Lilly and Bristol Report

Lilly and Bristol Report

This morning both Eli Lilly (NYSE:LLY) and Bristol Myers Squibb (NYSE:BMY) reported third quarter results which not so ironically involved a great deal of discussion on the GLP-1 market. Listening to both calls it seemed as if Lilly was playing the role of the Indianapolis Colts when they let future hall of fame quarterback Peyton Manning go to the Denver Broncos. Like the Broncos, Bristol believes that Bydureon will help lead the company to a leadership position in the growing and important GLP-1 market, just as the Broncos see the elder Manning leading the team back to the Superbowl.

The big difference here is that unlike the Colts who drafted Andrew Luck, who looks like the real deal, Lilly does not seem to have a future superstar in their pipeline. Today’s results were a perfect example of this as insulin sales are once again declining. Just as the Colts owners had to explain their rational for letting Mr. Manning go to the Broncos; Lilly’s management faced intense scrutiny during the question and answer portion of the call. Based on the number and tone of the questions it seems that analysts are beginning to wake up to what Diabetic Investor has been saying for some time, in that, Lilly can no longer be considered a leader in the diabetes market, their existing product portfolio is facing negative market dynamics and the pipeline isn’t all that spectacular.

The company did acknowledge that declining insulin sales were due to greater pricing pressure as payors understanding the leverage they have and are demanding greater price concessions. What analysts need to understand is that unfortunately the insulin market is following a path that eerily similar to the glucose monitoring market. Basically short-acting insulin’s are quickly becoming a commodity as there really isn’t that much difference between the three products currently on the market and that price will determine market share. Just as they did with glucose monitors payors are pitting one company against another; basically stating whoever capitulates to their pricing demands will get the business. In Chicago this is called extortion, in the wacky world of diabetes this is just normal business.

To their credit the company is preparing themselves for the coming of generic insulin, as they do have a generic version of Lantus underdevelopment which according to the company should be on the market shortly after Lantus loses patent protection. However, the rest of the diabetes pipeline as Diabetic Investor has been documenting is basically a series of me-too, copycat, late to market drugs which offer little in the way of distinguishing themselves from what’s already on the market. Something analysts are also beginning to see given the number of questions on Dulaglutide. No matter how the company tries to spin the answers to these questions, the more they try the more it seems as though they are talking themselves into the fact this is a good product when they really don’t believe it is. And frankly to bring up Tradjenta® as an example of how their diabetes strategy is working, is like telling St. Louis Cardinals fans that it’s just swell they blew three chances to get back to the World Series.

Bristol on the other hand hasn’t quite figured out what they have now that they own Amylin. Given the transaction was just finalized this isn’t all that unusual and as we noted well before this acquisition took place the early sales results for Bydureon aren’t all that important. Physicians are still in the “let’s see if it works as we think it will” stage and aren’t likely to prescribe Bydureon to a greater percentage of their patients until the pen delivery system becomes available. Diabetic Investor continues to hear good things from the physicians and patients who are using Bydureon and so far has heard nothing to change our opinion that if Bristol and AstraZeneca (NYSE:AZN), who reports earnings tomorrow, doesn’t screw this up Bydureon should become the next diabetes blockbuster.

The best way to look at the growing GLP-1 market is to look back on the insulin market before Lantus came along. Just like Bydureon there was a great deal of interest in Lantus before it actually hit the market and while it is now the world’s number one selling insulin it didn’t get there overnight. Just as they doing now with Bydureon, physicians tested Lantus on a small portion of their patient base to get a feel for how well it worked. Once physicians heard back from these patients and saw the results, it was off to the races with no looking back. Although Diabetic Investor isn’t quite ready to state that Bydureon will follow that exact same path, it does have that kind of potential.

It should also be noted that given the amount of money Bristol paid for Amylin, their renewed interest in the diabetes market and the fact they need Bydureon to be successful as they like everyone else in this industry have their own patent issues, makes Diabetic Investor more comfortable that Bydureon will reach its potential.

Lilly on the other hand seems to be a ship adrift in the ocean not knowing which direction the seas will take them. On the one hand they are desperately trying to convince everyone, including themselves that their pipeline is really exciting. Yet, on the other hand, they seemed resigned to the fact that insulin has become a commodity and better to get ahead of the curve with their own generic version of Lantus. Or as the old saying goes; “If you can’t beat’em, join’em.”