Memorandum

Zealand Pharma Capital Markets Day 2014 – May 7, 2014

Executive Highlights

  • Based on an independent analysis of Lyxumia (lixisenatide) and LixiLan (lixisenatide/insulin glargine) commissioned by Zealand, management presented peak sales projections of ~$0.8 billion and ~$1.1 billion, respectively, in 2021.
  • Management believes that LixiLan could be positioned as the first-line injectable anti-diabetic.
  • Zealand in preliminary talks with diabetes device manufacturers about soluble glucagon agonist ZP-GA-1; abbreviated phase 2/3 program may be possible for a ready-to-use hypoglycemia rescue pen.

Zealand Pharma’s Capital Markets Day featured a series of presentations from keynote speakers and company management with lots of discussion on Zealand’s diabetes and obesity portfolio and pipeline. Just last week, the company had announced its 1Q14 financial results (read our report), which included $700,000 in royalties from Sanofi for sales of the GLP-1 agonist Lyxumia (lixisenatide), plus a $15 million milestone payment for the initiation of phase 3 trials for LixiLan, a fixed-ratio combination of Lyxumia and Sanofi’s best-selling basal insulin Lantus (insulin glargine). Yesterday, management presented an independent externally commissioned worldwide sales forecast (from Health Advances) for Lyxumia and LixiLan, which estimated peak sales in 2021 of ~$0.8 billion for Lyxumia monotherapy and ~$1.1 billion for LixiLan – the company believes LixiLan could be prescribed as patients’ first injectable therapy given that it combines the benefits and mitigates the downsides of both insulin and GLP-1 agonists. Short-term, growth for Lyxumia is expected to be modest until the product’s US launch, which is currently gated by the completion of Lyumia’s ELIXA CVOT (in line with Sanofi, management reaffirmed guidance for trial completion and US resubmission in 2015). LixiLan remains on track for regulatory filing at the end of 2015.

Another major highlight of the day was being treated to a deeper look at ZP-GA-1, Zealand’s glucagon receptor agonist that is in preclinical development. We learned at ADA 2013 that Zealand was developing this candidate (see our report here for the preclinical data presented there), and it could represent a major step forward from the native glucagon products from Novo Nordisk and Lilly (native glucagon is insoluble, which means that it requires patient-end reconstitution and cannot be used in pumps). The company believes it could develop ZP-GA-1 relatively quickly without a partner – management noted yesterday that once bioequivalence to human glucagon is demonstrated, the company might only have to conduct an abbreviated phase 2/3 program following phase 1.

Given the need for stable glucagon (or glucagon-like action, in the case of the ZP-GA-1 analog) for dual-hormone closed loop systems, we were not surprised to learn from management in a separate conversation that Zealand is in early-stage discussions with device manufacturers. The company is also exploring new disease areas beyond diabetes, such as inflammation, but management reaffirmed that metabolic disease is Zealand’s core area of strength, and that work in inflammation could also lead to therapies for diabetes complications.

Read on below for our top 10 highlights from the presentations, which includes a keynote address from the inimitable Ms. Nancy Thornberry (Intarcia Board of Directors and former co-lead on Merck’s Januvia discovery team) and selected Q&A.

Top Ten Highlights

1. Zealand Chief Scientific Officer Dr. Torsten Hoffmann, who joined the company late last year, discussed the company’s preclinical glucagon agonist ZP-GA-1. Dr. Hoffmann illustrated the deficiencies of Lilly and Novo Nordisk’s currently available glucagon products using the example of a pediatric type 1 diabetes patient in a hypoglycemic coma: both Lilly’s and Novo Nordisk’s currently marketed products require a multi-step reconstitution process, which is a great deal to ask in a time of crisis. Zealand’s goal for ZP-GA-1 is room-temperature stability for one year, in a ready-to-use one-step device that requires no reconstitution. Preclinical data (which were presented at last year’s ADA) has been promising, demonstrating impressive physical stability, chemical stability, potent glucagon receptor activation, and similar PK/PD relative to native human glucagon (which is very difficult to formulate in a stable solution). The company believes that it could take the glucagon product through clinical development without a partner, and could do so relatively quickly – once bioequivalence to human glucagon is demonstrated, the company might only have to conduct an abbreviated phase 2/3 program following phase 1.

