Lilly adds to their arsenal

Lilly adds to their arsenal

This morning Lilly (NYSE:LLY) announced a partnership with Adocia to develop an ultra-rapid acting based on BioChaperone Technology. According to a company issued press release;

“Eli Lilly and Company (NYSE: LLY) and Adocia (Euronext Paris: FR0011184241 – ADOC) today announced a worldwide licensing collaboration focused on developing an ultra-rapid insulin, known as BioChaperone Lispro, for treatment in people with type 1 and type 2 diabetes. BioChaperone Lispro relies on Adocia’s proprietary BioChaperone® technology and is currently in Phase Ib studies.

Lilly and Adocia will develop BioChaperone Lispro with the goal of optimizing glucose levels during and after meals. Potential benefits of BioChaperone Lispro include greater flexibility in the timing of insulin injections, lower variability of post-meal blood glucose elevations, lower rates of hypoglycemia and better overall glucose control.

Under the terms of the agreement, Lilly is responsible for future development, manufacturing, and commercialization of BioChaperone Lispro. The total up-front and milestone payments could reach up to $570 million; Adocia will receive a total upfront fee of $50 million with the potential for future payments of up to $280 million if the product reaches certain development and regulatory milestones, and sales milestones up to $240 million, as well as tiered sales royalties. Lilly shall also reimburse Adocia for certain research and development expenses during the terms of the agreement. A concentrated formulation of BioChaperone Lispro is also part of the agreement.”

This move by Lilly signals they remain committed to owning the most comprehensive portfolio of diabetes treatments. It also places even more pressure on their competitors in particular AstraZeneca (NYSE:AZN) who has the second most comprehensive portfolio of diabetes treatments with the notable missing piece being insulin. Finally as if they needed it this move places even more pressure on our wine drinking friends at the soap opera known as Sanofi (NYSE:SNY) and their upcoming launch of Afrezza®, which just so happens is a rapid-acting insulin which happens to be inhaled rather than injected.

Now before we examine this market more closely and how it will impact the players let’s first outline why such a product is needed. Right now there are two forms of insulin – long acting and short-acting. Short-acting insulin is used by a patient to offset meals and snacks, basically it works for short period of time. Most experts agree that while the current crop of short-acting insulin’s aren’t bad there is room for improvement. Basically what these experts would like is a short-acting insulin that starts working faster and works for a shorter period of time after being injected. Studies have shown with such an insulin patients can inject their insulin closer to meal time and worry less about when they take their insulin. Additionally since the insulin doesn’t work too long there is less risk of hypoglycemia.

This is exactly the case MannKind (NASDAQ:MNKD) has been trying to make, a case which gets overshadowed by the fact Afrezza is inhaled rather than injected. All along MannKind has claimed that Afrezza was a better short-acting insulin that happened to be inhaled rather than injected. Yet the company made a poor case of what they meant by better, as studies showed that when it came to control as measured by HbA1c, Afrezza was on par with the current short-acting insulin’s already on the market.  Where Afrezza was “better” was lower rates of hypoglycemia.

As we have tried to note many times we don’t consider Afrezza a bad insulin, quite the contrary. The issues with Afrezza are not necessarily performance related, the issues with Afrezza are structural and market related. No one with a knowledge of diabetes and insulin could seriously claim that Afrezza is a bad insulin. Or put another way Afrezza will not fail in the marketplace because it was an inferior insulin, it will fail because of the structural and market issues. Plus they have Sanofi as partner.

It should be noted that besides Novo Nordisk (NYSE:NVO) several companies Halozyme (NASDAQ:HALO) and Biodel (NASDAQ:BIOD), just to name a few also have ultra-rapid acting insulin’s under development. Which is one reason Lilly entered this space. As we have noted on numerous occasions Lilly’s diabetes strategy is fairly simple own the most comprehensive portfolio of diabetes treatments, even if that means some of these treatments are me-too copycats. Take this portfolio to payors who are increasingly favoring single source contracting and offer them a deal.

As we suspected this strategy is forcing everyone else in diabetes to play defense as no one is close to matching Lilly’s portfolio. Looking ahead we suspect that AstraZeneca has the most difficult decision to make as they must decide do they bit the bullet and enter the insulin space, perhaps going after Sanofi’s diabetes franchise or do they wait it out until generic insulin’s get here. Given their strength in the injectable space Diabetic Investor sees Novo under less pressure provided they right size their business to match very difficult market conditions.

The reality is as blockbusters such as Lantus and Januvia face patent expiration combined with a difficult regulatory environment plus intensifying pricing pressure companies are no longer rewarded for being innovative, they are rewarded for understanding where the market is going. In the diabetes treatment space this means having a comprehensive portfolio of treatments which fits into the demands of payors who prefer single source contracting. Like it or the diabetes treatment space is becoming a commodity market where price trumps performance. Lilly at the moment is the only company that has a strategy that can survive and actually thrive in this environment.

Stay tuned as everyone else won’t stand still, more deals are on the way. 2015 is shaping up as another interesting year in the wacky world, thank goodness because things we’re getting pretty dull for a while.