Memorandum

Sanofi 3Q18 – Diabetes portfolio drops 11% YOY, levels off sequentially at $1.6B; 20% YOY loss from Lantus balanced by Toujeo (+9% YOY, $249M), Soliqua (+150% YOY, $23M); new biosimilar mealtime insulin Admelog sells $30M – October 31, 2018

Executive Highlights

  • Sanofi reported 3Q18 financial results this morning in a call led by CEO Mr. Olivier Brandicourt (press release, presentation slides, clinical trials appendix, webcast). The company’s diabetes portfolio fell 11% YOY as reported to $1.6 billion, from $1.8 billion in 3Q17; sequentially, sales were up slightly (+1% YOY) – an encouraging change. While the company has promising growth drivers in Toujeo, Soliqua, and now Admelog (as well as a strong late-stage pipeline), these have struggled to outweigh the negative impact of Lantus’ loss of exclusivity, particularly in a tough US market.

  • Lantus sales fell 20% YOY to $1 billion but leveled off sequentially (+1%), reflecting Sanofi’s assessment that the “worst” is behind them on insulin glargine’s loss of exclusivity. US sales dropped 31% YOY to $486 million, compared to OUS revenue of $555 million (-7% YOY). However, in 2019, Sanofi anticipates a reduction in Medicare Part D coverage, impacting one-third of Lantus and Toujeo volumes. Following Merck’s discontinuation of biosimilar insulin glargine Lusduna (a favorable turn for Sanofi, but an unfavorable one for patients and the healthcare system), Sanofi has dropped its patent infringement lawsuit.

  • Toujeo grew a modest 9% YOY as reported in 3Q18, climbing to $249 million from a base of $233 million in 3Q17 and dipping 1% sequentially following 10% sequential growth to $253 million in 2Q18. We continue to expect more impressive growth from such an innovative basal insulin product, but Toujeo has been hindered by access losses (on Medicare Part D) and pricing pressure in the US. Stateside, sales fell 15% YOY to $107 million in 3Q18, and further exclusions from Aetna in 2019 will present a new headwind. OUS sales have been much stronger and rose 37% YOY to $143 million in 3Q18.

  • Soliqua sold $23 million in 3Q18, growing 150% YOY and 18% sequentially from low bases of $9 million in 3Q17 and $20 million in 2Q18. This performance furthers a narrative of variable but consistently positive growth for Soliqua; nevertheless, $23 million remains quite low for a product nearing two years on the market. To be sure, a whole host of factors has hindered growth for the fixed-ratio basal insulin/GLP-1 agonist class (which also includes Novo Nordisk’s Xultophy), and we cannot overstate our interest in more patients taking this class – it’s far simpler, an excellent way to be introduced to GLP-1, and a way to go on a medicine that does not need to be changed as quickly as others (like SFUs). To our knowledge, Sanofi ceased reporting sales for standalone GLP-1 agonist Adlyxin in 3Q18 – we did not ever see this drug as positioned for meaningful standalone sales.

  • In its second quarter on the market, Admelog posted $30 million in revenue. The first-ever biosimilar mealtime insulin (based on Lilly’s Humalog) launched in the US during 2Q18, and sales were comprised almost entirely ($29 million) of US revenue. Stateside, sales through (i) managed Medicaid and (ii) out-of-pockets channels have driven a strong launch for Admelog, and we were pleased to hear the product emphasized on the call. Sanofi is aiming for Medicare coverage in 2020 and has previously stated a focus on gaining commercial access for 2019.

  • Praluent climbed 62% YOY as reported to $79 million in sales from a base of $49 million in 3Q17, also growing 10% sequentially to build impressively on 27% sequential growth in 2Q18. Sanofi continues to focus on lowering barriers to access for Praluent through simplified utilization management criteria and lower patient co-pays in exchange for higher PBM/payer rebates. On a pooled basis, PCSK9 inhibitors (including Amgen’s Repatha) rose 44% YOY to $199 in 3Q18 from $138 million in 3Q17, but fell 10% sequentially from $220 million in 2Q18. Decisions on a CV indication for Praluent are expected in 1Q19 (EMA) and 2Q19 (FDA). Praluent may have more competition since Amgen announced a major price cut.

  • In the pipeline, EVP and Global Head of R&D Dr. John Reed expressed excitement about Sanofi’s dual- and tri-agonists during Q&A. However, he did not comment on the previously-announced phase 3 program for GLP-1/glucagon dual agonist SAR425899, which was slated for 2H18. Nothing on phase 3 has appeared on ClinicalTrials.gov, and we also note that the start date for a phase 2 study in NASH has been delayed from 2H18 to May 2019. Tolerability concerns for this molecule emerged in 1Q18, and we’re somewhat doubtful that Sanofi will get this program underway in 2H18. Indeed, Dr. Reed’s comments suggested that the company may even be reconsidering which agonist to pursue: Sanofi also has a phase 1 GLP-1/GIP dual agonist and a preclinical tri-agonist. Just the ongoing commitment to better and easier compounds was great to hear.

