Sanofi 2Q17 – Diabetes portfolio falls 11% YOY to $1.8B; Accelerated US sales decline expected in 2H17, updated guidance; Bright spots in Soliqua/Toujeo; EMA approves biosimilar insulin lispro – July 31, 2017

Sanofi provided its 2Q17 financial update in a call early this morning (PST) led by CEO Mr. Olivier Brandicourt. In this full report, we bring you 11 in-depth highlights on the company’s diabetes portfolio, diabetes pipeline, and broad pricing principles in the increasingly-challenging US market for pharmaceuticals (it’ll be well-worth your while to keep reading through highlight no. 11!). On this page, you’ll also find two summary tables – one displaying 2Q17 revenue for all of Sanofi’s major diabetes products, the other reviewing Sanofi’s clinical development projects relevant to diabetes – plus illustrative graphs depicting sales trends over the years. Click here for the press release and here for the company’s presentation slides.

Notably, we heard less on diabetes than ever before for a Sanofi earnings call – only one slide in the company’s presentation discussed diabetes explicitly, and prepared remarks featured <two minutes total on this disease area. Toujeo and Soliqua were the only diabetes products mentioned by name during prepared remarks (with nothing on flagship product Lantus). This follows with Sanofi’s earlier financial guidance, predicting 4%-8% revenue decline for the diabetes portfolio through 2018. Although today, management shared that diabetes financial performance is “highly likely to come in below our 4%-8% guidance on a compounded basis” and that the decline in US revenue is expected to accelerate in 2H17, this was not a surprise as they had already said that in 1Q17 . You’ll find more detail on this in the highlights below …

Table 1: 2Q17 Financial Results for Sanofi’s Major Diabetes Products

Financial Highlights

1. Sanofi’s overall diabetes portfolio fell 11% YOY as reported (12% in constant currencies) to €1.6 billion ($1.8 billion), driven by a 21% YOY decline as reported (23% in constant currencies) in US sales to €814 million ($895 million). While this sluggish financial performance in the US was largely attributed to the Lantus exclusion on the CVS Health and Unitedhealthcare formularies, we think it’s important to note that several diabetes companies have cited US pricing pressure as a distinct challenge in 1H17, and we imagine that Sanofi is also recording lower net revenue because of high patient discounts, segment mix (a greater proportion of prescriptions going to people on Medicaid), and rebates to payers/PBMs. The company’s overall pharmaceutical business also fell 3% YOY in the US, though it seems that pricing pressure is particularly strong in the diabetes market. Management shared an expectation for accelerated US sales decline in 2H17, which will likely cause the global diabetes business to “come in below our 4%-8% guidance on a compounded basis” (management said they now foresee >8% loss – they had pretty much said that during 1Q17 results as well). Without a doubt, we were disappointed to hear this financial guidance for Sanofi Diabetes confirmed, although it seemed highly probable to us after the 1Q17 update itself that total revenue in 2017 wouldn’t hit the 4%-8% projection.  We were glad to see next-generation basal insulin Toujeo and basal insulin/GLP-1 agonist combo product Soliqua highlighted as bright spots within the portfolio.

2. Sales of Sanofi’s flagship product Lantus (insulin glargine) fell 18% YOY as reported (19% in constant currencies) to €1.2 billion ($1.3 billion) in 2Q17, also falling 2% sequentially and driving the decline in global diabetes sales. This financial performance follows a 16% sequential drop in 1Q17 after the late 4Q16 launch of Lilly/BI’s Basaglar (biosimilar insulin glargine) in the US. Basaglar boasts exclusive positioning on the CVS Health and Unitedhealthcare formularies, and equal positioning to Lantus on Express Scripts, which has spurred the recent decline in Lantus sales (though quarterly revenue has fallen consistently YOY since 3Q15, we’re not sure that volume has). Management shared that retention rate of patients on Lantus has been 50% so far within CVS Health and 56% within Unitedhealthcare, adding that the effect of formulary exclusion has only partially taken hold in 1H17 (the Unitedhealthcare formulary was only activated on April 1). Management anticipates an even more challenging 2H17, with accelerated US sales decline for the Lantus franchise and for the diabetes business overall.

3. Revenue from next-generation basal insulin Toujeo (insulin glargine U300) totaled €210 million ($231 million), up 49% YOY as reported (46% in constant currencies) from a base of €141 million ($159 million) in 2Q16. Following a disappointing 19% sequential drop in 1Q17 (the product’s first since launching in 1Q15), sales rose 9% sequentially in 2Q17. Toujeo is skyrocketing in international markets (which we’re thrilled to see), while US sales are respectable but reflect decelerated growth from a slightly higher base. We expect this next-gen basal insulin to reach blockbuster status and post $1 billion this year, provided ex-US growth remains strong – we’ve rarely heard greater patient enthusiasm for products besides next-gen basal insulins.

4. In its second quarter on the market, fixed-ratio basal insulin/GLP-1 combination product Soliqua posted €5 million ($6 million), which represents 25% sequential growth from a low base of €4 million ($4 million) in 1Q17. Management discussed two (surmountable) barriers to uptake: (i) While 62% coverage on commercial insurance plans is a good start, management acknowledged that this is a very recent number, meaning it will take more time to see the effects of strong reimbursement on volume and sales. (ii) The concept of a fixed-ratio combination is still relatively new for real-world HCPs, who are accustomed to titrating basal insulin for their diabetes patients but who need more support and education in prescribing Soliqua. Management suggested that Soliqua uptake will be gradual, as the marketing team behind it has to progressively change the diabetes treatment paradigm – a task neither quick nor easy. While we understand that commercial enthusiasm for a new therapy often lags behind clinical enthusiasm (a theme we picked up on at ADA 2017), we’re pretty disappointed – basal insulin/GLP-1 agonist combos were among the most highly-anticipated new diabetes drugs in recent history, and they boast incredible demonstrated efficacy alongside a milder side-effect profile. Dr. John Buse has gone so far as to suggest that this emerging therapy class contains “the most effective anti-hyperglycemic agent on the planet,” and yet, now that these products have finally arrived on the market, real-world uptake is sluggish.

