Memorandum

Sanofi 2Q16 – Diabetes portfolio sales down 7% YOY to ~$2.1 billion; Lantus revenues down 14% YOY to ~$1.7 billion; Toujeo sales nearly double sequentially; Adlyxin (lixisenatide) receives US approval – July 30, 2016

Executive Highlights

  • Sales for Sanofi’s diabetes portfolio declined 7% year-over-year (YOY) as reported (3% in constant currencies) to €1.9 billion (~$2.1 billion) in 2Q16.
  • Lantus (insulin glargine) revenues fell 14% YOY as reported (11% in constant currencies) to €1.5 billion (~$1.7 billion).
  • Management highlighted the US approval of GLP-1 agonist lixisenatide under the trade name Adlyxin.

Sanofi gave its 2Q16 update yesterday morning in a call led by CEO Mr. Olivier Brandicourt. The company’s diabetes portfolio faced another challenging quarter in 2Q16, with overall diabetes sales falling 7% year-over-year (YOY) as reported and 3% operationally to €1.9 billion (~$2.1 billion). Management characterized this as relatively optimistic news given Sanofi’s recently-revised financial guidelines forecasting 4%-8% revenue losses each year for the company’s diabetes portfolio through 2018. The continued downward trend of Sanofi’s diabetes portfolio is largely attributable to the fall of flagship Lantus (insulin glargine), down 14% YOY as reported and down 11% operationally to €1.5 billion (~$1.7 billion) in 2Q16. On a more positive note, sales of Sanofi’s next-generation basal insulin Toujeo (U300 insulin glargine) increased 11-fold YOY to €141 million (~$159 million); the drug has maintained solid growth since its launch at the beginning of 2015, and although sequential growth has tapered off somewhat in the past two quarters, we continue to hear very positive patient and HCP reports about it (this is a good example of drugs that are better “in real life” than randomized clinical trials suggest they will be). Sanofi also highlighted the US approval of its GLP-1 agonist lixisenatide under the trade name Adlyxin (Lyxumia outside of the US). Lyxumia’s performance was sluggish, falling 20% YOY as reported (down 10% operationally) to €8 million (~$9 million), though the product will likely experience a boost in revenue following its US launch – the real wait is for iGlarLixi of course, the combo GLP-1/basal. PCSK9 inhibitor Praluent (alirocumab) continued to experience modest growth early in its launch cycle, with sales rising 75% sequentially to €21 million (~$24 million), about the same as Amgen’s Repatha ($27 million in 2Q16). Sanofi emphasized that reimbursement remains a challenge for Praluent uptake, but highlighted several recent wins on the reimbursement front. We’re eager for CVOT results and to see diabetes patients’ breakout.

On the pipeline front, Sanofi shared that it expects approval for its GLP-1 agonist/basal insulin combination LixiLan (lixisenatide/insulin glargine; also known as “iGlarLixi”) in late August. Management highlighted the recent 12-2 FDA Advisory Committee vote in favor of approval of the candidate and shared that the company is working very closely with the FDA to address some of the human factors concerns that were raised in the Advisory Committee meeting. There were no other updates to Sanofi’s pipeline, with includes phase 3 SGLT-1/2 dual inhibitor sotagliflozin (expected to start phase 3 trials in 4Q16), phase 3 once-weekly GLP-1 agonist efpeglenatide (expected to initiate phase 3 trials in 4Q16), phase 3 biosimilar insulin lispro SAR342434 (data recently presented at ADA 2016), phase 1 long-acting insulin analog SAR440067/LAPSInsulin-115, phase 1 GLP-1/glucagon dual agonist SAR425899, phase 1 GLP-1/GIP dual agonist SAR438335, and phase 1 stable glucagon SAR438544.

See below for a product-by-product overview of the highlights from Sanofi’s update, followed by relevant Q&A.