Sanofi reported 3Q18 financial results this morning in a call led by CEO Mr. Olivier Brandicourt. See the company’s press release, presentation slides, and clinical trials appendix, and also listen to a webcast of the call here. Below, you’ll find financial highlights on Sanofi’s portfolio of diabetes drugs, an update on the company’s diabetes-related pipeline, and diabetes-relevant Q&A from the call (which was quite limited).

3Q18 Financial Results for Sanofi’s Major Diabetes Products

 

3Q18 Revenue (millions)

YOY Growth (reported / CER)

Sequential Growth (reported)

Total Diabetes

$1,595 / €1,375

-11% / -9%

+1%

Lantus

$1,041 / €897

-20% / -18%

+1%

Amaryl

$102 / €88

+7% / +8%

+1%

Apidra

$99 / €85

-5% / +1%

-8%

Insuman

$24 / €21

-19% / -8%

-9%

Toujeo

$249 / €215

+9% / +11%

-1%

Admelog

€26 / $30

--

--

Soliqua

$23 / €20

+150% / +150%

+18%

Other*

$27 / €23

--

--

Praluent (not included in Total Diabetes)

$79 / €68

+62% / +64%

+10%

*Sanofi ceased reporting BGM revenue in 2Q18 and Adlyxin revenue in 3Q18; this line is assumed to include both BGM and Adlyxin revenue. Typical BGM sales are ~$15 million, and typical Adlyxin sales are ~$6-7 million.

Financial Highlights

1. Diabetes Portfolio Continues Decline, Falling 11% YOY to $1.6 Billion but Leveling Off (+1%) Sequentially; Sustained Basal Insulin Losses in US Buoyed by OUS Sales, Newer Products

Sanofi’s overall diabetes portfolio declined 11% YOY (-9% operationally) to $1.6 billion (€1.4 billion), from $1.8 billion (€1.6 billion) in 3Q17. Sequentially, diabetes revenue saw a 1% uptick from a base of $1.6 billion (€1.4 billion) in 2Q18, when sales also rose 3% sequentially. As in past quarters, management emphasized that this performance is consistent with Sanofi’s financial guidance, which has predicted 6%-8% annual losses in the diabetes business between 2015-2018. For reference, annual YOY change in each of these years has been +4% in 2015, -3% in 2016, and -11% in 2017. Thus far in 2018, the diabetes portfolio has fallen a more substantial 20% in 1Q18 and 17% in 2Q18. Sanofi in 1Q18 predicted a 9% YOY decline in the 2018 full year, and we’ll have to wait to see how these rates annualize – our understanding is that the portfolio is on track to exceed this 9% mark. Within this context, management emphasized that the diabetes portfolio is achieving strong growth outside the US market: Ex-US sales were up 5% YOY operationally to $933 million (€804 million) in 3Q18, driven by particularly encouraging performance in Emerging Markets (+13% YOY operationally to $447 million). Importantly, management highlighted that non-US sales now represent 60% of the diabetes portfolio, a sizable increase from 52% in 3Q17 but actually down slightly from 62% in 2Q18. However, this promising performance outside the US has been more than offset by heavily declining US revenue, down 24% YOY operationally to $662 million (€571 million) from $875 million in 3Q17. As always, this trend was mainly attributed to Lantus’ loss-of-exclusivity driven decline: Sanofi’s flagship product dropped 31% YOY to $486 million in the US, and next-gen Toujeo hasn’t been able to overcome access losses and pricing pressure to compensate (the way, say, Novo Nordisk’s Tresiba is driving that company’s insulin business despite sluggish Levemir sales). In 3Q18, Sanofi’s next-gen glargine dropped a disappointing 15% YOY to $107 million stateside. While we do not expect Lantus’ misfortunes to reverse (given the LOE and impressive growth from Lilly/BI’s biosimilar insulin glargine therapy, Basaglar), we do hope that Toujeo will be able to find more success within the US. Pricing pressure is a formidable barrier to basal insulin, but the efficacy and safety of this next-gen basal insulin cannot be denied, and we would love to see more patients gain access to this product.

  • Looking toward the future, Sanofi has three potential growth drivers for its diabetes portfolio already on the market: Toujeo, Soliqua, and Admelog. While Toujeo has struggled on the US market in recent quarters, we hope that future efforts to improve reimbursement may drive penetration of this impressive agent. Notably, Toujeo has garnered considerable success OUS (+37% YOY to $143 million in 3Q18); as Mr. Brandicourt emphasized during Q&A, Toujeo still holds potential to drive growth in Sanofi Diabetes. Overall, fixed-ratio basal insulin/GLP-1 combo Soliqua has displayed underwhelming growth considering how early the product is in its launch cycle; 150% YOY and 18% sequential growth to $23 million in 3Q18 occurred from a very low base ($9 million in 3Q17 and $20 million in 2Q18).