  • Dr. Hoffmann dedicated a slide to the applicability of a stable soluble glucagon analog to technologies including the closed loop. We learned later from management that Zealand has discussed this possibility with device companies, although the company is looking to have at least some clinical safety and efficacy data in hand before progressing into later-stage discussions. Zealand also hopes to benefit from some technology industry buzz on its candidate, and plans to publish future clinical data on the candidate relatively aggressively.  
  • For now, however, it appears that Zealand’s priority is the ZP-GA-1 hypoglycemia rescue pen. Of course, a more convenient and portable rescue device is a major unmet area of need, as a very low percentage of type 1 and insulin-treated type 2 patients currently have such a device on hand. The company hopes that ZP-GA-1 and its more convenient administration will turn hypoglycemia rescue devices into a perceived necessity, which could perhaps drive patients to purchase more than one of the devices (even beyond their insurance coverage). Management suggested the possibility that a rescue pen could be used well short of severe hypoglycemia, as a substitute for defensive snacking – that usage could prevent against weight gain associated with defensive snacking, although the cost of the device would have to be very low for patients to be willing to use it so regularly.
  • Other companies working on improved glucagon formulations include Biodel, Xeries, Locemia (AMG Medical), Enject, Latitude, Arecor, and PhySci (Marcadia)/Roche. Please see our Glucagon Competitive Landscape table in the Biodel F1Q14 report for details on each of their candidates.

2. CEO Dr. David Solomon presented a worldwide independent sales forecast for Lyxumia and LixiLan based on a study commissioned externally by Zealand from Health Advances – he highlighted that the process of generating the forecast involved reaching out to providers around the world to explore how the drug might be prescribed relative to other agents. The forecast estimated peak sales of Lyxumia and LixiLan of ~$0.8 billion and ~$1.1 billion, respectively, in 2021. We assume that, per the company’s agreement with Sanofi, Zealand will stop receiving royalties on the products after 2025. Dr. Solomon noted that the growth of Lyxumia monotherapy is expected to remain somewhat modest until the product’s US launch, presumably around 2016 (if all goes well with the ELIXA CVOT and the FDA re-submission in 2015). As a rationale for why the company believes that LixiLan will outpace Lyxumia, Dr. Solomon pointed out that the GLP-1 agonist market is increasingly crowded, while the only other GLP-1 agonist/basal insulin combination on the horizon is Novo Nordisk’s Xultophy (IDegLira), which is not expected to arrive on the US market until at least 2016 due to the CRL for Tresiba (it is under review in the EU – read our Novo Nordisk 1Q14 Report). Additionally, the company believes that LixiLan could be positioned as a first injectable for type 2 diabetes patients following failure on oral medications, and not just as an option for patients who are not at target on Lantus. 

3. Lyxumia’s future is partially tied to the continued success and brand-name recognition of Lantus (Sanofi is marketing Lyxumia as a “positive addition” to Lantus), and Lantus’ future could be impacted by a number of possible biosimilar insulin glargines. Lilly/BI filed their biosimilar in the US and EU last year, although the US review process has been stalled by a Sanofi lawsuit (read our Lilly 4Q13 Report). Merck and Samsung Bioepis are moving their biosimilar insulin glargine into phase 3 (read our report), and Biocon/Mylan have a biosimilar insulin glargine on the market in over ten countries (mostly in the developing world), with a global phase 3 program expected to begin in 2H14 (see our Biocon F3Q14 Report). However, during the presentation, Zealand CEO Dr. David Solomon suggested that Lantus should be relatively safe from competition for the short to medium-term future. Sanofi CEO Mr. Chris Viehbacher has stated that he does not expect strong generic competition for Lantus through the end of calendar year 2016, at least in the US. Additionally, Dr. Solomon highlighted the argument that bringing a biosimilar to market is a much more involved process than doing the same for a generic small molecule, due to regulatory complexities and the importance of designing a proper device.

