Memorandum

Novo Nordisk 1Q15 – Diabetes portfolio up 24% YOY as reported, 9% operationally; Strong showings for Levemir and Victoza – April 30, 2015

Executive Highlights

  • Novo Nordisk’s diabetes portfolio grew 9% in constant currencies and 24% as reported to DKK 19.8 billion (~$3 billion) in 1Q15, driven by basal insulin Levemir (insulin detemir) and GLP-1 agonist Victoza (liraglutide), both of which posted double-digit growth as reported.
  • The launch of Lilly’s Trulicity (dulaglutide) boosted GLP-1 agonist class growth to ~12% in the US as of February 2015; Victoza (liraglutide) has lost some market share to Trulicity but remains the clear leader within the class at present. We are curious what bundling advantages Lilly has.
  • Management highlighted the US resubmissions of Tresiba (insulin degludec) and Ryzodeg (insulin degludec/insulin aspart), the EU approval of obesity drug Saxenda (liraglutide 3.0 mg), and clinical trial results for faster-acting insulin aspart and oral GLP-1 semaglutide.

Novo Nordisk provided its 1Q15 update this morning in a call led by CEO Mr. Lars Sørensen. Total sales for the company’s diabetes portfolio grew 9% year over year (YOY) in constant currencies and 24% as reported to DKK 19.8 billion (~$3 billion) in 1Q15, driven primarily by basal insulin Levemir (insulin detemir) and GLP-1 Victoza (liraglutide). Levemir continued to post strong results after performing well throughout 2014: sales grew 13% in constant currencies (31% YOY as reported) to a record DKK 4.1 billion (~$617 million). This stands in contrast to the 5% decline in sales (in constant currencies) for market leader Lantus (insulin glargine) reported in Sanofi’s 1Q15 update this morning. Victoza also had a fairly strong quarter, growing 18% in constant currencies (36% as reported) to DKK 4 billion (~$600 million). The product remains the clear leader in the (now expanding) GLP-1 agonist class with 64% market share in the US (based on total prescriptions). However, management acknowledged that Victoza has lost some market share since the launch of Lilly’s Trulicity (dulaglutide), which has achieved fairly strong early penetration. New basal insulin Tresiba (insulin degludec) also contributed to the portfolio’s growth, though its uptake remains variable and heavily dependent on reimbursement. The dynamics within both the GLP-1 agonist and basal insulin markets were the focus of significant discussion during Q&A.

While the call did not include any major pipeline updates, management highlighted several key R&D milestones for the quarter: the US resubmissions of Tresiba and Ryzodeg (insulin degludec/insulin aspart), the EU approval of obesity drug Saxenda (liraglutide 3.0 mg), and clinical trial results for faster-acting insulin aspart and oral semaglutide. There was perhaps surprisingly little discussion of the recent US Saxenda launch (though this topic did receive its own dedicated investor update last month) and of the company’s plans for exciting combination product Xultophy (insulin degludec/liraglutide) – we assume Novo Nordisk has to wait for a final Tresiba decision before submitting the product to the FDA. We did hear some intriguing commentary on potential expanded indications for Victoza and/or next-generation GLP-1 agonist semaglutide, as well as confirmation of the company’s commitment to obesity.

Read on below for an in-depth discussion of these and other highlights from the call, followed by Q&A. Aside from the financial and R&D highlights, Novo Nordisk also announced several personnel updates from its board of directors during the call. Mr. Sørensen shared that the leaders of commercial activities in the US, Europe, and International Operations, as well as the leader of product supply, have been elevated to Executive Management in preparation for global launches of new products. He also announced that he will stay on as CEO until the end of his contract in 2019 (very positive news in our view) and that President and COO Mr. Kare Schultz will be leaving the company. The very talented Head of China Ron Daniels appears to have left the company – this was not addressed and is a major loss in our view. Curiously, the head of marketing appears to have taken over Daniels’ responsibilities.

Financial results for Novo Nordisk’s major diabetes products

Product

1Q15 Revenue (billions)

Year-Over-Year Reported (Operational) Growth

Sequential Reported Growth

Modern Insulins

DKK 11.5 (~$1.7)

23% (8%)

3%

- NovoLog

DKK 4.7 (~$0.7)

20% (6%)

-3%

- NovoMix

DKK 2.7 (~$0.4)

16% (3%)

6%

- Levemir

DKK 4.1 (~$0.6)

31% (13%)

10%

Human Insulin

DKK 2.9 (~$0.4)

13% (0%)

5%

Tresiba

DKK 0.3 (~$0.04)

239% (N/A)

3%

Victoza

DKK 4.0 (~$0.6)

36% (18%)

-1%

Total Diabetes Care

DKK 19.8 (~$3.0)

24% (9%)

3%

Financial Highlights

  • Novo Nordisk’s diabetes portfolio posted sales of DKK 19.8 billion (~$3.0 billion) in 1Q15, up 9% year over year (YOY) in constant currencies and 24% as reported. Reported growth figures were unusually high in 1Q15 as the Danish kroner was unusually weak vs. the US dollar and other currencies in 1Q15. The 9% operational growth rate is more consistent with the high single-digit to low double-digit growth over the past year and with the company’s 4Q14 forecast of 6%-9% growth in 2015. Sequentially, the diabetes portfolio grew 3% as reported.
    • By product, basal insulin Levemir (insulin detemir) and GLP-1 Victoza (liraglutide) remained the main drivers of growth. Excitingly, new basal insulin Tresiba (insulin degludec) accounted for 10% of growth; though uptake has been uneven due to different reimbursement levels in the countries where Tresiba has been launched, and it is encouraging to see the product make an increasingly meaningful contribution to growth. In future quarters, we anticipate IDegLira will also have a meaningful impact.
    • By geography, North America remained the main driver of growth, accounting for 56% of the company’s growth in 1Q15. International Operations and China also made significant contributions, accounting for 20% and 13% of growth, respectively. Management noted that growth in North America was driven by increased volume (particularly in the GLP-1 agonist class) and market share gains for Levemir. International Operations growth was driven primarily by strong penetration of NovoLog and NovoMix and positive impacts from human insulin sales and the Tresiba rollout. In China, modern insulins accounted for the majority of growth, with human insulin making only a modest contribution (though it still accounted for a substantial portion of sales). In Europe and Japan, the positive results for Victoza, Tresiba, and NovoEight were somewhat offset by decreased volume in the insulin market and the impact of increased wholesaler stocking in 1Q14. We are looking to learn more about management in China as country head Ron Christie doesn’t seem to be in charge of China anymore – we’re trying to check this and hope he just has another assignment though the transfer of head of China to Jakob Riis seems slightly abrupt (the highly regarded leader is also still running marketing).