Table 1: Summary of 2Q16 financial results for Sanofi’s diabetes drug portfolio

 

2Q16 revenue (millions)

YOY growth (reported / CER)

Sequential growth (reported)

Total diabetes

€1,851 / ~$2,090

-7% / -3%

7%

Lantus

€1,465 / ~$1,654

-14% / -11%

5%

Amaryl

€93 / ~$105

-15% / -9%

6%

Apidra

€93 / ~$105

0% / 3%

9%

Insuman

€34 / ~$38

0% / 9%

6%

Blood Glucose Monitoring (BGM)

€17 / ~$19

6% / 6%

0%

Lyxumia

€8 / ~$9

-20% / 25%

-11%

Toujeo

€103 / ~$159

980% / 1000%

40%

Financial Highlights

Overall Diabetes Portfolio

  • Sanofi’s diabetes portfolio faced a tough quarter in 2Q16, with diabetes sales falling 7% year-over-year (YOY) as reported and 3% operationally to €1.9 billion (~$2.1 billion). Management framed this in relatively optimistic terms as “only modest decline,” since Sanofi’s financial guidance (revised in 3Q15) forecasted declining sales for the company’s diabetes portfolio of 4%-8% each year through 2018. This is as expected, of course, due to flagship Lantus going off patent. Sequentially, Sanofi’s diabetes portfolio revenue rose 7% as reported against a relatively easy comparison (sales fell 6% sequentially in 1Q16). Overall 2Q16 performance for Sanofi’s new combined diabetes and cardiovascular business unit (implemented at the beginning of 2016) was slightly stronger, with sales falling 5% YOY as reported (3% operationally). We expect that Sanofi/Regeneron’s PCSK9 inhibitor Praluent (alirocumab) will eventually headline the combined business unit, though the product’s uptake has been sluggish thus far, primarily due to reimbursement challenges and a relatively narrow indication ahead of cardiovascular outcomes trial results. We look very forward to seeing how patients with diabetes do in this CVOT, since people with diabetes have so many challenges on the cardiovascular, especially cholesterol, front. See the figure below for trends in Sanofi’s diabetes portfolio.

Figure 1: Total Sanofi Diabetes Portfolio Sales (1Q05-2Q16)

  • As has been the case for the past several quarters, US sales were a major source of the the overall decline for Sanofi’s diabetes portfolio. US diabetes sales fell 7% YOY as reported and operationally to €1.1 billion (~$1.2 billion) and comprised 56% of total diabetes sales. Outside of the US, diabetes revenue grew 3% YOY as reported to €878 million (~$991 million) in 2Q16. This was driven largely by sales in Europe (up 1% YOY operationally) and emerging markets (up 5% YOY operationally). Sales in the rest of the world fell by 2% YOY operationally.
  • According to Sanofi, the challenging quarter for its diabetes portfolio “reflects expected headwinds.” The company’s sales have been falling YOY at constant exchange since 1Q15, largely due to declining sales for its largest-selling product Lantus (insulin glargine), whose 2023 patent expiration looms in the near future. In prepared remarks, management framed the situation in a positive light, emphasizing that the diabetes franchise’s decline could be moderated in future quarters by: (i) the increasing success of Toujeo (U300 insulin glargine) – which gained momentum with an 11-fold YOY revenue gain in 2Q16; (ii) the US launch of GLP-1 agonist Adlyxin (lixisenatide), approved just this week by the FDA; and (iii) the anticipated approval of LixiLan (insulin glargine/lixisenatide – also recently called IGlarLixi) this coming August.

Lantus (insulin glargine)

  • Revenues for Sanofi’s flagship product Lantus (insulin glargine) fell 14% YOY as reported (11% in constant currencies) to €1.5 billion (~$1.7 billion). Sales increased 5% sequentially from €1.5 billion (~$1.7 billion) in 1Q16, against a fairly easy comparison (sales fell 9% sequentially in 1Q16). As in previous quarters, Lantus’ sales decline was largely driven by US performance. US sales fell 18% YOY as reported (-16% in constant currencies) to €896 million (~$1 billion) from a base of €1.7 billion (~$1.9 billion) in 2Q15. Lantus sales fell 9% YOY operationally in Europe and 11% YOY operationally in the rest of the world, but increased in emerging markets by 5% YOY operationally.

