Sanofi (SAN) Earnings Call Transcript & Summary

Good afternoon, and welcome back. We're very pleased to have with us, once again this year, Sanofi. Representing the company is Bill Sibold, who's Executive Vice President and Head of Sanofi Genzyme; and Frank Nestle, who is Head of Research and Chief Scientific Officer. There are many, many positive developments underway at Sanofi, and we're eager to dive into each and learn more about all of them.

So without further ado, let me start out with the obligatory, big picture question I guess I'll put it to Bill. When you in peer in your crystal ball over the next 4 years, what do you think could emerge from the Biden administration relative to pricing? And what impact would it have on Sanofi?

Well, first of all, Steve, thanks for having us here today. It's a real pleasure. This is always a great conference to look forward to. So it's nice that despite the challenges with COVID that we still have a chance to get together. And thanks for the question. So look, it's still really early in the administration to know what they will and won't do. I mean, their focus rightly so now is on COVID-19. And we're still waiting, I would say, at the moment. Now our view is that what the administration really should be focused on is this whole notion of improved affordability for patients. And we know that there's a lot of work that needs to be done with the system to really improve access and affordability, and we look forward to working with the administration on that. A couple of the previous administration efforts such as rebate reform, we know, has been delayed until January 2023, and MFN has been blocked by the courts at the moment. I think what's important is either -- regardless of what happens, we feel that we're actually quite well positioned in the U.S. If you look at it both from how our portfolio is emerging to a much more innovative portfolio, which I think, regardless of any kind of changes that take place in the U.S. or around the world, if you have innovative products that is the place you want to be because you can still command value for them. And then the second bit just is our exposure as a company overall to the U.S. market is about 37%. So we feel like we're in a pretty strong position. But we'll wait and see. We're ready to jump into dialogue with the Biden administration.

Okay. So let's move to your most important product, that being Dupixent. I'm curious, this product has been such a huge success. What has surprised you most about that success since the day of launch?

Yes. I have to say, it is surprising to know how many patients are being impacted by it. We always knew there would be an impact based on the clinical trials. But when you get the real-life stories that come back and as we see -- we're learning that our hope and our data that showed that this is so fundamental to type 2. We are seeing that in each of the type 2 diseases, just a really strong impact. But overall, the stories that we're hearing far exceeded what I had expected. I've been on specialty for a long time and a lot of diseases like MS and so forth. And I just didn't know what to expect in kind of the primary indications of atopic dermatitis and asthma. But the life-changing stories, I would say, are as impressive as anything I've ever worked on.

There are -- in addition to the label now, there are a number of new indications on the way. And some of them I can't pronounce. There's 5 or 6 or 7 of them. Can you identify for us what the 2 or 3 among them that has the greatest potential?

Yes. I mean, look, the way we think about each of the new indications is it's really a build on that type 2 story. And many of them are adjacencies or they help to build on our larger indications or they are strong indications on their own. So a couple that I would highlight would be COPD that have patients with type 2. We think that there is a U.S. biologics eligible population of about 300,000 people. It's a huge unmet need. There really hasn't been anything to show an impact there. So we're really excited about that indication. Also CSU, about the same size population of about over 300,000, and we think that's another exciting dermatology indication for us. So just on pure patient sizes, those are exciting. But I think what you're going to see from Dupixent is this continued expansion of indications in type 2 that are also supporting and helping to accelerate the growth in the primary indications. And then obviously, we have the age decreasing, and we also have the expansion geographically. So lots of room to grow.

Let's dig a little bit deeper into some of the new opportunities. So many companies are pursuing nasal polyps. This is a market that analysts in past years and decades haven't really spent a lot of time on. Why is this an attractive market? And why is Dupixent best positioned to treat it?

