Sanofi, Novo Fortunes Diverge Amid Insulin Price Slump

[lakers]

Sanofi, Novo Nordisk Fortunes Diverge Amid Insulin Price Slump

Sanofi Chief Executive Olivier Brandicourt, pictured earlier this year, announced improved earnings forecasts and a share buyback after the drug maker reported robust third-quarter results. ENLARGE
Sanofi Chief Executive Olivier Brandicourt, pictured earlier this year, announced improved earnings forecasts and a share buyback after the drug maker reported robust third-quarter results. Photo: Reuters

By
Denise Roland
Oct. 28, 2016 7:11 a.m. ET
Sanofi SA and Novo Nordisk A/S, two of Europe’s health-care companies most exposed to the falling prices for insulin products in the all-important U.S. market, gave dramatically diverging outlooks in the third quarter, sending their stock prices in opposite directions.

The French pharmaceutical giant raised its full-year profit guidance and announced a share buyback while its Danish rival lowered expectations even though both reported lower insulin sales in the U.S.

Sanofi’s shares surged nearly 7% whereas shares in Novo Nordisk were down 14% in morning trading.

After years of rising prices for insulin, drugmakers are being forced to cut or flatten their prices by powerful middlemen that buy drugs on behalf of insurers and employers. Sanofi and Novo Nordisk, the number one and two insulin makers in the U.S., are at the sharp end of this trend.

One difference between the two companies is different expectations of their insulin businesses. Sanofi last year acknowledged that revenue from its insulin franchise would dwindle. By contrast, Novo Nordisk hoped its new insulin, dubbed Tresiba, would drive strong growth because the treatment carries less risk of causing low blood sugar.

But Novo Nordisk said Friday that a “significantly more challenging” market in the U.S. would lead to it lowering prices in the future.

Sanofi’s brighter outlook also stems from the French drugmaker’s long-drawn-out efforts to cut costs and the benefit of diversity: Its rare-disease drugs are driving revenue growth while its portfolio includes treatments for cancer and cardiovascular ailments, vaccines and over-the-counter drugs.

Novo Nordisk, unusual among pharmaceutical companies for its narrow focus, is much more heavily dependent on diabetes, but now plans to broaden its portfolio. It said Friday that it would extend its research and development efforts to include diseases such as fatty liver disease, known as NASH, a form of non-alcoholic fatty liver disease, diabetic kidney disease and cardiovascular disease.

That broadening intensifies existing efforts to undertake riskier research in insulin, though the company said its higher threshold for innovation meant it would shelve efforts to develop an oral insulin. Such a product would have been more convenient for diabetes patients by reducing reliance on needles, but wouldn't have brought added medical benefits compared with injected insulins.

Friday, Novo Nordisk slashed its long-term annual profit-growth target from 10% to 5%, and narrowed its full-year outlook to the lower end of previous guidance.

Management now expects growth this year, measured in local currencies, of 5% to 6% for sales, trimmed from earlier guidance of 5% to 7%, and of 5% to 7% for operating profit, less optimistic than the previous range of 5% to 8%.

In the third quarter, Novo Nordisk’s operating profit rose 4% to 12.4 billion Danish kroner ($1.82 billion), while revenue climbed 3% to 27.5 billion kroner.

A Novo Nordisk employee controls a machine at an insulin production line in a plant in Kalundborg, Denmark. ENLARGE
A Novo Nordisk employee controls a machine at an insulin production line in a plant in Kalundborg, Denmark. Photo: fabian bimmer/Reuters

The preliminary outlook for 2017 indicates low single-digit growth in sales and flat to low single-digit growth in operating profit, in local currencies, it said.

Sanofi is relatively bullish about its prospects and it plans to complete a €3.5 billion ($3.82 billion) share buyback by the end of 2017.

Earnings a share—excluding the impact of acquisitions and divestments—are expected to grow between 3% and 5% in 2016 at constant exchange rates, Sanofi said.

The French company previously said earnings a share would remain “broadly stable” this year. In the third quarter, earnings a share increased 12% at local currencies on a 3% rise in revenue to €9.03 billion.

--Noemie Bisserbe in Paris and Dominic Chopping in Stockholm contributed to this article

Write to Denise Roland at [e-mail]
www.wsj.com/articles/sanofi-novo-nordisk-fortunes-diverge-amid-insulin-price-slump-1477653094

[lakers]