  • In a new bright spot, Sanofi broke out sales for its biosimilar mealtime insulin Admelog (biosimilar lispro) for the first time in 3Q18, showing $30 million in revenue (up from our very rough estimate of ~$18 million in 2Q18). We view this as a strong showing for the product, considering reimbursement has not been fully secured – the product is only being sold via cash and through Managed Medicaid; Sanofi management was quite positive about this performance. That being said, we note that rapid-acting insulins as a class are not rapidly growing in terms of value. Some might postulate that, as HCPs shift to using SGLT-2 inhibitors and GLP-1 agonists as alternatives to mealtime insulin in type 2 diabetes, Admelog may have limited potential to expand the class, hampering its ability to “steal” prescriptions from existing options. Thus, we imagine that Sanofi will need the combined success of all three of these newer therapies to carry its diabetes portfolio back into growth; in the pipeline, phase 3 GLP-1 agonist efpeglenatide (for type 2) and SGLT-1/2 dual inhibitor sotagliflozin (for type 1 and type 2 diabetes) represent possible upcoming growth drivers.

2. Lantus Falls 20% YOY to $1 Billion in Continued Decline, Levels at +1% Sequentially; Reduction in Part D Coverage Looms in 2019; Sanofi Drops Patent Infringement Lawsuit Against Merck

Sales of Sanofi’s flagship basal insulin Lantus (insulin glargine) totaled $1.0 billion (€897 million), falling 20% YOY as reported (18% operationally) from $1.3 billion (€1.1 billion) in 3Q17. Of note, Lantus actually climbed a nominal 1% sequentially from $1.0 billion (€891 million) in 2Q18, indicating that losses may be leveling off (or at least slowing down). By geography, Lantus collected $555 million (€478 million) OUS, reflecting a 7% YOY drop as reported, from $605 million (€515 million) in 3Q17. This performance also reflects a 2% sequential decline OUS, from $555 million (€488 million) in 2Q18. Also worth noting is that this modest decline is fairly spread out, with Europe, Emerging Markets, and Rest of the World experiencing 13%, 5%, and 1% YOY decreases, respectively. Sequentially, only Rest of the World experienced growth (+6%), with Europe and Emerging Markets falling 8% and <1%, respectively. From our perspective, these underwhelming numbers speak to how strongly Lantus is being squeezed in the insulin market globally. Compared to US sales, however, these numbers actually seem quite strong. In the US, Lantus revenue fell 31% YOY as reported to $486 million (€419 million), from $714 million (€608 million) in 3Q17. Sequentially, Lantus revenue actually rose 4% in the US, from $471 million (€403 million) in 2Q18. Notably, this is the first sequential increase for Lantus in the US since 4Q16. Indeed, in 2Q18 Sanofi management conjectured that the worst was behind them with respect to Lantus losses, as franchise revenue fell to comprise only ~30% of total diabetes sales (in other words, the company doesn’t expect Lantus to recover but anticipates a muted blow to its overall diabetes portfolio).

  • Notably, however, management anticipated a “modest” reduction in Medicare Part D coverage, representing around a third of Sanofi’s total glargine volumes (including Toujeo), in 2019. One-third of insulin glargine prescriptions hardly seems modest to us, though it was unclear if this (i) referred to one-third of Medicare lives or total lives and (ii) whether management was referring to a higher pricing tier (i.e. higher out-of-pocket copay) or exclusion. In Sanofi’s slide deck (slide 13), it appears that the total percent of Medicare lives covered for Lantus will only drop 7% in 2019, from 79% now to 72% next year; numerically, this represents a loss of ~3 million people out of the 40.8 million who are enrolled in Medicare Part D. Mr. Brandicourt attributed this loss of coverage to highly competitive negotiations with payers, also warning listeners to anticipate average pricing to decline further. For reference, Lilly/BI’s biosimilar Basaglar (biosimilar insulin glargine) has gained favorable formulary placement over Lantus with CVS Health and UnitedHealthcare in addition to Medicare Part D since its launch in December 2016. This year, Novo Nordisk’s Tresiba (insulin degludec) is also on a lower Medicare Part D pricing tier compared to Lantus and Toujeo (it’s listed alongside Basaglar). Nonetheless, Mr. Brandicourt remained optimistic about both Lantus’ and Toujeo’s overall level of expected coverage for 2019, noting that commercial coverage (which accounts for ~4.5x more people than Medicare, according to slide 13) is essentially unchanged for 2019. Still, we think it’s tragic that insulin manufacturers are forced out of US markets through the formulary negotiation process – the alternative is offering higher rebates, which is what we suspect Novo Nordisk and Lilly/BI are doing. Patients do best when a range of therapeutic options are available, and it’s upsetting to see so much restricted choice on both public and private formularies today. As a reminder, ADA issued a statement of concern last year about the adverse consequences for patients when payers design exclusive formularies.

Lantus Sales (1Q05-3Q18)

  • In Sanofi’s full financial statement (page 5), management notes that Sanofi and Merck have jointly filed stipulations to dismiss the New Jersey and Delaware patent cases concerning Merck’s recently discontinued Lusduna (biosimilar insulin glargine). Sanofi’s acknowledgement of Lusduna’s termination was the only mention of biosimilar competition during its 3Q18 call. To be sure, this disappointing development was a major blow for patients and the healthcare system, particularly for providers and patients who are constantly searching for more affordable medicines. We continually hear that at least two (and potentially more) biosimilars will be required to truly drive down insulin prices and patient costs, and Lusduna was very close to market (already approved in the EU; full FDA approval pending patent infringement lawsuit settlement, at the very latest in March 2019 for the insulin pen and February 2020 for the vial). With Lusduna’s discontinuation, Mylan/Biocon’s biosimilar candidate (Semglee outside the US; a Complete Response Letter was issued by FDA and resubmission is planned for 2019), is the only other biosimilar basal insulin set to join Lilly/BI’s Basaglar in the near future. No update was given on Sanofi’s patent infringement lawsuit against Mylan.