Whole-company sales and growth by geography

 

Share of Sales

Reported (Operational) Growth

Share of Growth

North America

49%

34% (11%)

56%

Europe

20%

6% (5%)

11%

International Operations

15%

22% (12%)

20%

Region China

11%

31% (11%)

13%

Japan & Korea

5%

6% (0%)

0%

Insulins

  • Novo Nordisk’s modern insulins (NovoLog, NovoMix, and Levemir) collectively grew 8% YOY in constant currencies and 23% as reported to DKK 11.5 billion (~$1.7 billion). Sequentially, the modern insulin portfolio grew 3%. Please note that Novo Nordisk characterizes Tresiba as a “next-generation insulin” rather than a modern insulin when reporting sales.
    • Novo Nordisk’s share of the global insulin market held steady at 47% as of February 2015. The company’s share of the modern insulin and new-generation insulin market (which accounts for 80% of Novo Nordisk’s insulin sales) dropped slightly to 45% from 46% in February 2014. See the table below for more details on Novo Nordisk’s insulin market share.
    • As with the entire diabetes portfolio, North America accounted for the majority (52%) of modern insulin growth, followed by International Operations and China. Growth in North America was driven by underlying volume growth of the insulin market and continued market share gains for Levemir. In Europe, positive growth for Tresiba and NovoLog was partly offset by declines in the premixed and human insulin segments and the implementation of pricing reforms in some countries. In International Operations, growth was driven primarily by NovoLog and NovoMix with positive contributions from human insulin and Tresiba; growth in China was bolstered by continuing penetration of the three modern insulins and partly offset by a slight decline in human insulin sales (this was a bit surprising). The declining sales in Japan reflected decreased volume and the impact of increased wholesaler inventory levels in 1Q14, partly offset by strong uptake of Tresiba – Tresiba has seen more success in Japan than in perhaps any other geographic area.

Novo Nordisk Insulin Market Share

 

Share of Total Insulin Market

Share of Modern and New-Generation Insulin Market

 

February 2015

February 2014

February 2015

February 2014

US

36%

37%

38%

38%

Europe

47%

48%

47%

48%

International Operations

55%

55%

52%

53%

China

57%

58%

63%

64%

Japan

52%

52%

50%

48%

Global Total

47%

47%

45%

46%

Levemir (Insulin Detemir)

  • Levemir continued to post strong results in 1Q15: sales grew 13% YOY in constant currencies and 31% as reported to DKK 4.1 billion (~$617 million). This total represents an all-time record for Levemir sales, which have risen impressively over the past year, due primarily to formulary advantages, we believe. Sequentially, sales were up 10% against an easy comparison (sales fell 1% sequentially in 4Q14). Management highlighted Levemir as a major driver of growth, due primarily to its performance in North America, where sales rose 46% as reported and 21% in constant currencies to DKK 2.9 billion (~$430 million). The product’s share of the US modern basal insulin market increased by approximately three percentage points to ~25%; this figure was under 20% in February 2012 and has been gradually but consistently increasing over the past few years – we believe this is due to formulary advantages and overall pricing rather than sheer volume increases. This was in contrast to Sanofi managements’ remarks during its 1Q15 update that Lantus’ share has held fairly stable over the past five month. Device penetration for Levemir rose slightly to just above 70%, also helped no doubt by the launch of the new FlexTouch pen last year.
    • Levemir’s performance was weaker in ex-US markets, though it did see double-digit growth in China (albeit from a much smaller base). Sales in China rose 36% as reported and 15% in constant currencies to DKK 110 million (~$17 million). Sales rose 1% as reported (0% in constant currencies) in Europe to DKK 694 million (~$105 million) and 8% as reported (6% in constant currencies) in International Operations to DKK 360 million (~$55 million). Levemir declined 27% as reported and 31% in constant currencies to DKK 47 million (~$7 million) in Japan and Korea, due mainly to the strong uptake of Tresiba in Japan.
  • The positive results for Levemir stand in contrast to the 5% decline in Lantus (insulin glargine) sales ex-exchange reported in Sanofi’s 1Q15 update this morning. Sanofi’s 3Q14 update disclosed that that the company had accepted a significant increase in 2015 rebates for Lantus in order to secure favorable formulary positioning, presumably following aggressive discounting for Levemir by Novo Nordisk. Lantus remains the clear market leader within the basal insulin market; although Novo Nordisk appears to have made inroads over 2014, we expect Sanofi’s decision to accept discounts to preserve access may stem the flow from Levemir to Lantus at least somewhat. The dynamics within the basal insulin market in the rest of 2015 will depend in part on the success of Sanofi’s Toujeo (insulin glargine U300), which launched in the US last month. So far, the launch appears to be progressing well: Sanofi reported this morning that contracting discussions with payers have been progressing faster than expected, with 70% of commercial lives holding unrestricted access and progress on Part D as well. We are hearing in the “real world” that some patients perceive Toujeo as a more stable insulin – we expect this also to be the case with Novo Nordisk’s degludec.
  • We wonder what the impact of a US launch of Tresiba in early 2016 would be on Levemir’s future performance. Given that Levemir’s success in 2014 was due in part to a reallocation of resources originally intended for a Tresiba launch, there have been questions over the past several quarters about whether its momentum might be blunted once Tresiba does reach the US market. This is certainly plausible, and we assume the company will divert resources from Levemir to Tresiba at that time. In our view, Tresiba has a more exciting clinical profile than any of the existing basal insulin options (though Toujeo offers some similar advantages in terms of glycemic variability). However, we assume that reimbursement will be the main determinant of its success, particularly if the price point is steep in the US.
  • During Q&A, management indicated that Novo Nordisk does not expect the launch of Lilly’s biosimilar insulin glargine formulation Basaglar in Europe to pose a significant threat to Levemir. Management speculated that the product will be priced at a ~10%-20% discount relative to Lantus and compete directly with Lantus without substantially impacting other members of the class. Pricing for biosimilars remains a major unanswered question in the field. Lilly has consistently stated that the product is expected to compete as a branded option, but CVS Health Chief Medical Officer recently forecast price reductions of 40%-50%, suggesting that the company’s expectations may not be aligned with those of payers, at least in the US (Basaglar will not be coming to the US as soon as in Europe due to a Sanofi lawsuit).

