BD F2Q14 – Sales of $251 million grow 8% on strong pen needle growth; insulin infusion development remains a “high priority” – May 2, 2014

BD CEO Mr. Vincent Forlenza led the company’s F2Q14 financial results conference call yesterday morning. This call contains our top six highlights, followed by a pipeline review and Q&A.

1. Worldwide Diabetes Care revenue totaled $251 million in F2Q14, up 8% as reported and 10% operationally year-over-year (YOY). US sales of $118 million grew 11% on an easy comparison, the strongest quarterly US growth we have seen in the seven years.

2. Strong Diabetes Care growth was linked to continued success of BD’s pen and needle business. In the US, Nano needle growth was “well north” of 50% in F2Q14, and the pen needle has >25% market penetration worldwide.

3. Emerging markets grew 17%-18% in F2Q14 and were a key driver in BD’s International Diabetes Care business. China and Latin America were the chief contributors.

4. BD is continuing development in the insulin infusion market, “a high priority for its Diabetes Care business.” At ATTD 2014, BD shared positive three-day data on an insulin pump infusion set using its intradermal microneedles.

5. There was no mention of the two CGM projects in partnership with JDRF – a standalone CGM and the combined insulin infusion set/CGM. Data on the former is expected in early 2015.

6. BD announced the FDA approval of its BD Simplist Prefilled Injectable in the treatment of diabetic gastric stasis symptoms.

Top Six Highlights

1. Worldwide Diabetes Care revenue totaled $251 million in F2Q14, up 8% as reported and 10% operationally year-over-year (YOY). US sales rose to $118 million, an 11% YOY increase against an easy comparison to 0.9% revenue growth in F2Q13. This was the strongest quarterly US growth we have seen in the seven years of tracking BD’s business, and the second US revenue number ever (behind last quarter’s $122 million). Internationally, Diabetes Care revenue of $133 million also reached its second highest level ever, up 6% as reported and 11% operationally – this was a challenging comparison to strong 11% reported growth in F2Q13. Both US and international sales declined sequentially (3% and 6%, respectively), consistent with the 4-5% sequential declines observed one year ago.

2. Management attributed the strong Diabetes Care growth to continued success of its pen and needle business, particularly the Nano with EasyFlow technology and AutoShield Duo products. Specifically for the US business, Mr. Forlenza noted that Nano growth was “well north” of 50% in F2Q14, and the pen needle has >25% market penetration worldwide. Indeed, Mr. Forlenza commented that the Nano product is “key to the Diabetes Care business.” There was no mention during the call of the impact of Novo Nordisk’s NovoFine Plus 4mm pen that launched in late January of this year, which we assume will be highly competitive with BD’s Nano portfolio. For background, BD’s most recent product in this category, the Ultra-Fine Nano Pen Needle with EasyFlow technology, was launched in June 2013 (see our ADA 2013 coverage of its release here).

3. Emerging markets grew 17-18% in F2Q14 and were a key driver in BD’s International Diabetes Care business (we assume this was operational growth, but it was not clear). Mr. Forlenza commented that emerging market growth was largely concentrated in China and Latin America. We’re not sure what fraction of international sales comes from emerging markets, but assume it’s in the range of 25-50%. The US of course dominates global spending on diabetes right now (and likely for the foreseeable future), but emerging markets will unquestionably increase their share over time – the question is to what extent these economies and government will devote dollars to healthcare and diabetes.  

4. Encouragingly, management commented during Q&A that BD is continuing development in the insulin infusion market and that “[it] is a high priority for its Diabetes Care business.” We also heard this sentiment in BD’s F1Q14 financial call, where management said an insulin infusion set and patch-pen program were under exploration. The former is in partnership with JDRF, and BD presented positive data at ATTD on insulin delivery via microneedles (see below). The F1Q14 call suggested these two insulin delivery opportunities would be “at the top of [BD’s] project list for adjacency moves over the next two to four years.”

• At ATTD 2014, McVey et al. shared new three-day data on an insulin pump infusion set using BD’s intradermal microneedles. The single center, open-label, two-period crossover study compared intradermal to subcutaneous insulin infusion in 28 patients with type 1 diabetes. Each patient was administered a three-day infusion for each route across two in-clinic visits in a randomized order. Insulin aspart was administered via an Animas Vibe insulin infusion pump connected to a subcutaneous Medtronic Quick-Set or an investigational intradermal microneedle infusion set (1.5 mm, 34 gauge). Bolus insulin infusions were given prior to a standardized breakfast and lunch test meal on each of the three treatment days. Before and after each bolus, blood was drawn to measure insulin aspart and blood glucose in serum. Individual bolus doses were determined based on subjects’ insulin sensitivity.
  