3. Toujeo Grows 9% YOY to $249 Million; OUS Sales (+37% YOY to $143 Million) Continue to Offset US Struggles (-15% YOY to $107 Million), Driven by Access Losses and Pricing Pressure

Toujeo sales rose a modest 9% YOY as reported (+11% operationally) to $249 million (€215 million) from a base of $233 million (€198 million) in 3Q17. Sequentially, Toujeo revenue dipped a very slight 1% against a tough comparison of 10% sequential growth to $253 million (€217 million) in 2Q18. Toujeo (insulin glargine U300) continues to climb along an unexceptional growth trajectory, posting single digit YOY growth marks, as reported, for the past three quarters now (+9% in 3Q18, +3% in 2Q18, +3% in 1Q18). As evident in the graph below, Toujeo’s growth has more or less stagnated since 4Q17. For an impressive agent that carries meaningfully lower risk of hypoglycemia, a more stable pharmacokinetic profile, and a longer duration of action compared to first-generation basal insulins, we continue to hope for more robust growth from Toujeo. There’s no doubt in our minds that far more patients could seriously benefit from both switching to either Toujeo or Novo Nordisk’s next-gen basal Tresiba.

  • Strong growth in Western Europe and Emerging Markets is offsetting Toujeo’s continued struggles within the US, where reimbursement and access represent tough headwinds. By geography, US sales of Toujeo declined 15% YOY (-16% operationally) to $107 million (€92 million) from a base of $127 million (€108 million) in 3Q17. Sequentially, US sales rose 7%, continuing to recover from a 23% sequential drop in 1Q18, which was driven mainly by losses in Medicare Part D. Conversely, performance in OUS markets continues to be much stronger, with a 37% YOY growth as reported to $143 million (€123 million). Sequentially, OUS sales did fall 6% against a tough comparison of 17% sequential growth in 2Q18. Operational YOY growth was 33% in Europe (to $82 million/€71 million) and a striking 124% in Emerging Markets (to $39 million/€34 million), while sales in remaining OUS geographies declined 6% operationally. In the US, reimbursement continues to be a major problem for Toujeo: As management noted during Q&A, CVS/Aetna have excluded Toujeo from its commercial formulary since the beginning of 2017, and January 2018 saw the addition of exclusions from 75% of CVS’ Silver Script Medicare plans. Further exacerbating Toujeo’s access issues in the US is Aetna’s decision, for 2019, to exclude Toujeo (and Lantus) from both its commercial formulary and Medicare Part D section – these exclusions will affect 3 million patients who previously had access to both Lantus and Toujeo, according to Sanofi. Sanofi continued to cite pricing pressure and competition in basal insulin. We do note that Toujeo’s 15% YOY decline within US markets represents a significant improvement over 2Q18 and 1Q18, when Toujeo fell 30% and 29% YOY, respectively. Nevertheless, these rates pale in comparison to Toujeo’s OUS performance, which continues to buoy the franchise, and are not what we’d like to see for a ~three year old drug that could help so many patients in-need of an advanced basal insulin therapy. We hope for more granularity on volume and overall market dynamics for the next-gen basal class when Novo Nordisk gives its 3Q18 update tomorrow, November 1.

Toujeo Sales (1Q15-3Q18)

4. Soliqua Grows Impressive 150% YOY and 18% Sequentially to $23 Million, Continuing Positive but Variable Surge from Low Base; No Mention During Call, No Geographic Breakdown

