J&J 2Q15 – Invokana sales reach $318 million, up 14% sequentially, Calibra to launch in 2016; Vibe grows 32% – July 14, 2015

Early this morning, J&J provided its 2Q15 update in a call led by CEO Mr. Alex Gorsky. Below we include our top ten highlights from the call, followed by relevant Q&A.

Janssen Highlights

1. Invokana (canagliflozin) and Invokamet (canagliflozin/metformin) posted $318 million in sales in 2Q15, up from $114 million in 2Q14 (a 172% increase year over year [YOY]) and up 14% sequentially from $278 million in 1Q15.

2. In response to a question about the risk of ketoacidosis with SGLT-2 inhibitors, management commented only that very few cases were seen in Invokana’s phase 3 trial program.

3. Management highlighted Janssen’s new microbiome research initiative as an example of a “disruptive investment” that could lead to true disease interception.

4. Several ongoing trials could potentially support expanded indications for Invokana, including one in type 1 diabetes that should report results in the near future.

LifeScan/Animas Highlights

5. Global Diabetes Care revenue totaled $494 million, declining 12% as reported and 2% operationally YOY; the global sales decline has characterized 12 of the past 13 quarters. Weakness was attributed to US price declines partially offset by the strong double-digit growth of the Animas Vibe and volume growth in SMBG.

6. US Diabetes Care sales in 2Q15 reached $214 million, falling ~4% YOY against a very easy comparison to 2Q14 (sales fell ~14% YOY). International Diabetes Care revenue totaled $280 million, declining 17% as reported and 1% operationally YOY in 2Q15 against a neutral comparison (up 2% as reported and operationally in 2Q14).

7. Notably, J&J expects to launch the Calibra Finesse bolus-only insulin delivery device in the US in 2016. The company is beginning a clinical outcomes study, though this is not yet on ClinicalTrials.gov. We’ve never heard such a firm guideline.

8. The Animas Vibe has seen strong 32% operational growth in the first half of 2015 following the January launch. J&J recently submitted a filing to the FDA for a pediatric indication of the Vibe and expects approval by the end of year.

9. A next-generation CGM-integrated pump is in development – there were no timing updates or details, though we assume it’s the hybrid closed-loop product alluded to at AACE 2015.

10. J&J is actively thinking about technology adjacencies, especially glucose monitoring. Ms. Peterson acknowledged that J&J is invested in improving the ecosystem by leveraging big data and analytics.

Janssen Highlights

1. Invokana (canagliflozin) and Invokamet (canagliflozin/metformin) posted $318 million in sales in 2Q15, up 172% year over year (YOY) from $114 million in 2Q14 and 14% sequentially from $278 million in 1Q15. 95% of revenue ($302 million) came from the US, consistent with the results in past quarters. The breakdown of the SGLT-2 inhibitor market in the US vs. Europe illustrates the power of first-in-class status: while Invokana dominates the US market (where it was first to launch), AZ’s Forxiga (dapagliflozin) holds close to a 90% market share within the class in Europe, where it was first to market. Management continues to highlight Invokana as a significant contributor to growth, and the drug certainly looks poised to reach (and likely exceed) blockbuster status this year. See the table below for an overview of sales for the past year.

• Invokana achieved 5.9% total prescription share (TRx) in the US type 2 diabetes market (excluding insulin and metformin), up from 4.9% in 1Q15. TRx grew from 11.8% in 1Q15 to 13.2% in 2Q15 among US endocrinologists and from 4.3% to 5.2% among US primary care physicians. J&J only began disclosing primary care figures last quarter, and it is encouraging to see the uptake in this segment given how many patients are treated solely by a primary care provider.
• Invokana continues to lead the SGLT-2 inhibitor class in the US in terms of new-to-brand share (NBRx) and reimbursement. Management did not provide specific numbers for NBRx; as of 1Q15, Invokana held ~18% share among endocrinologists. Last quarter, J&J also indicated that Invokana was continuing to gain market share despite the introduction of competitors (AZ’s Farxiga [dapagliflozin] and Lilly/BI’s Jardiance [empagliflozin]) in the past few years. While that was not explicitly confirmed in this update, the product is clearly more than holding its own in a more crowded market. Much of this success is likely due to strong reimbursement: management shared that Invokana has achieved 80% preferred access in both the commercial and Medicare Part D segments.
• Interestingly, management emphasized Invokamet more explicitly in this quarter’s update than in the past. This is consistent with a greater exhibit hall presence for Invokamet at recent conferences including AACE and ADA. We wonder if this reflects a growing popularity of the combination product or perhaps an attempt to compete with companies that have SGLT-2 inhibitor/DPP-4 inhibitor fixed-dose combinations. J&J confirmed during its recent Pharmaceutical Business Review that the company does not consider pursuing such a combination to be the best use of its resources – this calculus makes sense, as J&J would be at least third to market and would need to invest in a partnership since it does not have a DPP-4 inhibitor in its portfolio. 

