A Winning Strategy?

A Winning Strategy?

equally clear that winning in diabetes is going to be essential for our
long-term future” said John Lechleiter CEO of Lilly (NYSE:LLY). This quote
comes from an article published by Reuters late yesterday afternoon, after the company
announced they would be reducing their workforce by 14% or approximately 5,500
employees. According to a press release issued by Lilly yesterday “Explaining
the need for such changes, Lechleiter noted that the global pharmaceutical
industry is facing unprecedented challenges – slowing innovation, rising costs,
patent expiries and increased generic competition, demands from payers to
deliver greater value, and health care reform. These forces are reducing
industry growth rates and profitability. Lilly faces these and its own
challenges, including a series of patent expirations for key products beginning
in late 2011.”

Given that
diabetes is essential for their future and that company is facing unprecedented
challenges it will be interesting to see what steps the company takes to
develop a winning strategy. Although Diabetic Investor is not an advisor to
Lilly we do have some advice for the company if they are really serious about
making diabetes essential to their future success.

First the
company needs to decide what type of diabetes company they want to be. While
the company has done a decent job of blunting Novo Nordisk’s (NYSE:NVO) growth
in the insulin market their insulin portfolio is weak. With no long-acting
insulin analogue to compete against Levemir or Lantus the company’s insulin
future rests on the shoulders of their short-acting insulin Humalog®, Humalog®
Mix 75/25 and Humalog® Mix 50/50. Given that insulin therapy is gaining
acceptance as a treatment option for patients with type 2 diabetes the company should
move additional resources to position Humalog as the insulin preference for
type 2 patients.

The company
has already made solid strides in this area by improving their insulin pen offerings
as insulin pens are quickly becoming the preferred delivery option for type 2

Second they should
stop screwing around with their own GLP-1 and move and heaven and earth to
support Byetta and Byetta LAR. Byetta LAR will be paradigm shifting technology
and has the potential to become a mega-blockbuster. However as good as LAR is
the drug will have competition and it is essential that when approved the
company takes full advantage of being first to market. Here too the company has
received a break as Victoza from Novo remains stalled at the FDA. Still lurking
in the shadows of LAR are other long-acting GLP-1’s from Roche and
GlaxoSmithKline (NYSE:GSK).

The company
must acknowledge that LAR will encounter obstacles when it first hits the
market. While a pen delivery system is under development when first launched
LAR will require some additional patient/physician education as the drug needs
to be mixed prior to administration. Additionally they must deal with the
perception that the needle used to deliver LAR is larger than a Titan nuclear
missile. Finally there are still concerns over pancreatitis which also must be
addressed. LAR is a powerful drug however this only guarantees a high level of
physician interest and does not necessarily convert into these same physicians writing
scripts for the drug. It’s critical that while this interest level is high the company
put on a full court press to fully inform patients and physicians.

The facts indicate
that chasing type 1 patients does not offer the long term payoff offered by
capturing the type 2 market. This does not mean the company should abandon the
type 1 market rather they should allocate resources to reflect the realities of
the diabetes market. The company should also give up any thoughts they may have
had to enter the diabetes device market. This would be an awful move and would only
drain resources away from their insulin and GLP-1 franchises.

The company
must also go beyond traditional marketing efforts to fully capture the type 2
patient. This may be the largest diabetes market segment but it is also the
most under educated market segment. Unlike insulin using patients who typically
require and receive some diabetes education, non-insulin using type 2’s are
left to their own devices when it comes to education. Primary care physicians who
treat nearly 80% of all diabetes patients just don’t have the time and
resources to properly educate their patients, nor are the compensated for doing

This education
effort must go beyond the traditional pamphlets that no one reads or television
commercials that no one watches. Lilly should make every effort to work with Certified
Diabetes Educators who have direct contact and a great deal of influence with
patients. To expand exposure beyond CDE’s Lilly should embrace the growing
influence of diabetes related blogs and social communities.

Finally Lilly
must acknowledge they are no longer the preeminent diabetes company. Workforce reductions
and strategic initiatives will only take the company so far. This will be the
most difficult challenge for the company who until recently seemed incapable of
realizing that Novo was kicking their backsides in the insulin market and that
their relationship with Amylin (NASDAQ:AMLN) should be enhanced. The diabetes
market has changed dramatically over the past few years and only recently has
it seemed that Lilly actually accepted this change. As Robert Kennedy once
said; “Great change dominates the world, and unless we move with change we will
become its victims.”