Memorandum

Diabetes Care down 4.6% as reported and 12% operationally in 3Q12; aleglitazar program expanded to include two new phase 3 trials – October 16, 2012

Executive Highlights

  • Roche Diabetes Care Revenue totaled 577 million CHF (~$600 million) in 3Q12, down 4.6% on a reported basis and down 12% operationally from 605 million CHF (~$737 million) in 3Q11.
  • The aleglitazar program has been expanded to include two new phase 3 trials for glycemic control and cardiovascular outcomes; both trials will initiate in 4Q12.
  • The GLP-1/GIP dual agonist RG7685 acquired from Marcadia has been dropped from phase 1 and replaced with a different GLP-1/GIP dual agonist, RG7697. The phase 2 11β-HSD inhibitor RG4929 has also been dropped from development.

This morning, Roche CEO Severin Schwan led the company’s 3Q12 financial update call, during which Roland Diggelman, Roche’s newly appointed Diagnostics Division COO, led his first quarterly diagnostics update. Diabetes Care revenue totaled 577 million CHF (~$600 million), down 4.6% on a reported basis and down 12% operationally from 605 million CHF (~$737 million) in 3Q11. Diabetes Care declined sequentially by 17%; however, 3Q12 followed a quarter of particularly high sequential growth (23% in 2Q12). Management attributed weak Diabetes Care performance to reimbursement cuts and pricing pressures, challenges that seem more or less omnipresent of late for the BGM market. On a positive note, management said that uptake of the Accu-Chek Nano SmartView (US) and Accu-Chek Mobile (EU) has been high, and on October 2 Roche launched the Accu-Chek Combo BGM-integrated insulin pump in the US. On the hospital front, Roche announced FDA clearance for its Accu-Chek Inform II, a point-of-care BGM that wirelessly communicates with hospitals’ information systems. Company leaders also spoke to its Diabetes Care restructuring initiatives, highlighted during the company’s recent Investor Day as well (our coverage of the Investor Day can be found at https://closeconcerns.box.com/s/0f23p4gsmbkne5en78s9). During Q&A, management made clear: 1) that the initiative to streamline Roche’s BGM portfolio would increase production efficiency without removing key products; and 2) management believes in the value of the business long-term, though it faces a challenging environment at the present. J&J also reported this morning with total Diabetes Care revenue of $629 million. J&J maintained its higher market share in the US, while closing some of the gap between J&J and Roche’s international and outside North American revenues, respectively. Perhaps more striking was that neither company reported positive worldwide Diabetes Care growth on an operational or reported basis in 3Q12 and that combined revenue of $1.2 billion hadn’t been so low since early 2009.

Daniel O’Day, previously head of Roche Diagnostics who was appointed COO of Roche Pharmaceuticals September 1, 2012, led his first quarterly pharmaceutical update. As a result of positive phase 2 aleglitazar renal safety data from the AleNephro study, the aleglitazar program has expanded to include two new phase 3 trials (AleGlucose and AlePrevent), which will initiate in 4Q12. AleGlucose will investigate aleglitazar for glycemic control, and AlePrevent will be a cardiovascular outcomes trial (CVOT). If results from AleGlucose and the ongoing CVOT AleCardio are positive, Roche may pursue a general diabetes indication for aleglitazar rather than the CV risk reduction in people with type 2 diabetes indication that the company is currently pursuing. The GLP-1/GIP dual agonist RG7685 acquired from the $285 million Marcadia acquisition has been dropped from phase 1 and replaced with a different GLP-1/GIP dual agonist, RG7697. The phase 2 11β-HSD inhibitor RG4929 has been dropped from development. Lucentis became the first drug approved by the FDA for diabetic macular edema (DME) during 3Q12, a win for those with DME. Regeneron/Bayer’s Eylea may soon follow in late 2014.

DIAGNOSTICS AND DEVICES

  • Roche Diabetes Care revenue totaled 577 million CHF in 3Q12 (~$600 million), down 4.6% on a reported basis and down 12% on an operational basis from 605 million CHF (~$737 million) in 3Q11. The steep decline contrasted recent 3Q results: operational growth was positive in 3Q11 (2%), 3Q10 (4%), and 3Q09 (7%). Next quarter will face an even harder year-over-year comparison given 4Q11 operational growth of 5%. The reported revenue decline was not as stark as in 3Q11 (14%); however, currency changes make this a difficult comparison. Management emphasized in the call that the Euro, US dollar, and Japanese Yen were stronger compared to the Swiss franc in 3Q12 than in 3Q11, which positively affected 3Q12 growth. We have provided two different cuts of Diabetes Care revenue below.
 

