Pharmaceutical Therapeutic Categories Outlook
`
`The $355B worldwide pharmaceutical industry has terrific secular growth prospects, driven mostly
`by new products derived from rich R&D pipelines. New research tools for finding promising targets
`and strategies for reducing development time bolster the long-term outlook. These factors more than
`offset near-term uncertainties in the regulatory review process and debate on the need for
`prescription drug benefits. This comprehensive study forecasts trends in the major therapeutic drug
`categories through 2005. Each category is defined by therapeutic need, market size, growth outlook,
`major new compounds in development, and an assessment of individual company prospects. As
`shown below, the companies predicted to lead in “Market Share,” “Total Therapeutic Positions,” and
`“Leading Therapeutic Positions” are similar to last year. However, a new group of companies is
`poised for “Market Share Gain” through 2005. This analysis reaffirms our top picks in the group:
`Bristol-Myers Squibb, Eli Lilly, Pfizer and Pharmacia. We also like Elan, Forest Labs and King
`Pharmaceuticals in the mid-cap Rx segment.
`
`WHICH COMPANIES WILL LEAD INDUSTRY THROUGH 2005?
`
`Market Share
`GlaxoSmithKline
`Pfizer
`Merck
`Bristol-Myers Squibb
`Aventis
`
`Market Share Gain
`Eli Lilly
`Novartis
`Amgen
`Johnson & Johnson
`American Home Products
`
`Total Therapeutic Positions
`Pfizer (12)
`Pharmacia (11)
`GlaxoSmithKline (9)
`Johnson & Johnson (9)
`Merck (9)
`
`Leading Therapeutic Positions
`GlaxoSmithKline (4)
`American Home Products (3)
`Bristol-Myers Squibb (2)
`Pfizer (2)
`
`Company
`Abbott Laboratories
`American Home Products
`Amgen
`Bristol-Myers Squibb
`Elan
`Eli Lilly
`Forest Labs
`Genentech
`GlaxoSmithKline
`Johnson & Johnson
`King Pharmaceuticals
`Merck
`Pfizer
`Pharmacia
`Schering-Plough
`
`SG COWEN PHARMACEUTICAL UNIVERSE
`
`Symbol
`ABT
`AHP
`AMGN
`BMY
`ELN
`LLY
`FRX
`DNA
`GSK
`JNJ
`KG
`MRK
`PFE
`PHA
`SGP
`
`Stock
`Rating
`1
`2
`2
`1
`2
`1
`1
`2
`2
`2
`1
`2
`1
`1
`2
`
`9/27/01
`Price
`$50
`57
`57
`53
`48
`79
`71
`42
`53
`54
`42
`63
`39
`39
`35
`
`EPS
`
`2002E
`$2.26
`2.60
`1.35
`2.60
`2.30
`2.85
`1.89
`0.95
`2.40
`2.20
`1.35
`3.45
`1.60
`2.06
`1.85
`
`2001E
`$1.89
`2.18
`1.18
`2.39
`1.90
`2.80
`1.60
`0.75
`2.11
`1.93
`1.01
`3.15
`1.30
`1.74
`1.65
`
`P/E
`2001E
`2002E
`26X
`22X
`26
`22
`48
`42
`22
`20
`25
`21
`28
`28
`44
`38
`56
`44
`25
`22
`28
`25
`41
`31
`20
`18
`30
`24
`22
`19
`21
`19
`
`Stephen M. Scala
`(617) 946-3923
`scalas@sgcowen.com
`
`Ian C. Sanderson
`(617) 946-3922
`sandersi@sgcowen.com
`
`Jonathan R. Moran, CFA
`(617) 946-3755
`moranj@sgcowen.com
`
`Kenneth C. Cacciatore
`(617) 946-3968
`cacciatk@sgcowen.com
`
`Jean B. Perreault
`(617) 946-3967
`perreauj@sgcowen.com
`
`Mylan Ex.1087
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`
`

`

`
` DEFINITION/
` BACKDROP
`
`
`20% CGR 2000-05
`
`Diabetes
`q Diabetes: An Under-Treated And Widespread Disease
` Diabetes mellitus is characterized by abnormalities of glucose
`production and utilization, which,
`in
`turn, are caused by
`abnormalities of pancreatic insulin release. If left unregulated,
`abnormally high glucose levels over time result in organ damage
`involving the nervous system, kidneys, eyes, and circulatory system.
