Memorandum

Sanofi 4Q15 – Diabetes sales down 13% to ~$2.1 billion in 4Q15, down 7% to ~$8.4 billion for full year 2015; 4Q15 Lantus sales down 7% at ~$1.6 billion while Toujeo sales double sequentially – February 9, 2016

Executive Highlights

  • Sales for Sanofi’s diabetes portfolio declined 13% year over year (YOY) in constant currencies (down 6% as reported) to €1.9 billion (~$2.1 billion) in 4Q15. Full year sales totaled €7.6 billion (~$8.4 billion), down 7% operationally (up 4% as reported).
  • Lantus (insulin glargine) sales fell 20% YOY in constant currencies (down 13% as reported) to €1.5 billion (~$1.6 billion). Full year sales of Lantus fell 11% at constant exchange (up 1% as reported) to €6.4 billion (~$7.1 billion).
  • PCKS9 inhibitor Praluent (alirocumab) has achieved favorable formulary access.

Sanofi provided its 4Q15 update yesterday in a call led by CEO Mr. Olivier Brandicourt. Total sales for the company’s diabetes portfolio in 4Q15 were €1.9 billion (~$2.1 billion), falling 13% year over year (YOY) in constant currencies (down 6% as reported) and rising 3% sequentially. Overall 2015 sales totaled €7.6 billion (~$8.4 billion), down 7% operationally (up 4% as reported) from 2014. Management characterized the decline as expected and in line with guidance from Sanofi’s 3Q15 update. The slower performance of the overall diabetes portfolio was driven by declines in US diabetes sales revenue, particularly for its largest-selling product Lantus (insulin glargine) – presumably most of this was driven by price. Lantus sales fell 20% YOY in constant currencies (down 13% as reported) at €1.5 billion (~$1.6 billion). This was the most challenging quarter in terms of growth for both Lantus and Sanofi’s diabetes portfolio as a whole since we began tracking the company’s sales over a dozen years ago, in 2002.

On the more positive side from a growth perspective, albeit from a much smaller base, new insulin Toujeo (U300 insulin glargine) sales doubled sequentially in 4Q15, reaching €98 million (~$108 million) – sales tripled internationally. Full year sales totaled €164 million (~$182 million). Sanofi management highlighted the impressive formulary access achieved by its PCSK9 inhibitor Praluent (alirocumab), although this only netted €5 million (~$6 million) in sales in 4Q15 and €9 million (~$10 million) in sales for all of 2015, which seemed on the lower side but we remember that bigger sales won’t happen til the CVOT results are due. On the pipeline front, Sanofi confirmed that LixiLan (lixisenatide/insulin glargine) will be submitted in the EU in 1Q16 and that an FDA decision is expected in 3Q16. The company has also added a new stable glucagon candidate (SAR438544) to its phase 1 pipeline. 50% interim analyses for Praluent’s (alirocumab) ODYSSEY cardiovascular outcomes trial is expected in the first half of 2015 and 75% analyses is expected in the second half of 2015, with full completion expected in 2017.

Read on below for a product-by-product overview of the update and a look at industry-wide trends in the GLP-1 agonist, basal insulin, and rapid-acting insulin markets, followed by a transcript of all diabetes-related Q&A.

Table 1: Summary of 2015 financial results for Sanofi’s diabetes drug portfolio

Product

2015 Revenue (millions)

Year-Over-Year Reported (Operational) Growth

Total Diabetes

€7,572 / ~$8,403

4% (-7%)

Lantus

€6,390 / ~$7,091

1% (-11%)

Amaryl

€393 / ~$436

9% (2%)

Apidra

€376 / ~$417

12% (5%)

Insuman

€141 / ~$156

3% (3%)

Blood Glucose Monitoring (BGM)

€63 / ~$70

-2% (-2%)

Lyxumia

€38 / ~$42

41% (37%)

Toujeo

€164 / ~$182

-

Afrezza

€7 / ~$8

-

Table 2: Summary of 4Q15 financial results for Sanofi’s diabetes drug portfolio

 

4Q15 revenue (millions)

YOY growth (reported / CER)

Sequential growth (reported)

Total diabetes

€1,899 / ~$2,093

-6% / -13%

3%

Lantus

€1,536 / ~$1,693

-13% / -20%

-2%

Amaryl

€94 / ~$104

3% / 0%

1%

Apidra

€104 / ~$115

8% / 3%

18%

Insuman

€38 / ~$42

0% / 0%

6%

Blood Glucose Monitoring (BGM)

€16 / ~$18

-11% / -11%

7%

Lyxumia

€11 / ~$12

38% / 25%

22%

Toujeo

€98 / ~$108

-

113%

Afrezza

€2 / ~$2

-

0%

Financial Highlights

Overall Diabetes Portfolio

  • As has been the case the last several quarters, Sanofi’s diabetes portfolio faced a challenging quarter in 4Q15, with sales falling 13% year-over-year (YOY) at constant exchange (falling 6% as reported) to €1.9 billion (~$2.1 billion); full year 2015 sales fell 7% in constant currencies (rising 4% as reported) to €7.6 billion (~$8.2 billion). This was against a difficult comparison as sales rose 17% in 4Q14. Sequentially, sales grew 3% against an easy comparison (sales fell 17% sequentially in 3Q15). 4Q15 represents the first time Sanofi’s diabetes portfolio has experienced negative reported year over year growth since we began tracking the company in 2004 over a decade ago. The company’s sales have been falling at constant exchange since 1Q15, but a strong US dollar had masked the effect so that the diabetes portfolio’s reported growth was positive for 1Q15, 2Q15, and 3Q15. Reported growth for full year 2015 was also the lowest it has been since 2004. See the figure below for overall trends in Sanofi’s diabetes portfolio.