Table 1: Invokana Sales (millions)

2. In response to a question about the risk of ketoacidosis with SGLT-2 inhibitors, management commented only that very few cases were seen in Invokana’s phase 3 trial program. The subject, which has been a major topic of discussion at recent conferences, did not come up during prepared remarks, but one analyst inquired during Q&A whether the controversy has had any impact on prescribing habits. Management responded only that Invokana’s phase 3 trial program included over 10,000 patients and that very few cases of DKA were seen.

• Awareness of this issue within the diabetes community has certainly increased over the past few months, and we imagine that some sort of label additions are likely in the future as both the FDA and EMA are currently conducting investigations. We expect that the risk is unlikely to have a major impact on the class’ popularity in type 2 diabetes, as DKA appears to be fairly rare and influenced by clear risk factors like surgery and insulin deficiency in that population. The impact on the class’ future prospects in type 1 diabetes is less clear; ongoing large-scale trials (including one sponsored by J&J – see below) should provide a clearer indication of how manageable the risk is – we have certainly heard firm views that this is the case.

3. Management highlighted Janssen’s new microbiome research initiative as an example of a “disruptive investment” that could lead to true disease interception. As a reminder, the company announced the launch of the Janssen Human Microbiome Institute in March along with two other research platforms focused on prevention. The gut microbiome is currently one of the most cutting-edge areas in diabetes and obesity, though the research remains at a very early stage. The key next steps will involve clarifying causal relationships between specific microorganisms and particular health effects – not an easy task, but one that Janssen’s resources and drug development experience should make it particularly well-equipped to take on.

• Janssen’s Disease Interception Accelerator program was not mentioned on the call, though it has selected type 1 diabetes as its first area of focus. The company recently announced a collaboration with renowned immunologist Dr. Emil Unanue (Washington University, St. Louis, MO) focused on the role of antigen-presenting cells in the initiation and progression of the disease. This level of dedication to disease prevention and early-stage research from a major pharmaceutical company is fantastic to see, and we will continue to follow both programs closely. These are unquestionably long-term investments with high risk, but also high potential to help so many at-risk individuals.

4. J&J is conducting several ongoing trials that could potentially support expanded indications for Invokana, including one in type 1 diabetes that should report results in the near future.

• Type 1 diabetes: A phase 2 trial (n=352) investigating Invokana in type 1 diabetes has been completed as of last month, and we imagine that results should be reported in the near future. As mentioned above, this and other robust trials of SGLT-2 inhibitors in type 1 diabetes will be critical in terms of clarifying how the many potential benefits (insulin-independent glucose-lowering, less glycemic variability, weight loss, insulin dose reductions) stack up against the potentially greater risk of DKA.
• Obesity: J&J is conducting a phase 2 trial of Invokana in combination with phentermine as a treatment for obesity; the study was expected to complete in June 2015 but is still ongoing according to ClinicalTrials.gov. Another trial investigating Invokana’s effect on body weight and metabolism in patients with type 2 diabetes is currently recruiting participants. Assuming they are positive, the results from these studies should contribute to the continued blurring of the lines between diabetes and obesity therapies and further establish weight benefits as one of the key advantages for SGLT-2 inhibitors. We imagine that the class’ profile would also make it quite appealing as a treatment for prediabetes and wonder if we will see studies in this population in the future.
• Diabetic nephropathy: The CREDENCE renal outcomes study evaluating the potential protective effects of Invokana on the progression of diabetic nephropathy is currently recruiting and expected to complete in January 2020 – a slight delay from the original expected completion date of November 2019. These results are very eagerly awaited, as a finding of renal protection would be an enormous win for patients and could change public health in a very meaningful way long term.

