, with one attendee explaining that some of her patients have been forced to forgo vacations or saving for their children’s college educations in order to pay for insulin (we don’t as a rule personally think that is so bad – we believe when patients can’t get the medicine they need at all, that is a major problem). Dr. Irl Hirsch (University of Washington, Seattle, WA) has tackled this topic head-on at a number of recent conferences, most recently at ADA, where he proposed several potential solutions, from clinical guidelines that incorporate cost-benefit analyses to value-based pricing to greater advocacy by organizations like the ADA and JDRF. Our sense is that the insulin market is at a point of transition that has left both patients and industry feeling squeezed; while the era of continually increasing prices for the current generation of insulin analogs is likely coming to an end, it remains to be seen what the “new normal” will be. The fact that it is challenging to differentiate does not help, of course!
  
  • During Q&A, management cited the pricing pressure in diabetes as an example of where the oncology field may be headed. While Mr. Lechleiter acknowledged a clear contrast between the two fields at the moment in terms of the level of pressure from payers, he suggested that greater competition could eventually result in similarly lower net prices for cancer drugs. While diabetes may have suffered more than its fair share of pricing pressure in recent years, it was clear from this discussion that the conundrum of rising drug costs is far from unique to this field – as outlined in a recent New York Times article (#5 on the most emailed list as of this writing), there has been increasing backlash against soaring drug prices across a number of disease areas. Although insulin prices are hardly unreasonable given the impact of insulin to the field, we could also discuss a range of other drugs where prices are truly unreasonable. Overall, prices in diabetes remain too high, but they are low relative to many of the rest of diabetes drugs out there.   
• Management highlighted the recent FDA approval of Lilly's Humalog U200 KiwkPen. This is the first concentrated mealtime insulin to reach the US market. We imagine list prices are roughly similar per unit vs. Humalog U100 and that the primary advantages are lower injection volume (more comfortable and easier for patients) and fewer pens to carry around. We did learn during the company’s Diabetes Business Update at ADA that the U200 KwikPen had achieved 1.7% of the total rapid-acting analog market after two months on the market in Germany.
• Sales of Lilly’s human insulin Humulin were down 10% YOY as reported and 5% in constant currencies to $316 million in 2Q15. Sales were flat sequentially. Again, there was a substantial discrepancy between US (4% growth) and ex-US (25% decline) performance – exchange rates likely accounted for a significant portion of this difference. Management also pointed to the negative effect of the Brazil Humulin tender last year as a major driver of lower emerging market sales and noted that the human insulin market in China has recently experienced significant pricing pressure.

Trulicity

• Lilly’s new once-weekly GLP-1 agonist Trulicity continued to do well with $44 million in sales this quarter, up from $18 million in 1Q15. This total includes $37 million in US sales and $7 million in ex-US sales. This strong performance is in line with Mr. Conterno’s comments at the ADA investor update regarding Trulicity’s positive patient feedback and a strong post-launch trajectory in Germany. Trulicity is emerging as one of the more patient-friendly GLP-1 agonist options on the market and this quarter’s results indicate continued positive reception from patients and providers in the first half year of its launch.
  
  • Mr. Conterno reiterated Trulicity’s role in driving overall expansion of the GLP-1 agonist class. Management views continued growth of the GLP-1 agonist class as a whole as key to maintaining long-term value for Trulicity. We will be very curious to gauge the extent to which Trulicity has drawn market share from other products vs. spurring growth of the class during Novo Nordisk’s and AZ’s updates in the next few weeks – in 1Q15, Novo Nordisk management acknowledged that market leader Victoza (liraglutide) had lost some share within the class since Trulicity’s launch.   
  • Trulicity has made progress in terms of access and uptake in the US. Management shared during Q&A that commercial access is at ~70% and Medicare Part D access is at ~30%. This is solid progress since 1Q15 (when coverage was at ~65% in the commercial segment and essentially nonexistent for Medicare) faster than expected, given these coverage percentages were not expected until the end of 3Q15. This is very positive news on the payer front and we’re glad to see improving patient access to both this particular drug and the class as a whole. CMS decisions on Trulicity are expected to go into effect in 1Q16 and we look forward to more meaningful and extensive Part D coverage then.
  • Management highlighted the recent Japanese approval of Trulicity and a partnership with Sumitomo Dainippon Pharma to market it there. During Q&A, Mr. Conterno emphasized the critical role Sumitomo Dainippon Pharma will play in reaching and promoting Trulicity to small clinics in Japan, noting that in Japan the GLP-1 agonist class has the lowest penetration in type 2 diabetes of any major market. We see this as both a major opportunity and a major challenge for Lilly.