4. Both Dr. Solomon and keynote speaker Nancy Thornberry (on Intarcia’s Board of Directors and former co-lead on Merck’s Januvia discovery team) discussed the possibility that the ELIXA cardiovascular outcomes trial for Lyxumia could conceivably show a CV benefit. Both remarked that this outcome would be absolutely game-changing for the GLP-1 agonist class. Indeed, we imagine that any drug that demonstrates CV benefit could be catapulted to the front of the treatment paradigm. Taking on a realistic tone, Dr. Solomon did discuss some reasons why the trial may not show a benefit even if Lyxumia does have a positive impact on the heart, namely that advances in cardiovascular risk reduction could wash out any positive effect (i.e., the standard of care has gotten so good that it is difficult to show even more benefit on top of that). In our view, it is also extremely difficult from a trial design standpoint to design a single trial that is successful in demonstrating both CV safety (as required by the FDA) and CV superiority because the ideal study populations and time courses for these two goals are fundamentally different: to satisfy the FDA’s CV safety requirement, one would aim to study sicker patients to establish CV safety in the “worst case” patient and to hasten the accrual of events so that the trial can complete more quickly. In contrast, one would ideally study healthier patients over a long period of time when looking for CV superiority. ELIXA is expected to reach its primary completion point next year, which will enable resubmission of the drug’s NDA in the US in 2015 as well.

5. Sanofi’s withdrawal of Lyxumia in Germany (due to a comparative efficacy ruling by the German government) came up during Q&A. For background on this issue, read our Sanofi 1Q14 Report, which features some very blunt commentary from Sanofi CEO Mr. Chris Viehbacher on the issue. Zealand CEO Dr. David Solomon characterized the German approach to reimbursement as “ascetic,” and the company believes that the situation may be rectified by political means (we would hope for a strong patient backlash against the AMNOG review process, which has led to the withdrawal of multiple diabetes drugs from multiple classes in Germany). Speaking more broadly, Dr. Solomon commented that reimbursement has become a challenge on par with getting a drug approved (a theme we’ve heard increasingly echoed in recent years), and that the resource-intensive country-by-country process of launching a product and securing reimbursement in Europe leads to slower launches. He suggested that many pharmaceutical companies (including, most likely, Sanofi) will likely not redesign clinical trial programs with the German specifications in mind, as the medical community consensus is that these specifications are not clinically relevant.

6. Management confirmed previous guidance on the timeline for LixiLan, namely for phase 3 study completion in 2015 and the first regulatory filings (including in the US) as early as the end of 2015. The company will present phase 2b data on LixiLan later this year – we will be interested to see how the data look relative to the very impressive results we have seen from Novo Nordisk’s phase 3 DUAL program for Xultophy (insulin degludec/liraglutide – see our Novo Nordisk 1Q14 report for a summary of all of the DUAL data released to date).

7. Management provided some new commentary on the phase 1 GLP-1/glucagon dual agonist ZP2929, which BI decided to drop as the lead candidate of the companies’ GLP-1/glucagon dual agonist development partnership (read our report for background). As we’ve heard before, preclinical data indicates that ZP2929 can produce comparable A1c reductions to exenatide, but with greater and more sustained weight loss. BI’s decision to pursue another lead compound for the partnership suggests that the particular clinical profile of ZP2929 was not the ideal fit with BI’s portfolio and priorities (it appears that a substantial portion of this particular agent’s appeal is the weight loss element). Management did not disclose specifics on this front, but mentioned that other GLP-1/glucagon dual agonists could theoretically have varying receptor potencies or effects on other axes, including lipids. Dosing frequency (daily vs. weekly or monthly) is also likely to have been an important factor in selecting a lead candidate. Zealand believes that ZP2929 has a great deal of potential due to its weight effects and (of course) glycemic efficacy – Dr. Solomon stated that extra-glycemic benefits are important, but if glycemic efficacy is not on par with currently available options then there is little point developing a drug for diabetes. Zealand has resumed full responsibility for (and control over) ZP2929, and is evaluating its options for the continued development of the candidate. The company’s next step is to present a preferred phase 1 strategy to the FDA, including results from additional preclinical work. Other GLP-1/glucagon dual agonists include Lilly’s phase 2 TT401 and phase 1 oxyntomodulin and Prolor/OKPO’s preclinical long-acting oxyntomodulin MOD-6031.