LifeScan/Animas Highlights

5. Global Diabetes Care revenue from LifeScan BGM and Animas pumps totaled $494 million, declining 12% as reported and 2% operationally year-over-year (YOY); sequential sales grew 2% against a very low base ($484 million in 1Q15 marked the lowest sales in a decade). This marked 2Q15 as another quarter of YOY declines globally, which now includes 12 of the past 13 quarters (3Q14 was the lone exception). The quarterly decline was on an easy comparison, as sales fell 5% YOY as reported and operationally in 2Q14. The quarterly performance in reported revenue marks the second-consecutive quarter in which J&J’s global sales dropped under $500 million – a pattern we had not seen since in a decade (3Q05-4Q05).

• Accompanying slides attributed the weakness to US price declines that were partially offset by the strong double-digit growth of the Animas Vibe and 3% US volume growth in SMBG. Ultimately, the financials are disappointing, though not wholly surprising considering how this business has trended over the past two years.
• Nevertheless, Group Worldwide Chairman Ms. Sandi Peterson expressed confidence in the launch of the Animas Vibe and huge enthusiasm for the potential of the OneTouch Verio BGM, launched in January 2015 – “[J&J’s] most successful [BGM launch] in the past three decades.” We wonder how this is being measured, as the meter has arguably not received as much attention as the previously more innovative Verio Sync. We are big fans of the meter’s use of reminders and positive feedback.
• On BGM broadly, Ms. Peterson suggested that the business is well positioned to deliver profitable growth in the future despite negative price dynamics. The business may not ever return to its previous level of profitability, though it does seem to be benefiting from volume growth (3% in the US in 2Q15). The company is also benefitting from cost-cutting measures that include: (i) reducing the number of strip platforms from five to two (Verio and Ultra remain to our knowledge); (ii) reducing the number of meter offerings from 14 to three (that is a major change, leaving just the Verio, Verio IQ, and VerioSync to our knowledge); (iii) downsizing the facility footprint; and (iv) cutting back on inventory by 55%. This was the most energetic and enthusiastic take on the business that we have heard in some time.

Figure 1: WW, US, International Quarterly Sales (2Q11 – 2Q15)

• Of course, the Diabetes Care business is still in the process of reshaping itself, though J&J’s historical commitment to and strong interest in diabetes technology does not appear to have changed. As we understand it, the area continues to be a bit of an orphan: it is managed by former Bayer Diabetes CEO Sandi Peterson, though the results don’t hit her Consumer P&L. This is a very unusual management set-up, given that the P&L continues to be owned by the medical device segment (previously run by Mr. Gorsky).
• We are eager for the remaining Big Four blood glucose monitoring companies to report (Abbott [July 22], Roche [July 23], and Bayer [July 29]). Notably, all have comparisons from 2Q14 even easier than J&J’s was. For background, Abbott’s business was hard hit in 2Q14, with sales of only $293 million falling 10% YOY. Roche faced a similar 10% decline, while Bayer – whose business was recently sold to Panasonic Healthcare Holdings – was down ~10-16% YOY in 2Q14.

6. US Diabetes Care sales in 2Q15 reached $214 million, falling ~4% YOY against a very easy comparison to 2Q14 (sales fell ~14% YOY). As expected, management did not comment extensively on the US business. In the past 14 quarters (since 1Q12), J&J has recorded only three quarters of positive YOY reported growth in the US. Positive 1% sequential growth did reflect the fourth such quarter out of the past five, suggesting the US business has at least stabilized somewhat.  

• International Diabetes Care revenue totaled $280 million, declining 17% as reported and 1% operationally YOY in 2Q15 against a relatively neutral comparison (up 2% as reported and operationally in 2Q14). This marks 2Q15 as the fourth consecutive quarter of reported YOY declines, though the financials do reflect the significant strengthening of the US dollar (negative 16% currency impact). The underlying 1% operational decline was still disappointing, though it does show some stabilization in the challenging marketplace. On a reported basis, it was unfortunate that sales fell below $300 million for the second consecutive quarter (vs. $336 million in 2Q14) – though this is driven in large part by currency, it is an important watermark for the business. The sequential growth of 3% also marked the lowest Q1 to Q2 uptick since 2010. We will be watching closely to see what sales do in 3Q15 given that the international segment tends to decline between Q2 to Q3 (per the past five years).

