Memorandum

Lilly 4Q18 – Diabetes grows 25% in 2018 for $9.7 billion in revenue; Growth from Trulicity (+58% YOY to $3.2B), Basaglar (+85% to $801M), and Jardiance (+47% YOY to $658M); GDF15 agonist added to phase 1 – February 6, 2019

Executive Highlights

  • Lilly provided its 4Q18 update this morning (press release, presentation, webcast), announcing 2018 diabetes revenue of $9.7 billion (+25% YOY, from $7.8 billion) and 4Q18 revenue of $2.6 billion (+18% YOY, from $2.3 billion). Over the year, growth came from Trulicity (61% share of growth), Basaglar (19%), Jardiance (11%), Humalog (7%), and Tradjenta (2%). Notably, Lilly reported a net margin of 23%, up from 20% in 2017; as a sidenote, Lilly is benefitting from an incredibly low 14.9% effective tax rate.

  • Trulicity continues to shine ever-brighter, clocking in at $3.2 billion in 2018 revenue (58% YOY growth). In 4Q18, the GLP-1 rose 42% YOY and 13% sequentially to $925 million, poising the US class volume leader (45% of total prescription) to break $1 billion in 1Q19 sales. Management remains highly positive on REWIND results; full readout is anticipated at ADA 2019 (as a reminder, see the topline here that was announced late last year).

  • Jardiance is benefitting from renewed SGLT-2 inhibitor class growth, and Lilly’s share of 2018 revenue totaled $658 million. We estimate total Jardiance revenue, including BI’s share, at $2.0 billion for the year and $585 million in 4Q18, reflecting 47% growth in 2018 and 35% YOY growth in 4Q18. Lilly continues to cite type 1 sNDA submission in the US as a potential 2019 milestone, offering no more specific timing.

  • Basaglar climbed 51% YOY to $232 million in 4Q18 and 85% YOY to $801 in 2018 overall; this represents only Lilly’s share of sales, and BI has yet to publicly report any revenue. This is an encouraging performance following a sluggish 3Q18, as Lilly balances volume gains (particularly in Medicare Part D) with lower realized price in this US segment. We look for over $1.0 billion in sales for Basaglar in 2019.

  • Also in insulin, mealtime Humalog hit $3.0 billion in annual sales (+5% YOY) in 2018, posting $770 million in 4Q18 at a 2% YOY loss. Notably, management highlighted increased utilization of affordability and access programs, possibly through the Diabetes Solution Center, which we’re thrilled to see (and which imply that revenue is actually likely understated).

  • Tradjenta revenue came in at $575 million in 2018 (+7% from 2017), and we estimate total revenue between Lilly and BI at ~$1.5 billion. In 4Q18 alone, Lilly’s revenue rose 20% YOY and 15% sequentially to $156 million, and we’re looking forward to 1Q19 release of topline results from the CAROLINA CVOT comparing Tradjenta to SU glimepiride. We hope that this was “real world” management using SUs.

  • In the pipeline, Lilly added a GDF15 agonist to phase 1; this is the first we’ve heard of this candidate, and it was not directly addressed on the call. We note that Novo Nordisk and possibly Amgen are also working on candidates in this class (preclinical/phase 1). GDF15 represents a highly-novel mechanism of action, is a well-attested biomarker of cardiometabolic disease, and is implicated in inflammation, apoptosis, and cell growth. Lilly also discontinued phase 2 DACRA-042, a dual amylin/calcitonin receptor agonist.

    Lilly provided its 4Q18 update this morning in a call led by CEO Mr. Dave Ricks; see the press release, presentation, and webcast. Below, you’ll find updates on the company’s diabetes-related pipeline and commercial products, followed by diabetes-relevant Q&A from the call.

    2018 Financial Results for Lilly’s Major Diabetes Products

    Product

    2018 Revenue (millions)

    Year-Over-Year Reported (Operational) Growth

    Share of Growth

    Humalog

    $2,997

    5% (4%)

    7%

    Humulin

    $1,331

    0% (0%)

    0%

    Tradjenta (Lilly sales only)

    $575

    7% (4%)

    2%

    Jardiance/Glyxambi (Lilly sales only)

    $658

    47% (45%)

    11%

    Trulicity

    $3,199

    58% (57%)

    61%

    Basaglar (Lilly sales only)

    $801

    85% (84%)

    19%

    Glucagon

    $150

    5% (5%)

    0%

    Total Diabetes

    $9,711

    25%

    --

    4Q18 Financial Results for Lilly’s Major Diabetes Products

    Product

    4Q18 Revenue (millions)

