Come on John who you kidding?
Philip K Dick once wrote; “Reality is that which, when you stop believing in it, doesn’t go away.” Well after listening to the presentation made by Lilly (NYSE:LLY) John C. Lechleiter at the recent JP Morgan Healthcare Conference, Diabetic Investor can state with confidence that Mr. Lechleiter has lost all touch with reality when it comes to the company’s diabetes franchise. During this presentation Mr. Lechleiter outlined in detail the company’s quest to reclaim what once was a leadership position in diabetes, a position which has steadily declined under his tenure as CEO.
To help separate fact from fantasy let’s take a closer look at what he said and try to bring some real perspective into this belief that the way to reclaim leadership is to back a series of me-too, copycat, late to market drugs and dissolve a partnership which actually had the potential to bring this declining franchise back to life.
As always the best place to start is the very first product to come from their new diabetes partner, Boehringer Ingelheim (BI), Tradjenta® a DPP4 which just happens to compete with Merck’s (NYSE:MRK) blockbuster Januvia. Worse still is the fact that not only did this drug come to market well after Januvia had achieved blockbuster status, it also came behind Onglyza ® from Bristol Myers Squibb (NYSE:BMY) and AstraZeneca (NYSE:AZN) (more on this diabetes partnership in a moment). All along Lilly has claimed that Tradjenta would be successful as it offered some notable differences that would offset Januvia’s well established dominance and at minimum push it ahead of Onglyza which has also struggled to compete against Januvia. Although the company has not yet reported 2012 fourth quarter and full year results, results for the third quarter didn’t even mention Tradjenta sales and based on public prescription data it’s not an overstatement to say that Tradjenta sales are like a fly on an elephant’s rear end- hardly noticeable.
Next Mr. Lechleiter touted the company’s SGLT2, which looks like it will be coming to market well after Johnson and Johnson’s (NYSE:JNJ) SGLT2 which just received a favorable FDA panel vote; an d as we noted earlier today the ultimate success of this entire class of drugs, which also has a competitor from the BMS/AZN partnership, is dubious at best. The simple fact is even if SGLT2’s are accepted and widely used, an unlikely scenario based on what Diabetic Investor has learned, Lilly will once again be fighting an uphill battle against a well-heeled and highly motivated competitor.
In a move which can only be described as waving the white flag of surrender, Mr. Lechleiter continues to tout the company’s generic version of Lantus, as if selling a Lantus knock off which will surely carry a lower price point which means lower margins will somehow help the company maintain their precious dividend, which is the real driving factor when Lilly makes any decision. Lilly is no longer a company driven by innovation, it’s has become a company driven by one factor and one factor alone- protect the dividend at all cost no matter, even if that means losing an opportunity to make some serious money in the long run.
Which leads to the final hit product in their pipeline, a once-weekly GLP-1 which will, stop us if you heard this before, come to market well behind an established competitor, is nothing more than a me-too, copycat knock off – and did we mention that at one time the company was partners with the company that has the only once-weekly GLP-1 which is already on the market but let this product get away because they, here it comes, wanted to protect their dividend. Anyone who believes otherwise should read Lilly’s third quarter earnings statement which says; “Following the completion of its acquisition by Bristol-Myers Squibb, Amylin paid to Lilly $1.259 billion in satisfaction of its revenue-sharing obligation with respect to exenatide. In addition, Amylin also repaid to Lilly a $165 million loan plus accrued interest.” Something Mr. Lechleiter highlighted during his presentation.
While we know this is hard to believe but for some reason Mr. Lechleiter did not mention the company’s existing insulin franchise. Now we suppose this could be because the presentation was designed to be a look ahead and not a look backwards however it’s also possible that this omission was due to the fact that this legacy franchise now resides clearly in the toilet. Yep, after watching Novo Nordisk (NYSE:NVO) and Sanofi (NYSE:SNY) clean their clock in the insulin market, then in a desperate attempt to regain share initiate a brutal price war which came back to bite them in the backside, it’s easy to see why this franchise was not highlighted. (Almost forgot besides all the other goodness with the existing insulin franchise, the company’s lead product Humalog® will soon see its patent expire.)
Now if it seems as if Diabetic Investor is being overly harsh on Mr. Lechleiter we can assure him that it’s nothing personal as he seems like a very nice person. We also realize that being from Indianapolis that he may have been somewhat saddened that the Colts, who made an amazing run into the NFL playoffs with a rookie quarterback, a coach who fought and beat cancer lost their playoff game. The other possibility is that he truly believes the way to recapture days gone by is by coming out with a series of me-too, copycat, late to market drugs. If that’s the case he’s not just kidding himself but anyone who’s a Lilly shareholder.