5. Sales of standalone GLP-1 agonist Adlyxin (lixisenatide) fell 13% YOY to €7 million ($8 million) in 2Q17, marking another weak quarter for the product. This reinforces our long-held view that Soliqua will be the main priority within Sanofi’s GLP-1 agonist franchise.

6. Sales of PCSK9 inhibitor Praluent doubled YOY and rose 24% sequentially to €42 million ($46 million). Reimbursement remains a major roadblock to uptake. Data from ODYSSEY Outcomes, if positive and supporting a label update for reduction of CV events, could boost reimbursement prospects for the PCSK9 inhibitor – we noticed on ClinicalTrials.gov that this CVOT is now expected to complete in December 2017 (moved up slightly from January 2018).

Pipeline Highlights

7. The EMA granted marketing authorization for Sanofi’s biosimilar insulin lispro (Lilly’s Humalog) in July under brand name Insulin lispro Sanofi, according to the company’s press release (we’ve never seen a product include the manufacturer’s name like this, but this will certainly reduce confusion). Very excitingly, this marks the first biosimilar rapid-acting insulin to hit the market. Management shared no details on EU launch timing, and also remained silent on any plans for submission in the US.

8. Phase 3 trials of Lexicon-partnered SGLT-1/2 dual inhibitor sotagliflozin as a component of type 2 diabetes combination therapy are expected to begin in 2H17, according to an appendix in the company’s presentation slides outlining expected R&D milestones. As per Sanofi’s 4Q16 update, the overall phase 3 program for sotagliflozin in type 2 diabetes will aim to demonstrate a potential benefit for the candidate in three specific use cases: (i) as a monotherapy (ongoing trial expected to complete in January 2019); (ii) as an add-on to oral diabetes medications (ClinicalTrials.gov currently lists trials of sotagliflozin as an add-on to metformin, which is expected to complete in March 2019, and as an add-on to sulfonylureas, which is expected to complete in May 2019); and (iii) as an add-on to basal insulin. Any study comparing an advanced agent vs. a sulfonylurea will be interesting and important for the diabetes field, as we continue to hope that sulfonylureas are de-prioritized or eliminated from treatment algorithms. Notably, even if one-year data shows comparable safety/efficacy for a candidate like sotagliflozin vs. a sulfonylurea, we should keep in mind that beta cell burnout is a profound risk associated with sulfonylureas that may not appear until longer-term follow-up. We look forward to hearing more details on the upcoming study of sotagliflozin as an add-on to basal insulin, and we will keep our eyes peeled for any additional trials assessing the candidate against a background of other oral diabetes therapies (DPP-4 inhibitors and TZDs are not represented in the trials listed so far). For context, sotagliflozin has already completed phase 3 studies in type 1 diabetes – Lexicon’s inTandem1 and inTandem2 trials of sotagliflozin were presented at ADA 2017, and  marked the first phase 3 studies to report for any oral type 1 diabetes therapy.

9. We were surprised to see a phase 3 trial of rapid-acting insulin SAR341402 listed on ClinicalTrials.gov, since the candidate remains in phase 1 on Sanofi’s pipeline page. The open-label study, titled GEMELLI 1, will compare the A1c-lowering efficacy of SAR341402 vs. Novo Nordisk’s NovoLog (insulin aspart) over the course of 26 weeks in people with type 1 or type 2 diabetes also using Lantus as basal insulin therapy. This is the first we’ve heard of this study, which has only been listed on ClinicalTrials.gov since early July 2017. The anticipated start date is August 2, 2017, and primary completion is estimated for January 2019.

10. Sanofi management did not provide any updates on the remainder of its diabetes pipeline, which includes Hanmi-partnered GLP-1 agonist efpeglenatide (phase 3 program expected to initiate in 4Q17), phase 2 GLP-1/glucagon dual agonist SAR425899, and a phase 1 GLP-1/GIP dual agonist. We know that Sanofi continues to support smart insulin investigations with JDRF as well.

Big Picture Highlights

11. In a previous statement by CEO Mr. Olivier Brandicourt published on Sanofi’s website, the company committed to no more than a 5.4% annual increase in list price for its drugs so as not to exceed the national health expenditures (NHE) growth projection, an independent standard measure of spending by US payers. Among insulin companies, Sanofi’s commitment to limiting list price increases to 5.4% is the most generous: Novo Nordisk has committed to no more than single digit annual increases in list price for its medicines and Lilly similarly committed to an annual increase of no more than 10%. In addition, Sanofi’s recent statement on pricing principles includes the company’s aggregate gross and net price increases in the US. Sanofi’s 2016 average list price increase vs. 2015 was 4%, while its average net price decreased by 2% – this gap is explained by patient discount programs and high rebates. Indeed, a common theme among pricing statements from various industry players is that there’s an indisputable discrepancy between list price and sales realized by the manufacturer.

Financial Highlights

1. Total Diabetes Revenue Down 11% YOY to $1.8 Billion; Management Forecasts Accelerated US Sales Decline and >8% Loss in 2H17

Sanofi’s overall diabetes portfolio fell 11% YOY as reported (12% in constant currencies) to €1.6 billion ($1.8 billion), driven by a 21% YOY decline as reported (23% in constant currencies) in US sales to €814 million ($895 million). While this sluggish financial performance in the US was largely attributed to the Lantus exclusion on the CVS Health and Unitedhealthcare formularies, we think it’s important to note that several diabetes companies have cited US pricing pressure as a distinct challenge in 1H17, including AZ in 2Q17, J&J in 1Q17 and 2Q17, Lilly in 2Q17, and Merck in 1Q17 and 2Q17. We imagine that Sanofi is also recording lower net revenue because of high patient discounts, segment mix (a greater proportion of prescriptions going to people on Medicaid), and rebates to payers/PBMs. The company’s overall pharmaceutical business also fell 3% YOY in the US, though it seems that pricing pressure is particularly strong in the diabetes market. Only Toujeo (next-gen basal insulin) and Soliqua (new basal insulin/GLP-1 combo) were called out by name during prepared remarks, with no mention of flagship product Lantus, and there was only one slide (no. 11) in the company’s 42-slide presentation dedicated to diabetes. This stands in stark contrast to previous quarterly updates, which included slides displaying Lantus’ and Toujeo’s share of the basal insulin market by volume, among other helpful insights on the status of Sanofi’s diabetes products – ultimately, we interpret this as another sign of the company’s struggling diabetes business.