Yes. I think 2 things. First of all, I think the unmet need is incredibly high. What we're learning more and more is just how difficult it is for patients. They have a loss of smell and taste. They -- many of them are in constant pain. And there really hasn't been anything for it previously. And with the chronic rhinosinusitis with nasal polyps, where we're indicated, that is very much a type 2 inflammation disease. And when you have the product, like we do, that can focus on type 2 with IL-4 and IL-13, we really think that it's very well suited for this space. So high unmet need, lack of previous therapy, but I think like -- with other indications that we have now been in and we've shown an impact, any other company that feels that it has a mechanism that may be potentially useful there is going to do a study and look for -- to see if they have an effect. But we really believe that we are the leader in the space, and we'll stay that way.

Okay. Similar question on eosinophilic esophagitis. Why is this attractive? And why is Dupixent best positioned in this market?

Yes. Some of these answers, I hate to say, sound the same, but it starts with the biology, still fundamental to the biology. A lot of people think of eosinophilic esophagitis as atopic dermatitis of the esophagus. And there's no FDA-approved treatments. And there's really 3 main strategies that are used today. It's just diet modification. There's some off-label drugs, and then worst-case, endoscopic dilation where you actually try to dilate the endoscope -- pardon me, the esophagus, which is certainly not pleasant. So we believe that it's fundamental to the biology and has over 48,000 patients in the U.S. So same answer as some of the others, Steve.

Okay. Great. Let's move to the competitive landscape because there is no shortage of companies trying to duplicate Dupixent's success. And maybe we'll start out with the closest competitor, and that is lebrikizumab. What Lilly argues is that lebrikizumab offers similar efficacy, but with better safety, and that's due in part to Dupixent's more narrow selectivity. So maybe you can talk about that as a potential competitor.

Yes. Look, it's -- we think that IL-13 is only part of the story. That's why with our IL-4 and IL-13, we think both are key central drivers to type 2 inflammation. I think that's starting to prove itself out. So IL-13 is an MOA we consider incomplete. We haven't been overwhelmed by what we've seen from an efficacy perspective. There is a little bit slower onset and the lower magnitude of effect. So the other piece is it's not fundamental to type 2. As you've seen the IL-13s have failed other type 2 diseases. So maybe, Frank, you might want to comment from an MOA perspective on IL-13 in comparison to Dupixent.

Yes. I think we should really focus on what we've seen so far. And I think we've seen that mainly with tralokinumab. And clearly, there, the efficacy is not where you want it to be completely competitive. And in terms of mechanism, IL-4 brings in such an important element. We know, for example, IL-4 receptor is expressed on neurons. And the sensory neurons are absolutely critical for itch. And so that's basically where the IL-4 component comes in. But IL-4 is also fundamentally important for type 2 polarization. So the whole type 2 cascade is actually borne via IL-4 being produced in the B-cell, then producing IgE and T-cell becoming a Th2 cell. So IL-4 is at fundamental origin of a type 2 response. And I think that's the reason why, for example, IL-13 has failed in asthma and why Dupixent, I mean for me, coming in as somebody who has seen the anti-TNFs emerging and defining a new class or the Anti-L17 synergy. Opening a type 2 chapter is another dimension. I mean just AD, asthma, chronic rhinosinusitis with nasal polyps. And then all the other type 2 disease really followed a science in the skin, even what is, alpha-gal, chronic -- spontaneous urticaria, the cold-induced urticarias and then also in the respiratory space. So it's just that space is amazing, and you need both IL-4 and IL-13, we strongly believe to make it in.

Another competitor that looks even a little bit perhaps more challenging is, of course, the JAK inhibitors, where the data looks very, very good. Of course, the issue here is safety. What all the JAK companies argue is that just because Xeljanz has an issue, doesn't mean the other JAKs have an issue that they're all different and I'm just wondering from the scientific standpoint, maybe I'll put this question to Frank. From the scientific standpoint, why is that a flawed view that these aren't the same. These are all similar when it comes to safety?

