Lilly Reports – Boots on the ground

Lilly Reports – Boots on the ground

This morning Eli Lilly (NYSE:LLY) reported second quarter results. While listening to the earnings call Diabetic Investor was reminded of what Army generals said during the first Gulf War. Although we controlled the sky’s with our outstanding Air Force, generals insisted that it would take “boots on the ground” to finish off the enemy and win the war. Even with all our advanced weapons there was no getting around the fact that the regular Army solider, these brave men and women, are an important element in warfare.

Although insulin sales isn’t as important or dangerous as war, there are parallels between the two. After seeing their share of the insulin market fall into third position Lilly realized that it was time for an overhaul. Like an Army, they decided to fight the competition with a combination of advanced technology and more “boots on the ground.” In the case of the competition, Novo Nordisk (NYSE:NVO) had two key advantages; better delivery systems and a growing sales force. To their credit Lilly has taken positive steps forward with the introduction of new and better insulin pens. But new pens is only half the story as the company has increased their insulin sales force by 40%. This combination of new insulin pens and more sales reps has paid off as share erosion has stopped and it appears sales are reaccelerating.

Even with these improvements Lilly still has a long way to go and Novo will surly fight back to keep the gains they’ve worked so hard to achieve. Still, it’s refreshing to see that Lilly realized the problems with their insulin franchise and have taken positive corrective actions. Diabetic Investor sees both Lilly and Novo benefiting from the Avandia controversy as it gives physicians another opportunity to discuss insulin therapy with their type 2 patient population. Traditionally insulin therapy is used as a last resort for poorly controlled type 2 patients. This therapy progression as changed now that Byetta is in the mix as many physicians will prescribe Byetta prior to insulin, a trend that benefits Lilly as they are partnered with Amylin (NASDAQ:AMLN). As much as Diabetic Investor sees Byetta as a solid drug the fact remains that there are patients who cannot tolerate Byetta’s side effects. In this case the next step is insulin. Either way Lilly is well positioned.

It should also become clear to the Street that the fact that insulin or Byetta must be injected does not impede sales growth. Moving patients from orals to injections is an educational process. As we have seen by the dismal results for Exubera, removing the injection does remove the fear of insulin. With all the controversy over Avandia, physicians are reexamining their approach to treating their type 2 patients and both insulin and Byetta are definitely in the mix. This is good news for Lilly.

David Kliff
Diabetic Investor
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