8. At multiple points during the day’s presentations, management emphasized the importance of combination therapies for diabetes, especially peptide combinations involving different incretin mechanisms. Keynote speaker Ms. Nancy Thornberry discussed the promising potential of GLP-1 agonist/basal insulin, GLP-1/glucagon, and GLP-1/GIP combination therapies. She also cited Janumet, a fixed-dose combination of the DPP-4 inhibitor Januvia (sitagliptin) and metformin (which she helped develop at Merck), as an example of the power and popularity of fixed-dose combinations (Janumet grew 10% year-over-year in 2013 relative to a 2% decline for the overall Januvia franchise). CEO Dr. David Solomon suggested that combination therapies are a great way to achieve the improvements in efficacy beyond currently available therapies that will be needed for success in yesterday's increasingly crowded marketplace.

9. Zealand is using its expertise in peptide drug development to expand beyond its core in diabetes and metabolic diseases. Inflammation is a disease area that management highlighted as an area of investigation – research in this area could potentially be applied to the treatment of diabetes complications. However, management reaffirmed its commitment to research in diabetes, and that there are no plans for a massive reallocation of resources or pivot away from this area.

10. Although pricing pressure in the diabetes environment has put enormous pressure on pharmaceutical companies’ R&D budgets, Zealand has not seen a reduction in discussions with interested partners. If anything, Dr. Solomon shared, the major cutbacks in internal R&D and increased reliance on external innovation in the biotech sphere has made companies like Zealand even more vital in the diabetes drug discovery process. See our GTC Bio 2014 Day #3 Report for a smattering of thoughts on pharma-biotech partnerships.

 

Questions and Answers

Q: You mentioned issues with reimbursement in Germany. Could you talk more about the reimbursement environment?

A: The world has changed, and now there is a distinction between before reimbursement and after reimbursement. It is no longer a situation where we can throw our hands up and celebrate when we receive positive phase 3 data. Who gets reimbursed for a medicine, and by whom, is a major factor. In Europe, it is really a country-by-country access approach. For Lyxumia, Sanofi has invested an enormous amount of time and money into addressing each market, and they are very good at it. It means that the launch curves look different than they do in the US, where, although things look to be changing, it is a more unified scene following approval. Some countries are looking for pharmaco-economic outcomes, and asking for comparisons against metformin and sulfonylureas. Those two drugs are prescribed a million times a day, but they are pharmacologic bombs, leading to beta cell burnout and glucose-independent insulin secretion. With a GLP-1 agonist onboard, nothing would happen with insulin until you ate a meal. There are real differences there, but that is not what the decisions for reimbursement are always made on. Germany is taking an ascetic view, and as a result, no new medicines are being released. People are working on this as a political problem as well as a market access problem.

Q: In the US, what is your view internally on a biosimilar insulin glargine, timing-wise?

A: I think the biosimilar risk is decreasing. You had seen a deal between Pfizer and Biocon on a biosimilar glargine, and that is no longer being pursued. Biosimilars are not like generics. These are complicated medicines to formulate, with excipients, and a regulatory process that looks more like an NDA. The device also really matters for patients. There is some litigation between Sanofi and Lilly on this matter, but nonetheless, the CEO of Sanofi says that he does not expect any biosimilar competition for Lantus through the end of calendar year 2016. I think that Lantus will continue selling well beyond its patent expiration.

Q: For ZP2929, the dual agonist, you mentioned the opportunity for profound weight loss. In phase 1 trials, have you seen any effect on weight in those healthy subjects?

A: In theory, these studies are only looking at safety and tolerability. I have no information to share on weight loss. It’s possible that there is weight loss, but most people that are euglycemic that take a GLP-1 agonist don’t have any significant weight loss relative to patients with diagnosed type 2 diabetes.