Soliqua (fixed-ratio basal insulin glargine/GLP-1 agonist lixisenatide) revenue continued its ascent, more than doubling YOY (+150% as reported and operationally) to $23 million (€20 million), from a base of $9 million in 3Q17. Soliqua also grew 18% sequentially from $20 million in 2Q18. Notably, sequential changes in Soliqua revenue – likely the more telling comparison given Soliqua’s recent launch and poor reimbursement in 2017 – have been quite variable since US launch in 1Q17: +25% (2Q17), +60% (3Q17), +13% (4Q17), 0% (1Q18), +89% (2Q18), and +18% (3Q18). Despite this consistently positive, if variably so, trajectory, Soliqua was not mentioned once during prepared remarks or Q&A in today’s call, reflecting the spotty attention this class of agents (including Novo Nordisk’s Xultophy) has received from manufacturers and the broader diabetes field. We wonder if this is a reflection of Sanofi’s disappointment (which we share) in the low real-world uptake of Soliqua, which Mr. Brandicourt acknowledged at JPM at the start of 2018. To be sure, it’s difficult to enumerate the many barriers that fixed-ratio combinations have faced. As it stands, this class doesn’t have an established place in treatment algorithms or everyday clinical practice – according to Professor Philip Home, some prescribers continue to view GLP-1 agonists as a “pre-insulin” therapy, making fixed combination of the two seemingly illogical, and the US labels for both Soliqua and Xultophy currently require patients to already be on basal insulin or the specific GLP-1 included in the combo before starting the fixed-ratio injection. We also imagine cost remains a significant factor for many patients, though we’ve heard little discussion of reimbursement quality. Encouragingly, however, we’ve noticed that thought leaders’ excitement for these therapies has not dissipated; at ADA 2018, Tulane’s Dr. Vivian Fonseca advocated that FDA change product labels to elevate fixed-ratio combinations to a first injectable therapy in diabetes care. We certainly hope that Sanofi does not view these barriers as insurmountable, as the combos have SO much to offer patients in terms of glucose-lowering, milder side-effect profiles (less hypoglycemia, weight gain, and GI discomfort) and greater patient convenience/lower injection burden. Moreover, although Xultophy’s components (Tresiba and Victoza) are clinically superior to those of Soliqua – Victoza has a CV indication and DEVOTE demonstrated that Tresiba carries a 40% reduced risk of severe hypoglycemia vs. Lantus – Soliqua does carry with it a significantly better list price. Our team called ten pharmacies in different locations around the US, which confirmed that the average list price difference between the two agents is ~$310, with a five-pen box of Xultophy pens costing $1,170 at our local CVS compared to five Soliqua pens for $794. (We did pick up on significant differences between pharmacies and geography – for example, a Montana CVS was selling five Xultophy pens for $237 and five Soliqua pens for $161, and we’re not sure what explains this.) All-in-all, we see this class as terribly underutilized and, of all therapy classes, want to see more patients on this one.

  • As far as we can tell, Sanofi did not break down Soliqua sales by geography for the first time since 3Q17. Assuming a similar breakdown to 2Q18, we estimate US and OUS sales at $19 million and $5 million, respectively (rounding slightly overshoots the $23 million in total sales). Going forward, we hope for Sanofi to place a greater emphasis on Soliqua, and we’re eager for an expanded European launch. Novo Nordisk has demonstrated with Xultophy that this class can be highly successful when access in a country is secured, particularly in European countries where product labels are far less restrictive.

  • Sales of standalone GLP-1 Adlyxin (lixisenatide) were not reported, in line with Sanofi’s virtual complete de-prioritization of this product in favor of  Soliqua and phase 3 once-weekly GLP-1 agonist efpeglenatide. Based on the €23 million discrepancy in total and broken out diabetes sales, plus typical BGM sales of ~€15 million per quarter, we would estimate 3Q18 Adlyxin revenue very roughly at ~$9 million (~€8 million). Since 1Q17, however, Adlyxin sales have floated between $6 million and $8 million. This is par for the course for Adlyxin, which has never collected more than $12 million in a quarter and has never been a significant player for Sanofi Diabetes or the GLP-1 agonist market given that it was not designed to be a top-selling GLP-1.

Soliqua Sales (1Q17-3Q18); *3Q18 US and OUS sales are estimated; **Negative revenue of €1 million was reported in 4Q17 OUS

5. Admelog Posts $30 Million in First Quarter of Reported Sales, Driven by Managed Medicaid and Out-of-Pocket Affordability; Management Targeting 2020 Medicare Coverage

Sales of Sanofi’s first-to-market biosimilar mealtime insulin Admelog (biosimilar lispro, based on Lilly’s Humalog) were broken out for the first time ever in 3Q18, bringing in $30 million (€26 million) of revenue. This is only Admelog’s second quarter on the US market, and we estimated its 2Q18 sales very roughly at $18 million (~€15 million), meaning that 3Q18 sales of $30 million would mark a 73% sequential climb. Again, this 2Q18 estimate was highly uncertain, based on the €33 million discrepancy in total reported revenue and broken out product sales, also accounting for estimated “other” BGM sales of ~$15 million. Notably, Admelog revenue was entirely driven by US sales, which accounted for $29 million (€25 million); according to management, this revenue came primarily from the Managed Medicaid channel. Indeed, Mr. Brandicourt emphasized later in the call that Sanofi’s launch strategy for Admelog has been focused on accessing Managed Medicaid channels, as well as cash channels for uninsured and underinsured patients. The latter has presumably occurred through Sanofi’s Insulin VALyou Savings Program, which launched concurrently with Admelog in 2Q18 and caps out-of-pocket expenses at $99/vial or $149/pen pack in the US. Notably, Sanofi’s focus on Medicaid was noted by other rapid-acting insulin manufacturers: President of Lilly Diabetes and Lilly USA Mr. Enrique Conterno predicted in the company’s 2Q18 call that Admelog would likely have its biggest impact in Humalog’s share of the Medicaid population but still maintained that Admelog won’t be a significant commercial threat.

Although Sanofi has previously been very clear that Admelog is not expected to be a real source of revenue for the company’s diabetes portfolio until 2019 – after it has had a chance to build reimbursement (more on that below) – management was certainly excited about the product during both prepared remarks and Q&A, and we were thrilled to hear such enthusiasm. In response to a question on Sanofi’s general US growth in 3Q18, Mr. Brandicourt highlighted Admelog as “very encouraging” due to its “good early sales.” We expect that Admelog will only continue to climb as reimbursement is secured and the product gains traction with HCPs in the US and Europe, where it is sold under the name Insulin lispro Sanofi. As background, the EU version of Admelog has been available in Europe for some time (approval came in July 2017), though we’re unsure in which countries specifically it has been launched and would have loved more color on this from Sanofi.