Tresiba (Insulin Degludec)

  • Sales of the Tresiba franchise (including Tresiba, Ryzodeg, and Xultophy) reached DKK 271 million (~$41 million) in 1Q15, up just 3% sequentially from DKK 262 million (~$44 million) in 4Q14. Tresiba has generally shown a positive growth trajectory since its launch at the beginning of 2013, and management indicated that the rollout continues to progress well. However, penetration in specific countries remains heavily dependent on the level of reimbursement (see below) and the 3% sequential growth represents a significant downtick from the 50% sequential growth in 4Q14. Novo Nordisk’s decision to price Tresiba at a fairly high premium that it believes is proportional to the product’s clinical benefit may have contributed to slow uptake in some markets, particularly those with price-conscious government payers.
    • Tresiba has now been launched in 27 countries, with the strongest uptake in Switzerland and Japan. Recent launch markets include Colombia, Libya, Finland, and the United Arab Emirates. Uptake continues to be strong in markets where Tresiba is reimbursed at a comparable level to Sanofi’s Lantus (insulin glargine). The product holds 27% share of the basal insulin segment in both Switzerland and Japan approximately 25 months after the launch; it holds 15% market share in Mexico and 13% in India. By contrast, uptake remains poor in markets like Germany (0%), the UK (2%) and Denmark (3%) where market access is more restricted.
  • Sanofi’s next-generation basal insulin Toujeo looks to be Tresiba’s most direct competitor. Clinically, both products offer a flatter action profile and potentially a hypoglycemia advantage compared to their predecessors; we believe Tresiba will likely have the edge in this regard based on clinical trial data, though of course the real-world results could be different. Management did note during Q&A that Novo Nordisk plans to submit data from the SWITCH trials to the FDA early next year to support the first-ever differentiated label for an insulin on hypoglycemia – this would be a big point in Tresiba’s favor. In our view the SWITCH studies may be key in giving Tresiba enough data supporting its clinical benefit to make a push for a premium from payers. One potential advantage for Toujeo is the extensive Toujeo COACH patient support program; in response to a question on this during Q&A, Novo Nordisk management commented only that the company would do what was necessary with regard to copay assistance to ensure Tresiba’s competitiveness, although we hope they consider patient support options beyond co-pays as well. We also assume reimbursement will be a key factor in the uptake of both products, though Novo Nordisk management pushed back against this assertion to some extent during Q&A, saying “the focus is on the innovation and we’re going to sell [Tresiba] on the merits.”   
  • Ryzodeg (insulin degludec/insulin aspart) has now been launched in Mexico, India, and Bangladesh. Management did not specifically discuss Ryzodeg’s progress during the call, but the company’s financial report indicated that launch activities are progressing as planned and that early feedback has been encouraging. We assume that the product’s main advantage will be the convenience of fewer injections; in terms of efficacy, we are much more excited about Novo Nordisk’s newest combination product, Xultophy (insulin degludec/liraglutide).
  • Management highlighted the first launch of Xultophy in Switzerland earlier this year. While the launch is still at a very early stage, management indicated that the initial uptick in basal insulin market share is similar to that seen after the initial introduction of Tresiba (which, as noted above, now holds 27% market share in that country). Management did not indicate which countries are next on the list, but the company’s press release at the time of the Switzerland launch stated that Xultophy should be made available elsewhere in Europe in 2015. We think this product is one of the most exciting new entrants to the type 2 diabetes drug arena in some time – read our report on its positive CHMP opinion for more on its compelling clinical profile.    

NovoLog / NovoRapid

  • NovoLog (NovoRapid; insulin aspart) sales rose 6% YOY in constant currencies and 20% as reported to DKK 4.7 billion (~$710 million) in 1Q15. Sequentially, sales declined 3% as reported. This growth is an improvement over the decline in sales in the first half of 2014 and a welcome indication that formulary negotiations did not go as badly for 2015 as for 2014. NovoLog suffered throughout 2014 from the loss of a major Express Scripts formulary contract to Lilly’s Humalog (insulin lispro); it is not entirely clear what the expected impact of formulary contracts in the rapid-acting insulin market is in 2015. Lilly management indicated in the company’s 2015 guidance call in January that Novo Nordisk appeared to have made the greater gains in this cycle, but Humalog’s 1Q15 performance (5% reported and 11% operational YOY growth) suggests that any shifts are likely to be more minor than the Express Scripts impact in 2014.
    • By region, NovoLog performed best in China, rising 22% in local currencies YOY (45% as reported) to DKK 229 million (~$35 million). Sales in International Operations (up 27% to DKK 487 million [~$74 million]) and North America (up 23% to DKK 2.8 billion [~$419 million]) were also fairly strong, though the positive reported growth in North America was mainly due to foreign exchange rates – operational growth was 2%. Reported growth was also positive in Europe (up 8% to DKK 995 million [~$151 million]); in Japan and Korea, sales declined 6% to DKK 205 million (~$31 million).