• Management shared an expectation for accelerated US sales decline in 2H17, which will likely cause the global diabetes business to “come in below our 4%-8% guidance on a compounded basis” (management now foresees >8% loss). It seemed highly probable after the 1Q17 update itself that total revenue in 2017 wouldn’t hit the 4%-8% projection. Two reasons for this were outlined during today’s Q&A: (i) The impact of the Lantus formulary exclusions has only been partially realized so far (after all, the Unitedhealthcare formulary only went into effect on April 1, at the beginning of 2Q17), and the product is expected to lose volume and sales even more rapidly in the second half of the year. (ii) In addition, Sanofi’s overall diabetes portfolio will face a tough comparison in 4Q17, since sales were up 2% YOY to $2.1 billion in 4Q16. Without a doubt, we were very disappointed (saddened, and disheartened) to hear this reaffirmed financial guidance for Sanofi Diabetes. Let us note that big picture, this is still a massive franchise, and Sanofi is still currently providing essential diabetes medicines to patients at a high volume.

Figure 1: Total Sanofi Diabetes Portfolio Sales (1Q05-2Q17)

2. Lantus Sales Fall 18% YOY to $1.3 Billion as Biosimilar Competition and Formulary Exclusions Take a Toll

Sales of Sanofi’s flagship product Lantus (insulin glargine) fell 18% YOY as reported (19% in constant currencies) to €1.2 billion ($1.3 billion) in 2Q17, also falling 2% sequentially and driving the decline in Sanofi’s global diabetes sales. This 18% YOY loss occurred against an easy comparison – worldwide sales fell 14% YOY in 2Q16, which underscores the recent downward trend for the Lantus business. In fact, 2Q17 marks the lowest quarterly revenue recorded in the past six years (with the exception of 1Q17, when Lantus also posted $1.3 billion). This 2Q17 financial performance follows a 16% sequential drop in 1Q17 after the late 4Q16 launch of Lilly/BI’s Basaglar (biosimilar insulin glargine) in the US. Basaglar boasts exclusive positioning on the CVS Health and Unitedhealthcare formularies, and equal positioning to Lantus on Express Scripts, which has spurred the recent decline in Lantus sales (though quarterly revenue has fallen consistently YOY since 3Q15). Management shared that retention rate of patients on Lantus has been 50% so far within CVS Health and 56% within Unitedhealthcare, adding that the effect of formulary exclusion has only partially taken hold in 1H17 (the Unitedhealthcare formulary was only activated on April 1). Management thus anticipates an even tougher 2H17, with accelerated US sales decline for the Lantus franchise and for the diabetes business overall. The slope for YOY change in Lantus revenue was steepest in the US, down 26% as reported (28% in constant currencies) to €660 million ($726 million). Management noted, however, that biosimilar competition in European markets also drove revenue loss overseas: Ex-US Lantus sales fell 6% YOY in 2Q17, dropping 15% YOY as reported (14% in constant currencies) in Europe specifically. This performance in Europe has thus far been buoyed by sales in emerging markets, which grew 11% YOY as reported in 1Q17 and 5% YOY as reported in 2Q17. Lantus was once again absent from Sanofi’s slide deck, highlighting the insulin’s waning status within the company’s larger portfolio since its 2015 patent expiry.

• Despite these substantial commercial challenges for Lantus, management suggested during Q&A that Sanofi is not giving up on insulin glargine. On Sanofi’s 1Q17 call, management noted that Lantus had maintained 55% of patients on CVS Health, which fell to 50% in 2Q17 – the company’s patient assistance and discount programs are helping to sustain volume, or at least are slowing the attrition of prescriptions away from Sanofi’s product to Lilly/BI’s. Optimistically, as it becomes increasingly clear how many patients with type 2 diabetes not currently on basal insulin could benefit from the therapy, both Lantus and Sanofi’s next-gen product Toujeo (insulin glargine U300) stand to gain market share through new-to-treatment prescriptions. That said, we expect that in-class competition from Basaglar will only intensify as it becomes more established – as HCPs become more familiar with biosimilar insulins, and more convinced of their safety, and as more patients are switched over to the biosimilar by their payers. Lilly’s share of Basaglar revenue totaled $87 million in 2Q17, including $60 million in US sales. Globally, the franchise more than quintupled YOY and grew an impressive 88% sequentially, albeit from a much, much smaller base than Lantus, but we imagine this strong showing by Basaglar is an early sign of growing biosimilar competition. We’ll be back with a pooled analysis of the basal insulin market after Novo Nordisk’s 2Q17 update (Levemir, Tresiba) on August 9.
• Sanofi has issued a patent infringement lawsuit against Merck for its biosimilar insulin glargine Lusduna Nexvue (formerly known as MK-1293), which recently received tentative FDA approval pending lawsuit resolution. A similar lawsuit delayed the entry of Basaglar to the US market. It’s early to predict precisely what effect the entry of a second biosimilar insulin to the US market would have on Lantus, but past experience shows that at least two generics are necessary to drive down drug costs in the real world, and we’d definitely be happy to see more affordable basal insulin options for patients. We expect that uptake of biosimilars will increase as providers become more familiar with these agents, though this will certainly take some concerted marketing and education efforts by the biosimilar manufacturers (both Lilly/BI and Merck).