So, if we look at slide 18 starting with the 2017 U.S. payer decisions in diabetes, you can see here a detailed analysis of the formulary status for our two brands in the glargine franchise, Lantus and Toujeo. Based on confirmed U.S. payer decisions for 2017, this slide provides a comparison of the coverage situation for next year compared to this year.
Actually, there are two key messages here. Number one, despite the decline in the percentage of covered lives on commercial plans, the overall coverage situation for Lantus and Toujeo will remain favorable with two thirds of commercial lives confirmed to be covered in 2017. Number two, as you can see from the green bars on the bottom of the slide, preferred formulary status of Lantus and Toujeo under Medicare Part D will remain largely unchanged in 2017 with close to 90% coverage in 2017.
I remind you that the split in terms of volume between our commercial business and Medicare for the glargine franchise is overall roughly one-third each with the balance being in the government channels. As far as the commercial lives are concerned, coverage decisions from a number of commercial plans are still pending, representing about 15% of commercial lives based on our current account analysis and available third-party data. These pending decisions are illustrated by the gray segments in the bar charts on the top and mainly represented by custom plans under CVS and other smaller regional plans.
We continue to be in active discussions with these insurers, but we are optimistic that many of these plans will ultimately decide to cover Lantus and Toujeo. Along these lines, we were recently successful in retaining coverage for the large CVS custom clients, Blue Cross Blue Shield's federal employees, which represents roughly 5.4 million lives.
In summary, you can see that the decline in covered lives under commercial plans in 2017 for both brands is mainly due to the previously communicated exclusion decisions by CVS and to a lesser extent United Healthcare.

Their decisions will affect many patients who may have been well controlled on Lantus or Toujeo, and may now need to switch therapies or possibly face much higher out-of-pocket costs. My final comment on this slide is that we now have considerable clarity about our outlook for 2017, which is important for budgeting at both the GBU and the company level.

Slide 12 gives a general performance overview of our Diabetes & Cardiovascular franchise. Globally, diabetes performance declined slightly in the third quarter with strong sales in emerging market and stable European sales offsetting the decline in the U.S.
With that the launch of Toujeo continued to capture share in key markets and sales reached €167 million. This was supported by a consistent performance in the U.S. where Toujeo now represents 6.6% of total basal insulin market share. In our cardiovascular business, Praluent sales reached €35 million, and Peter will discuss later our latest marketing initiatives.
Looking ahead in diabetes, we reaffirm our previous global diabetes franchise guidance for minus 4% to minus 8% compounded annual rate of decline for the period 2015 to 2018. Of course, I'll remind you that we can be above or below this range in any given year. Our assessment of the guidance is based on the global franchise performance to-date and our current view of the U.S. diabetes pricing environment.

On LixiLan, in August, we submitted updated information on the LixiLan pen delivery device to the FDA, resulting in an extension of the PDUFA date to November 2016. Based on the positive vote from the FDA Advisory Committee in May, and the updated delivery device information, we are preparing for the launch of this innovative combination product for adults living with Type II diabetes in the U.S.

Sanofi (SNY) Q3 2016 Results - Earnings Call Transcript $SNY www.seekingalpha.com/article/4016550

The only thing I could add as color there is just a remark on the third quarter, where you see the U.S. let's say glargine business decreasing by 5%. Actually, this is the sum of a roughly 5% uplift in volume, and by default you can calculate that there is a 10% price effect in Q3 and actually this price effect is pure channel mix. So this is really the increase of the Medicaid channel. But you will understand that I cannot disclose moving forward what are the detailed elements of this element.

Peter Guenter - Sanofi
It's Peter. Hello, Vincent. So, your question is on profitability of Lantus in commercial versus Part D. Of course, again, for competitive reasons I cannot give you the full details, but directionally I can tell you, of course, that the commercial segment is more profitable than the Part D segment for the simple reason that the contribution that you have to face at pharmaceutical company in the coverage gaps in the Part D segment is, of course, hampering them at the relative profitability of the Part D vis-à-vis commercial, but I can tell you that Part D remains an interesting and profitable segment.
Your second question was about with pension tactics in the non-preferred, so covered but non-preferred in commercial. So there yes, we feel confident that we can pull through those non-preferred segments. We have done that in the past quite successfully and we are confident that we will do that again in the future. So that is what I can answer to your question

Peter Guenter - Sanofi
Yeah, Graham. So on the percentage decline, so again taking into account that we basically retain our full coverage for Medicare Part D, and that in commercial you still have the 15% bucket where decisions are pending, but again where we feel relatively confident. So if you would then take, if you would single out, if you will, the CVS commercial non-custom plans and then the United Healthcare, I can give you an indication in terms of volume that represents something, well let's say a high single-digits, nothing more, nothing less. So that gives you an indication of what could be the impact on our volume. Of course, if you would assume that indeed, 100% of those non-covered lives would indeed be leaving Lantus either Toujeo.
Your second question is on the, why don't we change our guidance and Novo did. Well, I think I'm not going to comment on the Novo piece of that. But I think it's fair to assume that when we issued our guidance two years ago, the famous minus 4% to minus 8%, that we have taken into account a certain number of things that we felt were coming, and that it's probably a tribute to I would say reasonable and cautious planning when we give our guidances.
Now on your third question, not sure I have all the details here, but I would say that last quarter I told you that there were two plans actually that we removed the step edit of Zetia Part D. One of those, and I have some interesting data here to share was OptumRx. And we see indeed that since that step edit was actually taken off, we see a very nice update of the Medicare Part D business in OptumRx, where the volumes have been more than twice the commercial volume since taking a day off Zetia's step edit. That's basically what I can say.