`An estimated 5-6% of the U.S. population, or roughly 16MM people,
`suffer from diabetes, with approximately 8MM undiagnosed. About
`90% of patients with diabetes have the adult onset type, known as Type 2 (non-insulin
`dependent). In Type 2 diabetes, often both the secretion of insulin from the pancreas and the
`action of insulin on tissues such as fat and muscle are abnormal. Patients continue to produce
`insulin, sometimes in excessive amounts, but the ability to use the insulin and the amount
`secreted deteriorates over time. Many patients with Type 2 diabetes are obese and this
`adversely affects insulin’s ability to work. Ten percent of diabetics have Type 1 diabetes, which
`is a state of absolute insulin deficiency stemming from autoimmune destruction of the insulin-
`producing cells in the pancreas. Patients with Type 1 diabetes produce little or no insulin and
`are dependent on daily insulin injections for survival. A small percentage of diabetics who
`appear to have Type 2 diabetes actually have a slowly progressing form of Type 1 and require
`insulin therapy. Many patients with Type 2 diabetes also require insulin treatment later in the
`course of their disease. Long-term complications caused by diabetes include decreased
`vision/blindness
`(diabetic
`retinopathy),
`reduced kidney
`function/failure
`(diabetic
`nephropathy), nerve damage (diabetic neuropathy) and circulatory disorders.
` Diabetes
` Category Market Share By $ Sales
`
`2005E
`$25B
`
`LLY
`14%
`
`Other
`42%
`
`TDCHF
`14%
`
`NVO
`12%
`
`
`
` PARTICIPANTS
`
`
`
`
`
`
`
`Other
`31%
`
`PFE
`4%
`
`AVE
`8%
`
`2000
`$10B
`
`LLY
`21%
`
`BMY
`20%
`
`NVO
`16%
`
`
` In 2000, Eli Lilly and Bristol-Myers Squibb dominated the diabetes category with 21% and 20%
`dollar shares, respectively, via their insulin and oral diabetes franchises, respectively. Lilly
`should sustain its leadership through 2005, and Takeda could move into second place, based
`on the anticipated success of Actos. Novo Nordisk should share second place. Overall, we
`look for the market to more than double by 2005.
`
`GSK
`10%
`
`BMY
`10%
`
`135
`
`Therapeutic Categories Outlook 10/2001
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`MAJOR
`TRENDS &
`ISSUES
`
`−
`
`Insulin will remain a mainstay therapy, and more than double in sales through 2005. Eli
`Lilly, Novo Nordisk, and Aventis will benefit.
`− Oral agents, particularly the glitazones, have big potential, and could delay or avoid the
`need for insulin therapy. Sales of glitazones could more than triple by 2005;
`GlaxoSmithKline/Bristol-Myers Squibb’s Avandia and Takeda/Eli Lilly’s Actos will benefit.
`Growth of new versions of Bristol-Myers Squibb’s Glucophage will be clipped by rollout of
`generics.
`− Novel insulin delivery methods, particularly inhaled formulations, will encourage use of
`insulin and increase the amount of insulin sold. Inhale Therapeutic Systems/Pfizer/Aventis,
`Aradigm/Novo Nordisk, and Alkermes/AIR/Eli Lilly are positioning to benefit.
`− Diabetes complication products have very large potential, assuming ongoing clinical work
`shows them to be effective and safe. Eli Lilly leads here.
`− Our scatter plot shows that through 2005, Eli Lilly, Novo Nordisk, and Takeda should
`dominate the diabetes segment, and this category is critical to their growth.
`
`Diabetes
`
`TDCHF
`
`NVO
`
`GSK
`
`BMY
`
`LLY
`
`AVE
`
`160%
`
`140%
`
`120%
`
`100%
`
`80%
`
`60%
`
`40%
`
`20%
`
`0%
`PHA
`
`JNJ
`
`ABT
`BAYG
`NVS
`ESALY
`
`PFE
`
`% Of Company 2000-05 Sales Growth From Category
`
`-20%
`$0.0
`
`$1.0
`
`$2.0
`
`$3.0
`
`$4.0
`
`$5.0
`
`$6.0
`
`2005 Sales Contribution By Company To Category ($ In B)
`
`136
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`Therapeutic Categories Outlook 10/2001
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`

`ESTIMATED WORLDWIDE MARKET FOR DIABETES/METABOLIC DRUGS BY CLASS ($MM)
`
`NRx
`$
`‘00-05 ‘87-00
`2005P
`2000
`Market % Total Market % Total CGR
`CGR Comments
`$2,348
`23% $9,035
`36%
`31%
`NM - BMY/GSK’s Avandia, LLY/Takeda’s Actos
`
`3,242
`
`32%
`
`6,863
`
`27%
`
`16%
`
`5% - LLY and NVO dominate; includes inhaled
`insulin
`
`Drug Class
`Glitazones
`
`Insulins
`
`Sulfonylureas
`
`Thyroid Drugs
`
`789
`
`663
`
`8%
`
`6%
`
`1,110
`
`569
`
`4%
`
`2%
`
`Other Oral Agents
`
`3,185
`
`31%
`
`7,636
`
`30%
`
`Total Market
`
`$10,228
`
`100% $25,213
`
`100%
`
`7%
`
`-3%
`
`19%
`
`20%
`
`NA - Various therapies
`
`25% - ABT’s Synthroid, KG’s Levoxyl
`
`7% - Glucophage/metformin; other
`
`10% - Driven by the glitazones
`
`
`
`
`
` DETAILED
`DISCUSSION
`
`q Insulin To Remain A Mainstay Therapy
` There are an estimated 11-12MM Type 1 diabetics in the world, and many are on regular
`insulin therapy. In addition, approximately 40-50% of patients with Type 2 diabetes in the U.S.