7. J&J expects to launch the Calibra Finesse bolus-only insulin delivery patch device in the US in 2016. We would note that commentary on Calibra’s timing has tended to shift quite significantly quarter-to-quarter – in the past year, we have heard everything from “May 2016” to “a couple years out” – though this is the most definitive commentary we have heard in several quarters. It seems as though J&J has prioritized this project of late, and we wonder whether movement on the Invokana side has moved this along. It’s outstanding to see this project moving ahead, since we believe so many individuals could benefit from discreet, low hassle bolus delivery. The company is beginning a clinical outcomes study soon, though this is not yet on ClinicalTrials.gov. As a reminder, the Finesse is a three-day, very slim profile (2 inches long, 1 inch wide, and 0.25 thick), bolus-only delivery device. It was acquired from Calibra Medical in July 2012.

• We wonder what the Finesse will cost and how it will stack up against other competitive options on the market, particularly the Valeritas V-Go (basal/bolus) and CeQur’s PaQ (basal/bolus). The V-Go is already on the market through a small regional rollout; Valeritas filed to go public in February but postponed the IPO in March. CeQur’s has EU and US launches of its PaQ device planned for 2016.
• Though the launch is still early, we’d note Sanofi/MannKind’s Afrezza is also an important Finesse competitor. Some of the J&J/Calibra device’s key selling points – more discreet, lower hassle bolus insulin – are also key advantages of Finesse. Big drivers of Finesse uptake will include cost, ease of prescribing, ease of training, and any outcomes data.  

8. The Animas Vibe has seen strong 32% operational growth in the first half of 2015 following the January launch. The first-to-market-Dexcom-integrated pump is certainly benefitting J&J – management estimated that Animas has now achieved the “number two share position” among pump companies, per internal estimates. We’re not sure how this is calculated, since no company directly reports patient-adds. This is the first time J&J has broken out growth for the Vibe individually, and though it surely comes from a small base of OneTouch Ping growth, it is encouraging. Management did not provided a specific breakdown, but attributed the growth to a mix of: (i) existing patients upgrading to the new product; (ii) gaining new-to-therapy insulin pumpers; and (iii) “a lot of conversion” from other pump platforms. Of course, if this growth tapers in coming months, it would suggest that these additions were more weighted toward upgrades.

• How will Tandem/Dexcom’s t:slim G4 (launch expected in 2H15) and Dexcom’s Gen 5 (launched by end of year) affect the Vibe’s uptake? The Tandem pump will be a very competitive Dexcom-integrated offering, while with Gen 5, patients will need to choose between getting data on their phone (with the Gen 5 transmitter) and getting it on their pump (with the current Gen 4 transmitter); as we understand it, Dexcom will continue to make both transmitters for now.
• J&J recently submitted a filing to the FDA for a pediatric indication of the Vibe and expects approval by the end of year. It’s good to hear this is moving along, since the absence of pediatric approval was a point of criticism once the pump was approved and launched (understandably, J&J staged the submission to get to market faster). We hope going forward the lag time shortens between adult and pediatric approval!

9. J&J acknowledged that a next-generation CGM-integrated pump is in development – presumably, this is the hybrid closed-loop project alluded to at AACE 2015. There were no timing updates or highly notable specifics, though management remarked that the product will combine a more user-friendly design with a more accurate pumping algorithm. J&J’s artificial pancreas project has moved at a slow pace since signing its partnership with the JDRF in 2010, and we hope more details will come soon.

• We believe it’s essential for Animas to move on automated insulin delivery, given the competition from other companies – see the landscape review below. Medtronic has already begun a pivotal study of the 670G, and other groups are exploring their options or moving ahead on development: Bigfoot (pivotal trial expected by end of 2016), Bionic Pancreas (pivotal trial in 1Q17-1Q18), Insulet (still in R&D phase), Tandem (IDE filing in 2H15, with potential launch in 2017), and Type Zero (large scale studies expected in 2015-2016). Dr. Aaron Kowalski has publicly stated multiple hybrid closed loop systems are coming in the ~2017-2018 timeframe.

