Memorandum

Zealand 2Q14 – $0.8 million in Lyxumia royalties; Lyxumia and LixiLan on track for US filing in 2015 – August 27, 2014

Executive Highlights

  • Zealand received DKK 4.3 million (~$790,000) in royalty revenue from Lyxumia (lixisenatide) ex-US sales in 2Q14. US resubmission of Lyxumia is expected in summer 2015.
  • LixiLan remains on track for a US regulatory filing as early as the end of 2015.
  • Zealand has two ongoing partnerships with Boehringer Ingelheim; lead targets for both programs to be announced.

Zealand provided its 2Q14 and 1H14 financial update late last week, which was followed by a call led by President and CEO Dr. David Solomon. Below we include our top five highlights from the presentation, followed by selected Q&A and a table summarizing the company’s diabetes and obesity pipeline.

1. Zealand received DKK 4.3 million (~$790,000) in royalty revenue from Lyxumia (lixisenatide) in 2Q14 from Sanofi’s total Lyxumia sales of €6 million (~$8 million).

2. US resubmission of Lyxumia is expected in the summer of 2015, following the completion of the ELIXA cardiovascular outcomes trial (CVOT).

3. Management confirmed that as per guidance by Sanofi, LixiLan (lixisenatide/insulin glargine fixed-ratio combination) is on track for a US filing as early as the end of 2015.

4. Zealand’s stable glucagon analog program is expected to enter phase 1 trials by the end of 2014, and could enter phase 2 as early as 2015.

5. Zealand has officially signed a second research and development collaboration agreement with Boehringer Ingelheim (BI) covering novel peptide therapeutics for the treatment of cardiometabolic disease.

Top Five Highlights

1. Zealand received DKK 4.3 million (~$800,000) in royalty revenue from Lyxumia in 2Q14 from Sanofi’s total Lyxumia sales of €6 million (~$8 million). These figures represent a slight increase from 1Q14, when Zealand received DKK 3.8 million (~$700,000) in royalties from €5 million (~$7 million) in total sales. The modest sequential sales growth in 2Q14 for Lyxumia and Zealand’s royalties is more understandable when considered in the context of the class-wide GLP-1 agonist slowdown that Novo Nordisk commented on during its 2Q14 update – according to IMS Health data, the MAT growth rate for the class fell from 20-25% in early 2013 to 8% as of June 2014. Causes of the slowdown likely include lingering fears from the incretin-pancreatitis controversy and the introduction of SGLT-2 inhibitors.

  • Lyxumia has been launched in approximately 20 countries including the UK, Italy, Spain, Japan, and Mexico; management said that several launches occurred in 2Q14 but did not provide specifics. Additional launches are expected in 2H14, including potentially in France, which management characterized as “the largest GLP-1-using country in Europe.” Despite this international success, management commented that the US market “really offers the lion’s share of revenue” for GLP-1 agonists and predicted that the anticipated US launch in 2015 will be the real catalyst for the product’s success (see item #2 below).
  • As a reminder, Sanofi has initiated legal action regarding Lyxumia’s pricing in Germany. Sanofi withdrew Lyxumia from the German market on April 1 due to a regulatory decision by German authorities under the AMNOG law that would have subjected the drug to generic-level pricing. Sanofi then entered into negotiations with German authorities, which produced a new reimbursement decision in June; that decision appears to have been unsatisfactory, as Sanofi decided not to resume sales of Lyxumia in Germany and to file legal action against the adjudication (see our Sanofi 2Q14 report). Zealand management repeatedly reminded analysts that this issue is not unique to Lyxumia – a number of diabetes drug manufacturers have expressed frustration about the rigid reimbursement environment in Germany following the implementation of reference pricing under AMNOG. One sliver of hope regarding the German diabetes drug reimbursement environment can be found in AZ’s SGLT-2 inhibitor Forxiga (dapagliflozin), which was recently re-launched after a withdrawal earlier in the year due to insufficient reimbursement – AZ was able to secure better pricing for Forxiga, enabling the re-launch.

Table 1: Lyxumia Revenue and Royalties

 

Total Lyxumia Revenue (millions)

Zealand Royalties (millions)

2Q13

€1 (~$1.3)

DKK 1.1 (~$0.2)

3Q13

€3 (~$4)

DKK 1.9 (~$0.3)

4Q13

€5 (~$7)

DKK 3.6  (~$0.7)

1Q14

€5 (~$7)

DKK 4 (~$0.7)

2Q14

€6 (~$8)

DKK 4.3 (~$0.8)

2. The FDA resubmission for Lyxumia is expected in the summer of 2015, following the completion of the ELIXA CVOT in 1H15. This is consistent with previous guidance that resubmission would occur in 2015 shortly after ELIXA is completed, though this is the first time we have heard summer 2015 specifically mentioned as the target for filing. As a reminder, Sanofi withdrew its FDA submission for Lyxumia in September 2013 to prevent interim disclosure of data from ELIXA that could potentially compromise the integrity of the final study results. The FDA held a public hearing on August 11 to discuss the issue of interim data disclosure in CVOTs; the consensus seemed to be that the FDA should provide more explicit guidance on appropriate procedures for disclosing interim results while still preserving trial integrity, though ironing out the details of that guidance will require further discussion. The specific example of Sanofi’s decision to withdraw its NDA for Lyxumia was cited during the hearing as an example of the challenges that the FDA’s 2008 CV guidance (in its current form) can pose for the diabetes drug development and approval process.