    Year-Over-Year Reported (Operational) Growth

    Sequential Reported Growth

    Share of Growth

    Humalog

    $770

    -2% (0%)

    16%

    0%

    Humulin

    $337

    -7% (-5%)

    5%

    0%

    Tradjenta (Lilly sales only)

    $156

    20% (22%)

    15%

    6%

    Jardiance/Glyxambi (Lilly sales only)

    $193

    35% (37%)

    16%

    12%

    Trulicity

    $925

    43% (43%)

    13%

    63%

    Basaglar (Lilly sales only)

    $232

    51% (52%)

    15%

    18%

    Glucagon

    $34

    15% (14%)

    -27%

    1%

    Total Diabetes

    $2,649

    18%

    13%

    --

    Pipeline Highlights

    1. GDF15 Agonist Added to Phase 1 Pipeline as Phase 2 DACRA-042 Discontinued in Phase 2

    A novel GDF15 agonist (large molecule) appeared in Lilly’s phase 1 diabetes pipeline, though there was no fanfare surrounding the addition – the candidate wasn’t mentioned during prepared remarks or Q&A. Very notably, we recently learned that Novo Nordisk has a promising preclinical development program focused on the GDF15 pathway, as well, with a candidate expected to enter the clinic soon per CSO Dr. Mads Thomsen. Additionally, in 2017, Amgen published data on a preclinical once-weekly GDF15 analog for obesity; back then, we wrote that the MOA was unclear, but Amgen found that treatment delayed gastric emptying, caused a preference for low-fat food, and activated neurons along the gut-brain axis. It’s not clear precisely what happened to that candidate, but we suspect it is Amgen’s phase 1 AMG 598, currently under investigation in obesity. Scientifically, GDF15 (“growth/differentiation factor 15”) is thought to regulate inflammatory pathways, apoptosis, and cell growth and death, and high GDF levels have been associated with cardiovascular, metabolic, and renal disease – making GDF15 promotion a counterintuitive therapeutic mechanism, similarly to the glucagon agonists currently under development for obesity. For our part, GDF15 first hit our radar in only 2016 – reflecting the novelty of this biomarker/therapeutic target – in a poster from the EXAMINE CVOT of Takeda’s DPP-4 inhibitor Nesina, which found that GDF15 levels were a strong, independent, positive predictor of major CV events. As such, this poster reflects that GDF15 has longer been established as a biomarker of cardiometabolic disease, but, interestingly, metformin has also been shown to increase levels of GDF15, supporting the therapeutic potential of the pathway. One thing is for sure: This is a mechanism to watch closely over the next few years, and we’re immensely eager to learn more.

    • Balancing this addition in the discontinuation, in phase 2, of DACRA-042 – a dual amylin calcitonin receptor agonist originally acquired through a partnership with KeyBioscience in June 2017. Via that same deal, Lilly also gained DACRA-089 (same mechanism), which is still in phase 1 but remains in Lilly’s pipeline. We can locate no studies on ClinicalTrials.gov for either, and Lilly management has not mentioned either DACRA candidate on any call in the recent past.

    • Outside of these changes, Lilly’s call was relatively light on diabetes pipeline news, particularly in the late-stage pipeline. Phase 3 nasal glucagon, currently under review at both FDA and EMA with decisions anticipated ~late 2Q19, was not mentioned aloud once during the call. Similarly, phase 3 GIP/GLP-1 agonist tirzepatide was mentioned only once in Mr. Ricks’ prepared rundown of the pipeline. To be sure, however, this lighter focus on diabetes follows a remarkable news flow in 2018 and significant announcements during the company’s 2019 Investor Meeting, which shined an immensely bright spotlight on the company’s diabetes franchise and pipeline. Highlighted in the table below are all changes to the pipeline announced during 4Q18 and on today’s call, including notable changes from the December Investor Meeting.

    Lilly Diabetes Pipeline Summary

    The table below reflects the latest updates, as far as we are aware, on Lilly’s diabetes pipeline products. Items highlighted in yellow indicate notable changes to the pipeline in 4Q18.

