Amylin vs. Lilly – Some Perspective
Although no one knows for sure how the Amylin (NASDAQ:AMLN) Lilly (NYSE:LLY) legal scuffle will turn out, one thing seems certain Lilly is already a loser. Diabetic Investor went back in time and listened to the Lilly call which announced the deal with Boehringer Ingelheim which was conducted on January 11th of this year. Listening to this replay which is available on the Lilly web site, www.lilly.com, it’s interesting that back when this deal was announced Lilly believed it would help sales of Byetta, something they mentioned more than once.
Equally interesting is that no one asked any questions as to how this would impact Byetta sales or the company’s relationship with Amylin. Given the questions asked analysts were more concerned with how Lilly planned to differentiate linagliptin from Januvia. While Diabetic Investor cannot speak for the analysts who were on the call, we suspect they like Diabetic Investor, understood that linagliptin and Byetta were targeted at the same patient population. Given the comments made after the call, the analysts didn’t seem to care which product was used by the patient only whether Lilly would make any money from the deal.
We’re fairly certain that they did not anticipate Amylin suing Lilly and throwing a monkey wrench into all their revenue models. But the lawsuit is just one of many issues facing Lilly and their struggling diabetes franchise. Diabetic Investor has already written how the company has given up on trying to increase their insulin share by differentiating their product from the competition and have begun heavily discounting their offering to gain better formulary position.
It seemed as Lilly was falling into the same trap with linagliptin as many of the analysts noted during the call and Lilly acknowledge there was very little difference between linagliptin and Januvia, so gaining share would once again come down to formulary position. Simply put, Lilly would have to offer better pricing for linagliptin and hope that Merck (NYSE:MRK) wouldn’t match these discounts.
Given the threat of generic insulin, another topic discussed during the call, one just might think that Lilly would see Amylin and Bydureon as their ticket to once again become a serious diabetes player. The fact is the insulin market, even without the threat of generic insulin, is facing intensifying pricing pressure and Sanofi-Aventis (NYSE;SNY) and Novo Nordisk (NYSE:NVO) will sit ideally by and let Lilly undercut their prices, as they too will do whatever it takes to protect their share. The same goes for Merck who will do whatever they can to protect Januvia. Bydureon is one of the few products that has ability to command a premium price and won’t face any serious competition for at least two years.
Diabetic Investor has stated on numerous occasions that Bydureon as good as we believe it is, won’t sell itself. Had Lilly concentrated on how best to maximize the Bydureon launch rather than get into a market where they frankly don’t stand a chance, is one of the stranger decisions we’ve seen and given what’s going in the diabetes, strange deals are becoming the norm. It seems as if Lilly management cannot come to grips with just how badly they have managed their diabetes franchise nor do they seem capable of understanding they are no longer a serious player in diabetes. The truly sad part here is that with Bydureon Lilly could once again become a dominate player in the fastest growing segment of diabetes, drugs used to treat patients with Type 2 diabetes.
Think of how Lilly will feel should the courts side with Amylin and further rule that Lilly materially breached their agreement with Amylin. Under terms of the existing agreement Lilly has the right of first refusal to match any offer Amylin receives from an outside suitor plus the agreement includes a formulary for Lilly would be compensated should Amylin agree to be acquired by someone other than Lilly, a provision which makes an offer for Amylin prohibitive. With a court victory these obstacles could disappear and overnight Amylin could do a deal and Lilly’s only recourse would be a lawsuit of their own.
Taking a realistic view of when Bydureon will actually launch, most likely late in the first quarter of 2012, Amylin would have plenty of time to bring their new partner or owner up to speed on Bydureon. This is why it’s critical that Lilly find a way to settle with Amylin. Taking a realistic view of all the factors Lilly has the most to lose here and frankly the company cannot afford another lose in the diabetes market. Should Bydureon fall into the hands of a competitor the company’s diabetes franchise would basically consist of a me-too DPP-4 and Humalog. Put another way, this once proud franchise would be crippled and survival would depend on a suspect pipeline of new products that even if they are great would come to market too late to save the franchise.
The fact is Sanofi and Novo have a better product portfolios and more compelling pipelines. Both companies are also prepared to do battle albeit with different strategies. The one glaring weakness for both companies is their lack of a long-acting GLP-1 that could match Bydureon. Just as Januvia has come to dominate the DPP-4 market, Bydureon has that same opportunity in the long-acting and lucrative long-acting GLP-1 market. Novo is the closet to having a Bydureon competitor but this product will still come to market well after Bydureon and will face similar issues that Onglyza faced against Januvia.
Diabetic Investor, like others, has been struggling to understand just what the heck Lilly is thinking. Everyone knows that conditions in the insulin market are becoming unfavorable and could soon become a commodity market with the introduction of generic insulin. Even without generic insulin pricing pressure will continue to intensify. The market for oral medications is also over crowded with too many DPP-4’s and baring a major blunder by Merck it’s doubtful anyone will come close to making a dent in Januvia sales.
The GLP-1 market, the most promising market in diabetes according to Diabetic Investor, is evolving, growing and does not face the threat of generic competition. What began with Byetta and has expanded with Victoza will explode when Bydureon gets here. The question is will Lilly be part of this explosion or will they risk becoming a diabetes also-ran.