Figure 2: Lantus Sales (1Q05-2Q16)

  • Notably, during Q&A, Sanofi suggested that the ongoing formulary negotiations with US payers will likely result in further net price erosions for Lantus in 2017. This reinforces our view that pricing is only going one direction in the US and that this pressure is intensifying. Management shared that the ongoing discussions surrounding diabetes contracting and formulary positioning for 2017 have been “relatively intense.” We assume the same is true for its other compounds.  Management emphasized that the anticipated drop in net realized price has already been built into Sanofi’s financial guidance (which projects revenue decreases of 4%-8% each year for the company’s diabetes portfolio through 2018), so we assume the intensity of the discussions was expected. Sanofi previously accepted higher rebates to preserve Lantus access for 2015, driving a negative pricing impact of 15% (countered by a 2% volume growth) that led Lantus sales to fall 13% at constant exchange in 1Q15. Further price erosions for Lantus would certainly further exacerbate the product’s challenges in the US market. On a slightly less despondent note, management commented that these negotiations are unlikely to result in an exclusive formulary contract that entirely restricts reimbursement for Lantus. Management asserted that it is difficult to imagine a payer entering a deal that would force millions of Lantus patients to switch their insulin prescription en masse. We agree – such a decision would be extremely unpopular among patients, and a poor strategic move for payers. We do hope that patients experiencing severe hypoglcyemia in particular (especially at night) could get access to Toujeo – we look forward to more “real world” evidence since many have praised Toujeo and the greater stability of the insulin. We believe this was not shown in the randomized controlled trials because those in the control group tended to be better looked after.
  • Management suggested that the company’s basal insulin franchise has performed relatively well in Europe, with a volume growth of 9%, despite the launch of Lilly/BI’s biosimilar insulin glargine Abasaglar a year ago. Sanofi noted that volume growth of its insulin glargine franchise (including Lantus and Toujeo [U300 insulin glargine]) outpaced the underlying 6% growth of the basal insulin market. Management also shared that the combined basal insulin market share of biosimilars within the EU5 (France, Germany, Italy, Spain, and the UK) is 1.3% - this is lower than we might have anticipated and we’re curious to see what the US will hold after the entry in December of Abasaglar. Sanofi asserted that countries in which Abasaglar has achieved a high market share, such as Slovakia, are “outliers” with large copay differences between Lantus and Abasaglar. To that end, management shared that Sanofi is working to minimize the copay difference between Lantus and Abasaglar in hopes of preventing further market share erosion – this may be a challenging task for Sanofi given the strong focus on cost control by many European payers in recent years.  Earlier this week, Lilly management spoke positively of Abasaglar’s performance during the company’s 2Q16 update, reporting a 45% sequential increase in ex-US sales to $16 million and citing the product as one of its principal “engines of growth” in the diabetes sector. Time will tell how the landscape shifts given the launch of Biocon’s biosimilar insulin glargine formulation in Japan earlier this month (US and EU filings expected by April 2017) and the continuing promise of Merck’s phase 3 MK-1293, which demonstrated non-inferiority to Lantus in a study presented at this year’s ADA. Adding to the complexity surrounding the competing biosimilar formulations, there is some remaining uncertainty regarding the safety and quality assurance of biosimilar insulins – presumably this will continue until biosimilar insulins have been proven for some years. Dr. Lutz Heinemann (Profil Institute for Clinical Research, Neuss, Germany) offered a fairly critical view of biosimilars in a recent presentation on this topic at Keystone 2016.

Toujeo (U300 insulin glargine)

  • Sales for Sanofi’s next-generation basal insulin Toujeo (U300 insulin glargine) reached €141 million (~$159 million), an 11-fold YOY increase as reported and a 40% sequential increase in 2Q16. This slightly more modest sequential growth occurred against the fairly easy comparison of only 5% sequential growth in 1Q16; although revenues had doubled or tripled sequentially in previous quarters, this would be expected as the base grows. By geography, US sales comprised 75% of 2Q16 revenue for Toujeo, totaling €106 million (~$120 million), up 9-fold YOY as reported, and up 40% sequentially, a very positive sign in our view. Toujeo also performed very well in ex-US markets, growing 18-fold YOY to €35 million (~$40 million). It’s our sense that positive word-of-mouth on new basal insulins is growing – access certainly remains a major issue, but more and more patients know about the newer basal insulins now and we certainly believe the curves bode well. 

