Sanofi (SAN) Earnings Call Transcript & Summary

Well, good morning, once again. And we'd like to welcome Sanofi to the Cowen Conference. Representing the company is Bill Sibold, who is Executive Vice President of Sanofi Genzyme, one of the most important parts of the company. And Bill, you were going to make a few comments to start.

Well, thanks, Steve, and thanks for having me here today. Just to set the frame a little bit, since our Capital Markets Day in December, we've talked about our Play to Win approach and we're making, I'd say, great progress there. The strategy really includes 4 key pillars. Focusing on growth, leading with innovation, accelerating efficiencies, and finally reinventing how we do work, and maybe just a couple of comments on the first to focus on growth. And obviously, a key driver of growth for us is Dupixent. And we've really been looking at Dupixent as we've given the guidance that we think this is going to be a greater than EUR 10 billion product. And it's going to be driven really by 4 things. Additional penetration into the 2 primary indications of atopic dermatitis and asthma, additional geographic expansion, younger age populations, and finally new indications, and we've announced a number of those. And some of the metrics that we're starting to see, last year, we had EUR 2.1 billion in sales, annualizing at EUR 2.7 billion. And we have TRx growth over 100%. So really on all the metrics and some softer metrics such as being the #2 most prescribed biologic by dermatologists, #1 in NBRx for allergists, and we've had the fastest uptake in asthma as well. So we're really moving along, progressing quite well. And just -- you've heard me say in the past that we're really only at the beginning. We've launched in 34 countries, and that's primarily atopic dermatitis. There's only 8 countries where we have 2 or more indications and only 1 country with 4 indications, that being the United States. So there's a lot to look forward to there. And I think I'm really -- we can go into some more detail in the talk, but great progress with Dupixent. Thinking about leading with innovation, on our Q4 earnings call, we talked about the positive proof-of-concept with our brain-penetrant BTK inhibitor for relapsing forms of multiple sclerosis. And we'll be sharing that data at the AAN meeting coming up in Q2. And this is a big market. We've been here for a long time now. It's about a EUR 20 billion market now, still growing. And we believe that with this best-in-class product that we can not only have an impact in the high efficacy segment but we believe that in progressive forms of MS that there's good reason to believe based on the brain penetrant that this can be a real, real key player there. Also, we know that it's a very well-tolerated program. So we have a lot going on. Growth is looking good with innovation, BTK. And in general, I'd say we're just making progress on our Play to Win strategy, so exciting time for us.

Lots of good stuff to dig into. Maybe we could start out with the geographic expansion for Dupixent. Describe how big China can be and what will be the drivers for that?

Yes. So I mean, China, just based on population, is a big potential for us. I think just to give some ideas of how big that opportunity could be, if you take a look at the population of AD biologics eligible, it would be about 900,000 patients. And of that, about 400,000 would be most in need. So to give you a sense of scale, that's about 2x larger than the EU5. So just from approachable, in AD patients, it's quite large. And we started to see that the market in China is looking good, for instance, products like Cosentyx have had good starts there. And AD will be the first we're expecting that we'd like to expect to launch in Q4 of this year. But between '20 and '25, we're expecting 7 indications to be available with Dupixent in China. So I think we're at the beginning. The market conditions are favorable, we believe, in China. We think that there's a large population, and it should be a source of growth for us.

Given all that's going on in China currently, do you -- are you still confident in that Q4 approval?

Yes. I think so. We are.

Okay.

And in China -- look, it's obviously an emerging situation. I think that not only in China now, but obviously, as you think about coronavirus in particular, we're seeing it in other countries in the world, and it's evolving. We'll monitor it closely.

So Dupixent had another strong quarter in Q4. You had some recent approvals. What -- to what extent were they drivers to the success of the product delivery in Q4?