`require insulin at some point. When they do, they require higher doses of insulin than patients
`with Type 1 diabetes because of their resistance to its action. Given the enormous population
`of Type 2 diabetics worldwide (90MM+), the market for insulin is large and should continue to
`grow, even with the availability of new oral agents that may delay the need for or amount of
`insulin required. All told, the insulin market totaled $3.2B in 2000 and is dominated by Eli
`Lilly and Novo Nordisk. We anticipate increased use of insulin in combination regimens and
`in inhaled formulations. Thus, we still forecast 16% sales growth in the insulin market over
`2000-2005, driven by continued patient growth, the emergence of newer premium-priced
`formulations, and increased units as lower-bioavailability, inhaled formulations grow.
`− Short-Acting Insulin Analogues Offer Important Benefits – Short-acting insulin
`analogues are very important and useful because, when used properly, they produce less
`hypoglycemia during the nighttime hours, can be used conveniently immediately before
`meals, and assist treatment of children, but adoption likely will remain slow. This is due to
`the fact that most diabetics are treated by general practitioners and not endocrinologists
`and diabetologists. General practitioners are less likely to prescribe short-acting insulin
`analogues given that they are difficult to use to achieve tight glucose control. Nonetheless,
`they offer substantial quality of life enhancement. Eli Lilly’s Humalog sales are estimated at
`$620MM in 2001 and $1,300MM in 2005. Novo Nordisk’s rapidly-acting insulin has been
`launched in Europe, and U.S. launch of Novolog is expected in Q4:01. Aventis is believed
`to have a short-acting insulin in Phase II. Premixed insulins are viewed cautiously by
`doctors because they eliminate flexibility and are easy to prescribe inappropriately. Despite
`this concern, Eli Lilly’s premixed insulin, which utilizes Humalog, has enjoyed a
`spectacular launch. Premixed insulins are more likely to be used in Type 2 than in Type 1
`diabetes.
`− Aventis’ Lantus Widely Accepted In The U.S. And Europe - Our physician consultants
`have enthusiastically embraced Aventis’ Lantus (insulin glargine), a new long-acting insulin
`differentiated by its steady 24-hour pharmacokinetic profile. The efficacy benefits provided
`by Lantus (dosed via a once-daily subcutaneous injection) in combination with mealtime
`fast-acting insulin injections have raised the benchmark for glucose control in Type 1
`diabetics. Our consultants believe that, as Lantus use expands, more patients will achieve
`
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`HbA1C targets of 7.0% or less. We peg Lantus sales at $230MM in 2001 and $635MM in
`2005.
`
`US INSULIN MARKET
`
`70.0%
`
`60.0%
`
`50.0%
`
`40.0%
`
`30.0%
`
`Market Share
`
`20.0%
`
`10.0%
`
`0.0%
`
`Jun-00
`
`Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00 Jan-01
`
`Feb-01 Mar-01 Apr-01 May-01 Jun-01
`
`Jul-01 Aug-01
`
`Lantus
`
`Humulin Group
`
`Humalog Group
`
`Novolin Group
`
`Source: IMS America
`q Oral Drugs Are Changing Landscape Of Diabetes
` Oral agents have enhanced the ability to control the symptoms of diabetes and to improve
`patients’ quality of life. Bristol-Myers Squibb’s Glucophage, which currently dominates the oral
`antihyperglycemic market, works by reducing the amount of glucose the liver excretes.