Figure 3: Toujeo Sales (1Q15-2Q16)

  • During Q&A, management shared that Toujeo has made steady gains in terms of total prescriptions (TRx) market share, reaching 6% in 2Q16. This increasing momentum is promising news for Sanofi, especially given Toujeo’s deceleration of growth in 1Q16 that was likely driven in part by the US launch of Novo Nordisk’s long-acting basal insulin Tresiba (insulin degludec). We look forward to analyzing this competitive insulin market after Novo Nordisk reports its 2Q16 earnings next Friday, August 5. As of Novo Nordisk’s 1Q16 update in April, Lantus held 45% of the new-to-brand prescription (NBRx) market share in the US, Novo Nordisk’s Levemir (insulin determir) held 22%, Toujeo held 16%, and Tresiba held 8% - this was characterized as quite positive at the time, given that Tresiba had only been on the US market for one quarter at that point while Toujeo had been on the US market for nearly a year. At that time, management said that Tresiba’s total monthly market share by volume had reached 1.4%.By comparison, Toujeo’s volume share in 3Q15, after three quarters on the market, was only 0.5% – we aren’t too surprised that Tresiba would grow faster in the first quarter since much of the market education was done and Novo Nordisk benefited from this Sanofi education and positive word of mouth. We look forward to seeing updated figures on this – historically, we were not sure how much “different” the next-generation basal insulins would be and we downplayed to some degree the difference but have been considerably more positive since launch based on very positive word-of-mouth sentiment (and personal experience).
    • Tresiba certainly stands as Toujeo’s most direct competitor in the basal insulin market. We expect that part of the “relatively intense” formulary negotiations may center around Toujeo’s positioning relative to Tresiba now that both are available in the US. Novo Nordisk has previously expressed strong confidence in Tresiba’s clinical profile and suggested that it will not sacrifice price for access, while history suggests that Sanofi might be more willing to accept a higher level of rebates to achieve and maintain broad formulary status. Tresiba has received enthusiastic praise from many providers since its launch earlier this year. During a corporate symposium held at this year’s ADA, Ms. Davida Kruger (Henry Ford Health System, Detroit, MI) and Drs. Anne Peters (USC, Los Angeles, CA) and Christopher Sorli (Billings Clinic, MT) spoke very highly of Tresiba’s long duration of action and, in particular, the opportunity for flexible dosing. Furthermore, a presentation at this year’s Keystone Symposia characterized Tresiba as a scientifically and clinically superior insulin to others on the market. Toujeo’s duration of action, while longer than Lantus’, is not quite as long as Tresiba’s and the Toujeo label does not include a flexible dosing claim. Overall, based on what we hear from HCPs, we do not expect to see nearly as much differentiation between the two as the differentiation between both those insulins and the older Lantus and Levemir. One may work better for a given patient than another but overall we expect formulary access to be the driver for most US patients.

Adlyxin/Lyxumia (lixisenatide)

  • Sanofi’s short-acting GLP-1 agonist Lyxumia (lixisenatide) posted sales of €8 million (~$9 million), down 20% YOY as reported (10% operationally) and down 11% sequentially. While the YOY decline in sales occurred against a somewhat difficult comparison (Lyxumia sales grew 67% YOY in 2Q15), it’s fairly disappointing to see this product experience negative growth relatively early in its launch cycle. While Sanofi did not address Lyxumia during prepared remarks, the company noted in Q&A that Lyxumia failed to gain reimbursement in Germany and France “for the classical reasons” (presumably the authorities didn’t feel that Lyxumia demonstrated a meaningful benefit over existing GLP-1 agonist options), suggesting this may be a reason for the product’s sluggish sales. That said, management shared that, in markets where Lyxumia was well-reimbursed, the product has captured between 10%-20% of the market share. We continue to believe the combo product is what will bring strong revenue though we’re very interested to learn more about real-world experience as we believe the GLP-1 market is going to grow substantially.   