  • Intradermal bolus infusion had a significantly shorter Tmax than subcutaneous infusion (by 20 minutes), a difference that was maintained over three days. Intra-subject variability of Tmax was significantly smaller for intradermal delivery, though inter-subject variability was not. For 0-2 hours post-prandially, the insulin and glucose AUC values were significantly larger and smaller, respectively, with intradermal delivery. From a patient perspective, these results are quite encouraging and would represent a meaningful improvement over current subcutaneous infusion sets, which have not seen much innovation in recent memory. We look forward to hearing further updates on the program.
• We first heard about the potential for a BD patch pump/pen at January’s 2014 JP Morgan Healthcare Conference – at the time, Mr. Forlenza said BD has “no interest” moving into the higher-end pump market (i.e., competing with traditional pumps from Medtronic and Animas), though it is looking to develop smaller, patch pumps that target MDI users. We believe many more simple, discreet insulin delivery options are needed, as Valeritas is the only option available right now, though it doesn’t have the commercial experience of a company like BD. With nearly 50% of patients not at goal, and many not on insulin who should be, the market for the right product is substantial in our view. We’ve long been optimistic about J&J/Calibra’s Finesse (only 2 inches long, 1 inch wide, and 0.25 inches thick), though J&J has been slow to provide an update on the device’s status (clinical trials were slated to start in 2013, but haven’t been publicly commented on recently). For more detail on Mr. Forlenza’s characterization of issues with current insulin infusion set offerings and how BD hopes to apply its experience in acute care catheter technology to address these issues, please see our 2014 JP Morgan Healthcare Conference.

5. There was no mention of the two CGM projects in partnership with JDRF – a standalone CGM and the combined insulin infusion set/CGM. At the 2014 JP Morgan Healthcare Conference, Mr. Forlenza noted that BD is in the process of “miniaturizing” the product and collecting additional data (study to be completed in fall 2014), with results expected in early 2015. He remarked during JPM that there has been some “very good early data” – the device is accurate, has limited drift over time, reduced calibration, and reduced warm-up time. The last time we heard data on this optical-based glucose-binding protein CGM was at ATTD 2013, in which results from a 24-hour ambulatory pilot study (n=15) showed a median absolute relative difference of 12.4%.

6. In a pipeline update new to our coverage, BD announced the FDA approval of its BD Simplist Prefilled Injectable for the use of Metoclopramide injection, USP 10mg/2mL, in the treatment of diabetic gastric stasis symptoms. Approval for four additional drugs (no specific compounds or indications mentioned) is expected for FY2014/FY2015. The Simplist system has already been FDA approved and launched for three additional drugs unrelated to diabetes (Morphine Sulfate injection was noted by management to have the highest value proposition and the lead portfolio candidate). The BD Simplist ready-to-administer, prefilled injectables also boast bold, large-text labels and barcodes for easy identification and are offered in common clinical doses. By decreasing the number of steps in the traditional vial and syringe injection sequence, these injectables may reduce the risk of medication error.

R&D Pipeline

Questions and Answers

Q: You had a nice quarter in diabetes; can you touch on any of the underlying fundamentals in that market? Also, are there any other areas within that segment that may be of interest to you going forward, whether it be sensors or pumps or any other product lines?

A: We did have a solid quarter in diabetes. Interestingly enough, we had double-digit growth both in the US and internationally, both around 10%, give and take a few basis points. The US favorability has been a continuing story, centered on pen needle growth that’s particularly been driven by our ongoing penetration with the Nano product. We had US growth in the quarter for Nano well north of 50%. Worldwide, Nano penetration is actually north of 25%. That continues to be key to our Diabetes Care business. The International business was also strong and emerging market growth (around 17-18% for F2Q14) was the driving contributor there. I would echo similar comments to what I made before about emerging markets, mainly that China and Latin America are the critical drivers.

In terms of what’s next for us in diabetes, we have referenced the fact that we continue to do product development in the area of insulin infusion. At this point in time, that is a high priority in product development activity for our Diabetes Care business.

Q: Continuing with emerging markets, I was hoping you could provide a little bit more detail on some of the moving parts and different dynamics. You’ve now talked extensively about the China slowdown [in Biosciences] being driven more by the competition than actual slowing. Could you talk about trends you’re seeing in other markets?

A: First of all, as we look at the scale of our emerging markets, China and Latin America are very, very critical drivers, both in terms of scale and growth. Chris has already commented that we really see sustainability in China around that 20% number for the remainder of the year. We’re seeing similar types of numbers from Latin America. I hate to generalize your question, but it’s strength across all of our businesses: Medical, Diagnostics, and Biosciences, all reflecting very strong double-digit growth in each of those markets. That’s supplemented a little bit, but at a lesser scale, by the Middle East and Africa.

Q: You made some brief comments on the Simplist and morphine launch, but is there anything you can add to that relative to how that seems to be playing out?

A: As a reminder, we have four drugs now launched in the Simplist format. Morphine is actually our most significant launch to date. It is a high-risk drug and has the strongest value proposition to date and is what we view as a lead within our portfolio. We’re getting very positive customer response early on, and as we’ve said before, this is a very new initiative, and we still do expect that it’s going to take some time for us to start seeing that ramp come through in our numbers.

--by Jenny Tan, Adam Brown, and Kelly Close