3Q12 Revenue in Millions (CHF [USD])

Reported (Operational) Growth from 3Q11

Roche Diabetes Care

 

577 ($600)

 

-4.6% (-12%)

North America

124 ($129)

-11.4%

EMEA

323 ($336)

-8.2%

RoW

130 ($135)

5.7%

Worldwide Sales

 

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

Worldwide Revenue in millions (CHF [US])

 

679 ($780)

 

605 ($737)

 

731 ($802)

 

564 ($611)

 

696 ($744)

 

577 ($600)

Reported Growth

(Year-over-Year)

 

-13%

 

-14%

 

-4.8%

 

-12%

 

2.5%

 

-4.6%

Operational Growth

(Year-over-Year)

 

2%

 

2%

 

5%

 

-7%

 

3%

 

-12%

EMEA = Europe, Middle East, and Africa. RoW = Latin America, Asia-Pacific, and Japan. Currency conversion based on average exchange rate from July 1 – September 30 on oanda.com: 1.0394 USD per CHF.

  • Sequentially, worldwide revenue fell 17%, continuing a trend of 3Q sequential declines seen in the past three years (declines have ranged from 5% to 11% following positive 2Q sequential growth each time). This quarter, the 3Q12 decrease followed a particularly high sequential growth from 1Q12 to 2Q12 of 23% worldwide, and 31% growth in North America. Presumably, in 2Q12 Roche received a boost from inventory stocking of its Accu-Chek Nano SmartView in the US, which we expect would have tapered through 3Q12; however, with the launch of the Accu-Chek Combo in the US on October 1 (see below), we might expect sequential growth to rebound again in 4Q12, though the product is likely to small to make a meaningful difference.

Sequential Performance

 

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

Worldwide Growth

6.6%

-11%

21%

-23%

23%

-17%

North America Growth

13%

-3.4%

20%

-29%

31%

-21%

Outside North America Growth

 

4.9%

 

-13%

 

21%

 

-21%

 

21%

 

-16%

EMEA Growth

3.0%

-15%

20%

-21%

19%

-18

RoW Growth

12%

0.8%

-15%

-22%

-30%

-10%

EMEA = Europe, Middle East, and Africa. RoW = Latin America, Asia-Pacific, and Japan.

  • Year-to-date, Diabetes Care saw a 5% operational decline, which management attributed to reimbursement cuts and pricing pressures. This decline reflected an 8% operational increase for insulin delivery and a 6% decrease for blood glucose monitoring. The YTD values are suggestive of a downward trend from 1H12 when insulin delivery was up 12% and blood glucose monitoring down only 3%, especially considering each quarter has faced similar year-over-year comparisons (1% operational growth overall in 1Q11, 2% in 2Q11, and 2% in 3Q11). Management commented that the Accu-Chek Mobile (EU) and Accu-Chek Nano SmartView (US) have seen good market uptake. (Slides indicated that the launch of Accu-Chek Mobile 2.0 has led to over 20% operational YTD growth in Accu-Chek Mobile EMEA sales.) Nonetheless, North America sales have declined 7% operationally YTD and EMEA sales have declined 8%.
  • Roche revenue totaled 453 million CHF ($471 million) outside of North America, while J&J revenue ex-US was $301 million. This performance reflects a J&J gain of $71 million on the $242 million gap between the companies’ respective OUS sales in 2Q12. Additionally, whereas currency effects were positive for Roche (with a weakening Swiss franc), J&J incurred negative currency effects (from a strengthening US dollar).
 

3Q12 Revenue in Millions

Reported (Operational) Growth from 3Q11

Roche, Outside North America

$471*

-2.6%

J&J, International

$301

-7.7% (0.8%)

*Currency conversion based on average exchange rate from July 1 – September 30 on oanda.com: 1.0394 USD per CHF.