Other Insulins

  • NovoMix sales rose 16% as reported and 3% in constant currencies to DKK 2.7 billion (~$416 million). Sequentially, sales rose 6% as reported. As expected, the product performed best in China (up 45% as reported and 18% in constant currencies) and International Operations (up 35% as reported and 24% in constant currencies), where there is a wider market for premixed insulin. Growth was sluggish or negative in North America (5% as reported, -13% in constant currencies), Europe (-3% as reported, -4% in constant currencies), and Japan/Korea (-13% as reported, -18% in constant currencies). We imagine that the rollout of Ryzodeg will cut into NovoMix sales in the coming quarters, and with better product combinations on their way to deal with both fasting and postprandial glucose (especially basal insulin/GLP-1 agonist combinations) we are not very optimistic about the long-term future of the premixed insulin category.
  • Sales of Novo Nordisk’s human insulins rose 13% as reported and were flat in constant currencies at DKK 2.9 billion (~$439 million). Sequentially, sales rose 5%. Human insulin sales continue to grow in International Operations (up 10% as reported and 6% in constant currencies) and saw a surprising bump in North America (up 26% as reported and 5% in constant currencies) but were flat or down in all other markets.

Victoza (Liraglutide)

  • Victoza had a fairly strong quarter, growing 36% as reported and 18% in constant currencies to DKK 4 billion (~$600 million) in 1Q15. Sequentially, sales declined 1%. The product appears to be rebounding following a somewhat sluggish 1H14, posting double-digit growth for the past three quarters. By region, North America remained the primary driver of growth, with sales up 46% as reported and 20% in constant currencies.
    • Victoza’s performance was boosted by growth of the overall GLP-1 agonist class in the US. An IMS Health chart included in the presentation slides showed volume growth for the class rebounding to ~12% in the US after dropping sharply to ~8% following a period of 20%-25% growth in early 2013. As in 4Q14, management pointed to the introduction of new once-weekly agents (Lilly’s Trulicity [dulaglutide] and GSK’s Tanzeum [albiglutide]) and the abatement of concerns about pancreatitis as two potential contributors to the rebound. During Lilly’s 1Q15 update, management also highlighted the class’ improving performance and suggested that Trulicity had served as an important catalyst.
    • Management acknowledged that Victoza has lost some market share since the Trulicity launch, though it remains the clear leader within its class. According to a chart in the presentation slides, Victoza held a 64% share of the US GLP-1 agonist market (based on total prescriptions) as of February 2015, compared to 30% for AZ’s Bydureon (exenatide), 3% for Tanzeum, and 2% for Trulicity. Lilly management indicated during the company’s 1Q15 update that Trulicity has achieved 11% new-to-brand share (NBRx) within the class, compared to 51% for Victoza and 23% for Bydureon; Lilly also stressed that Trulicity’s uptake should be viewed in the context of approximately 50% market access given that reimbursement discussions are ongoing. Overall, the trends thus far appear consistent with our predictions the Trulicity launch would serve to both expand the class and draw some share from Victoza. However, the recent US launch of Saxenda (liraglutide 3.0 mg) and a future Xultophy launch will likely help Novo Nordisk compensate for any negative impact on Victoza sales. Management also indicated during Q&A that the company does not expect any pricing changes for Victoza (at least in 2015 and most likely in 2016) due to pressure from Trulicity.

GLP-1 Agonist Market Share

 

GLP-1 Agonist Share of Total Diabetes Care Market (by value)

Victoza Share of GLP-1 Agonist Market (by value)

 

February 2015

February 2014

February 2015

February 2014

US

8.3%

8.4%

69%

69%

Europe

8.2%

7.7%

78%

78%

International Operations

2.3%

2.5%

75%

78%

China

0.7%

0.6%

56%

67%

Japan

2.2%

2.0%

61%

68%

Total

7.0%

6.8%

71%

72%

  • There is potential for several expanded indications for Victoza in the coming years. Management noted that two phase 3 trials investigating Victoza as an adjunct to insulin in type 1 diabetes (ADJUNCT ONE and ADJUNCT TWO) are scheduled to report within the next three to six months. During Q&A, Chief Scientific Officer Dr. Mads Thomsen also hinted that the company might consider pursuing an indication in NASH following the presentation this week of positive results from an investigator-initiated trial that demonstrated significant improvements in liver health with liraglutide vs. placebo. NASH is currently an area of huge unmet need, and we agree that this would be a valuable line of research for the company to pursue. He also referred briefly to a study by Imperial College London investigating Victoza in Alzheimer’s disease – this too would be a very novel and exciting expanded indication if the data proves promising.
    • One analyst inquired why Novo Nordisk would not focus all such research efforts on semaglutide given that Victoza’s patent expires in 2023. Management acknowledged that the logic was sound but said there was no reason not to conduct earlier-stage research using an already-marketed product. If semaglutide continues to produce the impressive efficacy seen in clinical trials thus far, we do imagine that this is where the company will invest the majority of its GLP-1 agonist research efforts in the future, but the established clinical data on Victoza could help when exploring new indications.
  • During Q&A, management suggested that a heart failure benefit with Victoza or another GLP-1 agonist would be biologically plausible. Management declined to speculate on the potential market impact of the recent DPP-4 inhibitor/heart failure controversy on the GLP-1 agonist class. However, from a scientific perspective, Dr. Thomsen said there would be no reason to expect GLP-1 agonists to have any negative impact on heart failure and noted that some human data suggests the class might actually be beneficial. Any finding of superiority (on heart failure or the primary MACE endpoint) in the LEADER CVOT for Victoza would of course be a big plus. We continue to assume that neutrality will be the most likely finding (in terms of the primary endpoint) of most ongoing CVOTs for type 2 diabetes drugs given their typical enriched patient population and shorter duration, but LEADER is slightly longer and may have a slightly better chance of demonstrating some sort of benefit.