Jardiance

• Lilly/BI’s SGLT-2 inhibitor Jardiance (empagliflozin) and the fixed-dose combination Glyxambi (empagliflozin/linagliptin) collectively brought in $11 million in sales in 2Q15, a surprising 43% sequential decline from $19 million in 1Q15. Both US and ex-US sales decreased – US sales totaled $10 million (compared to $15 million last quarter) while ex-US sales totaled $1 million (compared to $4 million last quarter). Prior to this quarter, Jardiance sales had been growing at a fairly substantial pace quarter-to-quarter. Management attributed at least part of the decline to an overall slowdown for the SGLT-2 inhibitor class (in terms of new patient starts) this year. That is somewhat inconsistent with the strong growth for J&J’s Invokana (172% YOY growth and 14% sequential growth) in 2Q15; Invokana’s total prescription share (TRx) in the US type 2 diabetes market (excluding insulin and metformin) also grew to 5.9% this quarter from 4.9% in 1Q15. Invokana does benefit from substantial first-to-market and reimbursement advantages in the US, which would likely give it a bit of a buffer from any overall class slowdown. J&J did not offer any commentary on broader trends for the SGLT-2 inhibitor class during its 2Q15 update but did note in 1Q15 that Invokana was continuing to gain market share despite the introduction of competitors.  
  
  • We wonder to what extent, if any, the SGLT-2 inhibitor slowdown was a result of the recent concerns about ketoacidosis. Awareness of this issue has increased dramatically since Dr. Anne Peters (USC, Los Angeles, CA) first began drawing attention to it toward the beginning of this year, and we suspect that label changes are likely in the future. Much of the concern centers around off-label use of SGLT-2 inhibitors in type 1 diabetes, but a number of cases have been reported in type 2 diabetes as well, and we imagine that the FDA’s drug safety communication on the issue may have dampened some patients’ and providers’ excitement for the class. It looks like the risk for this rare but serous adverse event could be managed, especially when we have more data, but it would not be unreasonable to expect a slight stumble in the class’ uptake over the coming quarters.   
  • Management reiterated that Lilly/BI expect to see cardiovascular outcomes data for Jardiance this quarter. The EMPA-REG OUTCOME study is complete according to ClinicalTrials.gov, and Lilly/BI plan to issue a press release with topline results this quarter and present full results at EASD in September. These results are especially eagerly awaited, as this will be the first SGLT-2 inhibitor CVOT to report results. In response to a question about the potential impact of a positive outcome, Mr. Conterno suggested that it would lift the entire SGLT-2 inhibitor class, but Jardiance would likely get some level of disproportionate benefit. While a finding of CV superiority would of course be a huge win, the main question is whether the trial ran for long enough for a benefit to become apparent in the data. SGLT-2 inhibitors have beneficial cardiovascular effects beyond glucose (weight, blood pressure), but it is far from certain that they will be dramatic enough to demonstrate a benefit in a five-year trial of high-risk patients. The CVOTs that have reported so far have been fully neutral, and while EMPA-REG OUTCOME has a better chance than most of the others at showing a hint of a benefit, we are keeping our expectations in check.

Glyxambi (empagliflozin/linagliptin)

• Glyxambi’s financial results were grouped with Jardiance (see above), and the product surprisingly did not receive any mention during the call. This was Glyxambi’s first full quarter on the market, and we imagine that the lack of attention could be a sign that the initial launch has been slower than expected. At the ADA investor update, Mr. Conterno had noted that Glyxambi had built the Jardiance franchise’s new-to-brand shared (NBRx) to slightly above 15% as of May 15th. However, the sluggish results for the franchise as a whole suggest that sales were not spectacular, which is somewhat unexpected for such an eagerly anticipated drug class. Strong reimbursement will be key to Glyxambi’s success given the product’s cost of $581 per month, although that cost is a discount vs. the list prices for Jardiance and Tradjenta separately, so it is conceivable that uptake could pick up in future quarters as payer discussions progress.