    Candidate

    Phase

    Timeline/Notes

    Nasal glucagon

    Submitted

    Under review at FDA and EMA; Submitted on track with 1H18 timing and as per 2Q18 update; Acquired from Locemia; Real-world data presented at ADA 2017

    Jardiance (empagliflozin) in type 1 diabetes

    Phase 3

    US regulatory submission potential 2019 milestone, EMA status unclear; Phase 3 data presented at EASD 2018; EASE-2 and EASE-3 completed October 2017 and September 2017, respectively

    Jardiance (empagliflozin) in heart failure

    Phase 3

    EMPEROR HF-Preserved and EMPEROR HF-Reduced initiated March 2017, both expected to complete June 2021 and 2020, respectively; Two EMPERIAL studies initiated March 2018 to investigate effect of Jardiance on exercise capacity in heart failure patients, expected to complete December 2019 with topline data this year

    Jardiance (empagliflozin) in chronic kidney disease

    Phase 3

    Trial start delayed to 2019, study is recruiting as of 4Q18 call; EMPA-KIDNEY announced June 2017 and slated for November 15, 2018 start in collaboration with University of Oxford and Duke Clinical Research Institute

    Tirzepatide (GIP/GLP-1 dual agonist)

    Phase 3

    Phase 3 SURPASS program underway; Phase 2 in NASH and phase 3 in obesity to begin during 2019; Phase 2 data presented at EASD 2018; Phase 1 trial completed June 2017

    LY900014 (ultra-rapid-acting insulin lispro)

    Phase 3

    Full readout and submission (US/EU/Japan) slated for 2019; Topline phase 3 results released October 2018, including PRONTO-T1D and PRONTO-T2D; Phase 2 data presented at ADA 2017 (type 1, type 2)

    High-dose dulaglutide (3 mg and 4.5 mg once-weekly)

    Phase 3

    Phase 3 study (AWARD-11) launched April 2018, expected to complete October 2019, topline data anticipated in 2019; Phase 2 data presented at ADA 2018; Phase 2 trial in people with type 2 on metformin monotherapy completed August 2017

    Basal insulin-FC (LY3209590)

    Phase 2

    Movement into phase 2 announced during 2019 Investor Day; Phase 1 data yet to be released

    Automated Insulin Delivery System

    Phase 2

    US connected pen submission slated for 2019 (type 1 and 2); Advanced to “phase 2” on 4Q18 call; Feasibility study with Dexcom CGM and in-house pump/closed loop algorithm completed February 2018, initiated December 2017

    Basal Insulin Acylated (next-gen basal)

    Phase 1

    Phase 1 initiated 4Q18; Announced in May 2016 R&D update; Potential for combination with Trulicity

    DACRA-089 (dual amylin calcitonin receptor agonist)

    Phase 1

    Acquired through partnership with KeyBioscience in June 2017; No study timing shared

    GDF 15 agonist

    Phase 1

    Added to pipeline in 4Q18

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

    Phase 1

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

    Soluble glucagon

    Phase 1

    Not currently listed on company’s pipeline page; Announced in May 2016 R&D update; Candidate is a short-acting, soluble, stable glucagon; Potential use in bihormonal closed loop systems

    Basal insulin/dulaglutide fixed-ratio combination

    Phase 1

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

    Beta cell encapsulation therapy for type 1 diabetes

    Preclinical

    Lilly enters partnership with Sigilon in April 2018; Sigilon will file IND; Afterward, Lilly will lead in-human trials

    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

    OWL833 (oral GLP-1 agonist)

    Preclinical

    Phase 1 to start “soon” per 3Q18 call; Announced in 1Q16, confirmed in May 2016 R&D update; Management reaffirms Lilly’s commitment at JPM 2018 and during 4Q18 call

    DACRA-042 (dual amylin calcitonin receptor agonist)

    Discontinued

    Removed from pipeline in phase 2 as announced in 4Q18 call; Acquired through partnership with KeyBioscience in June 2017; No study timing shared

    Financial Highlights

    1. Overall Diabetes Portfolio Surges 25% YOY to $9.7 Billion in 2018 on Back of Trulicity, Basaglar, Jardiance; 2018 Net Margin at 23%