Figure 4: Lyxumia Sales (2Q13-2Q16)

  • Sanofi highlighted the US approval of lixisenatide earlier this week under the trade name Adlyxin. The product will be available in a disposable pre-filled pen containing a single 20 µg dose. Management declined to disclose details on how the company plans to position the product within the robust US GLP-1 agonist market and relative to its upcoming lixisenatide/insulin glargine (LixiLan or iGlarLixi) GLP-1 agonist/basal insulin fixed-ratio combination. That said, management repeatedly emphasized the potential benefits of using Adlyxin together with Lantus, highlighting the “synergistic” effects on postprandial and fasting glucose and noting that many patients in ex-US markets already do take Lyxumia with Lantus. Management suggested that Adlyxin and LixiLan could both potentially be appropriate as a first injectable and as a basal intensification option. Indeed, the US proprietary name subtly evokes the use of lixisenatide as an add-on or intensification option – Adlyxin to “add lixi.”
    • Under the terms of Sanofi’s licensing agreement, the approval triggers a $5 million milestone payment to Zealand. Zealand is also entitled to tiered royalties of approximately 10%-15% for Adylxin revenues and is eligible to receive remaining milestone payments of up to $135 million. Adlyxin is the first Zealand-developed product to reach the market in the US.
  • Adlyxin will be the sixth GLP-1 agonist to reach the US market, after AZ’s Byetta (exenatide twice-daily) and Bydureon (exenatide once-weekly), Novo Nordisk’s Victoza (liraglutide), GSK’s Tanzeum (albiglutide), and Lilly’s Trulicity (dulaglutide). In late 2013, Sanofi boldly decided to withdraw its US submission for lixisenatide, electing to wait for cardiovascular outcomes results from the ELIXA trial before re-submitting a full package in July 2015 to avoid the risks of interim data disclosure from ELIXA – this delay was one of several consequences of the lack of clear guidance around submissions based on interim cardiovascular outcomes trial data.
    • While 2Q16 results for the overall US GLP-1 agonist market are not yet available, revenue for the class totaled $776 million in 1Q16. According to Novo Nordisk’s 1Q16 update, by total prescriptions (TRx), Victoza held 54% of the US market share, the exenatide franchise held 21%, Trulicity held 16%, and Tanzeum held 9%. We look forward to Novo Nordisk’s 2Q16 update next Friday, August 5, to gain a better sense of how the GLP-1 agonist market may have shifted since. Trulicity, in particular, has been gaining market share due to its patient-friendly, once-weekly administration. We expect Victoza to experience a boost in sales as well due to the LEADER results demonstrating cardioprotective benefits for the drug. As a once-daily product with slightly lower A1c-lowering efficacy based on clinical trials, we don’t expect Adlyxin to make a huge dent in this market, though we imagine the product’s performance could be bolstered by competitive pricing and an aggressive access and reimbursement strategy. Sanofi was able to win impressively broad access for Toujeo when it launched in early 2015 and we expect access for Adlyxin is a significant point of discussion in the company’s ongoing “intense” formulary negotiations. Adlyxin will soon face additional competitive pressures as Intarcia’s implantable GLP-1 agonist ITCA 650 (exenatide mini-pump) and Novo Nordisk’s next-generation semaglutide (in both oral and once-weekly injectable formulations) arrive on the market. Intarcia has suggested that ITCA 650 will be competitively priced, at a per-day discount to current GLP-1 agonist options, while the injectable formulation of semaglutide will enjoy evidence from the SUSTAIN 6 trial suggesting a cardioprotective benefit.

Praluent (alirocumab)