Tradjenta

• Sales of Lilly/BI’s DPP-4 inhibitor Tradjenta (linagliptin) declined 11% YOY as reported – but rose 11% in constant currencies – to $80 million. The comparison is fairly challenging, as Tradjenta was still on its steeper early growth trajectory in 2Q14, when it grew 65%. The $80 million total revenue in 2Q15 includes an increase in US sales to $34 million and $46 million in sales outside the US. For the first time since its approval, US performance for Tradjenta (7% decline) was stronger than ex-US (14% decline), though both declined. This quarter also represented the first ever decline in ex-US growth. Worldwide sales declined by 3% sequentially.
  
  • Mr. Conterno pointed to two adjustments that affected Tradjenta’s financial results for this quarter. In 3Q14, lower Medicare rebate accruals resulted in a negative adjustment. 2Q15 saw a negative adjustment as well. The end result is an overstatement of sales in 1H14 and an understatement in 1H15. Mr. Conterno asserted that after normalization of these one-time effects and reassignment of the accruals to the right quarter, net US Tradjenta sales would be growing above 15%.
  • While much of Tradjenta’s drop may have been due to one-time factors, the overall class will continue to face challenges. This slowdown likely stems from a number of factors, including pricing pressure, increased competition within the class and with SGLT-2 inhibitors, the slowdown of patient transfers from TZDs, and nagging concerns about pancreatic adverse events and heart failure. The reassuring results from the TECOS CVOT for Merck’s Januvia (sitagliptin) should help allay concerns about a potential DPP-4 inhibitor class effect on heart failure, though providers are still likely to avoid AZ’s Onglyza (dapagliflozin) in patients at risk of heart failure due to the signal in SAVOR. Unlike Novartis and AZ, Lilly/BI have not explicitly noted an intention to divert resources away from their DPP-4 inhibitor, but we would not be surprised if that was the case. We have assumed that fixed-dose combinations like Glyxambi hold the greatest hope for future momentum for the class, although that prediction could prove incorrect if Glyxambi’s performance does not live up to expectations.

Other Products

• Sales of Lilly’s glucagon formulation rose 2% YOY as reported to $26.2 million. Sequentially growth was flat. The vast majority of the product’s sales are in the US. Lilly’s and Novo Nordisk’s glucagon formulations are likely to be challenged by next-generation products from companies like Locemia, Xeris, and Biodel, although the inclusion of a phase 1 candidate for hypoglycemia in Lilly’s pipeline suggests that the company may eventually be planning to compete in the new glucagon market – from a strategic perspective, this is expected, though whether Lilly “buys or builds” remains a question.
• Lilly’s revenue from Actos (pioglitazone) sales totaled $7 million in 2Q15, declining 26% YOY as reported. Actos sales have been declining for some time – mainly due to the loss of patent exclusivity though concerns about heart failure, bone fractures, and bladder cancer certainly didn’t help. Notably, a recent ten-year observational study published in JAMA found that there was no significant increase in bladder cancer risk associated with Actos. Another observational study also recently found a possible association between Actos and reduced dementia risk. Despite these positive findings, our sense is that the damage is largely done and that Actos’ performance is unlikely to turn around going forward. As one small silver lining for Lilly and Takeda, the companies should no longer have to commit resources to fighting thousands of patient lawsuits over the bladder cancer controversy following Takeda’s recent announcement of a ~$2.4 billion settlement (assuming most claimants opt in).

Pipeline Highlights

Glucagon Receptor Antagonist

• In surprising and disappointing news, Lilly announced that it has discontinued development of its phase 2 glucagon receptor (GCGR) antagonist LY2409021. Management did not offer any commentary on the rationale for the decision during the call, but we later learned that it occurred after a phase 2 blood pressure trial failed to meet its primary endpoint. The announcement came as quite a surprise to us given that the company has repeatedly characterized the candidate as one of the most promising in its diabetes pipeline. The drug had demonstrated a favorable profile in clinical trials in the past, producing rapid reductions in A1c (~0.7%-0.9% after 24 weeks) with minimal increase in hypoglycemia or weight, though there were some transient increases in liver enzymes and plasma glucagon. We had also assumed that the lack of renal clearance and minimal dependence on residual beta cell function could help the GCGR class differentiate itself, as many existing type 2 diabetes drug classes are contraindicated or less effective in patients with longstanding diabetes and renal impairment. However, as management remarked in 1Q15, the bar for new glucose-lowering drugs is currently very high given the relatively crowded market and enormous development costs (particularly in the era of CVOTs). In this context, we can imagine why the combination of possible safety signals and subpar efficacy for at least one parameter may have led the company to decide that advancing the candidate was not worth the investment.
  