Yes. Maybe I'll start with the Wall Street same point of view, which is, have you heard that term, this time it's different. How many times have you heard that? And how many time was it wrong? So I mean, essentially from a purely mechanistic basis, these are ATP competitive antagonists. And there's only one groove of kinases where ATP sits, which is essentially where the JAK kinases get their phosphates from and that groove has a very defined space, and you can be as clever as you might be in making small molecules, it's always that same groove. And that's why, especially at the higher doses, and that's where some of the competitiveness of some of the JAKs comes in, you need the higher dose spectrum. And that's where you essentially see things which includes severe infections, malignancies and thromboembolic complications and the very recent real-world data we got on TOFA, which is the starter ATP competitive antagonist in that field. It tells you -- it's out there in the real-world. It's not just in a trial situation. It's everywhere. And MACE events, which essentially link to the thromboembolic contacts have been flagged. So there's clearly going to be a very, very tough question dermatologists will ask in an office where you want to have a chronic treatment approach, which has to be safe. I've been there when we had cyclosporine A. Cyclosporine A is actually quite effective. But over a year, you get renal problems. You get -- your blood pressure rises, the safety is not there, and that's why cyclosporine A, it's small molecule, quite effective. Why is it not prescribed, it's because of the safety and the therapeutic benefit, which has to be balanced with the risk you expose patients towards.

Yes. And I just think on that, Steve, just from a -- more of a market perspective. In many ways, it's quite undifferentiated is the -- only the highest doses are showing the competitive efficacy. And even in the -- that efficacy doesn't seem to be sustained. So when you look at it over 24 weeks and after all, this is a chronic disease, you don't see that difference with Dupixent. Frank talked about some of the safety as well. And then it's -- let's not minimize the complexity either. People think of it as perhaps a pill. However, when you put in patient screening and lab monitoring, et cetera, it's not just a pill. And let's not have anyone believe that, that's the case. So we think, overall, the most important thing is the profile that Dupixent has the over 230,000 patients worldwide that it's been in, the increasing expansion of safety and efficacy data going to younger populations. We are -- we consider ourselves the leader, and we aren't going to give up that ground.

And just touching once again on the mechanistic aspect. And I'm not -- Frank, I don't want to put words in your mouth, but I'm trying to summarize what you said because it was a very interesting point, given the fact that all JAKs act through this ATP kinase pathway that with time and higher doses, it's highly likely other JAKs will also have cardiovascular risk. If I -- that statement is attributed to me, but would you argue with that statement?

Well, I didn't make that statement because I can't predict the future, and I can just give you the sort of the mechanistic perspective, which actually tells me that there's a lot more similarities. And to make it different this time, is going to be a very, very high buy. We're all data driven. So let's wait until we see data. But from a purely scientific and mechanistic aspect, there's only one pocket, and you can only squeeze in so many molecules, and they, by definition, have to look very similar and have similar safety types of problems.

One more question on Dupixent, then we'll move to some other topics. All the way back at the December 2019 Capital Markets Day, the company had said at that point that tezepelumab could pose a threat to Dupixent in asthma, but dependent on the data. Now we have the data. Data looks pretty good. What is your view about potential of tezepelumab now?

Yes. I mean -- so, I think the starting point is there's still a huge unmet need in moderate to severe asthma, specifically type-2 driven, which we think is about 80% of those asthmatics. And so as the product that is so fundamental to type 2, we really believe that we have the best profile across. Now we think they had their failure in the SOURCE study for OCS-dependent severe asthma and really see that the unmet need that tez is going to really satisfy as a smaller subset of patients, maybe less than 20% of patients in kind of this non-type 2 asthma. So, I think we'll see as more data becomes available, et cetera, but we don't see it as displacing what Dupixent has to offer, and it certainly doesn't seem to be as fundamental to the type 2 biology, which is the majority of the patients in asthma.

And just to add to that, we're obviously studying asthma. We're going out in the real-world, and we're doing studies where we include type 2 and non-type 2 and the type 2 is really where we see all the severe asthma and the unmet need. And it was interesting that I was struggling in a certain study, I don't want to name, to even get non-type 2 patients. It's actually -- it's a pretty mixed bag of patients, obesity plays into it. There is a variety of mechanisms hiding in that. But it's clearly, at least when you go out there and try to recruit for it in that particular study, you have to look for the patients. That's one point. And then the other one is really the totality of an asthma patient experience. One is obviously the exacerbation, which is absolutely here. The other one is your lung function, like you breathe every day. And the other one is the medications you need like oral corticosteroids. And if you look at the lung function element, there's differentiation of Dupixent versus tezepelumab with kind of a good difference. And then also, the -- obviously, the steroid usage, which is again pointing to the very severe populations. And the first time I met Bill, he said we're in here to really solve the severe disease problems. We're going to be a specialty care leader in I&I. And that's where we are with Dupixent. We are in this severe patient population and making a difference.