Yes. It was still predominantly the first indication atopic dermatitis which is driving a lot of the growth. And obviously, asthma as well. But just the asthma story is for the most part a U.S. story still, as we are now launching and, as I said, in other indications throughout this year. I think if you look at all the makings of a great product, the market dynamics are still so favorable towards Dupixent with atopic dermatitis. It's just -- at the beginning, we're only about 3.5% to 4% penetrated into the potential population. AD, it's a little bit different story where we're still building a market. Asthma, it's a market which has had a head start with some of the other biologics that have been in place, but it's still remarkably low penetration of biologics at about 13% in the U.S. So there's plenty of room to grow there, too. So those -- and looking forward, those core indications of atopic dermatitis and asthma will be the majority -- represent the majority of the sales. The other indications coming on board are, clearly, some of the big opportunities in themselves, but because of the early start in AD and asthma, those will represent the bigger part of the product.

Questions from the audience? When you dissect the success that Dupixent -- early success that Dupixent is having in asthma, maybe you can talk about how much is biologic naive people, new patients or capturing share from biologic?

Yes. So about 80% of our patients are naive to biologics. So that is really, we believe, driving -- that's going to be where the key driver for growth is in asthma, is going to be new patients coming in. And as I said, only about 13% biologics penetration at the moment. I think for us we believe that we can win in asthma based upon the favorable profile that we have. We think that if you look at most asthma patients is a type 2-mediated disease. And we've seen not only the effects on exacerbations, but we think that we're differentiated by having the OCS-dependent patient and that in our label as well as the impact that we have on lung function. Also, obviously, being core to type 2, the other comorbidities or other type 2 mediated diseases that so many asthma patients have or so many of the other type 2 patients have these clusters of type 2 indications that they would be able to take advantage of.

So what is the sales strategy of Sanofi? Is it to build the market or is it to exemplify the distinctions with other biologics?

So it's both. I think that both of those are at such early stages that you can't take your eye off building the market. If it only becomes an asthma competition between the IL-5 and Xolair, it's just not going to be that big and interesting a market. We know that there's about 900,000 patients in the U.S. So there's plenty of room to expand. So that's where we first and foremost have to be. As it relates to atopic dermatitis, as I said, 3.5%, 4% penetration of biologics. The question for me with atopic dermatitis is going to be, where does biologics penetration ultimately end? So we think there's about 1.7 million patients in the U.S. that are eligible. However, we think there's about 300,000 we've talked about that are most in need. So the future question is, does biologics penetration look more like psoriasis, which is in the 20%, 25% range after 15 years, 16 years or does it look more like one of the other diseases like rheumatoid arthritis or something. So we've got a long way to build there. I think if you look at that same question for asthma, will it be in the 30%, 35% range, we're thinking it should be higher than atopic dermatitis based upon the severity. But that's -- we still have a ways to go and we're at 13% today.

And where are you in atopic dermatitis right now in that penetration of the 300,000?

So in the 1.7 million, it's about 3.5%. So a little over 10%, 12% in the -- if you use the 300,000.

Of that have tried Dupixent?

Yes. So if you -- right. So if -- so just a couple of stats. We're at over 129,000 patients across all indications. And about 3.5%, 4% into the 1.7 million in the U.S.

What is the average duration of patient is on Dupixent for atopic dermatitis? Do you have any sense of that number?

So we know that persistence after -- about a year, 70%, 75%, which is at the top end of biologics in this space. So we see that patients are staying on. And it's one of those diseases where if you aren't compliant, you don't take the drug, you see the disease come back. And it's maybe not even seeing the disease come back, it's feeling the disease come back. So I think there's that carrot-and-stick, so to speak, for a patient if they're taking their medication. When they miss, they begin to feel those effects reasonably quickly. So that's why we believe the relief has been so profound and so fast across so many metrics that patients really see the benefit and want to stay on the therapy.

I don't know the underlying kind of pathological course, so would a patient who is an adolescent tend to grow out of their AD? Or is it -- does it manifest in terms of a lifelong kind of a situation?