Figure 1: Total Sanofi Diabetes Portfolio Sales (1Q05-4Q15)

  • Declining US sales, which account for the lion’s share of Sanofi’s diabetes revenue, drove the overall sales decline. US diabetes sales fell a significant 25% in constant currencies (-15% as reported) to €1.0 billion (~$1.2 billion), and comprised 56% of total diabetes sales (down from 58% of total sales in 3Q15). Full year 2015 US diabetes sales fell 17% operationally (down 1% as reported) to €4.3 billion (~$4.8 billion). Outside of the US, diabetes sales grew 13% as reported to €862 million (~$950 million) in 4Q15. Emerging markets performed particularly well, with sales rising 15% in constant currencies. In particular, Sanofi highlighted its performance in China, where the company’s overall portfolio (both within and outside of diabetes) experienced double-digit growth and a gain in market share. This was in contrast to sales in China for Novo Nordisk, which were much more challenging due to slower GDP and healthcare spending growth, price pressure due to the government’s focus on cost containment, increased competition from local players, and a shift in the market from premix insulin (where Novo Nordisk is the market leader) toward basal insulin (dominated by Sanofi and local players). According to Sanofi management, China is now Sanofi’s third largest country by sales.
  • Sanofi on its diabetes portfolio performance: “The good news is that there is no news.” Sanofi emphasized that the decline for the diabetes portfolio is in line with its revised guidance from October, which forecast a decline of 6%-7% in 2015 and 4%-8% each year through 2018. Presumably, overall results for Sanofi’s combined Diabetes and Cardiovascular business unit (which was implemented at the beginning of 2016) will be more positive in the coming years; the unit will be headlined by LDL cholesterol-lowering PCSK9 inhibitor Praluent (alirocumab), which has blockbuster potential and already drew significant attention during this call although sales were still fairly small, aimed primarily at a very small hypercholesterolemia market.

Lantus (insulin glargine)

  • Lantus (insulin glargine) sales fell 20% YOY in constant currencies (down 13% as reported) to €1.5 billion (~$1.7 billion) in 4Q15; full year sales were down 11% in constant currencies (up 1% as reported) to €6.4 billion (~$7.1 billion). Both 4Q15 and full year growth were against very challenging comparisons: Lantus sales grew 11% in constant currencies (17% as reported) in 4Q14 and 12% in constant currencies (11% as reported) in 2014. Mirroring the overall diabetes portfolio performance, 4Q15 was the first quarter in which Lantus experienced negative reported growth since we began tracking the product over a dozen years ago. 2015 as a whole is the first year in which Lantus did not experience double-digit growth in the last decade. For comparison, albeit from a lower base, Lantus grew 46% YOY as reported in 2005 and 15% in 2010. Sequentially, sales fell 2% in 4Q15, against an already easy comparison of a 9% sequential decline in 3Q15.

Figure 2: Lantus Sales (1Q05-3Q15)

  • The negative trend was largely driven by the US market (which accounts for the bulk of Lantus’s sales) where Lantus sales fell a striking 32% operationally (-22% as reported) to €933 million (~$1.0 billion) in 4Q15; full year US sales fell 21% operationally (-5% as reported) to €4.0 billion (~$4.5 billion). Sequentially, sales fell 7% as reported in 4Q15. Echoing comments from the 3Q15 update, management attributed Lantus’ weak US performance to slower growth in the underlying basal insulin market, higher rebating in 4Q15 compared to 4Q14, and a continued shift toward a higher proportion of Lantus sales coming from less-profitable government insurance programs (such as Medicaid). We also believe competitor Novo Nordisk is being increasingly competitive on pricing for Levemir. In addition, management noted that 4Q15 included a delayed Medicaid bill from multiple states, which also impacted sales totals. Management generally characterized these trends as “expected,” in contrast to the “disappointing” assessment for Lantus’ 3Q15 performance, though 4Q15 performance was weaker at face value. That said, US YOY performance for 4Q15 was against a tough comparison, as sales grew 20% in 4Q14. As a reminder, 4Q14 Lantus sales were bolstered by a significant 11.9% US wholesaler acquisition cost increase. Management had suggested in 4Q14 that roughly 80% of Lantus’ 4Q14 growth was due to price increases while 20% was due to volume increases. However, Sanofi was forced to accept higher rebates for Lantus for 2015 to defend its formulary access, which has led to weaker US Lantus performance all year. Indeed, management suggested in the 4Q15 update that half of the difference in performance in 3Q15 vs. 4Q15 was due to the 4Q14 price increase.
  • Outside of the US, Lantus continues to perform well in emerging markets, where sales rose 15% YOY in constant currencies (10% as reported) to €296 million (~$326 million) in 4Q15; full year sales rose 17% operationally and as reported to €1.1 billion (~$1.3 billion). Emerging markets has been a bright spot in Lantus’ performance throughout 2015. Management shared during Q&A that Lantus is now the number one basal insulin in the Chinese market and that Sanofi as a whole has been gaining share in China in the markets in which it competes. That said, Sanofi expects increased pricing pressure in China in the coming months and years. Western European sales fell 3% YOY in constant currencies (-2% as reported) to €223 million (~$246 million) in 4Q15; full year sales rose 2% operationally (3% as reported) to €898 million (~$997 million). More and more people are being diagnosed with diabetes, especially type 2 diabetes, but we believe overall there are more delays on moving to insulin
  • In a departure from previous quarters, Lilly/BI’s biosimilar insulin glargine Basaglar/Abasaglar received no mention during the call. The FDA recently granted US approval of Basaglar, but the product will not be launched until December 15, 2016 under the terms of Sanofi and Lilly’s patent lawsuit settlement. Sanofi fielded quite a few anxious questions about the impact of the biosimilar on Lantus sales in its 2Q15 and 3Q15 updates, so the lack of any mention in the 4Q15 update was a bit surprising. Abasaglar has been performing increasing from a very low base abroad, with $7.3 million in sales in 4Q15 (nearly doubling 3Q15 sales). We also learned from Lilly’s 4Q15 update that the product is priced at a 10%-20% discount relative to Lantus in the markets where it has already launched. The lower bound of this range is even lower than the estimate of 15%-20% that we’d previously heard, which may slightly decrease the biosimilar’s attractiveness as an alternative to Lantus. That said, we assume the discounts may be greater in the US than in Europe given the relatively higher cost of Lantus and other analog insulins.

