Friday, July 22, 2022

Novartis' Sandoz Is Back In The Insulin Biosims Market. Can It Succeed?

Back in December 2018, the Sandoz division of Swiss pharmaceutical giant Novartis announced (see the full announcement HERE or HERE) "Sandoz enters into commercialization and supply agreement for insulin biosimilars". It also revealed that Sandoz had entered a "commercialization and supply agreement with Gan & Lee" which it added was "a leading insulin supplier headquartered in China with more than 20 years' experience in insulins and production capacity with attractive cost of goods sold (COGS) structures".

Few Americans have ever heard of Gan & Lee, although this year, at the American Diabetes Association's 82nd Scientific Sessions in New Orleans, Gan & Lee had its first-ever exhibit in the vendor hall at the event (which was a hybrid event being held both in-person, as well as virtually, hence the exhibit hall wasn't as busy as others are.

Gan & Lee (now has an English language Twitter feed at @GanLee_ if you're inclined to follow the feed) and the company also set up an exhibit of its own at this year's ADA Scientific Sessions (specifically, it was located in booth #800). The company's LinkedIn page had a few other photos. At the time, it Tweeted "It's been three years since Gan & Lee exhibited at ADA tradeshow which was held in San Francisco in 2019." However, that was a tradeshow, not the ADA Scientific Sessions. Several pics from this year's ADA are found below.









The Sandoz/Gan & Lee announcement added that Sandoz intended to commercialize biosimilar versions of insulins "for the European Union (EU), United States (US) and other key territories" adding the "Agreement covers biosimilar insulins in early and clinical development for the top three selling branded insulins by sales: glargine, lispro and aspart."

Then, we heard absolutely nothing more about it, leading many to question what was really going on. Late last year, there were even rumors that Novartis was exploring a sale or spinoff of Sandoz. There were also rumors that Swiss patient organizations and socialists might consider buying Sandoz if it was sold (which, in theory, could still happen). 

That was until Novartis quarterly earnings release on Wednesday, July 20, 2022. A tiny line in the company's long, 64-page second quarter & half-year 2022 financial statement (see page 21, specifically line three of for detail) actually revealed that Gan & Lee insulin biosimilars are indeed still happening and may actually be further along in development than we ever realized. 

I took a snapshot from page 21 of the announcement which effectively said that Sandoz is now proceeding (see the third line in the image below). However, it will do so for the three bestselling insulin varieties in the U.S.: glargine U-100, aspart U-100 and lispro U-100. There was no mention of Sanofi's proprietary prandial insulin analogue known as Apidra, even though its patients expire in 2022 (the trouble is so few patients use it because Sanofi focused exclusively on selling Lantus), nor Sanofi's highly-concentrated glargine product branded Toujeo because its not a big seller.

The lispro being developed will be one of the first lispro biosimilar commercialized by a company other than Lilly or Sanofi. Civica is the only other company which has publicly stated its intention to sell a lispro biosimilar. There are like 4 different aspart (brand-name: Novo Nordisk Novolog Injection U-100) biosimilars pending approval, leading many to suspect that Novo Nordisk will simply stop making it and commercialize Fiasp instead. Rival Lilly has slashed its prices of Lilly Insulin Lispro Injection U-100 to $35/vial, which puts pressure on biosimilar-makers to match or beat those prices. Civica plans to sell one for $30/vial, which Lilly might be willing to match the price on rather than stop making it. It's newest prandial analogue Lyumjev was FDA approved on June 15, 2020, hence Lilly is still establishing a market for the new & improved prandial insulin analogue.

Chinese Manufacturing is Cheap, But Not Liked By Western Regulators; India Clearly Wins For Offshore Manufacturing

Sandoz itself certainly has the capability to easily make its own biosimilar insulins if it wanted to, but the underlying economics necessitated a partnership with a foreign partner. India tends to be the pharma favorite over China because India, unlike China, allows foreign regulatory agencies ready-access; it's a very straightforward matter and FDA has many regulators located in India.

China, on the other hand, is a communist country and the country's regulators make access to biotech factories very, very cumbersome, hence most biotech firms really prefer to avoid China. The last thing they want to experience is problems because regulators cite Chinese manufacturers for manufacturing problems. Hence, China has struggled to win over India in pharma manufacture. There, India is the clear winner.

One Indian biopharma company known as Biocon is a strategic partner of the company formerly known as Mylan which changed its name to Viatris after it merged with Pfizer's Upjohn business which was spun-off. Viatris today commercializes two insulin biosimilar versions of Sanofi's Lantus: Semglee, which is a branded, high-price/high-rebate product sold primarily to PBM's, and an identical but separate (it has a different NDC number), unbranded product called Viatris Insulin Glargine U-100 Injection which sells for 65% less money. Until Sanofi slashed prices on Lantus and introduced an unbranded U-100 glargine injection product, Viatris Insulin Glargine Injection U-100 was the least costly basal analogue in existence. Now, branded Lantus is cheaper at $35/vial. It's unclear if Viatris has adjusted its pricing on its unbranded glargine insulin to reflect the new market dynamics, but if not, it needs to.