No. There certainly are patients that grow out of it, but we see so many of the patients that it stays with them their whole life. Many of these patients have been suffering from atopic dermatitis for years and years, over 2/3 of their life until they've started to find now potentially relief. So yes, it's not -- there are some where you grow out, but you have a lot of these patients that have had it really their whole life. And it's a really high burden, and we've seen that. The work that we've done in understanding it with kids is the burden is very high not only for the children but for the parents and family involved. When your child is not sleeping and is uncomfortable, I don't think anyone in the house is.

One of the drugs that people like us are focused on in 2020 is the AstraZeneca's tezepelumab for asthma. So we're, of course, awaiting the Phase III data, so we don't have it. But based on the data that we do have of that drug to date, do you have any sense how it compares to Dupixent in asthma?

Yes. I mean, look, so I think if you try to do a cross-comparison, again, it's only Phase II. In the Phase II, from an exacerbation perspective, there look to be similarities where we saw differences in lung function. We have the OCS dependent and one of the -- if you go to the fundamental biology of it, as you can see, we are working across a myriad of type 2 diseases where they appeared not to work in atopic dermatitis. So I think our view is that IL-4, IL-13 are fundamental to this type 2 pathway and therefore that's why we've seen the broad effect on all these indications. I think for them they haven't shown that yet, which questions how fundamental is it to type 2, which is really the majority of the asthma patients. So let's see what Phase III looks like from both a safety and efficacy perspective. We feel really comfortable, though, that based upon our profile, based upon the safety, based upon the amount of use that we are really in -- remain in a great position in the future.

Is there any evidence that you could have a safety advantage?

Well, our evidence is just the number of patients that we've had on the product across multiple indications in multiple age groups. So our safety profile has remained as it was in the clinical trial program. We recently, in the last month at the Maui Derm Conference, released 3-year data, and we saw deep, sustained efficacy effect and safety. No changes from what we had seen in our clinical program. So I think it's that growing database of safety, especially in an indication like atopic dermatitis, which is so important, especially as you get to younger and younger kids. We know dermatologists are very interested in safety. Efficacy is important too, but they are very driven by safety, and we think that if you look towards the future, we don't see so many things that have that same profile that we do.

Questions from the audience? Yes.

Just a question on penetration. In your $10 billion assumption, are you assuming that the EU market looks like psoriasis or -- it sounded from your comments that [indiscernible] assumed slightly higher that psoriasis [indiscernible]?

Sure. So we believe that we'll be in that psoriasis, psoriasis plus neighborhood, so 20%, 25% or more. I think the advantage that we have is the early psoriasis products came with quite a bit of baggage, too, whereas when you're looking at the first biologic in atopic dermatitis, I mean, it has really got a nice profile. So we think it's going to be at least in the psoriasis area or above.

Maybe we -- yes.

How concerned are you with competition on novel [indiscernible] comparable biologics or [indiscernible]?

Yes. We think that, that will be more of a mild-to-moderate population rather than moderate to severe. So ultimately, not a direct competitor.

Maybe we can shift to the BTK inhibitor for MS. So the company describes this product as being a replacement for AUBAGIO, and it certainly looks like it could be that based on the early evidence. But chances are we'll have the AUBAGIO patent expiration first before we have the BTK arrival. So as the person who has to manage this transition, how do you do that?

Thanks. Great question. So first of all, I'm really excited about the BTK. I think that it's not just a replacement for AUBAGIO. I believe this is really -- could be the best-in-class product in MS. I think it has the combination of everything that we've been looking for. High efficacy, convenient in an oral and looking to be well tolerated. So -- and think about where the market's been moving towards these B-cell depleters. This is a -- not a depleter but a modulator, which we think can be very helpful in the setting of any infection or anything, being able to withdraw the product that would certainly lead to a more rapid recovery of B cells rather than the many, many weeks and months that you have with the depleter. So we think that this will really rise to be best-in-class. Just a couple of other pieces. There haven't been the CNS penetrance within the MS class. And so that's leaving out a key part of potentially treating the disease. We believe that the microglia that are in the brain are playing a key role in inflammation. By being brain penetrant, we get in and we deal with the microglia as well as the B-cell in the periphery. So we think that this will have impact on efficacy and specifically efficacy as it looks to progressive disease where we just don't have effective products in that space at the moment. So my belief, our belief, is that this can truly be a best-in-class MS product, really hitting on all the fronts that are important to patients and the community. Now thinking specifically about that bridge from AUBAGIO to the BTK, in Europe, we have a late 2023 data exclusivity that can be extended some with the pediatric indication. So really, we're not talking about such a big gap there. In the U.S. gap would exist today if we look at being in March 2020 -- March 2023, I should say, sorry. And the things that we're doing is, first of all, we are trying to accelerate this program as absolutely fast as possible because of the potential that it has for patients. And we'll look at what's the easy -- what's the best way to bridge. I mean the good news is that we have a lot going on at Sanofi Genzyme now, a lot going on, a lot of growth. So there's lots to keep people busy.