  • We expect reimbursement pressures in Europe to once again be a common thread in the Big Four BGM companies’ (Roche, J&J, Bayer, Abbott) financial updates. In J&J’s 3Q12 call, also held today, management commented that strong sales in emerging markets were partially offset by lower sales in some of the developed markets – we assume poor reimbursement climates in Europe were a likely contributor, like for Roche, although management provided sparse detail on the overall performance of their Diabetes Care unit.
  • In the US, J&J Diabetes Care revenue totaled $328 million vs. Roche’s North America total of $129 million. This represents a 3Q12 gap of $199 million, a $29 million gain for J&J over the 2Q12 gap of $170 million. While Roche’s revenue decline from 3Q11 was much steeper than J&J’s, Roche fell from a smaller base. We look forward to providing additional industry comparisons when Abbott reports on October 17 and Bayer reports on October 30. So far, we note that the combined $1.2 billion revenue for Roche and J&J marks its lowest combined revenue since early 2009.
 

3Q12 Revenue in Millions

Reported Growth from 3Q11

Roche, North America

$129*

-11.4%

J&J, US

$328

-3%

*Currency conversion based on average exchange rate from April 1 – June 30 on oanda.com: 1.0692 USD per CHF.

  • The BGM market faces ever increasing pricing pressure in the US, driven by: 1) the desire to increase access to low cost meters and strips (i.e., Walmart’s ReliOn Prime program which offers a 50-ct box of strips for $9); and 2) Centers for Medicare and Medicaid Services’ (CMS) competitive bidding program. Under the competitive bidding pilot for mail order strips, costs ranged from $13.88-$15.62 per 50-ct box ($0.28-$0.31 per strip), down from the 2011 national fee schedule average of $32.47; results from the latest round of competitive bidding are expected soon. Furthermore, CMS may decide to invoke its inherent reasonableness authority and adjust the current fee schedule for retail strips based on mail order competitive bidding results rather than wait to implement a competitive bidding program specifically for retail strips. For further discussion, please see our July 25 coverage of CMS’ public hearing on inherent reasonableness for retail strips at: http://www.closeconcerns.com/knowledgebase/r/a8833356.
  • On October 2, Roche launched the Accu-Chek Combo in the US. As a reminder, the Accu-Chek Combo System integrates the Accu-Chek Spirit insulin pump with the Accu-Chek Aviva meter, and was FDA cleared in July. The Accu-Chek Combo enters a very competitive wireless pump/meter market without major differentiators from Animas’ OneTouch Ping and Medtronic’s Paradigm line, which are already established in the US. Still, we think alternatives are positive and we believe the more physiologic the therapy, the better – there are still 70% of type 1 patients and the vast majority of type 2 patients on insulin that aren’t on pumps – plus many, many more type 2s who “should” be on insulin (given their A1cs) that aren’t.
  • Despite noting that the company was restructuring its Diabetes Care unit, management made no direct mention of its investment in CGM outside of information included in the slide deck. In contrast, at EASD 2012, CGM was a focus of both Roche-sponsored symposiums. (Please see pages 47 and page 59 of our EASD 2012 report at http://www.closeconcerns.com/knowledgebase/r/ee283b0b). As a reminder, the restructuring initiatives include: 1) streamlining the BGM portfolio to maximize market uptake; and 2) investing in insulin pumps prospectively integrating CGM. Roche’s investment in CGM includes a proprietary CGM in early development and two partnerships with Dexcom (one to market Dexcom CGM to physician offices for diagnostic use and another to integrate Roche pumps with Dexcom’s Gen 5 CGM). Based on our knowledge from sales representatives at Roche’s EASD exhibit hall, the company will be presenting data on its proprietary CGM at ATTD 2013. We consider Roche’s shift in R&D focus as a timely move for the company considering: 1) persistent pricing pressures in BGM market; 2) growing recognition of the benefits of glycemic trend data; and 3) next-generation CGM devices are approaching SMBG accuracy (and future generations could reach SMBG levels). However, the profitability of Roche’s investment will of course depend on reimbursement climates as well as accuracy, reliability, and ease of use.