Toujeo (insulin glargine U300)

  • Toujeo (U300 insulin glargine) sales more than doubled sequentially to €98 million (~$108 million); sales for its first full year on the market totaled €164 million (~$182 million). The graph below reflects well the potential for Toujeo’s trajectory. Sanofi was especially pleased with the acceleration of Toujeo’s launch trajectory. Echoing remarks from previous quarters, management highlighted the early broad market access Toujeo achieved in the US – according to the presentation slides, 86% of commercial and 91% of Medicare lives covered have access to Toujeo. Sanofi also shared that Toujeo has now rolled out in over 20 markets globally. As in 3Q15, the company particularly highlighted the launches in Germany, the UK, Japan, and Canada. While the US still accounts for the bulk of Toujeo sales, the contribution of ex-US sales is clearly increasing. In 4Q15 ex-US sales totaled €19 million (~$21 million), or 19% of total Toujeo sales, while US sales totaled €79 million (~$87 million), or 81% of total sales. For comparison, US sales accounted for 87% and ex-US sales accounted for 13% of total Toujeo sales in 3Q15.

Figure 3: Toujeo Sales (1Q15-4Q15)

  • During Q&A, management argued that it is normal to see a plateauing of new-to-brand prescription share (NBRx) for analogs. Management shared that Toujeo’s NBRx has stabilized at 13.5%-15%, with total prescriptions (TRx) ramping up to above 4%. While IMS Health data from Novo Nordisk’s 4Q15 update indicated that Toujeo accounted for only 1% of total basal insulin volume in the US as of November 2015, we don’t find that too surprising since building up a more expensive brand in this payer environment is certainly going to be challenging, particularly before “big data” can show more about patient experiences. The same data indicated that Lantus accounted for 65% of total basal insulin volume, Novo Nordisk’s Levemir (insulin detemir) accounted for 24%, and NPH accounted for 10%.
  • The overall basal insulin analog market fell 9% YOY as reported in 4Q15 to $2.6 billion and fell 8% YOY as reported in full year 2015 to $10.2 billion. This decline was driven almost entirely by Lantus as every other basal insulin product experienced growth in both 4Q15 and 2015 overall (though from a much lower base than Lantus). Though Lantus’ share of the market has been falling, its sales still represent 65% of the basal insulin market by value, which accounts for its strong influence on overall market trends. (For comparison, Lantus held 68% of the market by value in 3Q15 and accounted for 77% of all basal insulin sales at its peak in 4Q14). Toujeo holds 4% of the market by value, Novo Nordisk’s Levemir holds 28% while its next-generation basal insulin Tresiba (insulin degludec) holds 3%, and Lilly/BI’s biosimilar insulin glargine Basaglar holds 0.3% of the market. 2015 was the first year since we began tracking the market in 2005 that the basal insulin class experienced negative growth, and the class experienced the greatest decline in sales in 4Q15. Sanofi management pointed to the rise of the SGLT-2 inhibitor and GLP-1 agonist classes as contributors to the overall slowing of the basal insulin market; this has been happening for some quarters. While some have said that it is less clear to them that SGLT-2 inhibitor class growth would have a significant impact “since the two classes tend to be used at different points in the type 2 diabetes treatment algorithm”, we certainly know that more patients are taking SGLT-2s and staying on them longer – as well, some are combining SGLT-2s with GLP-1, and the more stable a patient can be and stay on a combination, of course, the less need there is for change. Longer term, we believe this is positive for the basal insulin market as it should extend the duration of diabetes for the average patient.
    • In 4Q15, the GLP-1 agonist class grew 24% to $1.1 billion and the class grew 21% to $3.9 billion in 2015. The growth represented 45% of growth of the entire diabetes drug market (not including insulin) in 4Q15 and 38% of growth of the entire market in 2015 overall.
    • The SGLT-2 inhibitor class experienced a whopping 91% growth to $539 million in 4Q15 and full year 2015 sales of $1.9 billion were 1.7x 2014 sales of $780 million. The growth represented 55% of growth of the entire diabetes drug market (not including insulin) in 4Q15 and 61% of the growth of the entire market in 2015.
    • The basal insulin market totaled $10 billion in 2015, down 9% from 2014. Even so, the basal insulin class as a whole at $10 billion is still 2.5x and more than 5x bigger than the GLP-1 agonist and SGLT-2 inhibitor classes, respectively. Still – the pricing pressure plus the impact of competitive classes definitely took their toll in 2015.  Sanofi management shared that the overall insulin market (presumably basal + rapid-acting) slowed down 4.9% in 2015, compared to 7%-7.2% growth in 2014, but the company expects the insulin market to return to low single digit growth for 2016. This is largely consistent with our calculations, in which the entire insulin market grew 7.9% in 2014 and fell 5.8% in 2015. For 4Q15, our calculated suggest the total insulin market fell 5.3%.