  • In what may have been prescient remarks at AACE, Dr. Ralph DeFronzo (University of Texas Health Science Center, San Antonio, TX) expressed skepticism about GCGR antagonists due to safety concerns. During a talk on the importance of targeting glucagon in diabetes therapy, Dr. DeFronzo noted that this class has attracted a great deal of excitement in the field and demonstrated impressive efficacy in clinical trials. However, he cautioned that the long-term safety impacts are largely unknown, listing alpha cell hyperplasia, increased pancreatic weight, elevation in a range of proglucagon-related peptides, and decreases in lipid oxidation (which could lead to insulin resistance) as potential concerns. Studies of GCGR antagonists to date have not revealed any serious safety concerns, but some have shown potential signals related to liver enzymes and all have been of relatively short duration. Again, particularly given Lilly’s recent experience with peglispro, we wonder whether these potential long-term risks were part of the calculus behind the  decision to discontinue development.
  • Other companies developing GCGR antagonists include Isis and Ligand. As of 4Q14, Isis planned to initiate a phase 2 dose optimization study of its GCGR antagonist ISIS-GCGRRx in patients with type 2 diabetes this year. The company presented positive phase 2 results for the candidate at ADA 2014 demonstrating significantly greater A1c reductions with various doses vs. placebo and a significantly higher percentage of patients achieving an A1c ≤7%; however, there were also some potentially concerning elevations in liver enzymes. We have heard Isis management speak very positively about the candidate in he past, characterizing it as one of the most effective glucose-lowering agents they have ever seen, and we are curious to see whether this positive outlook continues. Ligand has offered similarly positive commentary on its phase 1 GCGR antagonist LGD-6972 (PK/PD results presented as a poster [1193-P] at ADA 2015), repeatedly describing it as a potential best-in-class asset. We will be very curious to see whether Lilly’s decision to discontinue its product foreshadows wider challenges for the class or whether it will create more opportunity for the other companies that might otherwise have struggled to compete.     

Synjardy (Empagliflozin/Metformin)

• BI has submitted a response to the FDA’s Complete Response Letter (CRL) for Synjardy, and a decision is expected within two months. As a reminder, the product received European approval in late May. We first heard about this CRL during Lilly’s Diabetes Business Update at ADA; management has stated that it did not identify any concerns about Synjardy’s clinical profile or manufacturing but was a result of discussions with the FDA about the contents of the label. It appears that these concerns were easily addressed, as Lilly indicated during this call that BI has already submitted a response and received Class 1 designation, meaning a decision is expected within the next two months. Synjardy is an important line extension for Lilly/BI, as AZ and J&J already have SGLT-2 inhibitor/metformin combinations on the market (Xigduo and Invokamet/Vokanamet, respectively), though Lilly/BI should certainly gain some advantage from being the first to launch an SGLT-2 inhibitor/DPP-4 inhibitor combination (at least in the US). While SGLT-2 inhibitor/metformin combinations are less exciting in terms of efficacy than the SGLT-2/DPP-4 inhibitor combinations, they offer significant practical advantages for patients who wish to reduce pill burden and consolidate copays without a huge step up in cost.

Peglispro (BIL)

• Lilly referenced the full phase 3 data on peglispro presented at ADA and reiterated the decision to delay regulatory submission in order to collect additional safety data. Management did not offer further commentary on peglispro during this call but spoke very positively about the candidate during the company’s Diabetes Business Update at ADA. During that presentation, Lilly Vice President of Medical Affairs Dr. David Kendall framed the safety data somewhat more optimistically than we have heard elsewhere, noting that most episodes of hypoglycemia in the type 1 diabetes studies were associated with recent administration of bolus insulin and that the increase in the liver enzyme ALT was stable over time and returned toward baseline after cessation of treatment. He also emphasized that bilirubin (another measure of liver function) was not different between the groups and that there were no cases of Hy’s Law or drug-induced liver injury. Peglispro has been shaping up as a high-risk, high-reward candidate for some time, and we imagine that it may well face a difficult road to approval even if the upcoming liver studies report positive results. In the meantime, we believe the delay should allow Lilly to focus more attention on its biosimilar insulin glargine Basaglar/Abasaglar, which to our knowledge is still slated to launch in Europe this summer.