Figure 2: Lantus Sales (1Q06-2Q17)

3. Toujeo Sales Rise 49% YOY to $231 Million, with Impressive Performance Ex-US

Revenue from next-generation basal insulin Toujeo (insulin glargine U300) totaled €210 million ($231 million), up 49% YOY as reported (46% in constant currencies) from a base of €141 million ($159 million) in 2Q16. Following a disappointing 19% sequential drop in 1Q17 (the product’s first since launching in 1Q15), sales rose 9% sequentially in 2Q17. Toujeo appears to be skyrocketing in international markets (which we’re thrilled to see), while US sales are respectable but reflect decelerated growth from a slightly higher base. In the US, Toujeo sales totaled $86 million in 1Q16, $120 million in 2Q16, $136 million in 3Q16, $180 million in 4Q16, and $123 million in 1Q17, leading up to $134 million in 2Q17 – this corresponds to a 15% YOY US increase in 2Q17 vs. much higher 205% and 114% YOY growth margins for the US market in 3Q16 and 4Q16, respectively. Ex-US, sales totaled $28 million, $40 million, $50 million, $74 million, $82 million, and $97 million in 1Q16, 2Q16, 3Q16, 4Q16, 1Q17, and 2Q17, respectively – a steady ramp up sequentially. International Toujeo sales more than tripled YOY in 1Q17 and more than doubled YOY in 2Q17. According to Sanofi’s presentation slides (slide 11), Toujeo’s share of total basal insulin prescriptions (TRx) in the US was 8% as of July 14, up just marginally from 6% in 2Q16. Management also highlighted Toujeo’s 13% TRx in Europe, 16% in Japan, and 18% in early launch markets like Germany, noting that the decline in overall diabetes sales has been partially mitigated by Toujeo’s performance. We’re very happy to see Toujeo doing well in Japan and Germany, as both are sizeable markets for diabetes. The next-gen insulin is certainly a highlight within Sanofi’s struggling diabetes business, and we’re particularly impressed by its compelling growth ex-US. Some slowdown in the US is to be expected for a new product in a tough market, and like Lantus (insulin glargine U100), Toujeo is currently excluded from both the CVS Health and Unitedhealthcare formularies. Moreover, Novo Nordisk has heavily invested in its next-generation basal insulin Tresiba (insulin degludec, launched 1Q16 in the US), intensifying competition in this particular therapy class – we’ll have an update on Tresiba’s performance once Novo Nordisk reports 2Q17 earnings on August 9. We continue to hear terrific feedback – from both patients and providers – on Toujeo as a more effective and convenient basal insulin option. We still see potential for Sanofi’s next-gen basal insulin to reach blockbuster status and post $1 billion this year, provided ex-US growth remains strong.

Figure 3: Toujeo Sales (1Q15-2Q17)

4. Soliqua Underwhelms with $6 Million Revenue, Up 25% Sequentially from a Low Base

In its second quarter on the market, fixed-ratio basal insulin/GLP-1 combination product Soliqua posted €5 million ($6 million), which represents 25% sequential growth from a low base of €4 million ($4 million) in 1Q17. Ultimately, we hoped to see much higher revenue from Soliqua. That said, management discussed two (surmountable) barriers to uptake: (i) While 62% coverage on commercial insurance plans is a good start, management acknowledged that this is a very recent number, meaning it will take more time to see the effects of strong reimbursement on volume and sales. (ii) The concept of a fixed-ratio combination is still relatively new for real-world HCPs, who are accustomed to titrating basal insulin for their diabetes patients but who need more support and education in prescribing Soliqua. Management suggested that Soliqua uptake will be gradual, as the marketing team behind it has to progressively change the diabetes treatment paradigm – a task neither quick nor easy. This matches commentary we’ve gathered from Novo Nordisk reps regarding Xultophy (and in fact, Novo Nordisk’s commercial strategy is to delay full-scale promotion of Xultophy and to first establish familiarity of the individual components, basal insulin degludec and liraglutide). While we understand that commercial enthusiasm for a new therapy often lags behind clinical enthusiasm (a theme we picked up on at ADA 2017), particularly in the US, we’re pretty disappointed – basal insulin/GLP-1 agonist combos were among the most highly-anticipated new diabetes drugs in recent history, and they boast incredible demonstrated efficacy alongside a milder side-effect profile. Dr. John Buse has gone so far as to suggest that this emerging therapy class contains “the most effective anti-hyperglycemic agent on the planet,” and yet, now that these products have finally arrived on the market, real-world uptake is slow and sluggish – only $6 million in Soliqua’s second quarter on the market is unquestionably low. We very much hope that more patients reap the benefits of Soliqua and Xultophy soon. We’re certainly happy to note Sanofi’s commitment to Soliqua, as indicated by strong access to start, very reasonable pricing, and the spotlight on Soliqua in the company’s exhibit hall booth at ADA 2017. We would love more color on strategies to educate HCPs and build familiarity with this fixed-ratio combination. We’ll be back with a pooled analysis of Soliqua and Xultophy revenue from 2Q17 after Novo Nordisk’s upcoming earnings call on August 9.

• An additional commercial obstacle for Soliqua is in the US product label – the FDA approved Sanofi’s fixed-ratio combination only for type 2 diabetes patients not at goal on basal insulin glargine or lixisenatide monotherapy. In contrast, the EMA-approved label indicates Suliqua for intensification as well as second-line therapy to metformin – this matches our view that there is greater reluctance to consider early intervention with combination therapy in the US vs. Europe. Moreover, it concerns us that the US indication effectively constricts the number of patient-years eligible to benefit from Soliqua, when earlier initiation of this combo agent (without having to wait for insulin glargine or lixisenatide monotherapy to fail) could prevent long-term complications by offering more quick, efficient glucose-lowering, weight loss, postprandial control, etc. (this is all supported by robust evidence from phase 3 clinical trials). The Soliqua marketing team is tasked with pitching this product as an intensification option, which presents another factor slowing down uptake.