Figure 4: Total Basal Insulin Market Sales (1Q06-4Q15)

Lyxumia (lixisenatide)

  • Sanofi’s short-acting GLP-1 agonist Lyxumia (lixisenatide) posted sales of €11 million (~$12 million) in 4Q15, up 25% operationally (38% as reported). Full-year sales were up 37% operationally (41% as reported) to €38 million (~$42 million). Sequentially, sales rose 22% against an easy comparison (10% sequential decline in 3Q15). While the sequential growth is encouraging, Lyxumia’s overall performance since its launch remains fairly anemic, and the drug still accounts for a very small portion of the total GLP-1 agonist market (see below). As we have noted for some time, Lyxumia’s performance has been limited by its absence from the US market, which accounts for the 74% of GLP-1 agonist sales. We will be very interested to see if the drug can make substantial inroads in the US when it is launched (presumably towards the end of 2016 barring any unexpected regulatory hurdles). Entering a crowded – but growing! - market will be challenging, but Lyxumia may get a boost from the overall growth of the GLP-1 agonist class. It may also be able to distinguish itself as the preferred option for patients focused on postprandial control, as it is the shortest-acting agent that still allows for once-daily dosing.

Figure 5: Lyxumia Sales (2Q13-4Q15)

  • The GLP-1 agonist class as a whole grew 24% YOY in 4Q15 to $1.1 billion and grew 22% YOY in 2015 to $3.95 billion. Growth for the class was strong throughout 2015, pushing it past the $1 billion mark for the first time in 4Q15. This is consistent with expectations that new entrants, particularly Lilly’s patient-friendly Trulicity (dulaglutide), would serve to expand the class rather than solely taking market share from more established products. We see this as a positive trend as we have long felt that this class was underutilized. GLP-1 agonists should be one of the more exciting drug classes to watch in the next few years, with new entrants like Intarcia’s ITCA 650 (implantable exenatide mini-pump) and Novo Nordisk’s once-weekly semaglutide on their way and several CVOTs scheduled to report results (LEADER for Victoza should be first in March).
    • Lyxumia held only ~1% market share in the GLP-1 agonist class by value in 4Q15 and 2015. Novo Nordisk’s market leader Victoza (liraglutide) held 66% market share in 4Q15 and AZ’s exenatide franchise (Bydureon and Byetta) held 21%.  Trulicity held 10% after a very successful first year on the market, and GSK’s Tanzeum (albiglutide) held only 2%, a reflection of its relatively lower list price (its market share by volume is roughly equivalent to Trulicity’s). The breakdown for full-year 2015 was similar: market share was 68% for Victoza, 23% for the exenatide franchise, 6% for Trulicity, and 2% for Tanzeum.

Figure 6: GLP-1 Agonist Sales (1Q06-4Q15)

  • A US regulatory decision on lixisenatide (which may have a different trade name in the US) is expected in 3Q16. This is consistent with the timeline Sanofi provided at JP Morgan last month. We expect an announcement fairly early in the quarter, as a standard 10-month review timeline from the FDA’s acceptance of the NDA would place a decision in July 2016. Lixisenatide will likely be approved around the same time as Sanofi’s GLP-1 agonist/basal insulin fixed-ratio combination LixiLan (lixisenatide/insulin glargine). Though LixiLan was submitted later than lixisenatide, Sanofi redeemed a Priority Review Voucher, which triggers a six-month review process for the product rather than the standard 10-month review. For more on this, see the pipeline section below.