Okay. So maybe moving to Libtayo. You have an important readout coming up this year with the lung cancer data. Maybe you can help us craft an expectation for the data in terms of -- I'm not asking for a number of months but PFS, OS, what are we likely to get this year? Are they both likely to be hit? Are they both unlikely to be hit? Is one likely to be hit without the other? Can you just help us think this through and how we should prepare for it?

Yes. I think if you think about Libtayo, you've got to think about it in 3 buckets. The first is in skin with cutaneous squamous cell carcinoma and are bridging to BCC, et cetera. And that's where we have, I think, a real lead. And you -- if you look at just the prescription data, Libtayo is the go-to product for CSCC now. About 86% of patients are receiving a Libtayo prescription rather than any other PD-1 or EGFR. So I think that that's really the point of differentiation that we know today, and that's a place that we will expand from. The next is being in a big indication like lung. And Steve, what I can say is, we've got to look and see what that data looks like. And one of the things that we've learned in the marketplace is that all PD-1s don't seem to be equal or PD-L1. So let's see what we look like. Our hope would be that we have data which is compelling as Keytruda, but we're not going to know until we open up the envelope with the interim. The third bucket is really using it as a combo. So we can use it as a combo with our own portfolio. We've got our IL-2, and we've got our SHP2 and other things. So that allows us to go to -- rapidly to PD-1 combo for the portfolio.

So it's within the realm of possibility that you could hit OS too, you don't know because you don't have the data, but -- okay. Questions from the audience? Yes.

On the BTK, just what you said about microglia, have you thought about looking at other patients, like [indiscernible]?

Yes. It's a great question. We're looking at where else we might go with it. But for now, the focus is accelerating as fast as we can in the MS space.

One of the advantages moving to fitusiran, one of the advantages that Sanofi puts forth is that you'll have the safety advantage over Hemlibra. That's the best of my recollection from what we said at the December meeting. But Hemlibra is doing so well that it really doesn't suggest that there's some lurking safety issue here that would leave open an opportunity for fitusiran. So maybe you could talk about how you see that market evolving?

Yes. Well, look, I mean, I think, just to put it in context, 80% of the market roughly is still factor in hemophilia A. So there's plenty of room. As I look at our portfolio, as it's emerging for our next 2 assets in the space with fitusiran being a non-factor and BIVV001 being a factor in, perhaps, as we're expecting, absolutely best-in-class because it's going to be able to offer just a true weekly dosing and maintaining patients for most of the week at a near-normal level, so I think that -- how does the market evolve? Where does factor versus nonfactor versus gene therapy end up? We believe that there's going to be room for both factor and nonfactor. You've seen various projections in the community that nonfactor with emicizumab could be north of 50%. We don't think that, that answers all unmet needs. Very few of the patients are dosing on a monthly basis. Fitusiran is going to be a once-a-month, small volume, subcutaneous product, requires no cold chain, so a very stable product, which not only is helpful for someone here, but if you think about it on a global scale in some countries where that's a little bit harder to maintain, it's clearly a product, I think, for the world. So we believe that Hemlibra is not the final answer in the non-factor space. Clearly, people are still bleeding on it, et cetera. There's been death and other adverse events. I think that we have to see over time what the long-term profile looks like. So we think that there'll be room for other nonfactors. And clearly, not everyone is going to switch from factor. As we've seen already, still, 80% of the market factor in the U.S. and BIVV001 is really something, I think, which can win in whatever factor piece is left. So as a company, we've got 2 bets on the way the market will emerge. If we want -- somebody who wants the highest efficacy, we believe BIVV001 puts you in the normal range. If you have -- if you want convenience with efficacy, that's going to be fitusiran. And then earlier stage, we are looking at gene therapy with lentivirus approach. So we believe that we have our bases covered there and can compete effectively.