  • Sales of Sanofi/Regeneron’s PCSK9 inhibitor Praluent (alirocumab) totaled €21 million (~$24 million) in 2Q16, up 75% sequentially from €12 million (~$13 million) in 1Q16. Management shared that Praluent holds approximately half of the global PCSK9 inhibitor market share in terms of total prescriptions (TRx). Sales of the other PCSK9 inhibitor on the market, Amgen’s Repatha (evolocumab), totaled $27 million in 2Q16, according to Amgen’s update earlier this week. The slight edge in revenue for Repatha may be driven by slightly better formulary positioning – CVS Health, the second-largest pharmacy benefits manager (PBM) in the US, awarded an exclusive formulary contract to Repatha for 2016 while Massachusetts-based health insurer Harvard Pilgrim reached a pay-for-performance agreement for Repatha (but not Praluent). The nation’s largest PBM, Express Scripts, included both Praluent and Repatha on its National Preferred Formulary while Cigna agreed to value-based contracts for both PCSK9 inhibitors.
  • Praluent’s uptake has been slowed by challenges surrounding reimbursement in both the US and outside of the US. The PCSK9 inhibitor class comes at a high list price – over $14,000/year – leading many payers to impose strict utilization management strategies to reduce costs. In the US, Sanofi highlighted recent wins in easing payer requirements that patients try certain other therapies before initiating a PCSK9 inhibitor. In particular, management shared that, in 2Q16, two “important” Part D plans and one commercial plan agreed to remove the requirement that patients try ezetimibe in addition to a statin before initiating a PCSK9 inhibitor. Management pointed out that only 4%-5% of the US population is on both a statin and ezetimibe, so the removal of this requirement allows more patients to intensify treatment directly to Praluent. Sanofi noted that the removal of this particular requirement is the focus of ongoing discussions with other payers as well. Outside of the US, Sanofi shared that Germany’s IQWiG issued a “no additional benefit” ruling in the absence of cardiovascular outcomes trial (CVOT) data for Praluent – this is disappointing but not particularly surprising given IQWiG’s history of negative rulings for many new diabetes drugs. France similarly provided a negative assessment of Praluent’s benefit and Sanofi acknowledged that positive CVOT data will be required to win reimbursement there. On the plus side, the UK’s NICE issued a positive recommendation for Praluent and the product also won inclusion on Spain’s national reimbursement list, though Sanofi will have to continue to negotiate on the regional level in Spain as well. Management shared that Praluent has also steady achieved reimbursement wins in a handful of small- to mid-size markets as well, including Canada, the Netherlands, and Austria. Sanofi also highlighted the early-July approval of Praluent and shared that the PCSK9 inhibitor would launch in Italy in 4Q16.
  • Results from a second interim analysis of the ODYSSEY CVOT are expected in 4Q16. The analysis includes 75% of events and is intended to determine whether the trial should be stopped for futility or overwhelming efficacy. In Q&A, management suggested that the trial has a greater chance of being stopped early for overwhelming efficacy if the hazard ratio at the interim analysis is 0.8 or lower, demonstrating a 20% or greater relative risk reduction for the primary three-point MACE endpoint with Praluent. Management also pointed out that data from long-term safety studies suggested a hazard ratio of 0.5 with Praluent, but emphasized that Sanofi has no concrete information on the ODYSSEY results at this point and that the decision to halt the trial early rests with an independent monitoring committee. Overall, Sanofi continued to emphasize that Praluent uptake would likely greatly improve in the event of positive CVOT results.
  • Sanofi has filed a once-monthly 300 mg formulation of Praluent in the US and EU. Previously, Praluent was only offered with twice-monthly administration, though at two different dose strengths. In contrast, Amgen’s Repatha is offered with either once-monthly or twice-monthly dosing, though the once-monthly dosing procedure involves three consecutive injections of 140 mg of Repatha to achieve the total 420 mg dose. Amgen recently announced the approval of Repatha Pushtronex, a patch pump-like on-body infuser that consolidates once-monthly administration into a single dose, which should help increase uptake of once-monthly Repatha administration and perhaps offer a competitive advantage over Praluent until Praluent’s once-monthly formulation is approved. Notably, the cost of Repatha remains the same, regardless of whether it’s delivered via Pushtronex or with the original autoinjector.

Other Financial Highlights

  • Sales of Sanofi’s rapid-acting insulin analog Apidra (insulin glulisine) rose 3% at constant exchange (flat as reported) to €93 million (~$105 million). Apidra faced a tough comparison in 2Q16, as sales rose 21% YOY as reported in 2Q15. Sequentially, sales rose 9% as reported against an easy comparison as sales fell 18% in 1Q16.

