Lilly Reports – A Diabetes Comeback?

Lilly Reports – A Diabetes Comeback?

At first glance it would seem to appear that Lilly (NYSE:LLY) who reported earnings this morning is regaining their footing in diabetes. Sales of their lead diabetes product Humalog® grew by 20% in the quarter, largely as result of increased volumes and to lesser extent higher prices. This is departure from previous quarters where Humalog sales growth was largely attributed to higher prices. This growth in sales also seems to validate Lilly’s strategy of becoming more aggressive in the managed care arena.

However, as Diabetic Investor noted when Lilly first introduced their more aggressive pricing policy for Humalog, their competitors in the insulin market, most notably Novo Nordisk (NYSE:NVO), are not sitting back and doing nothing. The company did acknowledge today that they are seeing a tougher pricing environment for insulin and see this continuing in the future. As we noted before, when a company uses price as their primary weapon to gain share, once they venture down this path it becomes is a slippery slope.

With the threat of generic insulin looming and insulin becoming a commodity, Lilly may have well planted the seeds of their own destruction. The gains which were seen today may be short-lived as Novo and Sanofi-Aventis (NYSE:SNY) start to fight back and begin matching or beating Lilly’s aggressive pricing structure.  As we have seen before with the glucose monitoring market once price becomes the primary weapon the overall market is pushed further into commoditization, which eventually leads to the players in the market losing all control over what they can charge for the products they make. Just as managed care companies have pitted one BGM player against another in an attempt to gain even greater price concessions; Diabetic Investor sees this same scenario playing out in the insulin market and not just for short-acting insulin’s.

It’s a well-known fact that Lantus®, the world’s number one selling insulin, will lose patent exclusivity in 2014. It’s also true that Novo has just submitted their new long-acting insulin Degludec and DegludecPlus to the FDA. Plus Sanofi is not sitting around doing nothing as they also are working on a new version of Lantus. Add in the possibility of a generic form of Lantus and one begins to question Lilly’s decision to enter the long-acting insulin market. Even if their compound is really great, they will face exactly the same problem Novo is facing with Degludec, will they be able to command a premium price for yet another long-acting insulin.

A situation Lilly is acutely familiar with already given the dismal performance of Trajenta®, their third to market, Januvia copycat drug.  Once again the company tried to make the best of a very bad situation today when they claimed it’s too early to gauge the performance of Trajenta.; a drug which is having a major problems getting coverage and prime formulary placement.  Trajenta is just the first product from their alliance with Boehringer Ingelheim, an alliance that better start producing something other than a drag on Lilly’s earnings before analysts starts asking just why the company made this deal in the first place.

Noticeably absent from today’s call was any mention of their other “partnership” with Amylin (NASDAQ:AMLN), who reported earnings late yesterday. While there questions about whether or not they could combine Byetta with their yet unnamed long-acting insulin, not much else was discussed. Given how the company responded to this particular question it’s pretty obvious that the Lilly Amylin relationship is strained. Understandable when you consider that Amylin is suing Lilly, after Lilly basically screwed Amylin with their BI deal. While these two “partners” each claim this noticeable animosity between them will not impact the Bydureon launch, a product critical to both companies, Diabetic Investor remains unconvinced and is concerned that this continued in-fighting will adversely impact what is a mission critical launch.

Frankly Diabetic Investor does not understand Lilly’s diabetes strategy of embracing me-too, late to market copycat drugs and using price as a weapon to improve insulin sales. We have major reservations as to how these late to market, me-too drugs will in any way bring Lilly back to prominence in the diabetes market. We fail to see the logic in publicly fighting with a key strategic partner on the eve of a critical new product launch.

Diabetic Investor has spoken with several Novo sales reps who are very concerned about the impending launch of Bydureon. They, like Diabetic Investor, believe physicians will embrace Bydureon which is dosed just once a week, over Victoza their once daily GLP-1. Being on the frontlines they know all too well the importance of therapy compliance as they hear this mantra daily from the physicians they see. They have seen the package insert for Bydureon, as Diabetic Investor has, and believe that while dosing Bydureon is not simple, it’s not overly complex and should not hurt Bydureon sales since patients will only perform this task once a week.

About the only company who does not seem to see Bydureon potential is Lilly. To Diabetic Investor it seems unfathomable that Lilly is not making every effort to improve their relationship with Amylin and not repeat the mistakes that were made when Byetta was launched. Diabetic Investor has said it before and we’ll say it again; as good as we believe Bydureon is the drug will not sell itself and even though Novo sales reps have a realistic view of Bydureon they will not sit ideally by and watch Victoza sales fall. The simple fact as we noted yesterday is Bydureon is not just critical to Amylin’s future, it’s equally critical for Lilly if they want to remain a relevant player in diabetes.

Being based in Indianapolis they have seen firsthand what happens when you place an unproven player in place of a superstar. With Peyton Manning the Colts would have been contenders to play in the Super Bowl which also happens to be in Indianapolis. Without Peyton Manning, the Colts have gone from Super Bowl contenders to watching Stanford quarterback Andrew Luck and imagining what he might look like in a Colts uniform. As it stands today, Bydureon has the potential to be Lilly’s Peyton Manning and given what we have seen in their diabetes pipeline there is no Andrew Luck waiting in the wings should they screw this up.