    A strong year for Lilly’s diabetes portfolio was marked by 25% YOY growth to a total of $9.7 billion in 2018 revenue – an impressive climb from $7.8 billion in 2017. By quarter, the portfolio rose 28% YOY in 1Q18, 29% YOY in 2Q18, 18% YOY in 3Q18, and now 18% in 4Q18 – even against a challenging 28% YOY surge to $2.3 billion in 4Q17. Growth for the full year was driven in vast majority by Trulicity (61%), followed by smaller contributions from Basaglar (19%), Jardiance (11%), Humalog (7%), and Tradjenta (2%). By product, Trulicity accounted for 33% of total revenue, Humalog 31%, Humulin 14%, Basaglar 8%, Jardiance 7%, Tradjenta 5%, and Glucagon 2%. In 4Q18 alone, total diabetes revenue was $2.6 billion, which translates to a 13% sequential rise against a somewhat easy comparison of $2.4 billion (-3% sequentially) in 3Q18. Driving this surge was impressive 31% diabetes volume growth in the US – sustained from 30% in 3Q18, 31% in 2Q18, and 30% in 1Q18. OUS, a 10% increase in total pharma revenue was also driven by diabetes volume growth, primarily in Humalog, Trulicity, and Jardiance. On pricing, the quarter saw an overall 6% decline in the US due to rebates and discounts, new Part D volume and access for Basaglar, and increased access program use for Humalog. Lilly maintained its expectation of single-digit declines in US price for 2019, once again offset by increased volumes. All in all, Lilly’s diabetes business is continuing to grow steadily from an already-high base (as a reminder, the company recently surpassed Merck to become the second-largest company in diabetes), and Lilly’s current overall financial growth is unparalleled across the major players in the diabetes industry. While only Novo Nordisk has reported so far in 4Q18, with 1% YOY growth for the year and 8% YOY growth for the quarter, AZ diabetes has experienced only single to low double-digit YOY inclines so far in 2018, and Sanofi has steadily declined.

    • Net margin for 2018 was 23%, in line with the past few years’ increasing trend from 12% in 2015, to 18% in 2016, and 20% in 2017. The effective tax rate came in at 14.9%, compared to 20.5% in 2017, 18.9% in 2016, and 13.7% in 2016, which management attributed primarily to changes in US corporate tax structure. For comparison, Novo Nordisk’s net margin for 2018 was ~35%, with an effective tax rate of 18.9%. We did not hear whether gains from the tax credit were shared with employees or patients but it seems like a great reason to continue to focus on access.

    • Management briefly extolled the Administration’s recent proposal to eliminate the safe harbor protections for rebates within the Medicare and managed Medicaid segments. As they see it, this proposal could: (i) substantially lower out-of-pocket pharmacy costs, particularly for highly rebated products such as insulin; (ii) shift focus to demonstrating value of medicines and partnering with health insurers and systems to improve quality, outcomes, and lowering medical costs; and (iii) remove an artificial barrier to competition within classes. We certainly agree.

    Lilly Diabetes Worldwide Financial Results – Past Five Quarters

    Overall Diabetes

    4Q17

    1Q18

    2Q18

    3Q18

    4Q18

    Revenue – USD millions

    $2,251

    $2,290

    $2,419

    $2,353

    $2,649

    YOY Reported Growth

    28%

    38%

    29%

    18%

    18%

    Sequential Reported Growth

    13%

    2%

    6%

    -3%

    13%

    Lilly Diabetes – 4Q18 Geographic Results

    Overall Diabetes

    Revenue – USD millions

    YOY Reported Growth

    Sequential Reported Growth

    US

    $1,809

    20%

    14%

    OUS

    $840

    13%

    9%

    2. Trulicity Climbs 58% YOY in 2018 to $3.2 Billion; Holds Spot as Leader in US GLP-1 TRx; Management Still “Bullish” on REWIND Readout at ADA 2019

    Sales of GLP-1 agonist Trulicity (dulaglutide) grew 58% YOY in 2018 to $3.2 billion, up from $2 billion in 2017. In 4Q18, sales climbed 42% to $925 million from a base of $649 million in 4Q17. Sequentially, revenue rose 13% from $816 million in 3Q18. Trulicity continues to be a major growth driver for Lilly, and we note that it drove 61% of growth in Lilly’s diabetes portfolio in 2018, as well as 63% in 4Q18. We remain highly impressed with Trulicity’s ability to post significant double-digit YOY growth marks even while climbing from such a high (and ever-higher) base. Trulicity is right on the doorstep of crossing the $1 billion milestone in quarterly revenue, and we strongly expect it will meet this mark in 1Q19. With this performance, the GLP-1 agonist firmly cemented its spot as Lilly’s premier diabetes product in 2018, surpassing previous revenue leader Humalog during the full year ($3.2 billion vs. $3.0 billion in 2018). For comparison, value-leader Victoza (from Novo Nordisk) sold just under $1 billion in 4Q18, though Novo Nordisk’s other, newer GLP-1 agonist Ozempic also sold $152 million in 4Q18. All in all, we’re thrilled to see the class’ leading products doing so well and reaching more and more patients, and we’ll be back with a pooled analysis after AZ reports on February 14.