    • During the Q&A discussion that followed, management explained that its initiative to streamline the BGM portfolio would increase production efficiency, not remove key products.
    • When asked whether Roche would consider divesting its Diabetes Care business, management replied that despite the tough market environment, Roche believes in the value of the business long term.
  • Management announced that the Accu-Chek Inform II received FDA clearance on October 15. The Inform II is a hospital BGM that allows wireless transfer of patient data to hospital information systems; launch is expected in 4Q12. We see this as a positive for hospital management as penetration of Roche’s meter will likely ease BGM testing burden on nurses who often have to wait in line at docking stations to upload patient BGM data. Hospital BGM accuracy and glycemic testing were a focus of discussion at the recent International Hospital Diabetes Meeting in Cambridge, MA. For a deeper dive into the current state of hospital glycemic monitoring, please see our report at http://www.closeconcerns.com/knowledgebase/r/1ba0ce44.
  • At EASD 2012, Roche presented first results from the Automated Bolus Advisor Control and Usability Study (ABACUS). The study randomized patients with poorly controlled type 1 or type 2 diabetes on MDI to receive either standard MDI therapy or bolus advisor (BA) supported MDI therapy, which came in the form of the Accu-Check Aviva Expert, a BGM with an integrated bolus advisor. At six months, a greater percentage of patients in the BA group achieved the A1c reduction target (>0.5% change from baseline) compared to the standard MDI group (p <0.01). However, the benefits were statistically significant only among patients with perfect baseline competency scores in MDI and carbohydrate counting, underscoring the need for interventions that work for patients with poorer carbohydrate counting and MDI competency.
    • For additional study details and our full results discussion, please see page 60 of our EASD report at http://www.closeconcerns.com/knowledgebase/r/ee283b0b.
    • We think that built-in bolus calculators certainly stand to add value by encouraging more appropriate bolus dosing; however we sense that the FDA is quite wary of meters with bolus calculators, not least because bolus calculators depend on patients to have comprehensively logged their insulin injections. As we understand it from representatives at the EASD exhibit booth, Roche is undecided as to whether it will pursue FDA clearance for the Aviva Expert.
    • Abbott’s FreeStyle InsuLinx also has a built-in bolus calculator outside the US, but the approval timeline in the US for this feature remains unclear (the FreeStyle InsuLinx meter without the calculator was FDA cleared in March 2012). According to ClinicalTrials.gov, a UK ease-of-use study comparing Abbott’s FreeStyle InsuLinx with built-in bolus calculator to other glucose meters was recently completed (updated September 10, 2012; Identifier: NCT01432275). Positive findings could potentially substantiate the value of the built-in-bolus calculator and help with FDA approval for Abbott whilst setting a precedent by which Roche could benefit. (Editors note: the study was originally slated to complete in January 2012.) We hope to learn more during Abbott’s 3Q12 quarterly update on October 17.
  • Management provided no other updates on their diabetes device pipeline. We are curious as to the status of Roche’s Accu-Chek Solo Micropump (Medingo’s long awaited patch pump); according to supplemental information, EU launch is still slated for 2012. However, in contrast to EASD 2011, the SOLO Micropump was not on display at EASD 2012 and we wonder whether this is reflective of even greater delays. As a reminder, at last year’s EASD we learned that the Netherlands launch, initially slated for 2011, had been delayed to 2Q12 and worldwide launch(previously planned for early 2012) would “probably” occur by the end of 2012, neither of which has occurred. Roche has not yet announced CE Mark or a new 510(k) clearance for the Solo Micropump – the latter of which will be necessary given modifications (notably, the integrated Accu-Chek blood glucose monitor) since its last FDA clearance in 2009. Additionally, the Accu- Chek Insight Insulin Pump and Accu-Chek Insight Pump Cartridge-Filling System were not mentioned in the call or included in Roche’s pipeline. As we understand it, global launch for the Insight products is slated for 2013; however, we are not aware yet of region-specific plans and are thus unsure about the timeline for any potential US launch.