Figure 5: Apidra Sales (1Q08-2Q16)

  • Sales of Sanofi’s human insulin Insuman rose 9% operationally (flat as reported) to €34 million (~$38 million). As in previous quarters, Insuman growth was driven by its performance in emerging markets, where sales of the product grew 44% YOY at constant exchange (though falling 21% as reported) to €11 million (~$12 million). Outside of emerging markets, Insuman sales fell 8% YOY operationally. Sales in Europe, which remains Insuman’s largest market, fell 12% YOY at constant exchange (rising 10% as reported) to €22 million (~$25 million).

Figure 6: Insuman Sales (4Q12-2Q16)

  • Sales of the sulfonylurea Amaryl (glimepiride) fell 9% at constant exchange (falling 15% as reported) to €93 million (~$105 million). Sequentially, Amaryl sales rose 6% as reported from €88 million (~$97 million) in 1Q16.

Figure 7: Amaryl Sales (1Q05-2Q16)

  • Sanofi’s BGM portfolio accrued revenue of €17 million (~$19 million) in 2Q16, up 6% operationally and as reported. Sanofi has been deprioritizing its BGM portfolio of late and did not include its BGM revenue in its 2Q16 net sales financial worksheet, though the company did break out sales in its press release.

Pipeline Highlights

LixiLan/iGlarLixi (lixisenatide/insulin glargine)

  • Sanofi shared that an FDA decision for LixiLan is expected toward the end of  August. The company highlighted the recent positive FDA Advisory Committee vote (12-2) in favor of approval for LixiLan. In Q&A, management shared that the company is working closely with the FDA to address some of the human factors concerns that arose in the Advisory Committee meeting – we assume some these changes will address the naming of the two different dose pens that caused confusion in a human factors study and potentially the naming of dose units for the combination (which was a sticking point in the Advisory Committee Meetings for both LixiLan and Novo Nordisk’s Xultophy [insulin degludec/liraglutide]). In our view, there is more confusion with current products and use of those products in the market currently, but it’s certainly positive that FDA wants to make sure there is as little chance for safety errors as possible. We do think offhand most patients do want to call the units something – we look forward to seeing what happens on that front. Management also expressed confidence that the color of the pens, another issued raised in the Advisory Committee meeting, would not pose an issue as it did not cause any problems in the human factors study. Based on management’s comments in Q&A, it appears that Sanofi is ready for a short turnaround time between approval and launch, as management noted that Sanofi hopes to launch LixiLan in the next couple of weeks.

Other Pipeline Highlights

  • There were no other updates to Sanofi’s diabetes pipeline. Sanofi recently presented phase 3 results from the SORELLA 1 trial for its insulin lispro biosimilar SAR342434 at ADA 2016. The company continues to expect to initiate phase 3 trials for Lexicon-partnered SGLT-1/2 dual inhibitor sotagliflozin in type 2 diabetes and for Hanmi-partnered long-acting GLP-1 agonist efpeglenatide in 4Q16. Phase 3 trials for sotagliflozin in type 1 diabetes are already underway, led by Lexicon. Sanofi also recently officially added long-acting insulin analog SAR440067/LAPSInsulin-115 – acquired from Hanmi – to its phase 1 pipeline. The candidate is expected to support once-weekly dosing; Sanofi is also investigating a once-weekly combination of LAPSInsulin-115 and efpeglenatide in the preclinical stages. Sanofi’s phase 1 diabetes pipeline also includes a GLP-1/glucagon dual agonist (SAR425899), a GLP-1/GIP dual agonist (SAR438335), and a stable glucagon (SAR438544). Promising full phase 1 results for GLP-1/glucagon dual agonist SAR425899 were presented at ADA 2016 – see our competitive landscape for an overview of other efforts for this class.

Questions and Answers

Q: How are you are coping with biosimilars – where and why are they taking share?

A: Our European diabetes franchise is actually doing extremely well. Despite the launch of biosimilars, despite competition with Tresiba, and despite price decreases we had to accept on Lantus, we still have a value growth of 1.2%. In volume growth our franchise of insulin is actually growing at 9%, compared to the basal market’s 6%. The big picture is actually a very decent performance in Europe. If you look at the EU Five, the impact of biosimilars is actually pretty limited – the share conglomerate is only 1.3%. It is true that some central and eastern European countries have reached higher shares of biosimilars. Slovakia is an outlier with 17% market share for biosimilars, but to give you some other numbers, you have 4.6% in the Czech Republic and 5.4% in Poland. The driver of that is primarily copay differences between Lantus and the biosimilar. We are going to revisit our pricing strategy to make sure that we are at level playing field in terms of copay.

