Playing Catch Up
This morning Lilly (NYSE:LLY) is conducting a meeting for the investment community outlining their strategy and when it comes to their diabetes franchise the company’s goal is to “reclaim leadership in diabetes.” As one might expect given their aggressive promotion of Tradjenta at the recent ADA conference, this Januvia wannabe is a major part of this strategy. Yet one looks deeper into the Lilly diabetes pipeline and overall strategy, with the exception of Bydureon, the pipeline is filled with me-too products that will come to market too late and face significant competition.
Looking at what the company presented this morning a more appropriate goal would be not to reclaim leadership, as few of the products presented today will be market leaders, the real strategy is to gain share in growing market. The best example of this is a slide the company used that showed the diabetes drug market growing from $25 billion where it stands today to almost $70 billion by the year 2020. While Diabetic Investor does not disagree that diabetes drug market will experience such growth as diabetes continues to grow globally at epidemic rates. Where we disagree with Lilly is how this $70 billion will be allocated, Lilly seems to believe that oral medications will continue to dominate the diabetes landscape. While this market will continue to grow Diabetic Investor expects injectable therapies such as GLP-1’s and insulin to capture a greater share of the market in the future.
Consider the following:
One trend that has been evident over the past few years is that physicians are treating diabetes more aggressively. This positive step forward started with physicians prescribing multiple oral medications and the introduction of long acting insulin’s. Even with this more aggressive approach the central fact remains that nearly two-thirds of all patients are not properly controlling their diabetes.
It is also true that the use of injectable therapies continues to increase as drugs like Avandia and Actos fall out of favor and the drugs that have replaced them do not offer robust performance. Simply put insulin and GLP-1 therapy are more effective at controlling diabetes than just orals alone. With drugs like Victoza and soon Bydureon physicians can offer their Type 2 patients injectable therapy options which not only provide solid glucose control but the additional benefit of weight loss. These drugs also offer the additional benefits of simple dosing, pen delivery, low incidence of hypoglycemia and no glucose monitoring requirements.
Diabetic Investor is by no means suggesting that the use of oral therapies will not grow rather that insulin and GLP-1 usage will grow faster and take up a large slice of the diabetes drug pie in the future.
Putting Tradjenta aside for the moment few of the injectables under development at Lilly, again with the exception of Bydureon, look to be more than copycats of other drugs which the competition will have in the market well ahead of Lilly. A perfect example of this is LY296016 Lilly’s insulin glargine which if everything goes well is projected to be submitted to the FDA in 2014. The only problem is Novo Nordisk (NYSE:NVO) is already well ahead of Lilly with Degludec and Degludec Plus which are currently in late phase three trials. Sanofi-Aventis (NYSE:SNY), currently the market leader with Lantus, is working on an improved version of the drug which is also in late phase three trials. Even if LY296016 is a great product and actually makes it through the FDA, it will come to market well behind the competition.
The same can be said for Empagliflozin, a sodium glucose co-transporter 2 (SGLT-2) which the company projects to be on the market in 2014. Here too Lilly is playing catch up as Bristol-Myers Squibb Company (NYSE: BMY) and AstraZeneca (NYSE: AZN) have already submitted their SGLT-2 dapagliflozin to the FDA back in March with a Prescription Drug User Fee Act (PDUFA) date set for October 28, 2011.
And last but not least is Dulaglutide, the company’s long acting GLP-1 which is in early phase two trials. Besides being yet another example of Lilly being behind the competition, Dulaglutide is also an example of Lilly’s Jekyll and Hype relationship with Amylin (NASDAQ:AMLN). Never mind that the two companies are already involved in a nasty court fight over Tradjenta, Lilly continues to promote their own GLP-1 when they have Bydureon awaiting FDA approval. Diabetic Investor, along with many others, have never understood why Lilly continues to promote their own GLP-1 when they a possible game changer with Bydureon. All we can say at this point is nothing surprises Diabetic Investor when it comes to the Lilly/Amylin partnership.
Finally no discussion of Lilly can be complete without looking at Tradjenta. Diabetic Investor isn’t sure there is much we can add that we have not already written as nothing new was revealed today. About all we can is that our distinct impression is that every time the company discusses the drug it seems as if they are desperately trying to sell themselves that they made the correct move.
Perhaps the best way Diabetic Investor can describe the prospects of the drug comes from a discussion we had with a Boehringer Ingelheim sales manager on the plane ride back from San Diego. This experienced sales manager wasn’t overly optimistic that a third to market; me-too drug would have much success. He also wasn’t quite sure why the drug was so aggressively promoted at the conference when more than half the attendees were from overseas and the drug isn’t even approved in these markets. (According to company they expect a decision on Tradjenta in the EU in the next three months.) The general feeling was Tradjenta wasn’t really going to do much and he was hoping the other drugs the two companies are working on would offer more sales potential.
The reality here is that Lilly is not trying to regain their leadership position in diabetes as that time has come and gone. The reality is the company sees the diabetes drug market growing and is hoping that by adding more items to their existing portfolio they will capture their fair share of the market. The fact is 10% of $70 billion still amounts to $7 billion in sales and while that can hardly be called a leadership position, it’s still a big number.
The company could become a leader in the GLP-1 category but given their continued reluctant to embrace Bydureon and their strange definition of what a good partner is, Diabetic Investor isn’t overly optimistic. Given how Lilly has treated Amylin, one has to wonder how Boehringer feels about the prospect of their “partnership” with the company. If it’s anything like the Lilly/Amylin partnership they just may come to regret every doing this deal.