  • Sanofi maintained its 2020 guidance on securing Medicare coverage for Admelog but did not comment on plans for the commercial market. During Sanofi’s 1Q18 update, former EVP of Diabetes & Cardiovascular Mr. Stefan Oelrich outlined that Medicaid reimbursement for Admelog was the priority for 2018 (which has apparently been achieved), followed by commercial plans in 2019 and Medicare in 2020. With respect to the latter two, Mr. Brandicourt acknowledged in Q&A that the vast majority of the commercial and Medicare markets for rapid-acting insulins are controlled by Humalog and NovoLog and driven by exclusive contracts. To this end, he noted that the 2020 goal for Medicare coverage was informed by Admelog’s 2Q18 launch, which essentially precludes its inclusion in Medicare contracts for 2019. With this in mind, we would tentatively expect that Sanofi will have a good amount of success in securing formulary positioning for Admelog in the future, based on historical evidence from Lilly/BI’s Basaglar. For comparison, Basaglar (the first-to-market biosimilar basal insulin) was preferred over standard-of-care Lantus on the CVS Health and UnitedHealthcare formularies in 2017 following a December 2016 launch; Medicare Part D joined them in preferring Basaglar over Lantus in 2018. Mr. Brandicourt, for his part, expressed confidence in Sanofi’s ability to secure 2020 Medicare access for Admelog.

    • Given Lilly CEO Mr. Dave Rick’s comments from JPM that Humalog and NovoLog are already at the floor in terms of pricing (we are not sure what this means), we wonder what impact Admelog will have on pricing pressure and patient affordability. Moreover, Admelog is the first biosimilar mealtime insulin to reach the market, and we have heard multiple times that multiple biosimilars are required to meaningfully reduce prices. Has Admelog’s Medicaid availability or the Insulin VALyou Savings Program meaningfully improved patient affordability to date? We’ll be on the lookout for any comments on this in the future.

6. Praluent Grows 62% YOY to $79 Million; Quality of Access Expected to Improve in 2019; Pooled PCSK9 Market Rises 44% YOY to $220 Million, with Praluent Capturing 40% Value Share

Revenue from Regeneron-partnered PCSK9 inhibitor Praluent grew 62% YOY as reported (64% operationally) t0 $79 million (€68 million) from a base of $49 million (€42 million) in 3Q17. Sequentially, Praluent rose 10% against a tough comparison of 27% sequential growth to $72 million (€62 million) in 2Q18. By geography, US sales totaled $48 million (€41 million), up 46% YOY from $33 million (€28 million) in 3Q17, also rising 17% sequentially from $41 million (€35 million) in 2Q18. OUS sales generated $31 million (€27 million) and rose an impressive 93% YOY from $22 million (€16 million) in 3Q17; however, OUS sales were entirely flat sequentially. As expected for a PCSK9 inhibitor, the discussion around Praluent focused on pricing, reimbursement, and access. Management attributed Praluent’s strong YOY rise to its recently-secured exclusive positioning with Express Scripts; as a reminder, Sanofi has agreed to offer Praluent at a lower net price in exchange for lower utilization management criteria and improved patient affordability, a deal that Express Scripts was the first major formulary to take. Praluent’s status over Amgen’s Repatha went into effect on July 1, 2018, improving access for the 25 million Americans covered through Express Scripts.

Looking toward the future, Sanofi expects quality of access to further improve in 2019. Although breadth of commercial coverage in the US is expected to decline in 2019, from 81% to 74% of total commercial lives covered (due mainly to 2019 exclusions from CVS Health), simplified utilization management criteria are expected to drive improved access and uptake overall. So far, management noted, UM criteria have been improved for 40% of covered commercial lives. Nevertheless, Praluent sales are still expected to “lag” in the near-future as a result of higher rebates. We note that a similar sentiment was expressed by Amgen management yesterday during the company’s financial update: They conceded that a new lower list price for Repatha will inevitably lead to a short-term depression of sales but should gradually be offset by sustainable long-term volume gains. Interestingly, Sanofi made no mention of Amgen’s decision to dramatically cut Repatha’s list price, and we’ll be curious to see how similarly improved access for both Repatha and Praluent will impact both franchises going forward. We’re surely glad to see both Sanofi and Amgen take steps to increase the affordability of their PCSK9 inhibitors. These agents are highly efficacious in not only LDL-lowering, but also CV risk reductions ­– unfortunately, they’ve also been notoriously difficult for patients to access due to exorbitant list prices and strict PBM/payer requirements. Of course there continues to be massive spending on CVD in terms of heart attacks and strokes.

