Lilly – What’s in store for the future.

Lilly – What’s in store for the future.

This past Thursday Lilly (NYSE:LLY) updated the investment community and provided an overview of their pipeline. Not surprisingly the company is optimistic regarding the prospects of the once-a-week version of Byetta from Amylin (NASDAQ:AMLN) and is equally pleased with the current version of Byetta.

While the company has been able to slow share erosion in the insulin market, they continue to fight an uphill battle with market leader Novo Nordisk (NYSE:NVO). In a continuing effort to improve their insulin delivery systems the company will launch the prefilled KwikPen next year. The KwikPen comes on the heels of Lilly’s three new insulin pens the Memoir, Luxura and Luxura HD. The new pens are a vast improvement over previous efforts however Diabetic Investor believes Lilly was late to acknowledge the benefits of pen delivery systems which has cost them dearly.

In a somewhat surprising move their AIR® Inhaled Insulin project is still on track for a 2009 submission. Many, including Diabetic Investor, wondered how Exubera’s exit from the market would affect inhaled projects underway to other companies. Apparently Lilly believes there is a market for inhaled insulin and that Exubera’s problems were unique to Exubera. Thankfully the company did not make any projections on the potential market size for AIR perhaps learning from Pfizer’s (NYSE:PFE) who publicly stated that Exubera one day would hit $3 billion in sales.

Diabetic Investor agrees with Lilly’s assessment that there is a market for inhaled insulin. Exubera’s failure has more to do with Pfizer’s many mistakes rather than the concept of inhaled insulin. Looking at AIR the system has many advantages over Exubera:

1. 1. Small and user friendly delivery device
2. 2. The device does not need to be cleaned and is simply disposed of after 30 days

Given Lilly’s vast experience with insulin and brand awareness in the physician community it’s unlikely they will repeat Pfizer’s mistake of promoting just the fact that the insulin is inhaled rather than injected. Lilly understands the transition to insulin therapy is difficult for the both the patient and physician. The key questions are:

a. a. Did Exubera’s failure damage inhaled insulin in the eyes of patients and physicians?
b. b. Will AIR receive reimbursement and if so at what level?
c. c. Is the market large enough to support what likely will be an expensive product launch and equally expensive product support?

Looking at how Lilly is proceeding with AIR it looks as though they are on the right track. There is a market here.

Taking a look at their early stage pipeline in diabetes teplizumab seems a strange place to invest. The issue isn’t whether or not the drug works, early results look promising. There are really two issues; size of the market and how the drug is delivered. Targeted at Type 1 patients the drug is delivered in vitro for 14 straight days which would require the patient to go to an out-patient facility, physicians office or hospital. Additionally treatment should begin quickly after diagnoses. With just 1.14 million type 1 patients already on a regular therapy regimen and less than 300,000 new cases each year the market opportunity is limited at best.

LY2599506 licensed from OSI (NASDAQ:OSIP) is still too early to get a read on.

The good news for Lilly is they appear to be taking a more realistic attitude towards their diabetes franchise. They acknowledge the problems with their insulin products and have taken corrective action. They also appear to be realistic about the prospects for AIR. Finally, they are fully embracing Byetta and Byetta LAR.

Diabetic Investor isn’t ready to recommend the stock but we are encouraged with the change in attitude.

David Kliff
Diabetic Investor
847-634-4646 fax
224-715-3761 mobile