    Trulicity Sales (4Q14-4Q18)

    • Trulicity maintains its position as the US leader in GLP-1 prescription volume. Trulicity now accounts for nearly 45% of total US GLP-1 prescriptions, leading second-place Victoza, which now accounts for 35% of total prescriptions. Trulicity first overtook Victoza in terms of volume share in 3Q18, and this trend looks set to persist far into the future. Even in light of the launch of Novo Nordisk’s once-weekly GLP-1 Ozempic (semaglutide), Trulicity has maintained a lead over the sum of Novo Nordisk’s total GLP-1 market share (45% vs. 43% for Victoza + Ozempic). Moreover, management noted that Trulicity continues to see higher demand in both US and OUS markets, indicating that it has ample room for continued growth. Mr. Conterno noted that Trulicity has benefitted from the rapidly growing GLP-1 market as a whole, which is growing at “nearly 30% on a YOY basis.”

    • Lilly management has grown “even more bullish” on REWIND results over the past few months. When prompted to discuss REWIND – Lilly released positive topline results  from the CVOT late in 2018 – Mr. Enrique Conterno asserted that Lilly’s “enthusiasm for REWIND and Trulicity has not changed at all. If anything, we are even more bullish today than we were maybe a couple of months back.” We’re thrilled to see this continued enthusiasm from management on REWIND and Trulicity, and we remain eager and hopeful for impressive full results from the trial at ADA 2019 in San Francisco. The most important question, at this point, is whether a positive effect was observed equally across the trial’s primary and secondary prevention populations – Lilly’s enthusiasm would seem to indicate yes, but we’ll have to wait and see. As we’ve noted before, Trulicity’s potential in claiming a primary prevention CV indication could shift the GLP-1 and diabetes landscapes in a major way. After dominating much of the discussion on the 3Q18 earnings call (when the study was mentioned in name a whopping 19 times), REWIND was only discussed a handful of times (five) on this quarter’s call. Management did note once again that an updated label reflecting REWIND results is expected “sometime in 2020,” which is in line with what we would expect given regulatory filing is slated for 1H19.

    Trulicity Worldwide Financial Results – Past Five Quarters

    Trulicity

    4Q17

    1Q18

    2Q18

    3Q18

    4Q18

    Revenue – USD millions

    $649

    $678

    $780

    $816

    $925

    YOY Reported Growth

    +119%

     

    +82%

    +62%

    +55%

     

    +43%

    Sequential Reported Growth

    +23%

    +5%

    +15%

    +5%

    +13%

    Trulicity ­– 4Q18 Geographic Results

    Basaglar

    Revenue – USD millions

    YOY Reported Growth

    Sequential Reported Growth

    US

    $729

    +40%

    13%

    International

    $196

    +52%

    15%

    3. Jardiance Climbs 47% to $658 Million in 2018 (~$2.0 Billion with BI Sales), Continues to Lead Re-accelerating SGLT-2 Class in US TRx (43%); Consensus Statements + CVS Formulary Re-inclusion Bode Well for 2019

    SGLT-2 inhibitor Jardiance (empagliflozin) continued its upward climb, surging 35% YOY and 16% sequentially to $193 million, from $143 million and $167 million in 4Q17 and 3Q18, respectively. We assume that Lilly collects ~33% of total Jardiance sales as part of its diabetes alliance with BI (based on reported figures from 2015 of $60 million in Lilly revenue and $183 million in global net sales), leading us to estimate total Jardiance franchise revenue in 4Q18 at $585 million, growing from $433 million in 4Q17 and $506 million in 3Q18. The franchise – including standalone Jardiance, fixed-dose combination Synjardy (empagliflozin/metformin), and fixed-dose DPP-4/SGLT-2 combo Glyxambi (linagliptin/empagliflozin) – drove 12% of the growth in Lilly’s diabetes portfolio, also accounting for 7% of total diabetes sales. By geography, Jardiance grew 25% YOY and 7% sequentially to $117 million in the US revenue for Lilly, as well as 53% YOY and 25% sequentially to $78 million OUS. Management highlighted volume-driven growth of the SGLT-2 inhibitor, which led the class in the US with 43% of total prescriptions and 52% of new-to-brand prescriptions in 4Q18. On this note, Mr. Conterno continued to exude optimism for Jardiance in 2019 due to re-accelerating class growth, which he cited as being in the “double-digits” and Lilly’s slides (slide 15) put at +9% vs. 4Q17 (in terms of total prescription). He made a similar point in 3Q18, citing class growth of 9.5%, up from 6.5% in 2Q18 – so we imagine annual prescription growth is in the low double digits for SGLT-2s, but along a promising growth trajectory. Additionally, Mr. Conterno highlighted Jardiance’s within-class pole position against competitors in recent consensus statements that emphasize SGLT-2 inhibitors (ADA/EASD and ACC). Moreover, Jardiance has been re-included in the CVS formulary for 2019 after being excluded in favor of J&J’s Invokana (canagliflozin) in 2018 (~25 million lives affected); with this update, Jardiance has ≥90% commercial and Part D coverage.