5. In Continued Weak Performance, Adlyxin Revenue Drops 13% YOY to $8 Million

Sales of standalone GLP-1 agonist Adlyxin (lixisenatide) fell 13% YOY to €7 million ($8 million) as reported (15% in constant currencies) in 2Q17, marking another weak quarter for the product. Reported revenue was flat sequentially, though a slightly higher exchange rate resulted in an ever-so-slight uptick in USD revenue. As reported, quarterly Adlyxin sales have actually been flat at €7 million since 4Q16. Adlyxin (branded Lyxumia outside the US) has never posted >$12 million in quarterly sales (all-time high in 4Q15), consistently claiming the lowest share of revenue within the pooled GLP-1 agonist market. In 1Q17, Adlyxin took home just 0.5% of the $1.4 billion market, below GSK’s Tanzeum at 2% (and notably, GSK plans to withdraw support from Tanzeum, as per the company’s 2Q17 update). For comparison, market leader Victoza (Novo Nordisk’s liraglutide) claimed 57% of the market by value with $824 million revenue in 1Q17. Adlyxin was the fourth GLP-1 agonist to reach the commercial market, in 2Q13, and the last to enter the US market. The standalone GLP-1 agonist has never quite taken off commercially, likely due to in-class competition from established market leaders Victoza and Trulicity (Lilly’s dulaglutide). Comparatively, lixisenatide has shown a weaker clinical profile and requires once-daily dosing, in contrast to Trulicity’s once-weekly dosing with a patient-friendly, IDEO-designed pen. Moreover, lixisenatide showed neutral CV effects in the ELIXA trial, whereas liraglutide demonstrated significant cardioprotection in LEADER, and now has a CV indication approved for the EU label.

• Adlyxin’s 2Q17 performance reinforces our long-held view that Soliqua will be the main priority within Sanofi’s GLP-1 agonist franchise. In our view, successful additions to the GLP-1 agonist class will likely involve either patient-friendly innovations or combination with other therapies. For example, Intarcia’s ITCA 650 (pending FDA approval, with a decision expected by December 2017) offers three-six months of continuous subcutaneous exenatide delivery through an implantable mini pump, greatly reducing injection burden and improving a patient’s chances at perfect medication adherence. GLP-1 agonist/basal insulin fixed-ratio combinations are becoming a class of their own with Sanofi’s Soliqua (lixisenatide/insulin glargine) and Novo Nordisk’s Xultophy (liraglutide/insulin degludec) both approved in November 2016. Moreover, Novo Nordisk has an impressively potent candidate in once-weekly semaglutide (pending FDA approval, with a decision expected in 4Q17). As CVOTs gain more traction in diabetes, we expect cardioprotective therapies to appeal more to patients, providers, and payers, alike. Within the GLP-1 agonist class, the LEADER trial showed positive CV effects associated with Victoza, the ADA has already endorsed liraglutide for patients with type 2 diabetes at high-risk for CV events in its 2017 Standards of Care, and the EMA just recently approved a CV indication for the European Victoza label. Unfortunately for Sanofi, Adlyxin is at a disadvantage since the ELIXA study showed neutral CV effects for lixisenatide.

Figure 4: Adlyxin/Lyxumia Sales (2Q13-2Q17)

6. PCSK9 Inhibitor Praluent Posts $46 Million, Doubling YOY and Capturing 36% of the Market by Value; Reimbursement Roadblock Remains

Sales of PCSK9 inhibitor Praluent doubled YOY and rose 24% sequentially to €42 million ($46 million). Reimbursement remains a major roadblock to uptake, but management emphasized during Q&A that Sanofi and partner Regeneron are wholly committed to Praluent (alirocumab) and will do whatever it takes to “maximize the brand” (still, we didn’t hear anything concrete on initiatives to improve coverage). According to a survey by the National Lipid Association, prior authorizations for a PCSK9 inhibitor (whether Praluent or Amgen’s Repatha) are denied by payers 96% of the time – this is truly abysmal insurance coverage for a highly-effective class of therapies, particularly given that CVOT results are out. Amgen management was optimistic during the company’s recent 2Q17 earnings call that positive outcomes data from the FOURIER CVOT may support a label update for Repatha (evolocumab), which could meaningfully boost reimbursement prospects. We’d hope that FOURIER findings and the potential Repatha label update would stimulate greater growth for the PCSK9 class as a whole. Sanofi/Regeneron’s own CVOT, the ODYSSEY Outcomes trial, is expected to complete in December 2017 according to ClinicalTrials.gov (we noticed that this has been moved up slightly from January 2018). Praluent was also the focus of two important oral presentations at ADA 2017: The ODYSSEY DM-INSULIN study and the ODYSSEY DM-DYSLIPIEDIMA study were the first of their kind to investigate the effects of a PCSK9 inhibitor agent specifically in a diabetes patient population, and results confirmed that alirocumab indeed demonstrates impressive cholesterol-lowering efficacy in people with type 2 (the agent had no significant effect on A1c or fasting plasma glucose). We maintain that PCSK9 inhibitors could be a very valuable addition to the diabetes treatment arsenal, given that people with diabetes face high residual CV risk. Moreover, studies like Steno-2 have shown that lipid-lowering is an important aspect of optimal diabetes management (alongside glucose-lowering and blood pressure-lowering).