Saxenda (Liraglutide 3.0 mg for Obesity)

  • Management celebrated the recent milestones for Saxenda (US launch and EU approval) during prepared remarks but otherwise offered little commentary on its progress – Novo Nordisk hosted a dedicated investor update on the product’s imminent US launch about a month ago, which may explain the reduced focus on Saxenda during the 1Q15 update. As a reminder, Saxenda was launched in the US just last week, and we learned in an interview with Novo Nordisk US President Mr. Jesper Høiland that it will be priced linearly vs. Victoza at $1,068 per month. This pricing suggests that the company is primarily concerned with limiting switch-overs from Victoza rather than aggressively expanding the market for obesity pharmacotherapy, as it likely could have achieved greater access and volume for Saxenda with a lower price point. Management has stressed in past discussions that reimbursement will be key for broader uptake; the company’s anticipated strategy includes initially targeting payers who already cover obesity medications, directly engaging employers, and offering an assistance program to offset the expected copay of ~$150.
    • During Q&A, management briefly reiterated the expectation of a slow ramp-up in Saxenda sales rather than dramatic early uptake. This comment came in response to a question regarding whether Novo Nordisk would wait to develop semaglutide for obesity until Saxenda is well established commercially. Management suggested that this would not be the case given the relatively low expectations for the Saxenda launch; this is consistent with previous statements from the company emphasizing an overall commitment to obesity rather than an exclusive focus on Saxenda.
    • Management noted that new extension data from the SCALE Obesity and Prediabetes trial is expected within the next three months. This data will come from patients who had prediabetes at the beginning of the study. Assuming they are positive, we hope that these findings could be used to support the addition of prediabetes data to Saxenda’s US label, as we believe this could be one of the product’s strongest selling points.     
    • Novo Nordisk indicated at the time of the EMA approval that Saxenda would be launched in several European markets this year. This approval, along with that for Orexigen’s Mysimba (naltrexone/bupropion) suggests that the prospects for obesity pharmacotherapy in Europe are looking up after years of regulatory obstacles, though we do expect reimbursement to be even more challenging there than in the US. 

Pipeline Highlights

Tresiba (Insulin Degludec) Resubmission

  • Management highlighted the FDA’s recent acceptance of the Class II Resubmissions for Tresiba and Ryzodeg and confirmed that a decision should arrive in early October. As a reminder, Novo Nordisk announced approximately a month ago that a small firewalled group within the company had decided with FDA input to resubmit the products based on interim data from the DEVOTE CVOT. During the call, management stressed that everyone at the company other than that select group remains blinded to the interim data to preserve the integrity of the trial, which is expected to complete in 2H16. We have assumed that the FDA will not require a second Advisory Committee meeting for Tresiba as that would require unblinding the interim data from DEVOTE; however, Novo Nordisk management suggested that the unblinded team would be prepared to hold some sort of AdComm behind closed doors if the FDA requested it.
    • The broader issue of interim data disclosure from CVOTs remains very much unresolved. While Novo Nordisk has strongly argued that submissions based on interim data can be done without compromising trial integrity or raising FDA ire, other companies have had very different responses. Orexigen recently received a reprimand from FDA official Dr. John Jenkins for disclosing data from the 25% interim analysis of the Light Study; J&J had to initiate a second CVOT for Invokana (canagliflozin) due to concerns about interim data disclosure from the first trial; and Sanofi withdrew its NDA for Lyxumia (lixisenatide) in 2013 to avoid the risks of interim data disclosure from the ELIXA CVOT. Overall, we feel there is a significant need for clearer FDA guidance on how interim data should be used in the regulatory process – this was the main point of agreement that emerged from the August 11 hearing on the subject.
  • Novo Nordisk has not indicated when it plans to submit Xultophy to the FDA. Given that a month has passed with since the decision to resubmit Tresiba with no news on this front, it is possible the company may be waiting for a final Tresiba regulatory decision before proceeding with a Xultophy submission. However, in doing so Novo Nordisk may offer Sanofi an opening in the US GLP-1 agonist/basal insulin market, as the company plans to submit LixiLan (insulin glargine/lixisenatide) in the US in 4Q15.

Faster-Acting Insulin Aspart (Faster Aspart)

  • Management highlighted the topline phase 3a results for faster-acting insulin aspart (Faster aspart) demonstrating non-inferiority vs. NovoLog. The Onset 1 trial in type 1 diabetes found a modest but significant A1c-lowering advantage with Faster aspart taken at mealtime (-0.32%) vs. NovoLog taken at mealtime (-0.17%) after 26 weeks (mean baseline = 7.6%), though there was no advantage when Faster aspart was dosed post-mealtime (0.13% reduction). Onset 2 in type 2 diabetes found similar A1c reductions in both groups. In both trials, Faster aspart was associated with significantly lower postprandial glucose excursions compared to NovoLog (11-18 mg/dl difference at one hour post-meal). There was no difference in overall hypoglycemia rates between the two groups, but Faster aspart was associated with significantly more hypoglycemia during the post-meal period, presumably due to its faster onset of action. Overall, we see the improvements in postprandial glucose and possibility for dose flexibility as meaningful clinical benefits, but we do not consider Faster aspart to be more than an incremental improvement over NovoLog – the key questions is whether it will be enough to stave off the increasing commoditization and price pressure in the rapid-acting analog market. Management confirmed during the call that Novo Nordisk plans to submit the product in the US and EU around the turn of the year.

Semaglutide

  • Results from the six phase 3 SUSTAIN trials of injectable semaglutide will begin to arrive within the next three months. See the table below for an overview of the trials and their expected completion dates. Notably, the timeline for SUSTAIN 5 has been accelerated even further: it was originally scheduled to complete in February 2016, and that date was moved up to December 2015 as of Novo Nordisk’s 4Q14 update.

Trial

Estimated Enrollment

Comparator/Design

Estimated Primary Completion Date

Results Expected

SUSTAIN 1

390

Placebo

May 2015

Within 3 months

SUSTAIN 2

1,200

Merck’s Januvia (sitagliptin)

October 2015

In ~6-9 months

SUSTAIN 3

798

AZ’s Bydureon (exenatide)

July 2015

In ~3-6 months

SUSTAIN 4

1,047

Sanofi’s Lantus (insulin glargine)

September 2015

In ~6-9 months

SUSTAIN 5

397

Placebo; add-on to basal insulin and/or metformin

November 2015

In ~6-9 months

SUSTAIN 6

3,297

Placebo; CVOT

January 2016

In ~9-12 months

  • Management suggested that phase 2 dose-ranging trials of semaglutide for obesity could begin around the time of an approval in diabetes. Management had suggested during Novo Nordisk’s 3Q14 update that these trials could potentially begin in 2015, but this latest statement suggests that late 2016 is a more accurate timeline. Dr. Thomsen noted in 3Q14 that brain scan findings showing greater accumulation of drug in the arcuate nucleus, a center of appetite regulation support the possibility of even greater weight loss with semaglutide than with liraglutide – if true, that could also place semaglutide ahead of all other existing obesity pharmacotherapies in terms of efficacy, although there are important efficacy metrics beyond mean weight loss with obesity medications such as responders vs. nonresponders. As mentioned above, it appears that Novo Nordisk’s plans for semaglutide in obesity will be largely independent of Saxenda’s commercial success.

