Lilly Update

Lilly Update

Today Lilly (NYSE:LLY) provided the investment community with an update and the news for their diabetes franchise was mixed. While the company acknowledge problems with their insulin business Diabetic Investor isn’t sure their plans for the future will do much to help them regain market share. To illustrate just how far Lilly has fallen in the insulin market the company showed a slide today that indicated they were gaining on Novo Nordisk (NYSE:NVO). This is quite an admission from a company that was once the dominate player in the insulin market. Besides plans to increase their insulin sales force the company also announced they would introducing five new insulin delivery devices, all pens to help increase market share. Based on what Diabetic Investor has seen these pens remain inferior to what Novo has to offer. It is widely acknowledged that Novo has the best insulin pens on the market.

It was also interesting that Lilly has surrendered any attempts to enter the long acting insulin market. The company plans on concentrating on their short-acting insulin and insulin mixtures. This is not a surprising move as Lantus the long acting insulin from Sanofi-Aventis (NYSE:SNY) continues to be the world’s best selling insulin and Levemir, Novo’s long acting insulin dominate this segment of the market.

On the positive front Lilly continues to tout the impressive performance of Byetta from Amylin (NASDAQ:AMLN). With the sampling issue now a thing of the past the company faces a new threat with the introduction of Januvia from Merck (NYSE:MRK) into the market. Januvia is from a new class of drugs known as DPP-4’s and is taken orally. Merck sales reps have been pushing Januvia as a safer alternative to TZD’s , Lilly sells Actos made by Takeda which is a TZD, and as a non-injectable form of Byetta. Some Merck sales reps have gone as far as calling Januvia “oral Byetta” although based on all available data Byetta is a far superior drug in terms of providing excellent control and progressive weight loss. This sales strategy may be backfiring as early reports from physicians prescribing Januvia and patients using the drug have been disappointing. According to the physicians and patients that spoke with Diabetic Investor Januvia isn’t delivering the results when it comes to controlling glucose levels. Diabetic Investor suspects that Merck reps have over-hyped Januvia making it difficult for the drug to live up expectations. Granted these are early reports but it is something we’re watching with great interest.

While the company continues to have high expectations for the long-acting once a week version of Byetta, which should be submitted to the Food and Drug Administration (FDA) by mid 2009, they remain committed to their version of inhaled insulin which they believe will reach the FDA also in 2009. There is no question that Lilly’s version of inhaled insulin is far superior to Exubera from Pfizer (NYSE:PFE) which is failing miserably since its launch. While the Lilly delivery device is more patient friendly than Exubera’s, it’s still insulin. The fact remains that type 2 patients, the target market for inhaled insulin, view moving to insulin as a personal failure. These patients are not afraid of injections their afraid of insulin, a fact that has been proven by the success of Byetta which is an injectable. Even with a patient friendly delivery device patients still need to be educated on insulin therapy, a major obstacle for primary care physicians who treat the majority of type 2 patients. With all their experience in the insulin market one would think this is something Lilly should already know. It seems strange that Lilly would tout inhaled insulin which really is a niche product with limited commercial potential over the long-acting version of Byetta which will be a paradigm shifting drug and has mega-blockbuster potential.

With the two products scheduled to be submitted to the FDA in 2009 it would stand to reason both would hit the market within months of each other. Why then would Lilly have such high expectations for inhaled insulin? And what does this say about their future relationship with Amylin? Looked at from the physician and patient perspective the long acting version of Byetta would be the clear choice. Besides providing excellent control and weight loss the long acting version of Byetta is simple to administer. Unlike insulin which requires frequent glucose monitoring by the patient, Byetta is not dose dependent. Simply put the patient takes the same amount of Byetta no matter what their glucose levels are. This one fact alone should not be underestimated as the majority type 2 patients fail to check their glucose levels on a regular basis. Moving to insulin therapy requires a major lifestyle change for a type 2 patient previously using oral medications. Besides daily glucose monitoring patients on insulin therapy must also understand the role of food intake and activity levels. The bottom line is patients and primary care physicians want simplicity when it comes to their therapy regimen.

Equally perplexing is why Lilly believes their version of inhaled insulin will be any better than the many competing products under development. MannKind (NASDAQ:MNKD), KOS (NASDAQ:KOSP) soon to be part of Abbott (NYSE:ABT) and Novo all have their own version of inhaled insulin under development. Not to mention that Pfizer has publicly stated they plan on introducing better delivery options for Exubera. Frankly Diabetic Investor fails to see the fascination with the entire inhaled insulin market and believes the efforts here are a huge waste of valuable capital.

Perhaps Lilly’s interest in inhaled insulin has something to do with what could happen with Amylin. While the two companies have a partnership there is nothing in this agreement that would prevent an outside company from acquiring Amylin. Given the current environment in the pharmaceutical market with so many blockbusters coming off patent and the growing diabetes market Amylin is a tempting target.

Based on the recent declines in Amylin’s share price Diabetic Investor is once again standing alone in our belief that Amylin is the most valuable company in the diabetes market. The Street has consistently doubted Amylin and appears to have a love hate relationship with the company. The stock was bashed after Byetta’s approval only to rebound dramatically when it became clear that physicians and patients liked the drug, something Diabetic Investor accurately predicted. Today these doubts have resurfaced with the introduction of Januvia and the sampling issues with Byetta, issues which Diabetic Investor sees as overblown and unwarranted. Don’t be surprised with Amylin’s share price approaching a 52 week low if another large well known pharmaceutical company comes along and makes a run at Amylin.

Based on what we heard today Diabetic Investor still sees Lilly as having a tough road ahead in diabetes. With Novo increasing the size of their sales force and their leadership in insulin delivery systems, Lilly faces an uphill battle to gain share. While it was not mentioned today the company may have no choice but to become more aggressive with pricing to regain lost share. It’s doubtful that their inhaled insulin will be more than a niche product and even if approved will face a host of competitors. The true gem in the Lilly diabetes franchise is Amylin and for reasons Diabetic Investor fails to understand it appears the company has its doubts over Amylin’s future. Something they could end up regretting should Amylin fall into the hands of a competitor.

David Kliff
Diabetic Investor
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