• Praluent captured 36% of the $129 million PCSK9 inhibitor market by value in 2Q17. This estimate is based on Amgen’s reported Repatha revenue of $83 million (64% of sales), and represents a slip in Praluent’s market share, down from 42% in 1Q17 and 40% in 4Q16. We wonder how much of this declining market share for Sanofi/Regeneron is due to the ongoing patent infringement lawsuit from Amgen (more on this directly below). Pooled sales for the PCSK9 inhibitor class more than doubled YOY from a low base of $51 million in 2Q16, and grew 52% sequentially from $85 million in 1Q17 (notably, this was an easy sequential comparison, as 1Q17 pooled revenue represented a 12% sequential dip from 4Q16). We might expect an even higher sequential growth margin for a therapy class so new and so advanced, which once again underscores the major issue of poor reimbursement for PCSK9 inhibitors.
• Oral arguments in the lawsuit from Amgen over patent infringement of Repatha (evolocumab) were heard on June 6, and Sanofi/Regeneron now await a court decision. The companies will continue manufacturing and marketing Praluent in the meantime. A positive decision would clearly be very good news in this case, as Praluent is one of two Sanofi diabetes/CV products showing positive YOY growth in 2Q17. We also see distinct benefits to a two-product PCSK9 inhibitor market (especially in light of the surprising discontinuation of Pfizer’s phase 3 bococizumab in 3Q16), and we’d hope that Amgen and Sanofi/Regeneron could work together to expand payer coverage of products in this class (we can’t emphasize enough how necessary and important this goal is).

Pipeline Highlights

7. EMA Approves “Insulin lispro Sanofi” in July as First-to-Market Biosimilar Rapid-Acting Insulin

The EMA granted marketing authorization for Sanofi’s biosimilar insulin lispro (Lilly’s Humalog) in July under brand name Insulin lispro Sanofi, according to the company’s press release (we’ve never seen a product include the manufacturer’s name like this, but this will certainly reduce confusion). Very excitingly, this marks the first biosimilar rapid-acting insulin to hit the market. This news follows a positive CHMP opinion recommending EU approval in May (the candidate was submitted in September 2016). Management shared no details on EU launch timing and marketing strategy, and also remained silent on any plans for submission in the US. We view biosimilars as a promising option for many patients, once safety has been established, in this era of reduced insulin profitability but higher insulin prices, so we look forward to the market potential of Insulin lispro Sanofi. This could potentially serve as a much-needed revitalizing product in Sanofi’s diabetes portfolio, though pressures in the rapid-acting insulin market will remain an underlying challenge – namely, the growing popularity of non-insulin options for postprandial glucose control (including SGLT-2 inhibitors, GLP-1 agonists, and fixed-ratio basal insulin/GLP-1 combos) and competitive pricing around insulin and diabetes drugs more generally.

• To our knowledge, the only other biosimilar rapid-acting insulin candidates in the competitive landscape are Biocon/Mylan’s preclinical biosimilar insulin lispro and biosimilar insulin aspart. We have heard very few updates on these candidates since they were added to Biocon’s pipeline in 2013, with management specifying only that the agents are “on track” in preclinical development, with clinical trials to be initiated “sometime soon.”(That said, the relatively light commentary on biosimilar insulin aspart and insulin lispro is unsurprising in light of Biocon’s current focus on getting approval for its biosimilar insulin glargine.) We note that patient/provider confidence will likely be higher for a biosimilar launched by an already-experienced insulin manufacturer like Sanofi, which could be a major advantage for Insulin lispro Sanofi. Companies like Biocon and Mylan, on the other hand, with less insulin manufacturing history and expertise, will probably have to go even further in showing compelling safety data for their biosimilar insulin candidates. HCPs have shown a reluctance to prescribe biosimilar insulin products to-date, which we think is understandable, as providers have to be comfortable with long-term safety of an agent in real-world settings, and this takes time to establish once a product is commercially available.

• In 1Q17, Lilly management expressed optimism that Humalog will be able to maintain its market position and payer access despite the arrival of Sanofi’s biosimilar insulin lispro. Management pointed out that exclusive formularies have largely been the norm in the rapid-acting insulin field for a few years, whereas some formularies are just now beginning to exclude certain basal insulins. Thus, there would be less opportunity for payers to benefit economically from a larger rebate due to narrowing of the formulary, since it’s already whittled down to a single rapid-acting insulin. Furthermore, Lilly management suggested that payers with exclusive formularies are unlikely to switch out the insulin of choice after the initial exclusion, since that would force mass switches for all patients on the formulary. Of course, this is all speculation until Sanofi’s biosimilar is launched in the US and we look forward to following the market dynamics if/when that occurs.

8. Phase 3 Trials of SGLT-1/2 Dual Inhibitor Sotagliflozin to Begin 2H17, Investigating Candidate as Component of Combination Therapy

Phase 3 trials of Lexicon-partnered SGLT-1/2 dual inhibitor sotagliflozin as a component of type 2 diabetes combination therapy are expected to begin in 2H17, according to an appendix in the company’s presentation slides outlining expected R&D milestones. As per Sanofi’s 4Q16 update, the overall phase 3 program for sotagliflozin in type 2 diabetes will aim to demonstrate a potential benefit for the candidate in three specific use cases: (i) as a monotherapy (ongoing trial expected to complete in January 2019); (ii) as an add-on to oral diabetes medications (ClinicalTrials.gov currently lists trials of sotagliflozin as an add-on to metformin, which is expected to complete in March 2019, and as an add-on to sulfonylureas, which is expected to complete in May 2019); and (iii) as an add-on to basal insulin. We look forward to hearing more details on the upcoming study of sotagliflozin as an add-on to basal insulin, and we will keep our eyes peeled for any additional trials assessing the candidate against a background of other oral diabetes therapies (DPP-4 inhibitors and TZDs are not represented in the trials listed so far).

• We would love to see comparative efficacy studies of sotagliflozin vs. other oral diabetes medications for type 2 (in contrast to the current trials which examine sotagliflozin as an addition to background therapy). To our knowledge, comparative effectiveness investigations are not part of the current phase 3 plan for sotagliflozin. We’d be curious to learn how sotagliflozin compares to existing SGLT-2 inhibitors head-to-head. Presumably, dual inhibition would be more potent, and by decreasing the burden of an entirely renal-dependent mechanism, would correspond with a milder side-effect profile and lower risk of DKA (though this is less of an issue with SGLT-2 inhibitors in type 2 diabetes vs. type 1). Given that type 2 diabetes patients with impaired renal function are often restricted from current SGLT-2 inhibitors, this pocket of the patient population could particularly benefit from an SGLT-1/2 dual inhibitor like sotagliflozin. We’d also be keen to see a head-to-head comparison of sotagliflozin with a sulfonylurea. Indeed, any study comparing an advanced agent vs. a sulfonylurea will be interesting and important for the diabetes field, as we continue to hope that sulfonylureas are de-prioritized or eliminated from treatment algorithms. Notably, even if one-year data shows comparable safety/efficacy for a candidate like sotagliflozin vs. a sulfonylurea, we should keep in mind that beta cell burnout is a profound risk associated with sulfonylureas that may not appear until longer-term follow-up.