Oral GLP-1 Agonists and Insulins

  • Management highlighted the recent positive topline phase 2 results for oral semaglutide and confirmed that a phase 3 go/no-go decision will take place later this year. The phase 2 study (n = ~600) found dose-dependent A1c reductions of 0.7%-1.9% (baseline = 7.9%) with once-daily doses of oral semaglutide ranging from 2.5 mg to 40 mg, compared to a 1.9% reduction with 1 mg injectable semaglutide (once weekly) and 0.3% with placebo. Also significant was the ~5.5 kg (~12 lb) placebo-adjusted weight loss seen with both injectable and higher oral semaglutide doses. While the level of A1c reduction and weight loss with the 40 mg dose is incredibly impressive, Dr. Mads Thomsen hinted during Q&A that this highest dose will not be carried forward into phase 3 trials, presumably due to GI side effects, which were also dose-dependent. Novo Nordisk plans to decide whether to advance oral semaglutide into phase 3 after consultations with regulatory authorities and a commercial assessment. We assume much of the discussion will focus on the best dose to advance into phase 3, but there may be a commercial factor to consider as well; namely, bioavailability. Oral semaglutide required a ~280x dose to match the efficacy of injectable semaglutide, and we wonder whether this would allow for a drug price that payers could support.
  • Novo Nordisk has two oral formulations of liraglutide in phase 1. The two candidates (OG987GT and OG987SC) each use a different carrier technology to protect the liraglutide molecule in the harsh environment of the digestive tract. We have not heard any recent updates on if or when these molecules might move into phase 2. Given that semaglutide appears to beat liraglutide in terms of efficacy based on clinical trials of their injectable formulations, it would be understandable if the company is focusing the majority of its oral GLP-1 efforts on semaglutide at this point. Another oral formulation of semaglutide (OG217GT) was discontinued last quarter after failing to achieve sufficient drug exposure in healthy volunteers.
  • As of the company’s 1Q14 update, Novo Nordisk planned to advance its primary oral insulin candidate OI338GT (NN1953) into phase 2a in 2015, though we have not heard any updates since then. The phase 1 program for the candidate included three clinical pharmacology studies in a total of 118 healthy volunteers and patients with type 2 diabetes that supported its safety and dose-dependent glucose-lowering effects. The planned phase 2a trial will be a proof-of-principle trial investigating glucose lowering and safety, including hypoglycemia rates, after individual titration of the compound in patients with type 2 diabetes. Oral insulin is one of the more challenging areas in diabetes drug development due to variable absorption from the gut and insulin’s narrow therapeutic window. However  Novo Nordisk certainly has an advantage over other contenders in terms of experience and resources. Other companies with oral insulins in clinical development include Biocon (IN-105; phase 2) and Oramed (ORMD-0801; phase 2).

Other Pipeline Candidates

  • Novo Nordisk’s long-acting insulins LAI287 and LAI338 remain in phase 1. Our last update on either of these candidates was in 3Q14, when the company shared that LAI338 had entered clinical testing; that trial was recently completed according to ClinicalTrials.gov, suggesting that results should be available shortly. LAI287 began a second phase 1 study testing once-weekly dosing in 2Q14; that trial is ongoing with primary completion expected in June 2015, a slight delay from the original estimated primary completion date of March 2015. Other companies developing insulins with the potential for once-weekly dosing include PhaseBio (PE0139; phase 1), Hanmi (LAPSInsulin-115; phase 1), and AntriaBio (AB101; transitioning towards clinical study).
  • Novo Nordisk’s pipeline also includes two phase 1 candidates for obesity: the glucagon analog G530L (NN9030) and the long-acting amylin analog NN9838. As discussed when the glucagon analog was first moved into phase 1 in 3Q14, the company ultimately intends to co-formulate the candidate with liraglutide. During that report, Dr. Thomsen raised the possibility that co-activation of the GLP-1 and glucagon receptors could yield double-digit weight loss; he also explained that the decision not to pursue a single dual agonist of both receptors stemmed from the need to further optimize the dose ratio in early human testing. Other companies developing GLP-1/glucagon co-agonists include Lilly/Transition Therapeutics (TT401; phase 2), Xenetic Biosciences (PSA-oxyntomodulin; phase 1), Hanmi (HM12525A; phase 1), and Zealand/BI (Zealand has sole rights to phase 1 candidate ZP2929; BI has selected undisclosed lead candidate for partnership). We first learned of the existence of the amylin analog in 4Q14; other than AZ’s Symlin (pramlintide) for diabetes, we have not heard much about amylin analogs in clinical development recently.

Questions and Answers

Tresiba

Q: Do you have any comments on how we should think about a potential Tresiba launch late this year, particularly about the timelines to achieve reimbursement given that much of the contracting for 2016 will be done by then?

And could you give any early commentary, as a competitor, on the Toujeo early launch and, in particular, the co-pay assistance program and whether you feel you need to respond in any way?

A: With regard to Tresiba, keeping the uncertainty of the FDA’s response to our Resubmission in mind, our current planning would allow us to launch in the beginning of January in the U.S. Toujeo is still in its early days, and we will be facing a similar situation as Toujeo in that we will need to get into a market where contracts have, to some extent, already been negotiated. And this, of course, creates some obstacles to a rapid take off, but we will address that when we get to the marketplace and when we know what the competitive situation looks like.