Other Pipeline Updates

• The call did not include updates on Lilly/BI’s biosimilar insulin glargine Basaglar (US)/Abasaglar (EU), but management later confirmed that the product is still slated to launch in Europe late this summer. This will make Abasaglar the first biosimilar insulin to reach the market. Pricing remains a major unanswered question with biosimilars, and the introduction of this product should be an important test case. Lilly has consistently stated that it plans to price the biosimilar as it would any new branded option, but we suspect that payers (especially cost-focused European government payers) will likely push for greater discounts. Even in the US, we imagine that the growing frustration with rising insulin prices will create pressure for price reductions with biosimilars, though the discounts are not expected to be anywhere close to those seen for small molecule generic drugs. However, as mentioned above, the delayed timeline for peglispro should allow Lilly to focus more resources on Abasaglar’s launch and could potentially allow for more flexibility in terms of pricing, as the company will not have to worry about immediate competition between its two basal insulins. 
  
  • As a reminder, full US approval of Basaglar is on hold pending the outcome of Sanofi patent litigation. The product was tentatively approved by the FDA in August, and full approval is delayed until 3Q16 unless the lawsuit (which has a trial date this September) is resolved earlier in Lilly/BI’s favor.
• The call also did not include mention of Lilly/Adocia’s ultra-rapid-acting BioChaperone Lispro, which recently reported positive phase 1b results. The trial (ClinicalTrials.gov Identifier: NCT02344992) found a 61% reduction in postprandial excursions and a 168% increase in early insulin exposure with BioChaperone Lispro vs. Humalog in type 1 diabetes. Adocia stated during its 2Q15 update this week that additional studies are being prepared and should begin in 2H15 – stay tuned for our coverage of that call for more. Lilly’s licensing agreement with Adocia also encompasses Adocia’s concentrated BioChaperone Lispro U300, which is designed for insulin pumpers and patients with a high daily insulin requirement. Between this agreement and the insulin glargine biosimilar, Lilly can now boast one of the broadest insulin portfolios in the field.
• In more disappointing R&D news, Lilly announced that it has discontinued development of two undisclosed phase 1 diabetes candidates, both biologics. Lilly’s phase 1 pipeline still includes two undisclosed candidates for diabetes, one for diabetic nephropathy, and one for hypoglycemia (which we assume is a stable glucagon formulation) in addition to the Adocia-partnered BioChaperone Lispro; the company also has a GLP-1/glucagon dual agonist in phase 2. While Lilly did not comment on the rationale for these decisions, we believe this quarter’s news is an excellent illustration of just how high the bar has become for new diabetes drugs, and we hope that this challenging environment does not dampen the company’s historical commitment to the area.
• Lilly is currently evaluating its options for its phase 2 PCSK9 inhibitor LY3015014. During Q&A, management acknowledged that Lilly would be at least fourth to market and would therefore likely need to show differentiation vs. other products in the class. As a reminder, Sanofi/Regeneron and Amgen both have PCSK9 inhibitors currently under FDA and EMA review, and while the initial approvals will likely be fairly narrow, the drugs could easily reach blockbuster status in the event of future broad approvals supported by positive cardiovascular outcomes data.

Questions and Answers

Q: On diabetes, there’s been some market concern that this category only becomes more competitive over time and gets even more price pressure going forward. You obviously have a differentiated portfolio, but how do you think about the risk of an even more conservative payer environment in this category going forward?

A: It’s difficult to speculate when it comes to the payer environment in diabetes, but I think it’s helpful for us to be able to look back to mealtime insulin, because that was the first class in diabetes that was under pressure when it comes to the narrowing of formularies. That started sometime in 2009. Through this period from 2009 to today, we’ve been able to have fairly stable net prices for Humalog. If anything they are slightly up, but clearly not much. So I would say that yes, it is likely that there’s going to be narrowing of formularies in other segments in the diabetes space, but I do not expect significantly different behavior when it comes to net prices and how mealtime insulins behave.

Q: On Trulicity, could you talk about the progress you’ve made in terms of access and any additional color you could give on the launches of Trulicity and Jardiance?

A: We are pleased with the progress we’ve made with both Trulicity and Jardiance. We now have about 70% commercial access in the US and 30% Part D with Trulicity. As I shared earlier, I think a key to be able to get long-term value for this product is to ensure that the GLP-1 agonist class is growing, and we clearly see a significant acceleration of the GLP-1 agonist class.