Q: Now that you have approval for Praluent in some markets outside of the US, what is the ramp rate? Could you tell us about your initial discussions with the authorities in the regions where Praluent is now approved?

A: We’ve had quite some encouraging news flow in the last couple of weeks and months actually, in terms of international markets. Praluent is now recommended in the UK; the final guidance was issued in June 2016. Germany is working on what they call a group of high-risk patients that could be treated in a so-called ‘economical’ way with a PCSK9 inhibitor, so we are waiting for more precision from Germany on Praluent. We got a negative opinion from the commission in France, so there we have to come back when we have the CVOT study. In Spain we had very good news: Praluent is now on the national reimbursement list there. Finally, in Italy we are looking forward to launching the product in the fourth quarter. In the coming quarters we expect to have a steady flow of mid-sized countries in Europe where we crack one after one in terms of reimbursement. Last but not least we have the approval in Japan.

Q: How much visibility do you have on your contracts for 2017?

A: We have responded to the bids and the contract documents are pending with regards to all major payers. We would describe these discussions as relatively intense, but we should have more visibility by the third quarter earnings call. We anticipate, of course, a net price erosion, but this is baked into our financial guidance.

Q: For Praluent, could you give a bit more detail around the reduced step edit through the US payers that you referred to? What is the percentage of covered lives that that's affecting? To what extent will outcomes data at the end of the year help with contracting for 2017 (or 2018 if it comes late)?

A: If you look at the population that is eligible for a PCSK9 inhibitor, only very few patients today are treated with statins and Zetia. So actually the step edit on Zetia is severely hampering the population. To give you an idea, the number of patients of the eligible population having received an endostatin and Zetia is only 4-5%. In some step edits it’s only 1% of the population. As you can imagine, getting rid of that Zetia step edit, progressively, is an absolutely key focus of our discussions. On CVOT outcomes, we hope that it will be major medical news that could help in negotiations. We do not want to wait for another 12 months for the patients to get the benefit of such a major event.

Q: Given the changing dynamics of the US basal insulin market, do investors need to start thinking about incumbents potentially seeking exclusivity going forward?

A: This is, of course, very difficult to predict. We cannot rule out that a few payers will seek exclusive access for 2017. By the way, this phenomenon is also assumed in our growth guidance. If you look at the overall patient pool, Lantus is so big that I wouldn’t imagine that there will be massive contracting for exclusivity; literally 100,000 of patients would need to be switched.

Q: You have an interesting commercial opportunity with LixiLan. But I also want to understand how the commercial performance of Lyxumia is outside of the US. Are you going to be putting all your eggs behind the LixiLan product versus the monotherapy?

A: When we launched Lyxumia in Europe unfortunately we didn't get it through reimbursement Germany and France, but markets where it did have reimbursement we easily gained between 10- 20% market share. In most cases Lyxumia wasn't prescribed on top of Lantus. To us this was proof-of-concept from a messaging standpoint and from a clinical practice standpoint that LixiLan itself is actually responding to an unmet medical need. We are pretty excited about this opportunity and looking forward to the launch.

Q: Most doctors we speak to think that a minimum benefit of 20% is necessary for the PCSK9 inhibitor to really see a meaningful inflection in use. Is there any reason why that 20% threshold might not be achieved at the interim but perhaps could be achieved at the final analysis?

A: You have to realize that studies have to be event-driven so it is hard to speculate the timeline. There is no question that a 20% hazard ratio over the interim analysis gives us a higher likelihood of having an interim that's positive, but that is not going to be determined by me. It's going to be determined by the independent board and we would like to see the outcome measuring every single component of the MACE and index, so we can be very, very sure if we have efficacy. If we have overwhelming efficacy in the interim it will be solid evidence for the medical field to make PCSK-9 a major alternative for patients who cannot respond to maximally tolerated standards.

 

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