With Tresiba, the focus is on the innovation, and we're going to sell Tresiba on the merits of the product and what it brings to patients on basal insulin above and beyond what's already available. The contract is, of course, an integrated part of that, but that's not the main emphasis. So we'll have to discuss our plans as approvals allow us to do so.

So, clearly, an expectation on our side is that we will come out with a label that is differentiated from those of Lantus and Toujeo. And we will make our assessment based on the competitive environment at the point of time of launch.

And on co-pay, we of course will ensure that we're competitive, but it's too early to comment on competitive moves in this space.

Q: What's your base case expectation for hypoglycemia labeling given those comments?

A: No insulins have any benefit written in the label on hypoglycemia. Our hypoglycemia studies are not finalized to be added to this Resubmission and review by the Agency. The things that we, as a standard procedure, would expect to be in the label are the benefits that we see on kinetics and dynamics and potential variability.

With regard to hypoglycemia, the SWITCH trials, SWITCH 1 and 2, are blinded trials done the way the Agency expects to have such things done nowadays. They report early next year, and they will be followed immediately by submission of the data for inclusion into the label. And at that point, my expectation and hope would be to have, for the first time ever, a differentiated label with regards to hypoglycemia.

Q: Has the FDA made any suggestion that an AdComm will be required for Tresiba and, if they did, would you expect this to be behind closed doors? And if so, how would you be able to communicate that?

A: As you know, we have these very effective firewalls, meaning we’re not privileged to know anything about any dialogue related to cardiovascular outcomes and Tresiba DEVOTE interim results. So I don't know anything. But of course the unblinded team is in a position to be equipped to have an AdCom if that were the case. Obviously it would be a rather different situation. I think the Agency by definition would not be able to hold that in a public forum and maybe we wouldn't even hear about that. I simply don't know but, of course, the team is filled with the best expertise we have, so we'd be able to entertain that if it happened.

Q: On Tresiba, you're thinking of launching early next year. How should we think about the investment ahead of that in terms of sales force?

A:  As we are expecting to launch in the beginning of the year, and as we need an approved label by the Agency to start any pre-launch activities, it is going to be very, very modest in terms of cost.

Then, the cost picture in 2016 will depend on the competitive landscape, on the progress of our Victoza product and Saxenda product, and if we are in a situation where we still have strong momentum behind these two brands. We will review whether we need additional resources, and we will include all that in the eventual guidance.

Other Basal Insulins

Q: Have you had any payers in the US or other key markets come back to you to renegotiate the Levemir contracts following the launch of Toujeo?

A: No we have not seen any contracts being re-opened. In general, our expectation for the pricing of our portfolio in the U.S. remains the same as we announced in connection with the annual result: flat to slightly positive.

Q: Can you give us a little bit of a feedback about the expected pricing impact of the Lilly launch of their biosimilar Lantus in Europe?

A: You should ask Lilly on the pricing side. But we have previously at least speculated that the price level will be approximately 10% to 20% lower than the current marketed branded product and that the competition will be primarily between the biosimilar and the branded product and not influence others in the category.

Q: So you don't expect it to have to match that price discount?

A: No.

Victoza

Q: We're seeing potential heart failure signals with the DPP-4 inhibitors and obviously some of the players are backing off in terms of marketing. Are you seeing the GLP-1 agonist class already benefiting from that? And does that impact your decision-making at all around the oral GLP-1 agonist?

A: It is true that GLP-1 agonist volumes are increasing, but you know that there can only be speculation as to why. It could be because of the signal that some feel there are with the DPP-4 inhibitors for congestive heart failure. It could be marketing expansion due to Lilly marketing their analog or it could be the waning fear of pancreatic safety concerns that we've seen over time.

So I can't really speculate, but what I can say is that the GLP-1 agonists do not have a disadvantage. They improve fuel utilization in the failing myocardium and there are actually human data to suggest that this might be beneficial in congestive heart failure. For oral semaglutide, it's the same story.

And the LEADER study, as you hopefully are aware, is reporting in the first half of next year. Even though the strict MACE, i.e., the triple endpoint of cardiovascular death, stroke, and myocardial infarction is the primary endpoint, we do, of course, have congestive heart failure as a secondary endpoint, and we'll be looking at that with great interest. But there is no reason to believe we’ll see anything but either neutral or potentially beneficial effects.

Q: You said earlier that you might see a pricing change in the GLP-1 agonist market in the US when, for example, Lilly needs to get on to more formularies. How do you see the competitive environment in the next 6-12 months? Should we expect any major changes?

A: We are not anticipating any pricing impacts in 2015. The only caveat I'd have to put in here is that once one starts to negotiate contracts for 2016 and onwards, sometimes a situation develops such that you need to accept certain price decreases already in the current year. But given that we have a very strong position with the gold standard product, one should expect that we will hold our position firm on the pricing of Victoza.

Q: There are many potential reasons why the GLP-1 agonist market is expanding as rapidly as it is, but what are you hearing from your sales reps about the introduction of yet another once weekly product that seems to have kick started the market growth but not taken share from Victoza? How do you read that dynamic and what do you hear from your reps?

A: What we've picked up so far is a classic standard launch from Lilly that was a little slower in the beginning where the focus was initially on specialists and has picked up a little bit lately. There’s promotion to some extent against Victoza. They want people to perceive it as having all the qualities of a GLP-1 agonist but with the ease of the once-weekly injection. So in that sense, they are going up against us a little bit, but that's not surprising since Victoza is the gold standard.

Q: On the GLP-1 agonist market trends, can you elaborate on the feedback from the launch of Trulicity? Where do you think patients are coming from and what's the impact for Victoza?

A: It’s still so early that we don't have proper market knowledge about where patients are coming from. They are growing their share and we are losing slightly as a result of that and albiglutide. But we are holding on nicely and the market is expanding.

Q: We have seen data at EASL recently on GLP-1 agonists in NASH and even though it's only a few patients and it's still a bit early, it does look intriguing. Do you have some comments as to how you could potentially develop liraglutide in NASH?

A: NASH or non-alcoholic steatohepatitis is the segment of non-alcoholic fatty liver disease where you are starting to see increasing fibrosis. You have four stages and obviously as you progress through NASH and end up with potential liver fibrosis, it becomes totally irreversible, requiring liver transplantation or resulting in mortality.