In the case of Jardiance, the situation is similar. Differently from the GLP-1 agonist class, we have seen a significant slowdown in the SGLT-2 inhibitor class when it comes to new patient starts this year, so that’s something that we’re watching very closely.

Q: On diabetes, sales levels of various products seemed to track below what I would have expected in different geographies. Does that speak to an increased level of price erosion that might have impacted results?

A: As we look at our diabetes business, there were a number of one-time events that are impacting the quarter-to-quarter results. The underlying business fundamentals are good, not just when it comes to volume. We have not seen any significant changes when it comes to contracting or additional price pressures over and above what we’ve seen before.

For Humalog, in 2Q14 we had a significant positive adjustment related to managed Medicaid that was about five points in terms of the impact when we compare 2Q15 vs. 2Q14. We also had a little bit of de-stocking in the US in 2Q15. But as we look at the business fundamentals, we continue to feel good about our prospects.

We also have some anomalies when it comes to Tradjenta. In this particular case there were two important adjustments that have been made over the last year or so. We made a negative adjustment in 3Q14 for Tradjenta sales because we had not accrued enough when it comes to our rebates. We were getting more of our business coming from Medicare than we had initially estimated. And then in 2Q15 we had a negative adjustment. In essence, we had overstated some of our sales in 1H14 and we have in a certain way understated our sales in 1H15. To make this simpler, the bottom line is if we were to normalize for some of these onetime effects and reassign the accruals to the right quarter, our net sales would be growing about 15% for Tradjenta in the US. Clearly we have a very significant volume growth. 

Q: With the commercial launch activity heightened in Japan, can you walk us through the opportunities for…Trulicity there, the relationship with Sumitomo, and how you’ll launch there?

A: As we have said before, when it comes to Trulicity overall expansion of the GLP-1 agonist class is critical for us. To quote a few numbers in the US, when we look at new patient growth that number is now close to 50% when we look at four weeks year-on-year or 13 weeks year-on-year. So we’re clearly very pleased with that. When it comes to Japan this is even more true because in Japan the GLP-1 agonist class has the lowest penetration in type 2 diabetes of any major market. For us to accomplish this, we have decided to partner with Dainippon Sumitomo in order to give us the appropriate reach when it comes to the small clinics, and this is going to be critical for us.

Q: Are the current price points for cancer drugs sustainable if the current pace of innovation continues? How do you think the industry is going to react to any pricing pressure you might see?

A: …We know in other classes of medicine – diabetes would be one example we’re familiar with – we see intense competition that has resulted in lower net effective prices based on negotiations that we must undertake with payers and insurers in that space. Obviously we haven’t seen that play out in quite the same way in oncology, but I think we should be encouraging innovation because innovation begets competition rather than discouraging innovation by threatening things like price caps, etc.

Q: The CV outcomes data for Jardiance is expected in 3Q15. Since it is 3Q15, is the data in house? How will it be released? Are you anything but very confident in the data?

A: We expect to see the data this quarter. As we have said, once we have the opportunity to see the data, we will issue a topline press release with the results. We are planning to showcase those results in September at EASD, but that’s as much as I can share right now.

Q: What do you see as the potential impact of a positive CV benefit on the trajectory of the SGLT-2 inhibitor class and Jardiance? Do you expect a heavy asymmetrical benefit for Jardiance or do you think it would be a benefit for everyone?

A: It is difficult to speculate on what relative share of the benefit we will get if we were to have a positive CV outcomes result. Clearly this is going to provide a lift to the entire class and we do expect that we’re going to get a disproportionate share of that benefit. How much I think is difficult to say.

Q: Can you comment on what’s happening in China? There’s been a pretty sudden slowdown for pharma sales for the industry. Could you comment on that and how long those conditions might persist?

A: …The analog insulin business in China is growing 12% year-to-date. We’re getting significant pricing pressure on the human insulin side where local companies are beginning to win the provincial kids. We anticipate pressure in the short term but we’re very confident that the long-term prospects remain very, very positive.

Q: There is obviously a lot of interest and excitement around the industry on PCSK9 inhibitors because the first ones are almost on the market. You still have yours in phase 2. Can you give an update on how you view that opportunity for Lilly?

A: There’s really no update from the last call. We have our phase 2 data complete and we’re looking at our strategic options for this program, recognizing there are three competitors ahead of us and we would want to see differentiation or perhaps look for other options to have them all move forward.

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