    In 2018, Lilly’s revenue from Jardiance surged 47% YOY to $658 million from $447 million in 2017, driving 11% of overall diabetes portfolio growth. Taking into account BI’s portion of revenue, we estimate total 2018 and 2017 revenue at $2.0 billion and $1.4 billion, respectively. Growth was well-balanced and strong across regions, with US revenue increasing 38% to $400 million (from $290 million) and OUS revenue climbing 64% to $258 million (from $157 million). We’ll be back with a pooled analysis of SGLT-2s after AZ reports on Valentine’s Day.

    Lilly’s Worldwide Jardiance Revenue – Past Five Quarters

    Jardiance

    4Q17

    1Q18

    2Q18

    3Q18

    4Q18

    Lilly Revenue (Lilly+BI est.)  – USD millions

    $143 ($433)

    $151 ($453)

    $147 ($441)

    $167 ($501)

    $193 ($579)

    YOY Reported (Operational) Growth

    88%

    104%

    43%

    31%

    35%

    Sequential Reported Growth

    12%

    6%

    -3%

    13%

    16%

    Lilly’s Reported Jardiance Sales (3Q14-4Q18)

    • Jardiance is currently in phase 3 for type 1 (program complete), CKD (recruiting), and heart failure (recruiting) indications. Most notably, initiation of the EMPA-KIDNEY trial (empagliflozin in CKD, with or without diabetes, including type 1) was slightly pushed back to the beginning of 2019; ClinicalTrials.gov lists the new start date as January 31, with completion still expected June 2022. In HF, Lilly/BI have launched the two, smaller EMPERIAL trials (n=~300 each) to investigate exercise capacity with Jardiance in both HF with reduced ejection fraction (HFrEF) and with preserved ejection fraction (HFrEF), as well as the larger (n=6,976 total) EMPEROR-Reduced and EMPEROR-Preserved outcomes trials with expected readout in June 2020 and 2021, respectively. In 3Q18, management was disappointingly reticent on their plans to file for a type 1 indication for Jardiance, despite positive results from the phase 3 EASE program – including significant (albeit tempered) improvements in time-in-range, A1c, and weight without elevated DKA at the lowest, 2.5 mg dose. After a tied FDA Advisory Committee vote on approval for Sanofi/Lexicon’s SGLT-1/2 dual inhibitor sotagliflozin and positive CHMP opinion for AZ’s Forxiga in the EU (both for type 1), we wouldn’t be surprised if Lilly/BI were waiting until they have a better sense of how both agencies will respond to these NDA/MAAs. On the other hand, we also expect them to emphasize the 2.5 mg results and are certainly anticipating an NDA this year. On a final note, Lilly/BI have only mentioned plans for an FDA filing this year, which is somewhat surprising given CHMP/EMA’s apparent openness to this indication; we’ll keep our ears peeled for news on EU submission.

    4. Basaglar Bounces Back: Up 51% YOY and 15% Sequentially to $232 Million (Lilly’s Share) in 4Q18 after Sluggish 3Q18; Climbs 85% YOY in 2018 to $801 Million

    Lilly’s sales of Basaglar (biosimilar insulin glargine) climbed 85% YOY in 2018 to $801 million from a base of $434 million in 2017. In 4Q18, sales rose 51% YOY to $232 million, up from a base of $154 million in 4Q17. Sequentially, Basaglar grew 15%, albeit on an easy comparison (for a newer product) of stagnant 0% sequential growth to $201 million in 3Q18. We’re pleased to see this strong performance from Basaglar, especially after the biosimilar posted a weaker commercial performance in 3Q18 (38% YOY and 0% sequential growth). Basaglar also continues to be one of Lilly’s primary growth drivers, and in 2018 and 4Q18 it drove 19% and 18% of the growth in Lilly’s diabetes portfolio, respectively. Importantly, revenue of $801 million in 2018 represents only Lilly’s share of Basaglar sales; unfortunately, partner BI has yet to report Basaglar revenue in any form. Speculating that Lilly and BI split revenue 50/50, our very rough estimate for total global Basaglar revenue in 2018 is $1.6 billion; based on Tradjenta and Jardiance shares, total revenue could be higher – but these estimates are highly speculative. This does not meaningfully affect YOY or sequential growth. 