• For context, Lexicon has already completed phase 3 studies of sotagliflozin in type 1 diabetes. In fact, Lexicon’s inTandem1 and inTandem2, both presented in full at ADA 2017, marked the first phase 3 studies to report for any oral type 1 diabetes therapy. Trials across the entire inTandem program have shown sotagliflozin to be effective in lowering A1c without increasing hypoglycemia, reducing bolus insulin dose, promoting weight loss, and decreasing both fasting and postprandial glucose – all the while with very small DKA event rates (historically the greatest clinical concern when it comes to SGLT-2 inhibitors in type 1).

9. Under-the-Radar Phase 3 GEMELLI 1 trial of SAR341402 Rapid-Acting Insulin to Begin 3Q17

We were surprised to see a phase 3 trial of rapid-acting insulin SAR341402 listed on ClinicalTrials.gov, since the candidate remains in phase 1 on Sanofi’s pipeline page. The open-label study, titled GEMELLI 1, will compare the A1c-lowering efficacy of SAR341402 vs. Novo Nordisk’s NovoLog (insulin aspart) over the course of 26 weeks in people with type 1 or type 2 diabetes also using Lantus as basal insulin therapy. This is the first we’ve heard of this study, which has only been listed on ClinicalTrials.gov since early July 2017. The anticipated start date is August 2, 2017, and primary completion is estimated for January 2019. We hope Sanofi will provide more details on this unexpected development in its 3Q17 update, once the GEMELLI 1 trial is underway. SAR341402 was added to Sanofi’s pipeline just recently in 4Q16 and we have heard very few updates on the candidate since.

• This news may reflect that Sanofi is feeling pressure to enter the next-generation ultra-rapid-acting insulin competitive landscape to some extent. Both of the other two insulin giants (Novo Nordisk and Lilly) have next-gen candidates in late-stage development and faster-acting insulins will become increasingly important as closed loop systems progress. Novo Nordisk’s next-generation faster-acting insulin aspart is already approved in Europe under brand name Fiasp, and is pending FDA approval on its second submission (after receiving a Complete Response Letter in October 2016). Lilly terminated a partnership with Adocia for phase 3-ready BioChaperone Lispro while simultaneously revealing plans to advance its internally-developed ultra-rapid insulin candidate into phase 3 by the end of 2017. All in all, Sanofi has not historically been a big player in the rapid-acting insulin market – the company’s commercial rapid-acting product Apidra captured only 7% of sales in 1Q17 ($1.6 billion total), compared to NovoLog’s 48% and Humalog’s 45%. That said, we imagine Sanofi is eager to return to the forefront of innovation within diabetes. Time will tell whether this next wave of rapid-acting insulins will provide as disruptive an advantage as next-generation Toujeo and Tresiba did within the basal insulin market, but we emphasize that we currently have as available mealtime insulin is simply not good enough, with far too high hypoglycemia risk (a risk that can be minimized with faster onset/offset).

10. No New Updates on Other Diabetes Pipeline Candidates

Sanofi management provided no further updates on the remainder of its diabetes pipeline, which includes Hanmi-partnered GLP-1 agonist efpeglenatide (phase 3 program expected to initiate in 4Q17), phase 2 GLP-1/glucagon dual agonist SAR425899, and a phase 1 GLP-1/GIP dual agonist. Most notably, as we learned in Sanofi’s 1Q17 update, the phase 3 program for efpeglenatide is expected to start in 4Q17 (a delay from the original 4Q16 timeline). Sanofi acquired the candidate from Hamni in November 2015 following promising phase 2 data presented at ADA 2015, and we’ve been eager for this candidate to move into phase 3 for some time now. The molecule has the potential for once-monthly dosing, but based on our latest knowledge, Sanofi does not appear interested in pursuing such an indication at this time. As for Sanofi’s GLP-1/glucagon dual agonist, a phase 2 PK/PD trial was initiated in 4Q16 and is expected to complete in January 2018. We previously saw promising phase 1 results for SAR425899 at ADA 2016, demonstrating impressive reductions in weight (~12 lbs) and solid A1c-lowering efficacy (-0.6%) after four weeks of treatment in 36 participants with type 2 diabetes. Based on the data from this phase 1b trial, it appears that the candidate’s efficacy profile is more impressive in terms of weight loss vs. glucose lowering, and we wonder if Sanofi will consider developing this molecule for an obesity indication. This is the case for several other GLP-1/glucagon dual agonists in the competitive landscape – including OPKO Health’s phase 2 candidate TT401 and Novo Nordisk’s phase 1 NN9277 (see our obesity drug competitive landscape here). We have heard little mention of Sanofi’s GLP-1/GIP dual agonist SAR438335 since it was added to the pipeline in 3Q15. Though this wasn’t mentioned in management’s prepared remarks or Sanofi’s 2Q17 materials, we know that the company continues to support smart insulin investigations with JDRF in addition to the clinical development programs listed below.

