Lilly Reports – A Diabetes Strategy Shift?

Lilly Reports – A Diabetes Strategy Shift?

At one time Lilly (NYSE:LLY) was a leader when it came to diabetes and there was a time when many thought this would always be so.  These past few years have not been kind to Lilly as their once dominate position in diabetes is today a mere shell of its former self. Novo Nordisk (NYSE:NVO) now holds the top spot in overall insulin sales and Sanofi-Aventis (NYSE:SNY) owns the world’s number selling insulin, Lantus.  The reality is Lilly has become an after-thought when it comes to diabetes and insulin.

Lilly also must be cognizant of the changing landscape for diabetes, in particular treatments for type 2 diabetes. Given some recent developments Diabetic Investor senses Lilly might just be shifting their diabetes strategy. Earlier this month the company announced a collaboration with Boehringer Ingelheim to jointly develop and commercialize a portfolio of diabetes compounds currently in mid- and late-stage development. These compounds include two oral agents targeted at the type 2 patients and two long acting insulin analogues.

Lilly is also currently partnered with Amylin (NASDAQ:AMLN) and Alkermes (NASDAQ:ALKS) and like everyone else is anxiously awaiting the approval of Bydureon.

Finally, while it seems like everyone else in diabetes wants to expand beyond drugs and move into the diabetes device arena, Lilly has stated they have no intention of entering this highly competitive market.

Add it all up and we just might be seeing a shift in Lilly’s diabetes strategy from being an insulin company to being the leader in treatments for type 2 diabetes. As Diabetic Investor has stated previously, Bydureon has the potential to become a paradigm shifting technology for the treatment of type 2 diabetes. Diabetic Investor also believes Bydureon will adversely impact future insulin sales and glucose monitoring test strips sales.

While Diabetic Investor does not see the company abandoning insulin, they most likely realize that they will never regain the market share they have lost and better to chase a growing market than to battle the two behemoths in the insulin market. While there are approximately 5 million insulin using patients here in the US, future growth in the insulin market does not look promising. It is also true that type 2 patients do not monitor their glucose levels regularly and prefer simple treatment options.

Rather than spend precious capital to enter the diabetes device market, the company could allocate these resources to promoting Bydureon. Bydureon offers many benefits over current type 2 treatments and the drug with its once weekly dosing is the ultimate when it comes to being patient friendly. Unlike insulin, patients using Bydureon will not need to monitor their glucose levels or worry about hypoglycemia. Additionally while insulin using patients have to worry about weight gain, patients using Bydureon are likely to see weight loss.

Whereas Novo and Sanofi look to build their diabetes franchises around their insulin portfolios, Lilly could use Bydureon as the centerpiece of their diabetes franchise. The two oral compounds from BI would also provide them with offerings that would compete with Januvia, Merck’s (NYSE:MRK) blockbuster type 2 treatment. As much as Diabetic Investor sees Bydureon as a game changer, the reality is physicians still prefer oral medications over injectables for their type 2 patients. Also as noted during today’s call by shifting focus to the type 2 market centered on GLP-1 therapy the company avoids the looming threat of generic insulin’s.

The bottom line here is type 2 patients vastly outnumber type 1’s, and looking towards the future the type 2 market is also growing much faster than type 1’s, common sense (something not often used at companies in the diabetes market) says that focusing on this market offers greater opportunities. Considering the moves Lilly has made it appears they are shifting their diabetes strategy to become the leader in the type 2 market.  A strategy shift which if well executed could put Lilly back on top in diabetes.