`Glucophage sales are estimated at $1,575MM (-9%) in 2001, declining to $25MM in 2005, due
`to generic competition. Exclusivity for Glucophage expired in 9/2000, and we expect generics
`to be approved imminently. New formulations of Glucophage (e.g., Glucovance and
`Glucophage XR) should support the franchise; switching from Glucophage to the new
`formulations has gone well. Glucovance sales are projected at $435MM in 2001 and $1.5B in
`2005, and Glucophage XR sales are forecast at $350MM in 2001 and $1,050MM in 2005. All
`told, Glucophage franchise sales are pegged at $2,360MM (+25%) in 2001 and $2,575MM in
`2005. GlaxoSmithKline’s Avandia is highly potent, and produces substantial reductions in
`fasting blood glucose at lower doses. Avandia’s sales are estimated at $1,225MM in 2001, rising
`to $2,375MM in 2005. Eli Lilly’s Actos, licensed from Takeda for the U.S. and certain other
`world markets, is similar to Avandia in terms of effectiveness in lowering HbA1c. We peg
`worldwide sales of Actos at $1,400MM in 2001 and $3,115MM in 2005. Novo co-markets
`Actos in Japan, and Takeda will market Actos alone
`in major European markets.
`GlaxoSmithKline, J&J, Merck, Novo Nordisk, and Pharmacia have follow-on insulin sensitizers
`in development.
`− Newer Glitazones Leave Room For Improvement – Our physician consultants note that
`Actos and Avandia have not met initial expectations, possibly due to less robust efficacy
`compared with Rezulin and side effects, most notably edema and LDL cholesterol
`elevations. In August, Actos and Avandia had 8.3% and 9.4% new prescription share of the
`
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`oral diabetes category, respectively. Hepatoxicity has not been observed with Avandia and
`Actos. Avandia and Actos thus far have avoided significant hepatic side effects and require
`less frequent liver enzyme monitoring.
`
`− Effectiveness Of All Glitazones Likely More Similar Than Different – Despite the
`differing efficacy results from numerous clinical studies with the glitazones, our physician
`consultants believe that the efficacy of Avandia and Actos is remarkably similar. The
`differences in the data are due to variations in study design and patient characteristics.
`Avandia is convincingly more effective administered twice-daily versus once-daily, although
`the most commonly-used dose is 4mg once-daily. While a once-daily version of a drug is
`preferable, compliance studies suggest that there is little difference in patient compliance
`when a drug is administered once versus twice per day.
`
`
`
` Avandia 2mg
` Avandia 4mg
` Avandia 8mg
` Actos 15mg
` Actos 30mg
` Actos 45mg
`
` Monotherapy
` 0.9
` 1.2
` 1.5
` 1.2
` --
` 1.9
`
` Sulfonylurea
` 0.6
` 1.0
` --
` 0.9
` 1.3
` --
`
` HBA1C REDUCTIONS OF THIAZOLIDINEDIONES*
`
` Combination With
` Insulin
` --
` 0.6
` 1.1
` 0.7
` 1.0
` --
`
` Metformin
` --
` 1.0
` 1.2
` --
` 0.8
` --
`
` *HbA1c levels at baseline lower in Avandia than Actos clinical trials.
`
` RELATIVE SAFETY OF THIAZOLIDINEDIONES IN
` CLINICAL STUDIES
` Avandia
` ++
` +
` ++
` +/?
` No
` No?
`
`
`
` Weight Gain
` Edema
` Anemia
` Adverse Impact On Lipids
` Cardiovascular Events
` Hepatotoxicity
`
` Actos
` ++
` ++
` +
` No
` No
` No?
`
` Lipid Profile And Metabolism Pathways Likely Will Not Differentiate – Long-term
`trials indicate that Actos reduces triglycerides, while Avandia has no impact. Lilly markets
`this differentiating feature to general practitioners, and will do head-to-head studies of
`Actos versus Avandia to further illustrate this point. Some physicians might be hesitant to
`prescribe Avandia in patients with high cholesterol. GlaxoSmithKline states that Avandia
`reduces triglyceride levels in patients with high triglycerides, and overall, is lipids-neutral.
`However, our physician consultants believe that there is no significant difference in the
`lipid profiles of Avandia and Actos and that head-to-head studies comparing the two drugs
`likely would uncover no differences in the lipid profiles. They believe that label
`distinctions have been driven by different study designs and patient populations in the
`Avandia and Actos clinical trials. On the other hand, Actos is partially metabolized through
`the P450 3A4 pathway, possibly resulting in interactions with other drugs that utilize this
`pathway. Avandia is not metabolized via P450 3A4, which may allow it to offer a better
`drug interaction profile. Once again, our physician consultants’ view this distinction as
`unimportant. Other side effects, such as edema and weight gain, do not appear to be major
`points of differentiation for the glitazones.