 

Appendix

Keynote: Challenges and Opportunities in the Treatment of Type 2 Diabetes

Nancy Thornberry (Board of Directors, Intarcia, Boston, MA)

In the first keynote presentation of the day, Ms. Nancy Thornberry (formerly of Merck, where she played a leading role in the development of the blockbuster DPP-4 inhibitor Januvia [sitagliptin]) provided an overview of the type 2 diabetes epidemic and the use of incretin therapies to treat the disease. She highlighted the distinctions between short and long-acting GLP-1 agonists, citing data (Kaptiza et al., Diabetes Obes Metab 2013) demonstrating that Sanofi/Zealand’s shorter-acting Lyxumia (lixisenatide) had a more pronounced impact on postprandial glucose excursions than Novo Nordisk’s longer-acting Victoza (liraglutide). She suggested that the results of the incretin therapy cardiovascular outcomes trials that have yet to report are likely to be neutral or positive, and that a positive result would promote the earlier use of the GLP-1 agonist class. The entire latter segment of her presentation was dedicated to potential new peptide combination therapies, including GLP-1 agonist/basal insulin combinations, GLP-1/glucagon co-agonism, and GLP-1/GIP co-modulation. Speaking broadly, she suggested that combination therapies will be needed to achieve a sufficient level of improvement over standard-of-care for a product to have success in the increasingly crowded marketplace.

  • In Ms. Thornberry’s view, there is a “lot to like” about GLP-1 agonist/basal insulin co-therapy. Surveying phase 3 data on LixiLan (the phase 3 fixed-ratio single-device combination of Lyxumia and Lantus) as well as phase 3 GetGoal studies investigating Lyxumia as an add-on to Lantus as separate devices, she emphasized the familiar benefits of the combination, including greatly improved efficacy, less hypoglycemia than insulin alone, and better tolerability than GLP-1 agonism alone. She highlighted the results of the GetGoal-L Asia study, which demonstrated a 0.88% placebo-adjusted A1c reduction in Japanese patients insufficiently controlled on basal insulin (baseline A1c = 8.53%), and pointed out that incretin therapies appear to have relatively greater efficacy in Asian populations.
  • The main potential for GLP-1/glucagon co-agonism is to achieve the glycemic benefit of GLP-1 agonism with better weight loss. The interest in this area stems from work on the endogenous human hormone oxyntomodulin, which serves as a GLP-1/glucagon dual agonist. Studies at Merck demonstrated that oxyntomodulin has benefits on short-term glycemic control, and GLP-1/glucagon dual agonists are currently being investigated by Lilly (phase 2 TT401 and a phase 1 oxyntomodulin) and OKPO/Prolor Biotech (MOD-6031, a long-acting oxyntomodulin that should begin phase 1 in early 2015).  
  • GLP-1/GIP co-agonism is relatively poorly understood, but preclinical results are promising. Preclinical work by Roche and Marcadia (which have a GLP-1/GIP dual agonist, MAR709, in phase 1) demonstrated substantial effects on A1c without an effect on gastric emptying.

 

Products in Zealand’s Diabetes Franchise: Lyxumia, the Lyxumia/Lantus Fixed-Ratio Combination, and ZP2929

David Solomon, MD, PhD (President and CEO, Zealand Pharma, Copenhagen, Denmark)

Dr. David Solomon provided an overview of the status of Zealand’s current portfolio of diabetes products. He shared the results of a sales forecast study that the company has commissioned with an independent healthcare strategic consultancy company, Health Advances, for Lyxumia and LixiLan, which estimated 2021 peak sales of $0.8 billion and $1.1 billion, respectively. As opposed to standard analyst estimates, Zealand’s process included interviews with prescribers around the world on how they expect the two products to be positioned versus other diabetes medications. Dr. Solomon forecast that although the company has seen solid sequential growth in Lyxumia royalties, the momentum of Lyxumia’s launch will remain relatively modest until the product becomes available in the US. In terms of how LixiLan will fit into the diabetes treatment paradigm, he suggested – based also on Sanofi’s design of the Phase III program, that the product could be used as an initiator injectable, rather than only being utilized when patients are not at target on basal insulin. Turning to ELIXA, the cardiovascular outcomes trial for Lyxumia, Dr. Solomon commented on the possibility that the trial will show a CV benefit, which (in his view) would be an absolute game-changer for the GLP-1 agonist class. The trial is expected to complete next year, with an NDA resubmission next year as well.

-- by Manu Venkat and Kelly Close