3. The GLP-1 agonist/basal insulin combination LixiLan (insulin glargine/lixisenatide) remains on track for a US regulatory filing as early as the end of 2015. Two phase 3 trials are ongoing: LixiLan-O (ClinicalTrials.gov Identifier: NCT02058147) will compare LixiLan to insulin glargine alone or Lyxumia alone on top of metformin in 1,125 patients with type 2 diabetes who are inadequately controlled on oral agents, and LixiLan-L (ClinicalTrials.gov Identifier: NCT02058160) will compare LixiLan to insulin glargine (both on top of metformin) in 700 patients with type 2 diabetes treated with basal insulin. Both studies are expected to complete in August 2015. Curiously, the timeline forecast that Zealand provided based on Sanofi guidance for LixiLan’s regulatory submission only mentioned the US – we wonder where this leaves the timeline for Europe and other geographies.

  • The other major GLP-1 agonist/basal insulin candidate nearing the market is Novo Nordisk’s Xultophy (IDegLira; insulin degludec/liraglutide). Following the FDA’s Complete Response Letter for Tresiba (insulin degludec) that also pushed back the timeline for Xultophy, it looked like LixiLan was likely to be the first GLP-1 agonist/basal insulin combination to the US market. That may have changed following Novo Nordisk’s recent announcement that insulin degludec (brand name Tresiba) could be re-filed as early as early 2015 – we do not know whether Novo Nordisk would wait to file Xultophy until after it receives a decision on Tresiba, but the new Tresiba timeline means that Xultophy could conceivably be filed in the US around the same time as LixiLan or perhaps slightly sooner. Xultophy is likely to be approved soon in the EU following a positive CHMP opinion delivered in late July.
  • We saw the first proof-of-concept data on LixiLan at ADA: the results were impressive, though the comparison between LixiLan and Lantus monotherapy may have been affected by a very strong showing from the Lantus arm. Both groups achieved similar and striking A1c reductions (1.8% reduction with LixiLan compared to 1.6% with Lantus from 8% baseline), and LixiLan blunted postprandial glucose excursions substantially more than Lantus (reductions of 70 mg/dl and 12 mg/dl, respectively; p<0.001) while also offering a weight benefit.

4. Zealand’s lead stable aqueous glucagon analog is expected to enter phase 1 trials by the end of 2014, and could enter phase 2 before the end of 2015. This timeline is consistent with commentary from the company’s ADA Analyst Breakfast, where management guided for possible initiation of clinical development by the end of the year and the possibility of relatively rapid clinical development. At the breakfast, management suggested that an NDA for the compound is possible as early as 2017, although that guidance was delivered quite cautiously given that the program is still at a fairly early stage. Preclinical data presented at ADA support the potential of the company's glucagon analog as a novel ready-to-use treatment for severe hypoglycemia, an area with significant room for improvement given that current glucagon-based hypoglycemia rescue kits involve reconstitution steps. In vitro results and studies in animal models indicated that the presented compound, ZP-GA-1, had greater solubility and aqueous stability than native glucagon while exhibiting a similar PK/PD profile.  The authors of the ADA poster concluded that in addition to being suitable as a liquid formulation for a hypoglycemia rescue kit, ZP-GA-1 could also potentially be used as part of an artificial pancreas.

  • Other companies working on improved glucagon formulations include Biodel, Xeris, Locemia (AMG Medical), Enject, Latitude, Arecor, Zosano, and PhySci (Marcadia)/Roche. Please see our Glucagon Competitive Landscape table in the Biodel F3Q14 report for details on each of their candidates.

5. Zealand has signed a second research and development collaboration agreement with BI (announced on July 28). This partnership will focus on developing novel peptide therapeutics for the treatment of cardiometabolic disease. The specific target, which comes from Zealand’s preclinical pipeline, remains undisclosed – Zealand CEO Dr. Solomon has previously commented that the target “probably won’t be a shock” once it is announced, but that the approach is “fundamentally different.” Under the terms of the agreement, Zealand is eligible to receive up to €295 million (~$400 million) in total potential milestones for the first product developed and marketed from this partnership; the company expects milestone payments of €5.6 million (~$7.5 million) alone in 2H14. In the Q&A session, management declined to provide a specific estimate of when compounds from this collaboration could reach the clinic, but noted that Zealand’s typical time frame from “idea to opening an IND (Investigational New Drug) application” is approximately 18-24 months.