The company has put forth some aggressive operating objectives, at least they were aggressive versus our numbers at the time. What portion of those objectives are expected be delivered by your business? And within your business, how do you produce or deliver upon those objectives?

Yes. So I mean, look, the objectives are really about how we're approaching the business in general across the whole organization. And just to remind people, 30% BOI margin by 2022 and EUR 2 billion in savings by 2022. And looking at it really from growth perspective -- from gross margin perspective, and then really, really rigorous expense management. For our portion within specialty, Sanofi Genzyme, obviously, from a top line perspective, in 2019, we had 23% growth at a constant exchange rate across all of our TAs, and we're still going to maintain that high growth in specialty and going forward with the launches that we have in the portfolio. From a gross margin perspective, in October, we announced the -- one of the first virtually digital factories for the future, and that is in our Framingham facility, which produces some of the biologics that we have in the specialty space. So that's going to really help our flexibility, our agility and ultimately our gross margin. And then finally, from an expense perspective, we are doing several things within specialty. First of all, we are looking at simplifying our regional structure so that we have our global presence and then the local markets. We're adjusting where we're spending. So moving monies from -- moving spend from more mature products to our growth engine in our growth products. And then, finally, we're working with our procurement teams to try to secure the best actual cost that we can and anything that we have to go and purchase. So we're -- this is really -- I think the announcement of where we're headed serves as a good guidepost externally and certainly internally it provides us with the discipline to really focus on this so that we can deliver the external market.

[ Dushan ], did you have a question?

So just to pivot, if you could talk a little bit about the upcoming phase 3 COMET study in Pompe, sort of the differentiating factors, trial size between COMET and [indiscernible]. And when -- a little more narrow guidance on the [indiscernible] data readout.

If you don't mind paraphrasing the question.

Okay. So it was a question about our COMET study with avalglucosidase alfa and how it competes or compares against other products that are looking as well in Pompe.

So look, we are conducting our trial with -- looking for superiority over Myozyme/Lumizyme, our market-leading product that we have today. And we believe that we can show superiority, which we think will be differentiated and really have people that are on Myozyme/Lumizyme today migrate over towards AVA. Now the Amicus trial is comparing against Myozyme/Lumizyme, kind of looking at a non-inferiority. So we believe if we show superiority over our current product, that's really going to replace and be the market -- become the market leader.

Questions from the audience? We have less than a minute left, but let me ask, so there's a lot of changes underway on the China health care system. How do you manage your business to kind of embrace these changes and keep up with them and still be successful in that market?

Yes. Look, I think that China, as you say, it's really, I think, we believe, opening up now, and that there is a path forward for specialty products. We're talking about 20 to 25 launches coming up in the ensuing years. And that's exciting. And I think a lot of that is the -- well, I know a lot of that is the specialty portfolio that we're bringing. There's a path forward with rare diseases. We see Q4, we expect an approval of Dupixent. And then we've -- as you know, that's a product that has multiple indications. And then the rest of our portfolio in oncology and so forth is coming as well. So we look at it as a opportunity and a source for growth for us. I think that the regulatory environment has changed. We believe the reimbursement is opening up. So it's going to be a market to be contended with, and we're, I think, in a great place based on our historic presence there but also the learnings that we've taken from how do you launch specialty products around the world.

Great. Well, we're exactly out of time. I'd like to thank you, Bill, for a great overview.

Thank you, Steve.