Afrezza

  • Inhaled insulin Afrezza, recently dropped from Sanofi’s portfolio, brought in only €2 million (~$2.2 million) in sales in 4Q15, bringing the full-year total to €7 million (~$7.7 million). Afrezza’s sales have been roughly flat at $1-2 million per quarter since its launch in February 2015. Sanofi announced its decision to terminate the partnership with MannKind in early January, presumably concluding that there was no clear path to economic viability after a year of underwhelming sales and unexpected challenges. There was almost no mention of Afrezza during this call, other than a note that charges related to the termination had a negative impact on earnings in 4Q15.
  • MannKind has expressed strong confidence in Afrezza following the termination. At JP Morgan and in a recent investor call, MannKind CEO Mr. Matt Pfeffer outlined the company’s revised strategy for the product, which includes a price cut and educational efforts that it hopes will lead to increased reimbursement and volume. Mr. Pfeffer noted that MannKind is open to other potential partnerships but stressed that the company is prepared to market Afrezza on its own if necessary. We would be happy to see Afrezza’s fortunes turn around, as it has received positive reviews from some patients who have used it successfully; patients on CGM seem to have done particularly well (or they may just be able to characterize their experiences better). Overall, so many patients are doing poorly on traditional MDI that we’d love to see a way to get MannKind’s application to more patients. MannKind’s single-minded focus on Afrezza could allow it to succeed where Sanofi failed, as it was clear that Afrezza was not Sanofi’s top diabetes priority in a year headlined by flat Lantus sales and the launch of Toujeo. That said, we still believe it will be an uphill climb for the cash-strapped MannKind to overcome the many obstacles Afrezza faces (e.g., poor reimbursement, the need for spirometry testing, concerns about long-term lung safety), particularly if it cannot find another well-resourced, experienced partner to replace Sanofi.

Praluent (alirocumab)

  • Sanofi/Regeneron’s PCSK9 inhibitor Praluent (alirocumab) brought in €5 million (~$6 million) in sales in 4Q15, up 25% sequentially from 3Q15. Full year sales for 2015, with only two quarters on the market, totaled €9 million (~$10 million). Management proudly highlighted Praluent’s formulary access, sharing that Praluent has secured access for over 172 million covered lives, 72 million of which are either in an exclusive or preferred position. This is up from the 150 million covered lives Sanofi highlighted at JPM 2016. Furthermore, Sanofi particularly highlighted its Medicare Part D successes. 30 million patients with Medicare Part D have access to Praluent. Management also pointed out that 85% of Medicare payer decisions awarded exclusive access to Praluent or to competitor Amgen’s Repatha (evolocumab) and proudly announced that 95% of those exclusivity decisions were awarded in Praluent’s favor. In addition, Sanofi pointed out that the Medicare Part D population is of particular importance as the indicated population for PCSK9 inhibitors (patients with a prior history of atherosclerotic cardiovascular disease) typically skews older. Wide access and reimbursement is absolutely key for this expensive drug (an annual supply of Praluent costs $14,600). Recognizing this, Sanofi management stated that access was the sole focus for Praluent’s launch in 2015. We previously learned that the product won exclusive access to UnitedHealthcare’s formulary and parity access with Repatha to Express Scripts’ formulary. However, Repatha won exclusive access to CVS Health.
  • Sanofi management emphasized that the majority of Praluent patients are receiving the medication through prescription assistance and bridge programs, which are not captured by IMS Health data. However, the company expects prescription volume to ramp up after the first quarter of 2016.
  • Sanofi noted that Praluent has launched in the UK, Germany, and the Nordic region. We also learned from Regeneron’s JPM 2016 presentation that Praluent is expected to launch in Italy, France, Spain, Canada, and Japan later in 2016. Payer discussions in European countries are ongoing. We’ll be curious to see how countries with notoriously challenging pricing pressure (such as Germany) will handle this very expensive but potentially transformative drug class.
  • Sanofi provided an updated expected timeline for the interim analyses for the ODYSSEY cardiovascular outcomes trial (CVOT). A 50% interim analysis for futility is expected in the first half of 2016 and a 75% analysis for overwhelming efficacy is expected in the second half of 2016. The trial has an overall expected completion date in 2017 (December 2017, according to ClinicalTrials.gov). Sanofi also shared that the trial completed enrollment ahead of schedule in November. The drug’s strong LDL-lowering efficacy has led to strong optimism for its potential to reduce cardiovascular events. The current indication for PCSK9 inhibitors is fairly narrow, but could very well expand to a broad population of any individuals with high LDL cholesterol depending on the results of the CVOTs.
  • In Q&A, Sanofi’s general counsel stated that she does not believe Amgen’s PCSK9 inhibitor patents (the subject of a long-running legal battle between the two companies) are valid. She reiterated that the seven-day jury trial is set to begin on March 7, 2016 and expressed confidence in Sanofi’s success. Amgen first sued Sanofi/Regeneron for patent infringement in October 2014.

Other Financial Highlights

  • Sales of Sanofi’s rapid-acting insulin analog Apidra (insulin glulisine) rose 3% at constant exchange (8% as reported) to €104 million (~$115 million); full year sales rose 5% at constant exchange (12% as reported) to €376 million (~$417 million). 4Q15 growth was against a tough comparison as Apidra sales rose 19% in 4Q14. Sequentially, Apidra sales rose 18% as reported, against an easy comparison (sales fell 5% sequentially in 3Q15). Apidra has enjoyed solid performance over the past few years, maintaining double-digit growth each year since 2011. That said, its sales have always been much lower than those for Lilly’s Humalog (insulin lispro and Novo Nordisk’s NovoLog (insulin aspart) and Sanofi has not appeared to prioritize this compound though it’s done better as of late.

Figure 7: Apidra Sales (1Q08-4Q15)

  • The overall rapid-acting insulin market grew 6% YOY to $1.8 billion in 4Q15, though it remained flat for 2015 overall with $6.4 billion in total sales. By product, Novo Nordisk’s NovoLog (insulin aspart) accounted for 48% of sales in 4Q15, Lilly’s Humalog accounted for 45% of sales, Apidra accounted for 7% of sales, and Afrezza accounted for 0.1% of sales in 4Q15.