`
`139
`
`Therapeutic Categories Outlook 10/2001
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
` −
`
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`

`DIABETES MARKET
`
`35.0%
`
`30.0%
`
`25.0%
`
`20.0%
`
`15.0%
`
`10.0%
`
`5.0%
`
`0.0%
`
`Market Share
`
`21-Sep-01
`
`7-Sep-01
`
`24-Aug-01
`
`10-Aug-01
`
`27-Jul-01
`
`13-Jul-01
`
`29-Jun-01
`
`15-Jun-01
`
`1-Jun-01
`
`18-May-01
`
`4-May-01
`
`20-Apr-01
`
`6-Apr-01
`
`23-Mar-01
`
`9-Mar-01
`
`23-Feb-01
`
`9-Feb-01
`
`26-Jan-01
`
`12-Jan-01
`
`29-Dec-00
`
`Glucophage
`
`Glucophage XR
`
`Glucovance
`
`Avandia
`
`Actos
`
`Source: IMS America
`− Bristol-Myers’ Glucophage Has Great Utility But Sales Will Decline - Glucophage has
`been a great success, and it now claims 24.4% of the oral hypoglycemic market. For the
`most part, Glucophage’s gains have not been at the expense of but in addition to other
`therapies, illustrating that treatment is becoming more intensive. Glucophage offers
`excellent blood glucose lowering capability without hypoglycemia. The drug also may
`assist with weight reduction, an action that is beneficial to overweight patients with Type 2
`diabetes. The side-effect profile, while clearly not benign, is predictable. The drug is
`available in a tablet formulation, in 500mg, 850mg and 1000mg strengths. Glucophage’s
`optimal dose is 2gm, yet the current average dose is 1.3gm. Glucophage lost exclusivity in
`September, 2000 (including a six-month pediatric extension), although generics were not
`able to file prior to exclusivity expiration, and no generic competitors are on the market
`currently. We expect generic approvals over the next 1-2 months. Multiple generics could
`be approved simultaneously because no company has 180 days of marketing exclusivity.
`Efforts to protect the Glucophage franchise, including Glucovance (fixed-dose combination
`of Glucophage/Glyburide) and Glucophage XR (once daily), are off to a good start and
`should grow post 2002, when Glucophage encounters generic competition. Based on this
`mix of factors, we project a decline in Glucophage franchise sales in 2002, and resurgence
`in 2003-05.
`− Bristol Off To Good Start In Glucophage Franchise Conversion Efforts – Bristol is
`converting diabetics from Glucophage immediate-release to Glucovance and Glucophage
`XR. Heavy detailing and “Month Free” marketing programs have driven this success.
`Indeed, new prescription market share for Glucophage XR totalled 8.5% and Glucovance
`6.8% in August. Glucovance is available for first-line usage in three dosage strengths:
`1.25mg/250mg, 2.5mg/500mg, and 5mg/500mg. Bristol seeks to switch one-half of patients
`on the individual components to the combination tablet, 56% of patients on Glucophage
`who are uncontrolled, and 54% of patients on a sulfonylurea who are uncontrolled. In
`sum, these segments total about 40% of current Glucophage volume. The 1.25mg/250mg
`tablet is priced a few percent below Glucophage 500mg, while the 2.5mg/500mg and
`
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`5mg/500mg tablets are priced in line with Glucophage 500mg plus the cost of glyburide.
`Our physician consultants cited restrictive formularies and reluctance to use combination
`products as obstacles to conversion. The Diabetes Prevention Program (DPP) study
`assesses Glucophage 850mg BID versus (1) standard therapy/education and (2) diet and
`exercise. The primary endpoint of DPP is the percentage of patients with impaired glucose
`tolerance that progress to diabetes. Our physician consultants expect that the results of
`DDP will show that Glucophage has superior efficacy relative to standard therapy and diet
`and exercise.
`q Other Oral Drugs In Development Hold Promise
`− GlaxoSmithKline’s G1262570 Has Solid Efficacy, But Early Signs of Hepatoxicity
`Must Be Watched – G1262570, a PPAR gamma recepter agonist, is in Phase III clinical
`studies. Three Phase III trials are complete, and four additional trials are expected to be
`completed this year. At 2.5mg, HbA1c declined 1.2%, triglycerides declined 28%, HDL
`increased 20% and LDL was not affected. Signals of hepatoxicity were observed in early
`data. Dose-related edema limits higher dosing. Phase III data should be available in H2:02;
`NDA and MAA filings are anticipated in 2003. We have no sales contribution for
`G1262570 in our models.
`
`– Pfizer’s CP-368,296: Offers A Novel Mechanism - Pfizer is developing CP-368,296, a
`glycogen phosphorylase inhibitor for the treatment of Type I and II diabetes. Pfizer
`indicates that CP-368,296 lowers blood glucose and reduces the risk of hypoglycemia. CP-
`368,296 is in Phase II trials. Given its early phase of development, we have no contribution
`for this product in our models.