Let's move to another very important drug in the future of Sanofi and that's tolebrutinib. Looks great in Phase II trials. What do you see as the risks to successful development? What our MS experts tell us is that MS is kind of unique that what you see in Phase II, you usually get in Phase III. So there wouldn't seem to be a lot of risk relative to that aspect. But what do you worry about relative to tolebrutinib?

Yes, look -- for me, it's really the -- like you do in any program. You've got Phase III trials and you don't know until you know. We feel pretty confident, though, for a couple of reasons, as you said, Steve, the Phase II and the carryover that can have to the Phase III early. And secondly, we just think it's a great profile. I have to say, and I've been, as you know, in MS, a long time, probably more of my career than I haven't been in MS. And there's still, despite the number of disease-modifying therapies out there, there's still a high unmet need. There's only one approved agent for PPMS, and that's not so great, and there's nothing for SPMS without relapses. So we think part of this, again, going back to the biology, is because we are targeting with our brain-penetrant, BTKI, adaptive and innate immunity that this gives hope for I think, a really meaningful therapy in the space. And we've had questions about, well, you've got already a competitive market there, how much room is there for more therapies? And we expect by the 2024 time range to be about $24 billion market. And about 40% of that or $10 billion would be in the CD-20 space, with products such as OCREVUS. And we think that, that's going to be the place where we can be highly competitive and make -- just to be clear, we identified BTKI as the next pathway. And we didn't jump into another oral fumarate or another S1P. We said, what's really do we think going to make a difference and win. And it's not only what pathway was, what did the qualities of the product have to have? And we felt brain-penetrant was just absolutely critical. And we looked across the landscape and this one with Principia's Bruton. We really liked it the best, and that's the one that we ultimately have. So we're excited. I'm again, excited to get this product through development and launch it. I think it's going to be a real game changer in the MS space. And I think patients are waiting for this. This is kind of the product that has all the elements that they've been waiting for.

Yes. I mean maybe just to echo Bill and drive mechanistic message home, which I think is very important. Obviously, the CD-20, the B-cell space is important. So here, we have an oral, which actually is going into that space. So that already would be fantastic. If you would have an oral which goes into the CD-20 B-cell space, but via that brain penetrants and actually an activation of macrophages and activity on macrophages and microglia in the brain, you're going actually to the source of where a lot of the progressive elements of multiple sclerosis. And while we are very good at finding medicines for the relapsing or remitting, probably this is the progressive elements, the primary progressive, secondary progressive where patients are really on that journey, they can stop to basically get into the wheelchair. And recent science, not only from us but from others has really shown it's this microglia in the brain where there's a lot of activity. And you could even argue in other neuro diseases beyond MS, where degeneration, neurodegeneration plays a role. So, it's going to be a very interesting journey, and we start with MS and its various forms, but it could be really a very interesting pathway drug in neurology overall.

Let's move to another new drug within Sanofi and that's Libtayo. So recently approved in non-small cell lung cancer. We did have a lung cancer panel yesterday, and the KOLs expressed the view that the new entries, Libtayo, TIGIT and so forth, can ultimately get about 1/3 of the market. Now some of this is based on price. Some of it is based on other elements. But can you create for us an expectation on how Libtayo will penetrate the market? And what's your strategy to do so?