Figure 8: Total Rapid-Acting Insulin Market (1Q06-4Q15)

  • Sales of Sanofi’s human insulin Insuman were flat operationally and as reported at €38 million in 4Q15 (~$42 million); full year sales rose 3% operationally and as reported to €141 million (~$156 million). As usual, Insuman did best in emerging markets in 4Q15 (24% growth at constant exchange, 18% as reported). Sales of Insuman in emerging markets have now overtaken sales in Western Europe, previously its largest market. Western European sales fell 14% at constant exchange (falling 14% as reported) in 4Q15. Sequentially, Insuman sales fell 10% as reported.

Figure 9: Insuman Sales (4Q12-4Q15)

  • Sales of the sulfonylurea Amaryl (glimepiride) were flat at constant exchange (up 3% as reported) in 4Q15 at €94 million (~$104 million); full year sales grew 2% at constant exchange (9% as reported) to €393 million (~$436 million). Sequentially, Amaryl grew 1% as reported in 4Q15 against an easy comparison of 15% sequential decline in 3Q15.

Figure 10: Amaryl Sales (1Q05-4Q15)

  • Sanofi’s BGM portfolio accrued revenue of €16 million (~$18 million), down 11% YOY operationally and as reported in 4Q15; full year sales were down 2% to €63 million (~$70 million). Sanofi noted in its 3Q15 update that it plans to de-prioritize its BGM business moving forward, which mainly impacts the European market that accounts for the majority of the company’s BGM sales.

Pipeline Highlights

LixiLan (insulin glargine/lixisenatide)

  • An FDA decision on LixiLan is expected in 3Q16. Sanofi submitted the product in late December and redeemed a Priority Review Voucher that grants an expedited six-month review timeline. Assuming there are no unexpected hurdles, LixiLan should reach the US market at around the same time as Novo Nordisk’s Xultophy (insulin degludec/liraglutide). Novo Nordisk management noted in the company’s 4Q15 update last week that it expects an FDA Advisory Committee meeting for Xultophy; we wonder if this means there will be an AdComm for LixiLan as well.
  • Sanofi plans to submit LixiLan in the EU in 1Q16. Xultophy has a significant head start over LixiLan in Europe, where it was approved in September 2014. We do not yet have a clear sense of Xultophy’s commercial performance in the countries where it has launched. The latest specific details came in Novo Nordisk’s 3Q15 update, when management noted that Xultophy had been launched in Sweden, Switzerland, Germany, and the UK and that the company is aiming for a price of ~$5-6 per day. Novo Nordisk has repeatedly stated that it intends to prioritize value over immediate broad access for Xultophy and Tresiba (insulin degludec). In Tresiba’s case, this strategy has limited early penetration in markets like the UK and Denmark and led the company to withdraw the drug from the German market entirely. We wonder whether Sanofi might take the opposite approach (as it has recently in the US basal insulin market) and attempt to gain an access advantage for LixiLan by accepting a lower list price or higher rebates.
  • Sanofi has not announced when the full phase 3 results for LixiLan will be presented, but we assume ADA 2016 is the most likely venue. Topline results from the phase 3 LixiLan-L and LixiLan-O trials demonstrated significantly greater A1c reductions, similar hypoglycemia rates, and a “weight neutral” profile with LixiLan vs. Lantus, and less nausea compared to Lyxumia. We are eager to assess the magnitude of these benefits and hope to gain some sense of how LixiLan’s and Xultophy’s profiles compare. Sanofi management stated at JP Morgan that the company is “very satisfied” with the phase 3 results, and Zealand (which licensed LixiLan to Sanofi) has suggested that the effect of short-acting lixisenatide on postprandial excursions could be an important point of differentiation. For its part, Novo Nordisk has stated that it believes Xultophy has a much stronger clinical profile than LixiLan and that it expects LixiLan to compete primarily with basal insulins.

Insulin Lispro Biosimilar

  • Phase 3 results for Sanofi’s insulin lispro biosimilar SAR342434 are expected in 2Q16. Management first shared this timeline at JP Morgan last month. The phase 3 program consists of two trials evaluating the biosimilar vs. Lilly’s Humalog in type 1 diabetes (SORELLA 1; n=480) and type 2 diabetes (SORELLA 2; n=505), both in addition to Lantus. Both are open-label randomized studies with a primary endpoint of A1c non-inferiority at 26 weeks. Secondary endpoints include change in fasting and postprandial plasma glucose, hypoglycemia, injection site reactions, and adverse events. SORELLA 2 is expected to complete this month and SORELLA 1 in June. While this product is still a fairly long way from reaching the market, we expect that there will be plenty of speculation around its price as it moves through the pipeline given the increasing frustration with price increases for Lilly’s Humalog (insulin lispro) and other rapid-acting insulin analogs in recent years.
  • We wonder whether there will be more action on the biosimilar insulin front once Lilly/BI’s biosimilar insulin glargine Basaglar/Abasaglar becomes more established. The biosimilar insulin field is still in its infancy and to this point has centered mainly around insulin glargine – Sanofi’s candidate is the only rapid-acting biosimilar insulin in late-stage development to our knowledge. The arrival of Basaglar/Abasaglar (on the market in Europe and slated to launch in December in the US) should help resolve some of the uncertainty in this area. The key questions in our view are how biosimilar insulins will be priced, whether patients and providers will feel confident that they are safe and comparable to analog insulin, and where their patient base will come from. If the answers to these questions become clearer with the first few entrants, we imagine other companies may feel more inclined to jump in going forward.