The Viatris/Biocon partnership also now has an aspart biosimilar now pending FDA approval, as well as a U-300 version of glargine (Sanofi calls it Toujeo, but its really just Lantus at 3x as much insulin in every unit aimed primarily at the insulin-resistant Type 2 diabetes population). However, in early 2022, Biocon announced that it had acquired Viatris' half of their joint venture, with access to key staff for a few years after the acquisition closes to aid the company in regulatory matters (particularly in the U.S.). Anyway, Biocon built a massive insulin factory, but its located in Johor, Malaysia not far from the Singapore border. Malaysia, similar to India, offers open access to regulatory inspectors whereas China does not. All Biocon insulins sold in the U.S. will be made and packaged in that particular facility. Biocon's Malaysia factory stumbled a bit initially with regulators from FDA, EMA, and Health Canada, but has since resolved the issues. It has also run into labeling problems on glargine insulin pens.

However, the "attractive" COGS (cost of goods sold) which Sandoz bragged about in the Gan & Lee announcement was effectively the entire reason for its partnership with Gan & Lee. By making the insulin Active Pharmaceutical Ingredient ("API") offshore in China, the margins would be much larger and would therefore either flow directly to the Novartis' bottom line, or in the case of the U.S., be used as legally-exempted "kickbacks" in the form of rebates paid to PBM's for exclusive formulary placement. The U.S. is odd in that PBM's consume so much of the profit margins which otherwise flow directly to the company bottom line, but because the U.S. market is so large, it remains too important for drug companies to simply avoid.

Under the terms of the Sandoz-Gan & Lee agreement, Sandoz will be fully responsible for commercializing the insulin biosimilars in the EU, US, Switzerland, Japan, South Korea, Canada, Australia and New Zealand (some other countries such as Sweden which fall outside EU drug oversight is also included). Gan & Lee will be responsible for manufacturing and development, with support from Sandoz, and shall adhere to the stringent manufacturing requirements established for Sandoz biosimilars. But it will do so at prices Sandoz could never accomplish by itself.

Ordinarily, regulatory inspection of biotech manufacturing facilities in China represent a major problem because regulators like the U.S. FDA, the European Medicines Agency ("EMA"), Health Canada, etc. are not free to inspect a facility without planning it months in advance. That leads many to believe that widespread Chinese non-compliance with adherence to Good Manufacturing Protocols ("GMP"), such as keeping a facility sanitary including such basics as staff wearing masks and hairnets all the time, how to handle accidental spills, etc. might not be happening regularly in Chinese biotech factories.

In essence, Chinese manufacturers can "dress-up" their unsanitary, non-compliant biotech manufacturing facilities in preparation for regulatory inspections from the FDA, EMA or Health Canada which they will know about many weeks in advance. But commercial partners negotiate free access to inspectors in their contracts, hence that means Sandoz bears ultimate responsibility if Gan & Lee isn't following GMP manufacturing standards and Sandoz must carefully manage it's Chinese manufacturing partner.

Gan & Lee has global aspirations of its own and rival India's Biocon is years ahead of them, hence it is now trying to establish name recognition among doctors around the world. As for Sandoz and its U.S. insulin aspirations, this much seems clear: first, the U.S. will likely necessitate it having two NDC numbers for each biosimilar. One will be a branded, high-price/high-rebate product aimed at the PBM market, and the other would be an unbranded (except for the Sandoz name) product with a lower list price and no rebates aimed at the patient market. 

Lilly, however, has aggressively cut prices on lispro which means the highest price Sandoz Insulin Lispro Injection U-100 can command is $30/vial. Alternatively, Sandoz may opt to simply bypass the PBM kickback (rebate) issue and focus solely on unbranded products. Given that Lilly has told investors that its unbranded Lispro product now accounts for one-third of U.S. Humalog sales, its not outside the realm of possibility to skip the high-price/high-rebate PBM route and offer an unrebated product instead. By partnering with a Chinese partner, Sandoz can manage it, but it will face stiff competition from very competent rivals. That means success is hardly a guarantee. But perhaps it is willing to sell insulin biosims for LESS THAN $30/vial?!

It will be fascinating to watch the space to see how Sandoz proceeds. It may pave the path for biosimilars of other drug classes. 

Author P.S., August 25, 2022: Today, numerous news outlets including the Wall Street Journal, Reuters and others confirmed that Novartis will indeed spin Sandoz off as a stand-alone company. The spin-off is expected to be completed during the second half of 2023 and Sandoz will be incorporated in Switzerland, with American Depository Receipts (ADR) listed on U.S. exchanges. Novartis had been seeking to sell Sandoz, but it acknowledged to investors that it had not received any formal, binding offers for the business to date. Novartis CEO Vas Narasimhan told a media briefing but should any "highly attractive" bids actually emerge, Novartis would fully consider them. However, he said "the most likely case - in all scenarios - is that we will see through a spin." Novartis reportedly received interest from a number of private equity buyers, but due to poor market conditions and the struggling broader market for generics, analysts said the spin-off announcement did not come as a surprise. Sandoz generated nearly $10 billion in sales last year selling generics and biosimilars (less costly versions of biologic drugs made from living organisms). According to Novartis, Sandoz will emerge as Europe's leading generics company. Sandoz will also return to U.S. growth, with expected biosimilar approvals for such blockbuster medicines as Humira and Tysabri next year as well as three insulin biosimilars (glargine, lispro and aspart) currently being co-developed with China-based Gan & Lee are also in development. As noted in 2018, Gan & Lee was selected primarily due to "production capacity with attractive cost of goods sold (COGS) structure". In theory, Sandoz could use the margins from manufacturing insulin offshore in China to pay kickbacks to PBM's needed to secure formulary placement. However, FTC is formally investigating PBM rebate arrangements, and has issued a revised policy statement that it believes "exclusive" formulary placement arrangements may be in violation of multiple U.S. laws and will likely work with the Department of Justice to sue over such things when its study concludes.

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