`
`– Pfizer’s CI-1037: A Second-Generation Glitazone In Human Clinical Trials - Pfizer has
`worldwide rights ex Japan from Sankyo to CI-1037, a second-generation glitazone. It is in
`Phase I development. The compound activates the PPAR-gamma receptor at a rate 10x that
`of Avandia, and is 100x more potent in animal models. It exhibits lipid lowering activity in
`all animal models. Given its early phase of development, we have no contribution for this
`product in our models.
`− American Home Products’ PTP-112, A New Treatment For Type II Diabetes –
`American Home is developing PTP-112, an oral phosphotyrosine phosphatase 1B inhibitor,
`for the treatment of Type II diabetes. PTP-112 promotes and prolongs a diabetic’s response
`to insulin by blocking the insulin receptor. Animal studies have shown that PTP-112
`reduces plasma glucose, weight and lipids, and normalizes insulin sensitivity. PTP-112 is
`in Phase II. PTP-112 was well tolerated in Phase I, with no evidence of liver enzyme
`elevations or edema. American Home is targeting an NDA filing in 2005. We have no sales
`contribution in our models for PTP-112.
`− Numerous Other Drugs Have Utility In The Control Of Diabetes - Other oral diabetes
`agents such as sulfonylureas, which lower blood sugar levels by stimulating the pancreas to
`produce insulin, have been used widely in Type 2 diabetes. Newer compounds appear to
`effect a similar change in glycosylated hemoglobin (a measurement of long-term glucose
`control) while avoiding troubling side effects; some of these agents prompt favorable lipid
`profiles. This is critical in these patients given susceptibility to cardiovascular disease.
`Novo Nordisk’s Prandin is viewed as a sulfonylurea by physicians, although Prandin is
`chemically different from the class. Prandin’s differentiating feature is that it is rapid
`acting, allowing for usage just before mealtime. This administration format is easy for
`diabetes patients, who are prone to skipping meals or missing doses. In addition, Prandin
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`is excreted through the bile rather than the kidney, an advantage to diabetics with kidney
`problems. Prandin was initially thought to prompt weight gain, which also occurs in
`patients on sulfonylureas, but recent research suggests that weight can be managed or even
`reduced. Prandin/Novonorm sales are estimated at $170MM in 2001 and $300MM in 2005.
`Novartis’ Starlix, an amino acid-based insulin secretagogue, claimed 1.0% of the diabetes
`market in August. The fact that Starlix is not related to sulfonylureas is a plus, but
`physicians view it as similar to Prandin, which had a lackluster rollout, in part due to
`inadequate marketing. Novartis argues that post prandial glucose spikes are an important
`manifestation requiring control, and that Starlix controls these spikes via its three-times-a-
`day dosing after meals. Our physician consultants tell us that control of glucose spikes is
`gaining credit in the diabetes community. We estimate Starlix sales at $60MM in 2001 and
`$300MM in 2005. Bayer’s Precose, which works to delay the absorption of glucose from
`the intestine, has utility in a subset of patients, particularly in combination therapy,
`although gastrointestinal side effects are troubling.
`q Enthusiasm Building For Lilly’s PKC Inhibitor In Diabetes Complications
`LY333531 is an oral protein kinase C (PKC) inhibitor for diabetes complications, specifically
`macular edema (fully enrolled 2/00) and proliferative diabetic retinopathy (fully enrolled).
`More than 1,000 patients have been safely exposed to LY333531, with some patients treated for
`greater than one year. Three-year trials of the PKC inhibitor continue for both indications.
`Endpoints for both indications are clear, and target roughly 20% superiority over the control
`group. All patients in the trial have some evidence of disease. Lilly has not been specific
`relative to when the three-year trials end or the timing of interim reviews. However, no data
`are expected this year. There are no safety issues with PKC. Our physician consultants believe
`LY333531 may be useful in other diabetic complications (i.e., neuropathy). Regulatory
`progress in Europe could pace faster than that in the U.S. given that European authorities
`apparently view the pathology of diabetic retinopathy and diabetic macular edema as similar
`and hence the studies are interchangeable. U.S. authorities may require separate studies. Lilly
`targets a regulatory filing in Europe in 2003. The U.S. filing could occur in 2004 due to the
`need to conduct an additional Phase III clinical trial. We estimate sales of LY333531 at
`$400MM in 2004 and $800MM in 2005.