    Basaglar Sales (3Q15-4Q18)

    • Basaglar continues to experience competing forces, namely increased volume in Medicare Part D balanced by the lower realized prices accompanying these sales. Management noted that US price declines for Basaglar were related to new access and corresponding volume increases in Medicare Part D. As a result of recently passed legislation that shifts certain costs to manufacturers in covering the Medicare Part D coverage gap (or “donut hole”), this increased demand has also been accompanied by significantly lower realized prices for manufacturers, which Lilly has cited as a headwind for Basaglar’s overall commercial success. Nonetheless, we do note that increased patient access at a lower cost is an important tradeoff for any reduced revenue Basaglar may achieve. Following Lilly’s 3Q18 call, we expressed concern over the dichotomy between Basaglar’s US volume gains and sequential growth stagnation; on this note, we’re happy to see these two factors increase in tandem in 4Q18 (+15% sequential growth this quarter). We remain curious as to what volume of Basaglar is reaching patients through Medicare Part D, and how much this has increased since the start of 2018 when Basaglar first became available through Medicare Part D.

    Lilly’s Worldwide Basaglar Revenue – Past Five Quarters

    Basaglar

    4Q17

    1Q18

    2Q18

    3Q18

    4Q18

    Revenue – USD millions

    $154

    $166

    $201

    $201

    $232

    YOY Reported Growth

    +290%

     

    +261%

    +133%

    +38%

     

    +51%

    Sequential Reported Growth

    +6%

    +8%

    +22%

    +0%

    +15%

    Lilly’s Basaglar Revenue – 4Q18 Geographic Results

    Basaglar

    Revenue – USD millions

    YOY Reported Growth

    Sequential Reported Growth

    US

    $182

    +60%

    +16%

    International

    $50

    +28%

    +14%

    5. Humalog Reaches $3.0 Billion on the Year for First Time; Increased Access and Affordability Programs Drive Volume Growth

    Mealtime insulin Humalog (insulin lispro) achieved sales of $3.0 billion ($2.997 billion, to be precise) in 2018, up 5% from $2.9 billion in 2017 and driving 7% of portfolio growth. Fluctuating US revenue totaled to $1.8 billion for the year while steadier OUS sales combined for $1.2 billion – both up 5% from 2017. Humalog posted $770 million in 4Q18, falling 2% YOY from $782 million in 4Q17 and surging 16% sequentially against an easy 14% sequential decline to $665 million in 3Q18. By geography, the mealtime insulin brought in $454 million in the US (-2% YOY from $463 million in 4Q17) and $317 million OUS (-1% YOY from $319 million in 4Q17). Most notably from the call, management asserted that US Humalog volume rose in 4Q18 due to increases in affordability and access programs. However, this growth seemed to be driven by overall increased uptake of the mealtime insulin class, rather than within-class share gains, as Humalog lost ~1% of TRx share in 4Q18 while total prescriptions for the mealtime insulin class rose (see below). We also wonder if purportedly greater access and affordability program usage may be due to Lilly’s new Diabetes Solution Center, which launched August 1, 2018 with the aim of connecting US patients to their most affordable Lilly insulin. Regardless, we are beyond thrilled to see Lilly prioritize patient access and affordability based on long-term uptake, especially in the face of significant and increasing tumult surrounding insulin access in the US of late. Outside of the US, Humalog was named alongside Trulicity and Jardiance as a key volume growth driver in 4Q18, which management again attributed to increases in patient affordability and access programs.

    Humalog Worldwide Financial Results – Past Five Quarters

    Humalog

    4Q17

    1Q18

    2Q18

    3Q18

    4Q18

    Revenue – USD millions

    $782

    $792

    $770

    $665

    $770

    YOY Reported Growth

    -5%

    12%

    14%

    -5%

    -2%

    Sequential Reported Growth

    12%

    1%

    -3%

    -14%

    16%

    Humalog Sales (1Q11-4Q18)

    6. Tradjenta Grows 7% YOY to $575 Million in 2018 (~$1.5 Billion with BI); CAROLINA Topline Results (CVOT vs. SU Glimepiride) Expected in 1Q19