  • Pooled revenue for the PCSK9 inhibitor market totaled $199 million in 3Q18, up 44% YOY from a base of $138 million in 3Q17. This mark does represent the lowest YOY growth rate for the class since both products have been on the market but is still fairly impressive to see. Sequentially, the PCSK9 market dipped 10% from $220 million in 2Q18, the first sequential drop for the class since 1Q17. By market share, Repatha claimed 60% of revenue while Praluent took the remaining 40%; this is the highest share that Praluent has captured since 1Q17, when it held 43% of the market by value; it also represents a sharp uptick from the 33% value share it held in 2Q18. To be sure, there are a multitude of factors currently affecting the class, from major shake-ups regarding pricing, reimbursement, and access, to the potential effects of updated labeling reflecting a CV indication for Praluent (see below). Still, we see oceans of headroom for both of these agents to thrive, given how many patients with preexisting CVD could benefit from additional LDL lowering.

  • Management expects a decision on a potential CV label indication from EMA in 1Q19 and FDA in 2Q19. Sanofi/Regeneron previously submitted an sBLA/Type II Variation application to FDA and EMA in 2Q18 based off of positive results from the ODYSSEY Outcomes trial. In that study, Praluent was associated with a 15% risk reduction (HR=0.85, 95% CI: 0.78-0.93, p=0.0003) vs. placebo on the composite primary outcome of coronary heart disease-related death, non-fatal MI, non-fatal stroke, or unstable angina requiring hospitalization. A CV indication for Praluent would represent another tailwind in the struggle for better patient access and reimbursement – look no further than Amgen’s Repatha, which on the strength of its CV indication (granted December 2017) has seen both increased commercial success and a significant decrease in utilization management criteria from CVS, which eliminated 12 of 45 UM questions.

Pipeline Highlights

7. GLP-1/Glucagon Dual Agonist SAR425899: Uncertain Status of Phase 3 Program in Obesity – Previously Slated for 2H18 – Balanced by Enthusiasm for Sanofi’s Three Dual- and Tri-Agonist Molecules

Comments from Dr. John Reed (EVP, Global Head of Research & Development) during Q&A cast doubt on near-term plans for phase 2 GLP-1/glucagon dual agonist SAR425899 but reinforced Sanofi’s strong interest in pursuing dual agonists. At Sanofi’s 2017 Analyst Day, the company announced plans to advance the candidate into phase 3 for obesity and proof-of-concept for NASH in 2H18, an announcement that came before phase 2 was actually complete. And at JPM 2018 in January, Mr. Brandicourt expressed sure confidence in SAR425899, calling it a potential best-in-class molecule and reinforcing these 2018 clinical trial plans. Indeed, phase 2 data demonstrated ~8 lbs of weight loss in only four weeks, which Mr. Brandicourt asserted was at least as efficacious as semaglutide. However, the phase 2 NASH study (n=126) start date has been delayed to May 2019, and there is no trace of a phase 3 program on ClinicalTrials.gov; the candidate remains in phase 2 for overweight/obesity in type 2 in Sanofi’s pipeline. Notably, following completion of a phase 2 dose-ranging study (n=296) for SAR425899 in December 2017, new tolerability concerns for the candidate emerged, which Sanofi discussed in depth on its 1Q18 earnings call: In the words of President of Global R&D Dr. Elias Zerhouni, “The real issue we’re dealing with is tolerability, and the dropout of one-fourth of patients because of tolerability issues. We had a higher GLP-1 effect in the molecule than we expected from non-human primate data, and we think the titration was too abrupt. So, we’re working to adjust titration and dosing. By early summer, late June, we’ll know a lot better.” On the call, Mr. Reed explained that Sanofi is still exploring up-titration schemes for dosing the drug and diving deeper into the glucose regulation and weight loss benefits offered by additional glucagon receptor agonism. Further, he referenced “recent data in the field” on GLP-1/GIP dual agonism – undoubtedly Lilly’s phase 2b data for tirzepatide – as evidence that the dual agonist portfolio is particularly exciting, also asserting that Sanofi is “looking hard” at how to accelerate the SAR425899 program.

We’ve been expecting phase 3 trials in obesity to start by EOY, and Sanofi’s lack of clarity on this front is not as instructive as we’ve been hoping it would; some might say that the combination of tolerability concerns with much buzzed-about data for Lilly’s candidate may have reduced Sanofi’s dedication to this particular dual agonist. However, the company does still have two phase 1 trials ongoing (n=60; up to eight months) and recruiting (n=30; 19 days) to further investigate the mechanism and clinical profile of SAR425899, and we note that the latter is relatively large and very long for a phase 1 trial. As such, it does make sense that Sanofi is trying to proceed very deliberately with dual agonist development, and the company remains near the leading edge of the GLP-1/glucagon dual agonist competitive landscape. We also note that, as Dr. Reed mentioned, Sanofi has an additional phase 1 GLP-1/GIP dual agonist (his comments suggested this might be the more exciting combination) as well as a preclinical tri-agonist. While the field is far from understanding any one of these classes as superior to any other on either safety/tolerability or efficacy, we do wonder how the company is balancing these priorities. It remains to be seen whether additional studies will begin before year-end.

The table below reflects the latest updates, as far as we are aware, on Sanofi’s diabetes/obesity pipeline products. Items highlighted in yellow indicate notable changes to the pipeline in 3Q18.