CARDIOMETABOLIC PIPELINE

  • Management announced a significant expansion of the aleglitazar program as a direct result of positive phase 2 data from AleNephro; specifically, two new phase 3 trials (AleGlucose and AlePrevent) will initiate in 4Q12, potentially allowing for future submission for a general diabetes indication. As a reminder, aleglitazar is a dual PPAR-α/Υ agonist. Aleglitazar’s two main clinical trial programs had previously consisted of a phase 2 renal function study in patients with type 2 diabetes and moderate/mild renal impairment (AleNephro; ClinicalTrials.gov Identifier: NCT01043029) and a cardiovascular outcomes trial for acute coronary syndrome (ACS) patients with type 2 diabetes (AleCardio; ClinicalTrials.gov Identifier: NCT01042769). Positive topline results from AleNephro were disclosed during the 2012 Investor Day meeting in September, indicating that potential adverse renal effects of the drug were reversible after treatment discontinuation (for more details on these results please see our September 7, 2012 Closer Look at http://www.closeconcerns.com/knowledgebase/r/a84a4ce4; full AleNephro data will be presented at the American Society of Nephrology meeting in early November 2012).
  • Management stated that if results from AleGlucose and AleCardio show cardiovascular benefit, aleglitazar could be submitted for a glycemic control indication in the US and China. As a reminder, Roche has been developing aleglitazar as a CV risk reduction drug for people with type 2 diabetes rather than a diabetes drug due to the conservative stance of the FDA on diabetes drug development over the past several years. During Q&A, management indicated that they will not pursue a general diabetes indication in Europe due to lack of marketability, presumably related to reimbursement. Management characterized the aleglitazar program as “high risk, high reward.”
    • AleGlucose will examine glycemic control in 1,400 patients with type 2 diabetes in the US and China. Aleglitazar 150 μg once daily for 26 weeks will be investigated as a monotherapy compared to placebo in patients who are drug-naïve for anti-hyperglycemic agents (ClinicalTrials.gov Identifier: NCT01691755), as an add on to metformin monotherapy (NCT01691846) and as an add on to sulfonylurea metformin (NCT01691989). The primary outcome of the AleGlucose studies will be A1c reduction from baseline to 26 weeks; the trials are expected to end mid-2014 according to their ClinicalTrials.gov postings.
    • AlePrevent will be a cardiovascular outcomes trial (CVOT) enrolling 19,000 patients (!) with stable cardiovascular disease and type 2 diabetes or prediabetes. Aleglitazar 150 μg once daily on top of standard care vs. placebo on top of standard care will be investigated for a treatment period of at least three years, until 1260 events have occurred. The primary outcome will be reduction in major adverse cardiovascular events (MACE), including cardiovascular mortality, non-fatal myocardial infarction, and stroke. For context, AleCardio only enrolled 7,229 patients and ORIGINenrolled 12,537 patients; we presume that the expanded AlePrevent CVOT is needed for the company to pursue a general diabetes indication. We also wonder whether a pre- diabetes indication will be pursued.
    • Submission for a CV risk reduction in type 2 diabetes indication is still indicated for 2015. Since the AleGlucose studies are expected to complete in mid-2014, a 2015 submission for a general diabetes indication could also be feasible.
  • The GLP-1/GIP dual agonist MAR701/RG7685 was dropped from phase 1 and was replaced with another GLP-1/GIP dual agonist, RG7697. The phase 1 study for MAR701/RG7685 completed in 4Q11, and phase 2 studies were slated to begin in 1Q12, but instead at that time Roche indicated that they would prepare a “follow-up” study. Presumably, the removal of this candidate from the pipeline indicates that the results were unfavorable. As a reminder, Roche purchased Marcadia in 2010 for nearly $300 million, and the MAR701/RG7685 candidate was a major part of the deal. We imagine Roche must be quite disappointed that the compound did not advance, but we are unsure whether the new RG7697 candidate also came from the Marcadia acquisition. As an aside, Dr. Richard DiMarchi (Indiana University, Bloomington, IN), a co-founder of Marcadia, and Dr. Matthias Tschop (Helmholtz Center, Munich, Germany), both spoke at EASD 2012 on the promise of glucagon-derived fusion peptides (our coverage can be found on page 7 of the EASD report at https://closeconcerns.box.com/s/bs9g1oa0a1nrdkf5bvbh; and page 25 of the EASD report at http://www.closeconcerns.com/knowledgebase/r/ee283b0b, respectively). To our knowledge, no other GLP-1/GIP dual agonists are currently in clinical development, but GLP-1/glucagon receptor co-agonists include Zealand Pharma’s ZP2929 (phase 1 recently initiated), Transition/Lilly’s TT-401 (phase 1), and Pfizer’s oxyntomodulin (phase 2).
  • RG4929, the phase 2 11β-HSD inhibitor, was also dropped from Roche’s pipeline. No explanation was provided.
  • Tofogliflozin, an SGLT-2 inhibitor that Chugai is developing, remains in phase 3 in Japan; Chugai is a member of the Roche group – Roche doesn’t own it outright but controls~60% of Chugai shares. Roche returned the rights to the compound to Chugai in July 2011 (formore details, please see our Roche 2Q11 report at http://www.closeconcerns.com/knowledgebase/r/ad1f4c9d), and we believe the company continues to search for a partner to help fund phase 3 development in the US and EU.
  • The PCSK9 monoclonal antibody for “metabolic diseases” (RG7652) remains in phase 2.