Since there is no approved product for this indication, it is an area of great interest medically and pharmaceutically and also for Novo Nordisk with the latest investigator-initiated study from Phil Newsome and his co-workers. Novo Nordisk is currently looking into whether this is something we should study clinically, and the data is interesting. So we will get back to you on that. And, initially, it would obviously make sense to look at Victoza because this is the product we have on the market. But, as you are aware, we do have a whole portfolio of GLP-1 activities.

Obese people do tend to have increased fat in the liver, but so do people with type 2 diabetes. In an average type 2 diabetic American population, almost three out of four will have some degree of fatty liver. So you can do it with either population and that is something we will have to discuss.

Injectable Semaglutide

Q: Victoza’s patent expires in 2023, and before we know it we are there. So, wouldn't you put all your efforts in NASH into semaglutide now?

A: Pharmacologically speaking, at this point, we don't know whether the Newsome group's results hinged upon improved metabolic status, i.e., glycemic control or reduced energy intake. But either way, semaglutide seems to do more over and above liraglutide. So ultimately, it would make sense to develop semaglutide given its long patent life and the profile it has for NASH. That doesn't mean that you can't do your early exercises with an in-market product such as liraglutide, though. It is true the patent expires in 2023, whereas it's 2031 for semaglutide.

Q: Would it also be possible to make a once-daily version of semaglutide to help protect your franchise when Victoza expires?

A: That's an interesting thought and that would give you a situation where the fluctuation would be within 1% from peak to trough if you did that with the half-life that we have. So that is something one could consider as a lifecycle management activity.

Q: What are you plans for semaglutide in obesity? Would you wait for the launch of semaglutide in diabetes before starting the phase 3 trials in obesity or would you wait for the commercial success of Saxenda to do so?

A: We have systematically seen a higher efficacy level on body weight with semaglutide vs. liraglutide. A ramp-up of Saxenda sales, which we have communicated, is not happening overnight because it's a very immature market, which would mean that you obviously waste many years of patent life. And bear in mind that you can't just start phase 3. Even though we've done dose-range finding for semaglutide in type 2 diabetes, we have to repeat that for obesity and actually start with phase 2. Will that coincide with the timing of a semaglutide approval for diabetes? Maybe. It's probably in the same ballpark.

Oral Semaglutide

Q: Perhaps you could talk about the timelines for the steps or hoops you have to go through on the oral GLP-1 agonist?

A: Pending our stop/go decision later this year, we will be able to kick off in the first half of next year. We’re currently meeting with the regulatory agencies. Once the end of phase 2 meeting is wrapped up with the FDA and we have a conclusion about the clinical program, which will seek to define what we believe to be the superior nature of this product in the oral space, then we'll get back to you with the EMA starting as early as possible next year.

Q: On oral semaglutide, given the data that we've seen, I'm surprised that you talk about whether to proceed to phase 3 rather than how to proceed to phase 3. Could you give us more color on the trends across the doses in terms of efficacy and side effect, so we have a better feel for whether there is a sweet spot within the doses that you tried in the phase 2 study?

A: First of all, as a matter of principle, our company will always say if and when before we've made the phase 3 stop/go decision. When you ask me whether there is a sweet spot, we cannot reveal all the data; they will of course be presented and published. But I can give you a little hint. We went from 0.7% to a 1.9% A1c reduction throughout the dose range. That implies by definition that already at the 2.5 mg dose you must have a 0.7% reduction compared to a placebo reduction of only 0.3%. So if you are a pharmacologist and can make your dose response curves, you will probably also reach the conclusion that 40 mg would likely be on the high side. That's as far as I will go.

Big Picture

Q: If we look at the insulin market, the underlying growth for the three big players combined is something between 1% and 2%, which of course is driven by the big decline in Lantus but also the pressure on prices in the U.S. Do you actually believe that you could come back to double-digit growth in the insulin market alone with the environment we see right now? 

A: It’s our anticipation, if and when we get approval for Tresiba in the U.S. and when we are able to launch the degludec family in the U.S., that we will be able to achieve 10% or more top line growth in the diabetes market. The current players are impacted by their contracting and their rebating, and I can't comment on their activities. Our anticipation is that we will have a zero to single-digit positive price effect for 2015 in the US.

Q: In China, you're relying on the older part of your portfolio. Currently, there seem to be pricing and reimbursement changes and increased competition, and the whole industry's struggling to get drugs approved and reimbursed through the Chinese FDA. What are your thoughts on China going forward?

A: Our current assessment is that there is reluctance in the marketplace to interact directly with pharmaceutical representatives and this favors the old portfolio over the introduction of new products. So whereas we would have told you one to two years ago that our expectation for growth in China would be 15%, we believe 10% is more likely in the near future as long as the current economic situation in China applies.

Q: What will be the drivers of R&D spending over the medium-term? It seems unless you start to move forward with oral GLP-1 in diabetes or explore indications like NASH and Alzheimer's, there is scope for the absolute R&D budget to step down after 2017.

A: We've had very in-depth discussions in the R&D management team about the long-term outlook for R&D and what to spend it on. And you are absolutely right; there are some things that are short-term drivers of that spending, including a lot of phase 3b trials. Bear in mind that we have a handful of major diabetes assets either just being launched or on the way to being launched, and we have set aside substantial funds to lifecycle manage those by broadening the indications and getting better claims, etc.

Other than that, the oral GLP-1 program, even when we do proceed into phase 3, will be a very significant one that will take us into a whole new arena. That potentially opens the door for use of the oral protein engineering and delivery technology in many other peptide areas besides just GLP-1. And this is not free.

Then you also mentioned asset exploration. It is true that once you have a beautiful baby (or grown-up) like Victoza, whenever that data warrants further study, whether it's Alzheimer’s or NASH, where there are huge unmet needs, it is upon the company to at least consider doing so. We also have a relatively interesting early-stage obesity pipeline with not less than three assets in it of a non-GLP-1 nature. So we will find plenty of ways to use the R&D spend in the coming years.

 

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