Table 2: Sanofi Diabetes Pipeline Summary

Big Picture Highlights

11. Sanofi Commits to <5.4% Annual Increase in List Price for Its Drugs

In a previous statement by CEO Mr. Olivier Brandicourt published on Sanofi’s website, the company committed to no more than a 5.4% annual increase in list price for its drugs so as not to exceed the national health expenditures (NHE) growth projection, an independent standard measure of spending by US payers. This follows suit with similar position statements or transparency reports from other diabetes companies (Novo Nordisk, Lilly, J&J, and Merck). Notably, among insulin companies, Sanofi’s commitment to limiting list price increases to 5.4% is the most generous: Novo Nordisk has committed to no more than single digit annual increases in list price for its medicines and Lilly similarly committed to an annual increase of no more than 10%. In addition, Sanofi’s recent statement on pricing principles includes the company’s aggregate gross and net price increases in the US. Sanofi’s 2016 average list price increase vs. 2015 was 4%, while its average net price decreased by 2% – this gap is explained by patient discount programs and high rebates. We recently heard that rebates to Medicaid and Medicare are even larger than we initially thought, and a recent JAMA article showed that 27% of total pharmaceutical sales in the US (including non-diabetes) – a grand sum of $115 billion – was paid by industry to payers and PBMs in 2015. It’s hard to discern exactly how this complex payment structure is affecting recorded revenue for diabetes drugs, to say nothing of profitability, since many of these numbers encompass non-diabetes products as well and there is little consistency in how companies have reported their net loss to rebates so far. That said, a common theme among pricing statements from various industry players is that there’s an indisputable discrepancy between list price and sales realized by the manufacturer – this is something we need to understand better in order to solve the problem of all-too-expensive prescription drugs in the US. We appreciate Sanofi’s leadership on this front and continue to hope for greater collaboration between industry and PBMs to promote the principles of access, affordability, and innovation and to unravel the complicated scheme of drug pricing in the US.

• In addition to this position statement, we appreciate that Sanofi has established lower list prices from the beginning. This is best exemplified by the pricing strategy for Soliqua (insulin glargine/lixisenatide), which Sanofi priced on par with existing GLP-1 agonists ($20-$25/day) – in fact, Soliqua launched in US pharmacies with list price ~$19.90/day before rebates or patient assistance. In contrast, Novo Nordisk announced a decision to price Xultophy (insulin degludec/liraglutide) at a premium (~$31/day).

Questions and Answers

Q: Could we have more color on the perception from doctors on Soliqua and what could boost sales? The access is quite good already at around 60%, according to what you provided on the slide.

A: There are two elements that we are confronted with today. Number one is what you could qualify as clinical inertia. Remember that doctors have been used to titrating with basal insulins, and now you have a better option called Soliqua. We have to work a lot on medical education, peer-to-peer interactions, etc. in order to change this treatment paradigm that doctors have been used to for the last 10 years. Number two is market access. It's true that we have 62% commercial access, but that is actually a very recent number. Those positive decisions by big PBMs actually only kicked in during the last couple of weeks, so it is too early to see the effect at this point. We expect a gradual increase in uptake of Soliqua, which will be the result of improved access and progressively changing that medical paradigm.

Q: We understand that you will give a comprehensive update on the PBM negotiations when you report 3Q17 results, but you have decided to upgrade your guidance now. So, should we understand that you do not anticipate too harsh of an outcome from these negotiations, or at least not harsher than the previous comments you've reiterated?

A: We did say that we would give you the full picture of PBM negotiation at the time of the third quarter. We are still in negotiation with some, while others are going to publish their decisions very soon. With that, we are confident that we can deliver the guidance we just expressed. So, assumptions regarding PBM negotiations and gross-to-net are part of that guidance.

Q: What is your view on US pricing going through to next year. Could you comment on whether you feel that 2018 is just an evolution from 2017, whether you feel that the payers have gotten better at enforcing your adherence, and whether you're finding it more difficult to bypass formularies with couponing? I would like just some sort of general comment as we are thinking about our 2018 numbers.

A: I think it's related to the therapeutic area. Even in the field of diabetes, you have “still” therapeutic areas or “still” classes which are relatively preserved from gross-to-net deterioration. And then others, of course, like insulins have even more pressure (which is now partially due to the fact that you now have the first follow-on biologic competing in that class).

I think it's difficult to answer your question in a monolithic manner; you really have to have a granular view looking at therapeutic area by therapeutic area. And within that therapeutic area, you have buckets where there is more commoditization, leading to more pricing pressure, and you have others with less. Now, you referred to Express Scripts, so you have seen that there’s no insulin inclusion on this national formulary, which also shows our commitment to keep our access to patients as large as possible.

Q: Could you clarify the guidance for your diabetes portfolio for the second half of 2017?  You said that it will be worse than predicted – does this mean worse than the 1H17 or worse than 2Q17, or can we take the second quarter maybe as a proxy for the second half in terms of rate of decline?

A: In 2H17 we expect an accelerated decline of the US diabetes sales relative to what we have seen during 1H17. The drivers for that are (i) the impact of Lantus being excluded from the UnitedHealthcare formulary (that was only partially realized during the first half and is now expected to have a greater impact in the second half), and (ii) the fact that there is a high basis for comparison in the fourth quarter 2016 due to various gross-to-net considerations which included the reduced cost associated with co-pay programs and also the coverage gap. Without getting into the details, that's the reason why we think we're going to see a tougher second half when it comes to our diabetes franchise.

Q: You've obviously been trying to keep up the volume of your diabetes franchise with promotional schemes and couponing. Just how successful do you think these efforts have been? Have they actually helped you as you've gone through negotiations for 2018 formulary access?

A: Now with the second quarter results in we have an overall retention of 50% at CVS. Within this the retention for the national formulary is 41%, and the retention for custom plans is 70%. With UnitedHealthcare we actually see very similar retention rates. At the end of 2Q17 we had a 56% retention rate for United, which I would say it is very consistent with the CVS retention rate. Of course, this compares better with benchmarks and we do believe that it is in our strategic interest to keep the volumes for further expansion in the years to come.

It’s very difficult to predict what's going to happen in 2018 and beyond, but it's clear that the more patients we have on insulin glargine, the more this will build and consolidate our strategic platform in the future.

-- by Ann Carracher, Abigail Dove, Payal Marathe, Emily Yang, and Kelly Close