OPHTHALMOLOGY

  • In August 2012, the FDA approved the 0.3 mg dose of Lucentis for diabetic macular edema (DME). This is the first pharmaceutical therapy the FDA has approved for DME; for more details on the approval and implications for DME, please see our August 17, 2012 Closer Look at http://www.closeconcerns.com/knowledgebase/r/effd72a3. The 0.5 mg dose of Lucentis had previously been approved in the US for wet age-related macular degeneration (wAMD) and macular edema following retinal vein occlusion (RVO); Lucentis has had a DME indication outside of the US (marketed by Novartis) since 2011.
  • During 3Q12, Lucentis’ US revenue totaled 368 million CHF (~$382 million), down 12% operationally, but up 2.5% as reported from 3Q11 and up 4.0% sequentially. Inthe US, Lucentis has been losing market share to Regeneron/Bayer’s Eylea (aflibercept) since Eylea’s approval for wAMD in 3Q11. Lucentis’ 3Q12 decline marks the second quarter in a row of negative operational growth for Lucentis, and more than a year of deteriorating operational growth (operational growth has steadily deteriorated each quarter from +35% in 1Q11, to +29% in 2Q11, +17% in 3Q11, +13% in 4Q11, flat in 1Q12, and -11% in 2Q12). The third quarter’s performance represented somewhat of a stabilization that may continue in light of the recent FDA approval for diabetic macular edema (DME). Management believes Lucentis will continue to lose wAMD share to Eylea but that the market will stabilize and that DME sales in 4Q12 will help further reduce the decline in Lucentis sales. However, management noted during Q&A that this boost would probably not be enough to produce positive growth, especially from the high base in 4Q11 when Lucentis sales peaked.
  • Management suggested that longer term predictions are uncertain because Eylea will receive a J-code (a reimbursement code used for injections) in the US in January 2013. Lucentis may also receive FDA approval for dosing on an as-needed basis in wAMD in February 2013 (currently it is prescribed as a monthly injection); data from the phase 3 HARBOR trial for this indication will be presented in November at the American Academy of Ophthalmology meeting. Since cost has been a significant barrier to Lucentis use, an as-needed dosing approval may increase uptake of Lucentis by lowering cost; however, the as-needed dosing indication is only being sought for wAMD and not for DME. More importantly, we think Lucentis will face significant competition on the DME front in the not-too-distant future.
    • Roche/Genentech also has a Lucentis sustained delivery formulation in phase 1 for wAMD, RVO, and DME (RG3645). We believe this would be a very attractive option for patients given the high efficacy of the anti-VEGF class and elimination of the need for several injections.
    • We remain curious about whether Lucentis’ approval for DME has reduced off-label use of Avastin. As a reminder, Avastin (also owned by Roche) is a VEGF- inhibitor indicated for cancer treatment; it is similar in structure to Lucentis and is often used off-label for DME because of its cheaper price. Now that Lucentis has a DME approval, we wonder if a substantial portion of physicians that had been prescribing Avastin have switched to Lucentis.
  • Several other DME drugs are in various stages of clinical development:
    • Eylea would be the most direct competitor for Lucentis in DME. As a reminder, Eylea is another VEGF-A inhibitor that is already taking market share away from Lucentis for wAMD and is currently in three phase 3 trials for DME, set to complete in late 2013 suggesting a late 2014 approval at the earliest (ClinicalTrials.gov Identifiers: NCT01331681 [pivotal study in international countries], NCT01512966 [Japanese safety study], NCT01363440 [pivotal study in the US]).