  • Progress on Zealand’s glucagon/GLP-1 dual agonist development program with BI awaits BI’s selection of a new lead compound. The companies’ January update on the partnership indicated that Zealand would assume full responsibility for continued phase 1 development of former lead candidate ZP2929 and BI would select a new lead candidate from a portfolio of other glucagon/GLP-1 dual agonists invented under the research part of the collaboration and handed over to BI by mid-2013. In Q&A, Zealand management did not disclose a specific timeline for BI’s decision but hinted that it could come in the relatively near future, as the company will likely “choose something they’ve done a fair bit of work with.” We are curious to see whether phase 1 data on ZP2929 will provide any insight into the basis of the “differing” views between Zealand and BI on the compound that led to the parting of ways on ZP2929. Zealand management indicated that ZP2929 will likely proceed to phase 2 by the end of 2015 – given the costs of phase 3 development for type 2 diabetes, the company is likely interested in a new partner for the compound.

Zealand did not provide any other diabetes or obesity pipeline updates. The company has a partnership with Lilly for the research and development of a new peptide-based treatment for diabetes and obesity. Additionally, Zealand presented at this year’s ADA on its preclinical GLP-1/GLP-2 dual agonist program, which could address the chronic low-grade inflammation that often accompany metabolic disorders in addition to GLP-1-mediated effects on blood glucose.

Table 1: Zealand’s Diabetes and Obesity Drug Pipeline

Drug Name

Class

Indication

Status/
Timeline

Other Remarks

Lixisenatide

GLP-1 agonist

Type 2 diabetes

CVOT

FDA re-submission is planned for Summer 2015

LixiLan (lixisenatide/insulin glargine fixed-ratio combination)

GLP-1 agonist/ basal insulin

Type 2 diabetes

Phase 3

FDA submission possible as early as late 2015

ZP2929

Glucagon/GLP-1 receptor dual agonist

Type 2 diabetes and/or obesity

Phase 1

Zealand took full control from its partnership with BI in January

-

Glucagon/GLP-1 receptor dual agonist program

Type 2 diabetes and/or obesity

Preclinical

BI to select new lead compound for partnership

Glucagon analogue

Liquid-soluble glucagon analog

Severe hypoglycemia

Preclinical

Should enter phase 1 by end of 2014; expedited bioequivalence clinical development pathway possible

ZP-GG-23

GLP-1/GLP-2 dual agonist

-

Preclinical

Program disclosed at ADA

-

GLP-1/gastrin dual receptor agonist

 

 

 

-

Undisclosed target

Diabetes/obesity

Preclinical

In partnership with Lilly

-

Undisclosed target

Cardiometabolic diseases

Preclinical

In partnership with BI

Questions and Answers

Q: Could you follow up on your update of ex-US launches of Lyxumia? How many countries has it been launched in, how many are you expecting? It would be great to have details on which countries it has been launched in so we can gauge the magnitude of the sales potential.

A: There have been approximately 20 launches thus far. I can’t comment country by country, but launches in many countries are going well. Spain and Italy have launched, France is coming – you can imagine that future growth will be considerable. France is the largest GLP-1-using country in Europe. Sanofi is applying all due diligence, but you know in the GLP-1 field in general, the US really offers the lion’s share of revenue for many companies, so an important catalyst for us and for Sanofi will be the re-filing in the US in 2015 and the launch there of Lyxumia as well as LixiLan.

Q: In Germany, Sanofi will initiate the litigation process – do you have any comments as to how long that can take, i.e. when we could see Lyxumia being introduced in Germany if there is a successful outcome?

A: That’s really up to Sanofi and their negotiators in Germany as well as the German political and regulatory environment. This is not just about Lyxumia but the environment for many medicines; it’s impacting companies as widely as Germany’s own Boehringer Ingelheim as well as our own Danish company Novo Nordisk. I don’t have any comments on timing, but it’s an active process that could result in changes in the political environment in Germany in terms of reimbursement.

Q: On Lyxumia, you commented previously that a launch in France could occur in 2H14. Are you still comfortable with that timing assumption or will it be closer to early 2015 or later?

A: We did mention France in the second half of the year; we and Sanofi are sticking to that, but we have to see how France responds in terms of questions. It’s an important country and there’s more to communicate – you can learn more from Sanofi.

Q: On the BI deals, for both programs, when do you project you’ll be ready to start phase 1?

A: It’s hard to predict because they’re collaborative efforts, it’s early days, and we can’t disclose exact dates. The first program is on dual-acting compounds and our partner BI is choosing a new lead. They are carefully evaluating how they can position the chosen candidate in terms of target-based patient profiles, in terms of scientific results, and in terms of safety. We don’t expect a long runway, but I can’t disclose exactly when. On the new program, it’s early days and it’s an undisclosed target. In Zealand programs, the rough time metric from idea to opening an IND is an 18-24-month period; that’s not a hard number but it’s a reasonable expectation. Again, this is a collaborative project, so this can be plastic one way or the other.

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