Candidate

Phase

Timeline/Notes

Sotagliflozin (SGLT-1/2 dual inhibitor)

Phase 3

Submitted to FDA and EMA for type 1 diabetes, decisions expected 1Q19; Positive phase 3 results in type 1 (led by Lexicon) presented at ADA and EASD 2017; Phase 3 program in type 2 underway, readouts/FDA filing expected 2019; New heart failure trial announced 2Q18

SAR341402 (rapid-acting insulin)

Phase 3

GEMELLI 1 (open-label vs. Novo Nordisk’s NovoLog) expected to complete January 2019; Type 1 pump study to complete October 2018; FDA submission slated for 1H19; Added to pipeline in 4Q16

Efpeglenatide (once-weekly GLP-1 agonist)

 

Phase 3

Phase 3 trial initiated in 4Q17 (delayed from 4Q16) and expected to complete February 2020; CVOT to complete April 2021; Filing anticipated 2021; Licensed from Hanmi

SAR425899 (GLP-1/glucagon dual agonist)

Phase 2

Phase 3 trials in obesity slated to begin 2H18 but newfound tolerability issues may have caused delays; Phase 2 proof-of-concept in NASH scheduled for 2019 study start (delayed from 2018); Phase 2 in type 2 diabetes completed December 2017; Filing anticipated in 2022+; Promising phase 1 results presented at ADA 2016

SAR438335 (GLP-1/GIP dual agonist)

Phase 1

Added to pipeline in 3Q15; Remains in phase 1 as of 3Q18

GLP-1/GIP/glucagon tri-agonist

Preclinical

Mentioned during Q&A on 1Q18 call; Supposedly “entering clinical development right now”; no updates to our knowledge since

Once-weekly LAPSInsulin-115/efpeglenatide combination

Preclinical

Acquired from Hanmi in November 2015; Hanmi is leading early development efforts and Sanofi will revisit this candidate in ~2019 or later

Q: Last year, you split up expected coverage between preferred and non-preferred, and you’ve just given us one number now. Perhaps the difference is not so relevant, but one product which has a big drop-down next year is Toujeo. Looking at consensus expectations, there’s still the view that this new product would show strong growth, presumably in the US as well as ex-US. Given the sharp downdraft in terms of access, do you think that is still realistic?

Mr. Olivier Brandicourt (CEO): My comment on keeping the broad coverage shows the same coverage as last year. I think you have seen on one slide that we are keeping coverage in commercial when it comes to glargine, with the exception of Medicare Part D. And as you know, CVS and Aetna are in the process of combining their businesses. So, CVS has excluded Lantus and Toujeo from their commercial formulary since the beginning of 2017, and then from 75% of their CVS SilverScript Medicare plans starting in January 2018. For 2019, Aetna has chosen to exclude Lantus and Toujeo from their formulary and in the Medicare Part D section as well. That is affecting about 3 million lives based on the 2018 lives, who previously had access to Lantus and Toujeo under Aetna plans. Again, I did mention the competition and the pressure on pricing too. For Toujeo, we have to look at it worldwide. It has been slightly declining in the US this quarter, but it is growing significantly in Europe, and we are seeing very good early signs of growth also in Emerging Markets. I would say you're right to look at Toujeo as being a growth agent in our Diabetes franchise in the future overall.

Q: Admelog obviously had a strong initial period. What sort of coverage do you think that will have next year?

Mr. Brandicourt: With Admelog, you've seen, I think it was €26 million in sales. This good result for the quarter was mainly due to our access in Managed Medicaid. And our market entry strategy for Admelog at launch was really focused on accessing Managed Medicaid channels as well as cash channels for un-insured and under-insured patients. Now, if your question is related to what's coming in the future regarding commercial and Medicare channels outside the Managed Medicaid, this book of business, as you know, is very much split between two branded products which control a vast majority of the market. This book of business is very much driven by exclusive contracts. So, due to the timing of our launch of Admelog during the second quarter of 2018, Admelog will likely not be contracted in Medicare in 2019. We see that type of access rather in 2020. But we're very pleased with what we've seen so far during the third quarter exclusively in Managed Medicaid.

Q: You didn’t mention anything on the diabetes pipeline, and I was interested to get Dr. Reed’s perspective on the GLP-1/GIP/glucagon assets you have in development, following some of the recent data in that space. Is that a competitive opportunity and what’s your outlook on that class of medicines overall?

Dr. John Reed (EVP, Global Head of Research & Development): We have several candidates in the clinic or close to the clinic. Efpeglenatide, of course, is the weekly GLP-1 agonist that we're developing. But then behind that we have this next-generation where we combine the activities of GLP-1 with either glucagon receptor agonism, or GIP, or both in a tri-agonist. So we are exploring all of these different mechanisms. The most advanced, in our case, is a dual agonist of GLP-1 together with glucagon receptor agonism. We're still exploring ways to present that drug with an up-titration scheme, et cetera, and looking at what the benefits of glucagon receptor agonism may or may not be for the patients as we look at both glucose regulation as well as weight loss. We're assessing, from the recent data that have been presented, the GLP-1/GIP combination looks particularly exciting. So, we're really looking very hard at that whole portfolio of molecules and we'll be looking at what we can do to accelerate that program.

 

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