    • Ampio’s Optina (oral low-dose danazol) reported positive phase 2 results in August, demonstrating that Optina reduced retinal thickness and improved visual acuity in a 12-week phase 2 study (n=32; for details please see our August 19, 2012 Closer Look at http://www.closeconcerns.com/knowledgebase/r/b4084a42). Ampio held a pre-IND meeting with the FDA in late July during which the FDA agreed that Ampio could develop Optina through the 505(b)2 pathway (the traditional NDA is a 505(b)1), meaning Ampio may incorporate pre-existing data from a reference drug to save time and money inOptina clinical trials. Optina’s oral administration would give it a clear advantage over Lucentis, Avastin, and Eylea, which require regular intravitreal injections.
    • Alimera Sciences/pSividia’s implantable corticosteroid releasing device, Iluvien, has been approved in several European countries, but received a complete response letter in the US in November 2011. The company indicates it is still seeking US approval, but as of the last update on this front, it seemed like the cost of generating additional data might be too prohibitive. Iluvien’s one-time injection administration (lasting up to 36 months) gives it an advantage over currently available anti-VEGF therapies (Lucentis, Avastin, Eylea), which all require initial monthly injections over the first three months (Eylea) or one year (Lucentis and Avastin) and subsequently more infrequent supplemental injections. However, given that Iluvien will only be available in Europe in the near future and that Roche maintains rights to Lucentis only in the US (Novartis ex-US), this presumably will not hurt Roche-recognized Lucentis sales for now.
    • iCo Therapeutics and JDRF’s iCo-007, an antisense inhibitor of C-raf kinase, is in phase 2. For more information on the iCo/JDRF partnership, please see our April 7, 2012 Closer Look at http://www.closeconcerns.com/knowledgebase/r/6d3e2f90.
    • Macugen (pegaptanib, currently approved for treatment of wAMD) published positive results for DME in April (Rinaldi, et al., BJCP 2012), but commercial development seems unlikely in the near term. The authors state that Macugen, another anti-VEGF-A compound, could potentially minimize systemic adverse effects compared to Lucentis and Eylea. However in July 2011, Pfizer withdrew the European application for a DME indication (for details please see our November 1, 2011 Closer Look at http://www.closeconcerns.com/knowledgebase/r/4dafd9d8).
  • DME drugs in preclinical development include ActiveSite’s plasma kallikrein inhibitor, and KalVista’s plasma kallikrein inhibitor. It is a bit early to speculate on the clinical success of these candidates, but they would have the advantage of being orally administered.
  • At EASD 2012, three-year results from the RESTORE study (supported by Novartis) were presented demonstrating the long-term safety and efficacy of Lucentis for the treatment of DME. For more details, please see page 33 of our EASD Day #5 report at http://www.closeconcerns.com/knowledgebase/r/b82a3c00.
  • Although not mentioned during the call, the three-way head-to-head comparison of Lucentis, Eylea, and Avastin (bevacizumab) began enrollment in August (ClinicalTrials.gov Identifier: NCT01627249). This study will shed light on comparative efficacy and safety of these three anti-VEGF agents for DME. For details on safety concerns for intraocular use of Avastin, please see our August 17, 2012 Closer Look at http://www.closeconcerns.com/knowledgebase/r/effd72a3.