Well, look, so we're excited with the data, first of all, and that's where it all starts. And we consider it on par with the KEYTRUDA data. A 43% reduced risk of death in patients. That's with PD-L1 greater than 50%. So we think very strong data. And we think that there are some opportunities that remain. And we've -- by the way, we've launched already, right? So we have been very quick to mobilize the teams, and we're out there in under 48 hours out in the field. And we've identified segments of clinicians where we think we can target, then drive the adoption at launch, we're looking to maximize the synergies with our skin indications in the community. I think what -- an advantage we have, Steve, is that this isn't unfamiliar to people based upon what we've been doing in cutaneous squamous cell carcinoma. So we -- what we're hearing back from the community is based upon our criteria for the trial design and so forth, it does really reflect more of the current treatment practice. So, we think that it is going to be able to have a place in that indication. KEYTRUDA is the big beast in the market. And if we didn't have efficacy that was on par, I think we would be clearly concerned about it. But we think we're in a place for -- to compete pretty well. We'll be very targeted in our approach. And I think that I'm not going to go out and say, confirm a number that you're putting out there saying it could be 1/3. Let's get a little bit down the road and see how we do and we'll be able to report back with a little bit clearer expectations of where this can go.

Okay. Maybe we could, in our last few minutes, move to Sarclisa. So how would you characterize it's position in the market today? And how do you see this changing over time?

Yes. I mean, look, with Sarclisa, I think it's a developing story. And if you look at the first a couple of studies to read out, ICARIA and IKEMA, those really serve as the initial building blocks of the program. And as we move earlier into earlier lines of therapy, that's where we believe that the real opportunity lies. And I think we're on competitive time lines to generate the first-line therapy data, looking at VRd and KRd as backbones. And so I think this is a more to come. So far, the data shows that it is a -- that the data looks very good. The feedback from the community is that your data looks, in some ways, it could be the best-in-class, and we'll open that up as we -- we'll know that as we open up more of the envelopes in the coming even months with some of the data. The challenge that we've had, to be perfectly honest, is we launched about almost a year ago, it was the week before we went into lockdown. And multiple myeloma and the practices and the treaters, it took -- it was a tough environment to launch in because patients are at such risk for infection, that there was a lot of impact with the pandemic. But what we're starting to see is we've seen a shift towards earlier lines of use for us, we've seen that kind of on a month-over-month basis, we have growth in sales. And we've also seen some really promising signs as we look around the world. So, in Japan, where we had reimbursement in August of 2020, our zero-based launch curve is tracking pretty much in line with daratumumab. And in Europe, we're getting going with launches, and we just launched in Germany last month. So I think there's momentum that's building, but it's going to be getting to earlier lines of therapy and our belief is that the profile is going to emerge as being potentially the best-in-class as we get to those new indications, Steve.

Maybe we'll conclude with a financial question. So, at least, as we see it, to -- for the company to meet its margin targets as a group, it appears to us that SG&A spending would actually have to, over time, decrease in absolute terms. And the question to you, Bill, is how do you do that? How do you spend in SG&A less each year while you're defending Dupixent and launching all these great new drugs? Or am I wrong that SG&A spending necessarily will not decrease in absolute terms?

Well, look, first of all, we're committed to our BOI margin target of 30% in 2022, that JB has talked about. And we're not moving off of that. I think a lot of this comes from being very focused. We -- you've seen that a lot more prioritization with the organization, so that we're making sure that we are spending on the right things. We have a lot of efficiency programs underway where we are trying to squeeze any extra cost out of anything to put it in the right places, which is going to be the pipeline and our launches.

Great. Well, I think you've given me one more minute. So let's use it -- since that was a concise answer. Let's talk about another very exciting product in development that's BIVV001. Once approved, how will this agent be positioned in the marketplace?

Yes. So we now are referring to it as Afa. It is, we think, just really a great product. It allows you to have factor levels, which are going to be in the normal range for at least half of the week. And then finally still returning down to a level, which is greater than what we've seen with any other product, and this will be truly weekly. So if you've got a patient that wants to have an active normal lifestyle, this is the product that is going to be preferred. Still, if you look at the market in the U.S., 70% is factor, we think this is going to be by far the best factor. And while that factor, non-factor share will change over time as far as factors go, that could be the one that leads the way.

Great. So we are out of time. Bill, Frank, I want to thank you for a great rundown on so many topics and lots of exciting stuff to look forward to. So we appreciate your time and all your insights.

Thanks, Steve. We'll see you next year.