`q Considerable Excitement Surrounds New GLP-1 Analogs
`There is considerable excitement surrounding the new GLP-1 analogs from Eli Lilly, Novo
`Nordisk/Scios, and Amylin Pharmaceuticals. GLP-1 analogs provide a smoother, more
`physiological control of blood glucose levels than insulin injections, and look to be useful in
`controlling post-prandial glucose excursions that are common with fast acting insulins. Our
`consultants believe that the three leading candidates are all competitive (Amylin’s Exendin-4,
`Novo Nordisk/Scios’ NN-2211, and LLY’s GLP-1). All are in Phase II development, but
`Exendin-4 may be slightly ahead. Our consultants were impressed by the incremental HbA1C
`reductions (approximately 1%) shown in a relatively short (28-day) Phase II study of Exendin
`plus oral hypoglycemic agents in poorly controlled Type 2 diabetes patients. A relatively high
`rate of hypoglycemia (15% of patients) was not overly concerning, as our consultant believes it
`could be managed via reducing the dose of the oral hypoglycemics. The high rate of nausea
`(28%) is more concerning, but may be improved via a depot injection system in Phase II
`development with Alkermes.
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`q Other Injectable Anti-Diabetes Drugs Show Promise
` Our physician consultants had initial enthusiasm for the efficacy of Genentech’s IGF-1 insulin-
`like growth factor I. However, side effects, including the appearance of optic nerve swelling
`and/or retinopathy, the need to improve the delivery of the drug, and the projected length of
`development to address concerns over toxicity resulted in a decision to halt development.
`Insmed’s SomatoKine (IGF-I/IGFBP-3) insulin-like growth factor I increases insulin sensitivity,
`reduces exogenous insulin requirements, and improves glycemic control; ultimately, it may
`reduce diabetic complications. Additional benefits include a reduction in cholesterol and
`triglyceride levels, promotion of weight loss, amelioration of diabetic neuropathy. SomatoKine
`is the recombinant equivalent of the natural complex formed by the insulin-like growth factor-I
`(IGF-I) and its major regulatory binding protein (BP3). Due to the regulatory action of the
`binding protein on IGF-1, the side-effect profile of SomatoKine appears to be more acceptable
`than that of IGF-1 alone. IGF-1 efforts of Genentech and Chiron were discontinued due to a
`high incidence of hypoglycemia and jaw pain. However, SomatoKine is well tolerated, with no
`evidence of hypoglycemia or jaw pain observed. In clinical trials, SomatoKine reduced the
`amount of insulin required by 49%, and reduced average daily blood glucose levels by 23% in
`severe type I diabetics. Further, SomatoKine reduced the amount of insulin required by 68%
`and reduced average daily blood glucose levels by 14% in severe type II diabetics.
`
`q Inhaled Insulin Remains A Big Opportunity, But Safety A Factor
`− Physician Consultants Cautiously Optimistic About Potential Of Inhaled Insulin –
`Our diabetes physician consultants remain optimistic about the long-term prospects for
`inhaled insulin, despite recent safety questions. They believe inhaled insulin may be
`particularly useful in the Type II diabetes patient population, where the move from oral
`agents to injectable insulin causes compliance problems for many patients, and where
`blood glucose control is often not optimal with oral agents alone. Recent safety concerns
`surrounding the most advanced inhaled insulin development program, Pfizer/Aventis/
`Inhale’s “Exubera”, have tempered enthusiasm. These concerns stem from adverse events
`reported in the Exubera Phase III trials, which enrolled more than 1,000 patients: four
`confirmed cases of pleural effusion (fluid accumulation between the chest cavity and
`lungs); two reported cases of pulmonary fibrosis (scarring and hardening of lung tissue);
`and elevated levels of insulin antibody formation. Although most of the events were likely
`due to preexisting conditions or other etiology, they have nonetheless raised concerns
`regarding long-term safety. To allow more time to address the safety questions, Pfizer has
`delayed the Exubera NDA filing by 6-12 months, to H2:2002. We believe that Pfizer is
`accumulating longer-term safety data. Given these new concerns, market penetration of
`inhaled insulin may be tempered as physicians may be reluctant to switch patients to
`inhaled insulin in the near term until long-term safety data in a broad patient population is
`available.