10. We were intrigued to hear that J&J is actively thinking about glucose monitoring adjacencies. Said Ms. Sandi Peterson: “The opportunities for J&J to become a healthcare technology innovator are immense. We have identified key technology areas that will accelerate growth and are actively pursuing programs and partnerships in those areas.” There is clear enthusiasm to use digital solutions to help providers, especially in glucose monitoring where Ms. Peterson acknowledged that the company is invested in improving the ecosystem by leveraging big data and analytics. We’re not sure exactly what this means, though could imagine (i) clinical decision support for patients or providers (e.g., providing insulin-dosing recommendations); (ii) advanced pattern recognition; and (iii) population tracking and at-risk patient identification.

• “We are at a tipping point where technology is becoming the medium through which healthcare can become a more effective and efficient system,” said Ms. Peterson. In recent months, we have seen technology companies moving increasingly into healthcare (e.g., Google, Apple, Facebook). However, J&J initiative on this front is a striking reminder that healthcare companies are just as interested in moving into technology. It sounds like partnerships are strongly in the consideration set – Ms. Peterson mentioned active discussion with “nearly every major technology company. Ultimately, the commentary only serves to underscore the potential of digital health and what is going to be an increasingly complex healthcare landscape in the coming years.

Pipeline Summary

Automated Insulin Delivery Competitive Landscape

• See below for an overview of the automated insulin delivery landscape, as far as we aware. We acknowledge this list may be incomplete, as there may be other stealth startups or academic groups working to commercialize closed-loop technology.

Questions and Answers

Q: The Animas Vibe is off to a strong start. Can you give us a little color on the roll out? Are you converting your own patients or are you gaining new accounts? And what's next beyond the Vibe in the pipeline?

A: Regarding the Vibe, we had launched the product in Europe and also in Canada over the last couple of years. In both Europe and in Canada, it also had a pediatric indication, which clearly gives it some unique differentiation in the marketplace. We effectively launched the Vibe in the US at the beginning of this year. We've seen significant positive growth in uptake of the product in the US, which is a combination of existing patients upgrading to the new product, as well as gaining new-to-therapy insulin pumpers. We have also seen a lot of conversion from other pump platforms to our platforms.

In the second quarter, we also filed for the pediatric indication for the US product. Obviously, the FDA will go through its review process, but we're hopeful that before end of this year, we should have a pediatric indication that will contribute to an uptick in the US business. As I also mentioned earlier, there are three other things in insulin delivery that we're very focused on, and with two of them, we are working in partnership with Dexcom. One, we are working on a next-generation pump that will really bring out the best in what we've learned about how to make it more user-friendly and effective for patient. Two, we are ensuring that we've got the right algorithm in the pump for insulin delivery.

We’re also doing a lot of work on the BGM side, really creating a better ecosystem for the patient that helps them manage their condition much more effectively. We're using information technology in a smarter way, and we're seeing a very positive impact. So that's another place that we’re going to be doing a number of different things.

Last but not least, I mentioned that the Calibra patch pump is another great growth platform. We believe it is really unique to the marketplace and a way to help type 2 patients with diabetes, who are insulin dependent. It will provide a new, more discrete way of getting insulin delivered. So, there are a lot of things in the works. There are a lot of things in our pipeline in insulin delivery.

Q: With Invokana, it looks like the momentum has continued and it continues to look fantastic. Could you offer any additional comments?

A: We continued to highlight the profile. We have great reimbursement, well in excess of 50% to 60% in both the commercial and Medicare sides of the business. We have continued to see strong TRx trends in both primary care and endocrinology. Overall, we are seeing strong uptake and we think it’s a big opportunity.

Q: About halfway through the quarter we did have the FDA comments around ketoacidosis with Invokana. Obviously performance seems fine this quarter, but are you sensing any sort of questions or changes in prescribing habits as a result of what the FDA has stated at this point?

A: It’s early on, but our phase 3 trials included about 10,000 patients and we saw very few cases of DKA.

-- by Varun Iyengar, Emily Regier, Adam Brown, and Kelly Close