Other Pipeline Highlights

  • Sanofi has added a new stable glucagon candidate (SAR438544) to its phase 1 pipeline. There are currently two trials of the compound listed on ClinicalTrials.gov. The first is a randomized, double-blind study (n=70) evaluating the safety, tolerability, and PK/PD of single ascending doses of SAR438544 vs. placebo and marketed glucagon in healthy volunteers and patients with type 1 diabetes. It is currently recruiting participants and expected to complete in March 2016. The second is a randomized, double-blind study (n=44) evaluating the drug’s ability (vs. placebo and marketed glucagon) to ameliorate induced hypoglycemia in patients with type 1 diabetes; adverse events and other PK/PD parameters are secondary endpoints. It is not yet recruiting participants and is expected to complete in August 2016.
    • The competitive landscape for next-generation glucagon is fairly crowded. Lilly’s intranasal glucagon (acquired from Locemia) will likely be first to market, as it has completed phase 3 and should be submitted within the next 15 months. Xeris plans to begin phase 3 trials for its G-Pen autoinjector in 1Q16 after raising $41 million in Series C financing last month and presenting positive human factors data at ATTD. Biodel was a contender in this race as recently as a few months ago, but it indefinitely suspended development of its Glucagon Emergency Management auto-reconstitution device in December due to contract disputes with manufacturing partner Unilife. Zealand has a stable glucagon rescue pen that completed phase 1 last June; it plans to begin the next clinical trial in 1H16 and expects results by the end of the year.
  • Sanofi plans to advance two newly licensed products into phase 3 for type 2 diabetes in 4Q16: the long-acting GLP-1 agonist efpeglenatide and the SGLT-1/2 inhibitor sotagliflozin. Management first announced this timeline at JP Morgan. Sanofi licensed efpeglenatide from Hanmi in November along with the phase 1 once-weekly basal insulin LAPSInsulin-115 (SAR440067) and a preclinical combination of the two compounds. It licensed sotagliflozin from Lexicon less than a week later; that product is also in phase 3 for type 1 diabetes, and Lexicon retains exclusive rights to co-promote it for that indication. During this update, Sanofi management highlighted the two agreements as evidence of the company’s continued commitment to leadership in diabetes – something we are very pleased to see after a year in which diabetes was by far the most challenging area in Sanofi’s portfolio.
  • Sanofi’s GLP-1/glucagon dual agonist SAR425899 and its GLP-1/GIP dual agonist SAR438335 remain in phase 1. The GLP-1/GIP dual agonist was added to the pipeline in 3Q15. This class of drugs has shown promise in early studies in the past but has also faced challenges, and we wonder whether it will be able to meet the currently very high bar for new type 2 diabetes drugs. The phase 1 trial of the GLP-1/glucagon dual agonist is complete according to ClinicalTrials.gov. Quite a few companies have GLP-1/glucagon dual agonists in early-stage development, as the class’ effects on multiple aspects of metabolic dysfunction (body weight, beta cell function, insulin sensitivity) make it one of the more promising options on the horizon for type 2 diabetes/obesity.
  • While not mentioned during the call, Sanofi’s partnership with Google Life Sciences (now Verily) was a highlight of 2015 in our view. The focus is on improving diabetes care through new sensors, wearable devices, and software. We have not heard many specifics on the deal since it was announced in August but can imagine it taking a number of directions, from Bluetooth-enabled insulin pens to more holistic data collection and actionable analysis.

Questions and Answers

Diabetes Portfolio

Q: On the diabetes guidance, your comment suggested operational effectiveness and I suppose you are improving the development of the Toujeo business. Should we be thinking of a slower decline in 2016?

A: We do expect the first half to still see some pressure given the Medicaid extension and the backfills and the year-over-year comparison. But as we move through the year, we do think that those factors are going to relax a little bit. And meanwhile we’ll see the acceleration of the Toujeo ramp-up, which we are very pleased with.

Q: Can you comment on volume growth in the US insulin market? IMS data does seem to suggest a slowdown. Is that correct, given that we don’t see all the channels? And if there is a slowdown, do you have any explanation of where that’s coming from and what that potentially can bring?

A: As you remember in 2014, the market growth was 7.2%, if I’m recalling correctly. We saw a slowdown in 2015 in the range of 4.9%. And we do think that some of this may come from what we have seen historically, which is when there is a growth of a different class in diabetes, insulin slows down. And in this case, we have seen an acceleration of the SGLT-2 inhibitor class and the GLP-1 agonist class, which may explain the slowdown. As far as 2016 is concerned, we have modeled low-single digit market growth.

Q: On the insulin side, could you address why we saw a slowdown in new-to-brand share? There was very strong growth in the Toujeo new-to-brand through December and then since December it seems to have plateaued.