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`Total Market:
`U.S. Population (MM)
`% Estimated Diabetes Sufferers
`Estimated U.S. Diabetes Sufferers (MM)
`% Diagnosed
`Estimated Treated Diabetes Patients (MM)
`
`Type I:
`Type I % of Total Diabetes Market
`Estimated Type I Sufferers (MM)
`% Insulin Treated
`Patients Treated (MM)
`Average Daily Cost
`Market Size (MM)
`
`Type II:
`Type II % of Total Diabetes Market
`Estimated Type II Sufferers (MM)
`% Of Type II Diabetics Using Insulin
`Patients Insulin Treated (MM)
`Insulin Compliance Factor
`Average Daily Cost
`Market Size (MM)
`
`Total Estimated U.S. Insulin Market (MM)
` % Growth
`Source: Company reports and SG Cowen estimates
`
`Inhaled Insulin:
`Pfizer/Aventis/Inhale "Exubera" - Revenue Share
`Patient Penetration of Type I
`Patient Penetration of Type II
`Number of Patients (MM)
`Average Daily Cost
`Sales (MM)
`Novo Nordisk/Aradigm - Revenue Share
`Patient Penetration of Type I
`Patient Penetration of Type II
`Number of Patients (MM)
`Average Daily Cost
`Sales (MM)
`Eli Lilly/Alkermes (AIR) - Revenue Share
`Patient Penetration of Type I
`Patient Penetration of Type II
`Number of Patients (MM)
`Average Daily Cost
`Sales (MM)
`Partner/Aerogen - Revenue Share
`Patient Penetration of Type I
`Patient Penetration of Type II
`Number of Patients (MM)
`Average Daily Cost
`Sales (MM)
`Total Estimated U.S. Inhaled Insulin Mkt ($MM)
` % Growth
`Total Estimated U.S. Insulin Market ($MM)
` % Growth
`Source: Company reports and SG Cowen estimates
`
`U.S. INSULIN MARKET DYNAMICS ($MM)
`2001E
`2002P
`2003P
`2004P
`2005P
`
`2000
`
`CGR Comments
`
`276.5
`6.0%
`16.6
`67%
`11.2
`
`5%
`0.9
`100%
`0.9
`$1.00
`$320
`
`95%
`15.7
`27%
`4.3
`56%
`$0.88
`$775
`
`279.3
`6.5%
`18.2
`68%
`12.3
`
`5%
`1.0
`100%
`1.0
`$1.00
`$345
`
`95%
`17.2
`28%
`4.9
`57%
`$0.90
`$920
`
`282.1
`6.7%
`18.8
`69%
`12.9
`
`5%
`1.0
`100%
`1.0
`$1.00
`$355
`
`284.9
`7.2%
`20.5
`69%
`14.1
`
`5%
`1.1
`100%
`1.1
`$1.00
`$385
`
`287.8
`7.5%
`21.6
`69%
`14.9
`
`5%
`1.1
`100%
`1.1
`$1.00
`$400
`
`290.6
`7.8%
`22.5
`70%
`15.9
`
`5%
`1.1
`100%
`1.1
`$1.00
`$420
`
`95%
`17.8
`29%
`5.2
`59%
`$1.05
`$1,165
`
`95%
`19.4
`30%
`5.7
`61%
`$1.25
`$1,580
`
`95%
`20.5
`31%
`6.3
`65%
`$1.40
`$2,120
`
`95%
`21.4
`33%
`7.1
`66%
`$1.80
`$3,035
`
`$1,095
`+18%
`
`$1,265
`+16%
`
`$1,520
`+20%
`
`$1,965
`+29%
`
`$2,520
`+28%
`
`$3,455
`+37%
`
`+1%
`
`+6%
`
`+7%
`
`+6%
`
`+6%
`
` - Revised guidelines expand Type II population
`
` - Assumed to be 5% of total diabetes population
`
` - Assumes full compliance
`
` - Basal plus mealtime insulins
`+6% - Modest market; steady growth assumed
`
` - Assumed to be 95% of total diabetes population
`
` - Insulin use increasing due to new dosage forms
`
`+6%
`
`+10%
`
` - Compliance improves with non-invasive delivery
` - Weighted average of injectable and inhaled
`+31% - Rapid growth driven by inhaled insulin and pricing
`
`+26% - Huge market potential assuming Type II growth
`
`12%
`0.7%
`3.8%
`0.25
`$4.50
`$300
`
`$300
`
`$1,095
`+18%
`
`$1,265
`+16%
`
`$1,520
`+20%
`
`$1,965
`+29%
`
`$2,520
`+28%
`
`23%
`1.7%
`9.0%
`0.66
`$4.50
`$800
`9%
`0.7%
`3.8%
`0.28
`$4.00
`$300
`2%
`0.2%
`1.0%
`0.07
`$4.00
`$75
`1%
`0.1%
`0.6%
`0.05
`$4.00
`$50
`$1,225
`+308%
`$3,455
`+37%
`
` - High revenue share driven by high average price
` - Assume lower penetration of Type I mkt due to price
` - Expect high penetration of Type II mkt
`
` - Estimate based on 10-15% bioavailability
` - Could be upside from