    Sales of DPP-4 inhibitor Tradjenta rose 7% YOY in 2018 to $575 million from a base of $538 million in 2017. In 4Q18, revenue rose an impressive 20% YOY to $156 million, up from $130 million in 4Q17. Sequentially, Tradjenta climbed 15%, against an easier comparison of a 4% sequential drop to $136 million in 3Q18. Tradjenta drove 6% of Lilly’s diabetes portfolio growth in 4Q18 and 2% of growth in the full year 2018. Geographically, it was an especially strong bounce-back quarter for Tradjenta in US markets, as the franchise grew a striking 61% YOY and 25% sequentially to $63 million; OUS, sales rose 3% YOY and 9% sequentially to $63 million. We estimate total Tradjenta franchise revenue, including BI’s portion (not reported publicly, seeing as BI remains a privately-held company) at $1.5 billion in 2018 worldwide. These calculations assume that Lilly still collects ~36% of Tradjenta franchise sales in all geographies.

    • Topline results from the CAROLINA CVOT comparing Tradjenta to sulfonylurea glimepiride are expected in 1Q19. The study completed in August 2018, and management had previously remarked that an internal readout was expected in 2018. We’re on the edge of our seats for results from this study – results demonstrating linagliptin’s superiority to a widely-used SU on three-point MACE and other CV endpoints could be highly influential in shifting prescribing practices away from sulfonylureas and toward newer classes of diabetes drugs, especially as generic DPP-4s become available in the near future. To be sure, we’re excited about the prospect of hard data to highlight the widely-suspected CV inferiority of sulfonylureas, which are primarily only still prescribed because of their low cost.

    Tradjenta Sales (2Q11-4Q18)

    Lilly’s Worldwide Tradjenta Revenue – Past Five Quarters

    Tradjenta

    4Q17

    1Q18

    2Q18

    3Q18

    4Q18

    Revenue – USD millions

    $130

    $141

    $142

    $136

    $156

    YOY Reported Growth

    +23%

     

    +25%

    +0%

    -11%%

     

    +20%

    Sequential Reported Growth

    -15%

    +9%

    +1%

    -4%

    +15%

    Q: On your expectation for a mid-single digit decline in US price in 2018, will that continue to be driven by channel mix and patient affordability initiatives? Or rebates and contracting pressures?

    Mr. Joshua Smiley (CFO, Lilly): One new thing in 2019 is the Medicare donut hole expansion – from 50% to 70%. That will have about a $200 million impact or close to two points of the mid-single digit decline. Otherwise, generally the same things. We’re seeing an increase in our patient affordability efforts around Humalog as well as new launches like Trulicity and Emgality, where we’re very confident in positive long-term impacts. They lead to volume gains over time. We’re seeing that with Taltz right now. The rest is mostly going to be either mix or small unit declines, all partially related to maintaining or improving access. We obviously always look at diabetes as a big segment that faces a lot of competition, but we’re very happy with the access we have going into 2019. I don’t see any big new headwinds from a pricing perspective.

    Q: How long do you think it will take for Trulicity to benefit from the REWIND presentation at ADA? What type of uptake do you think we should see after that?

    Mr. Enrique Conterno (President of Lilly Diabetes and Lilly US): Trulicity is on an outstanding run right now and benefitting from huge growth of the GLP-1 market. If anything, we are seeing the GLP-1 market accelerate from already very high level; its growing at nearly 30% on a year-on-year basis. Importantly, in the market, Trulicity has continued to perform well and we've been able to gain share – in fact, over five share points since the launch of Ozempic. Clearly, we see REWIND as a critical trial and dataset that's going to benefit patients. The big impact will come when we start promoting this important data, and I think it will solidify the bright future that Trulicity already had. We expect that impact of course sometime in 2020, once we receive FDA action on the new label.

    Q: To what do you attribute the good sequential trends for Jardiance in 3Q18 and 4Q18? Do you expect demand to continue?

    Mr. Conterno: As we look to 2019, I'm particularly bullish on Jardiance because we have a number of strong tailwinds. We have new updated ADA and EASD guidelines which place emphasis on SGLT-2s and give within-class preference to Jardiance. We also have the re-inclusion of Jardiance in the CVS formularies, and that's pretty significant. Jardiance now has 90-plus access across commercial and Part D. Jardiance now has low to mid-60s NBRx share, and we're seeing the SGLT-2 class accelerate into double digit growth. Finally, given the profile of empagliflozin, the increased investment from our competitors is beneficial to the product. Altogether, I’m very bullish in terms of class acceleration and Jardiance’s ability to capitalize as the share leader.

    Q: When can we expect results from the CAROLINA CVOT (linagliptin vs. glimepiride)?

    Mr. Conterno: We expect to release the topline result this quarter.

     

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