Questions and Answers:

Q: On Lucentis, do you think the DME indication might lead to overall positive sales growth for the franchise in 2013 or will that indication likely only make sales growth less negative?

A: I think it's the latter of your two comments, that we expect DME to help retard the decline due to the penetration of Eylea in AMD, but we don't expect it to necessarily contribute to overall growth in the franchise. Again as I mentioned, look at the decline [in Lucentis sales] with the launch of Eylea, and again, we expect the J-Code for Eylea to come in January of next year. So we do expect to have continued penetration in AMD with Eylea. DME is good news. I think it will help reduce decline but not completely convert it in the other direction.

Q: On diabetes care – it doesn’t really fit with your diagnostics businesses in some people's views. A lot of competitors are finding it tough. Why is it still a business that Roche is still interested in, and have you considered divesting it or when should we actually expect a sustainable performance from the division?

A: As you all know, diabetes is a growing disease area, and in spite of the market pressure we are facing in the long term, there is an enormous potential, and we can contribute from the diagnostics side. Already today, almost 300 people [sic; we believe he means 300 million people] suffer from diabetes, and the prevalence is vastly increasing, in particular in the emerging markets. So we believe in the value of this business in the long term. Having said this, we face a very tough environment, and we have to adjust and react accordingly, and that's exactly what we do.

Q: On aleglitazar, just to clarify that I heard you correctly: you wouldn't file AleGlucose in Europe, and if that's correct, why is that? And are you looking at a broader A1c reduction program beyond this single study?

A: Principally, we've looked at it from the standpoint of what would be marketable in Europe and our current opinion is that with just glycemic control and the pricing associated with other compounds in the market in Europe, we don't see that as a very attractive proposition at this stage. So it's more of a marketing call than necessarily a regulatory call on that.

Q: And the other one on aleglitazar was whether you are planning a broader A1c reduction program beyond this single study?

A: No, not at this stage.

Q: On diabetes care, can you give us what you think the market in blood glucose monitoring is growing year-to-date? If I look at your competitors – J&J, Abbott and Bayer – none of them seem to have the strong impact from the pricing and the austerity that you're flagging here. So I'm wondering to which extent we're really dealing here with Roche-specific issues.

I was particularly struck by the 17% decline in North America in the quarter, if I calculated that correctly, recalling the second quarter when two new product launches were flagged for that territory, the Accu-Chek Nano SmartView and the Accu-Chek Combo, so is the market not yet ready for a product such as the Combo?

And just getting back to this impact from restructuring – you mentioned there is some sales force reduction and at the second quarter it was also mentioned that there has been some product streamlining. So I'm just wondering whether this specific restructuring effect that will mean shrinking your portfolio. When is that annualizing? And can diabetes care really grow next year on the back of that?

A: I cannot comment on competitors but what we are seeing is price pressure across various markets. I will name Germany, but also the emerging markets, where we see pricing pressure on products and solutions. We have not seen the market data for the full year. So we're expecting those to come out. We're the first company to report out here.

Q: Maybe first half figures for market growth?

A: I cannot give you any precise number for the half year. I don't have the numbers here. But we're happy to go back once we have the numbers reported. I think we'll continue to look at the market and continue to look at the developments in the market space. It is a market that is under pressure for reimbursement costs as well as price pressure from competitors.

On the second question, is the market ready in the United States for an advanced product like the SmartView? We believe it is. It is a market that obviously takes time to develop, to launch, and to work with the distributors and retail in the ramp up phase. But we believe this is the right product for the market.

Q: But overall, there is no number you can give us from both – for applied science and for diabetes where you're streamlining the portfolio? How much of a negative impact has that had on your base sales?

A: In Diabetes Care, it is less of a streamlining of products. It was very much a streamlining of our operations. For example in R&D, we streamlined and focused the various technologies as Roland has pointed out. So we have centered certain technologies in Mannheim in Germany and others in Indianapolis where formerly we had overlaps. The result potentially is to be much more efficient in our internal setup. It's not a matter of taking out key products in our portfolio.

Q: At the analyst meeting, you were asked a question about whether you would develop aleglitazar as a diabetes agent alone. And I thought the answer was no. But yet, you are starting a study of glycemic control in type 2 diabetes patients. And I believe you had the results about AleNephro at the time of the analyst meeting so I'm wondering what changed in the interim.

A: On aleglitazar – I think what we said is that we wouldn’t develop Aleglitazar as a standalone diabetes agent without cardiovascular benefit. So what we're looking at with the AleGlucose study is obviously having a cardiovascular benefit associated with that and in AleCardio. The two studies will be combined on that particular program.

Q: To what extent are new compound classes, which do not cause hypoglycemia side effects, a worry for the long-term growth? I understand that you see a very big potential for your diabetes business, but obviously now with increasing DPP-4, GLP-1 use and in the future very likely also significant SLGT-2 penetration, how do you see the impact going forward?

A: So for the new drugs, we don't see an impact currently. We don't foresee a major impact going forward. If at all, they will probably be offset by the growth in emerging markets and as Severin highlighted earlier on, this is a global market with an excess of 300 million patients. For them, it’s really about being able to have access to testing. The new drugs are pretty far out in the future and as is access to them, especially for patients in emerging and growth markets.

-- by Jessica Dong, Kira Maker, Adam Brown, and Kelly Close