A: When you look at the analogs, this is something we see. There are a couple of months where there’s a plateauing effect of the NBRx and I think this is quite normal. Besides that, you probably had seen a little bit of ramp up of the Toujeo shares with TRx being above 4%. The NBRx is following the same trend. We’ve seen NBRx moving to the point where we have 15% or around 13.5% share of NBRx. When you look at this flattening, it is consistent with the trends we have seen with other analogs like Victoza or Bydureon. So that’s where we are, and that’s what we think may be the explanation. The important aspect to follow is our sales in 4Q15. We’re about €100 million globally. So it’s a very good pickup and a good run rate of about €400 million entering 2016. We’re very encouraged by the pickup from Toujeo.

Q: Is diabetes the only area where you see pressure on pricing in the US? As you look forward into 2016 and maybe 2017, are there other disease areas where you see this sort of thing starting to build?

A: I think the answer is no. Diabetes is certainly, at least in our portfolio, the area where we have seen pricing pressure. We’re not observing anything similar in other areas we are in, either MS or rare diseases. And we don’t see any new trends outside the US, with the exception of China where the old pricing system is under review and has moved from central government to provinces.

Q: What have you built into your forecast about assumed price increases in the US? Is it a lesser level than what you were able to realize in 2015 due to voluntary price moderation?

A: We have not baked in any significant price increase or anything different from what we had in 2015. In diabetes, the market situation is somewhat specific. In that respect, I don’t think it’s very comparative. The question is more when do we stabilize, and I mentioned that as from the second half of 2016, we should see a stabilization of the channel mix impact vs. 2015, not exactly in the first half of 2016. For the rest, we had been very conservative, but very much in line with what we did in 2015.

Q: On Lantus, in the 31% decline in US sales, what has been the part of the true-up of discounts especially for Medicaid? And how much are you baking into your guidance for 2016?

A: In 4Q15 Lantus was down 32%. But actually, although it looks greater than the 20% decline of the previous quarter, you may remember that in 4Q14 we took a price increase in mid-November. That accounts for about half of the decline. The remainder of that is the advanced growth to net effect and the incremental Medicaid rebates. When you took those elements out, we are in line with the 3Q15 decline.

Praluent

Q: On Praluent, could you talk through your expectations for sales ahead of the outcomes data?

A: What we have focused on in 2015 is access and we related the level of access and coverage we have obtained. We now have more than 172 million lives covered and as you could hear, this is a very good start and that’s what was really the focus of 2015.

Q: What proportion of patients on Praluent do you have on assistance programs at the moment? What might the rollover be?

A: A majority of patients are in those programs. And as we now have a good coverage position, we do expect that it will ramp up and we’ll see an acceleration of prescriptions throughout 1Q16. We think we’re going to have very good coverage from Medicare by the end of the first quarter. And we expect a fair amount of patients coming from that channel where we have obtained the best coverage. So again, we expect to see patients being transferred in commercial prescriptions after that first quarter.

Q: What is the average copay your patient has on Praluent given that you can’t give copay assistance in Part D?

A: At this stage, I don’t think we can comment on this. I don’t know. We said we’re proud of the coverage both on Medicare and on commercial. We are very satisfied with the starting point that we have. I think that’s all we can say here.

Q: Could you tell us about some of the barriers doctors may have in prescribing Praluent? Are there issues like prior authorization or proving you have failed five previous statins?

A: As you know, this is a new type of medicine this year for the target physicians. This is why coverage was so important and this is why focusing on access was our main focus in 2015. Now it’s the only one because the other focus was driving awareness and adoption. This is a medicine that is indicated for patients who are still at a high level of LDL cholesterol despite their current regimen. And we’re working with the payers to make sure this is addressing the patients that it is intended to. As part of this process, there is a first step of ensuring coverage. And then the payers have different formularies to allow the prescription. So some of them do ask for some statin prescription before or a check before Praluent is prescribed.

As I said, because it is a new medicine, we think this is something that is going to iron out as we are going through. And because we have this large amount of patients around the PATH and Bridge program, we think that as people are going through a number of patients, they will become more at ease with the criteria under which the patients are covered.

Q: On Praluent, can you give us an update on the legal disputes vs. Amgen? Is there a risk of triple damages here?

A: Needless to say, we don’t believe that the Amgen patents are valid and we are confident on the law and the fact that will support our distribution. You may have realized that we are circulating to infringement to simplify the issue at the trial. That’s an indication that we have a strong invalidity argument. What’s the next step? There will be a seven-day jury trial beginning on March 7 of this year. We will of course monitor it very carefully and be present. And needless to say, both Sanofi and Regeneron are vigorously defending any claims from Amgen.

Q: What can you tell us about the event rate and pattern in ODYSSEY OUTCOMES? Sanofi expects to have 1,200 events by year-end but isn’t saying when you will see 50% of events or the 800 for the futility look.

A: As you know, this is an event rate-driven trial, so it’s not possible for us to have a fixed date. What I can tell you is that we completed enrollment ahead of schedule in November. I can also tell you there are two interim studies, one with a 50% event rate that will be a futility study to determine whether or not we have any effect. Second, a 75% event rate for overwhelming efficacy. At this point, what we have predicted from the planning of the study is that we would have all the results by the end of 2017. However, when you look at our event rate, we think that we’ll have the first analysis within the first half of this year, probably the end of 2Q16. So you can do your math, and depending on statistical projections, you can see where those results might be. Again, I’ll remind you that the interim analyses are not under our control. They’re under an independent data safety monitoring board. And what they decide is fully under their control.

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