You have to play to win – more perspective on the Amylin/Lilly split

You have to play to win – more perspective on the Amylin/Lilly split

It’s only been a few days since the announcement came down that Amylin (NASDAQ:AMLN) and Lilly (NYSE:LLY) terminated their partnership and already rumors are swirling about who and when Amylin will be acquired. But the acquisition rumors aren’t the only rumors circulating as there is an equal amount of speculation as to why Lilly let this happen; is there something wrong with Bydureon; does Lilly see something in their own GLP-1 they don’t see in Bydureon; on an on it goes.

Before we spin the wheel and speculate a little on when and who will acquire Amylin, lets address these non-acquisition related rumors and provide some color as to what they really mean.  First off, Diabetic Investor highly doubts Lilly knows something Bydureon that no one else does and it’s even more likely that if there was any issue with the drug at the FDA we would heard something by now. Although Amylin cannot comment on what they have been told by the FDA, there is a wealth of data on Bydureon and its risk/reward profile is well known. Diabetic Investor suspects these rumors have more to do with whether or not Bydureon will be approved with a black box warning and what the Bydureon label will look like, rather than some previously unknown issue.

It’s important to note that Bydureon is not a completely new drug and is basically a line extension of their current twice daily GLP-1 Byetta. While there are some differences between the two drugs besides how often they are taken, these differences fall on the positive side for Bydureon. Not only is the drug taken just once a week, it provides better control, shows less signs of nausea and appears better tolerated than Byetta. Given that Byetta has been approved for years and there is ample data from real patients Diabetic Investor doubts that there are any hidden or unknown factors regarding the adverse event profile for Bydureon.

We also give little credence to the belief that Lilly’s own GLP-1 currently under development is somehow superior to Bydureon, in fact we believe the exact opposite is true. It’s important to note that both Amylin and Novo Nordisk (NYSE:NVO) had a chance to own this technology and both companies passed on the opportunity. Based on what Diabetic Investor knows about the Lilly GLP-1 it is not just inferior to Bydureon but we doubt even if makes its way to the market, by no means a certainty, it will be just another me-too, copycat effort that is quickly becoming Lilly’s signature when it comes to diabetes drugs.

From what Diabetic Investor can tell two factors are influencing rumors which are not related to Amylin being acquired. First, Novo reps who are very concerned that once Bydureon gets here they will see sales for their GLP-1 Victoza plummet now have some new ammo they can share with physicians. As we have been reporting although Bydureon is not yet approved Novo reps have already started selling against the drug. Before the split announcement most of the discussion centers around needle size and the fact patients would have to mix Bydureon prior to administration.

Given that the Lilly name still resonates with physicians, something we fail to grasp given their many blunders in the diabetes space, Novo reps can ask the physician why if Bydureon is so great did Lilly basically walk away from the drug. The implication being that there must be something wrong otherwise Lilly would not have let Bydureon out of its grasp. Diabetic Investor does not blame these reps for taking any advantage, real or perceived when it comes to protecting their commission checks.

The fact is many are having a difficult time understanding how this situation reached a point where Amylin and Lilly felt it necessary to terminate their partnership. As we noted before as good as we believe Bydureon is the drug will not sell itself and is not a slam dunk to become a blockbuster. There is a great deal of heavy lifting that must be done, lifting which now rests squarely on Amylin’s shoulders. That being said what most people just can’t wrap their arms around is that Lilly for reasons which only they understand felt more comfortable with their other diabetes partnership and did not want details of that partnership to come out in court as the lawsuit between Lilly and Amylin was reaching the discovery phase.

The reality is when Amylin first partnered with Lilly they need Lilly more than Lilly needed Amylin. Yet from the get go these two “partners” did not mesh well; a fact that reared its ugly head when they launched Byetta. For those with short memories or new to the diabetes drug space, Byetta was launched back when the issues with Avandia were just becoming known and Januvia had yet to gain traction as an Avandia replacement. The door was wide open for Byetta but for reasons unbeknownst to anyone but Amylin and Lilly, the companies were caught off-guard and did not have an adequate supply of Byetta pens they could sample with physicians; physicians who were actively looking for an Avandia replacement and who heard good things about Byetta.  The companies had to stop handing out samples which opened the door for Januvia as Merck (NYSE:MRK) reps we’re delighted to fill the void and provide these physicians with an ample supply of Januvia samples. The rest as they say is history, Januvia went onto to become a mega-blockbuster while Byetta never quite recovered.

Just when it seemed Byetta was set to recover from this launch blunder the Lilly/Amylin partnership splintered further when news broke about pancreatitis and Byetta.  Although there was no direct link between Byetta usage and pancreatitis and the incidence rate for patients using Byetta was actually LOWER than for diabetes patients in general, Lilly’s response to this issue was less than stellular. Based on their statements at the time Lilly gave the impression that there might be more to this issue when the facts told a different story.

The partnership completely feel apart when Lilly’s teamed up with Boehringer Ingelheim. A deal that no one other than Lilly understood. A deal which Lilly initially claimed would help them sell more Bydureon even though the first product out of this new partnership, Tradjenta, was targeted at exactly the same patients as Bydureon. Some may recall that Diabetic Investor interviewed Enrique Conterno Lilly’s Senior Vice President and President, Lilly Diabetes during the ADA conference back in June. An interview that quite frankly didn’t go all that well for Lilly as the more they talked about the BI deal the worse it sounded. We couldn’t help but think that as much as they were trying to tell us this was a great deal, it seemed as if they were actually trying to convince themselves this was a good deal.

The fact is Lilly made the BI deal for two reasons, first it protected their precious dividend and second the products related to the deal are not a threat to the company’s core insulin products. As Diabetic Investor has noted on more than one occasion Bydureon is not just a threat to oral diabetes drugs but is an equal threat to insulin sales.  The fact is the only hope for future growth in the insulin market is greater adoption by Type 2 patients, the same patients Bydureon is targeted at. The Type 1 market is neither large enough nor growing fast enough to provide the growth needed to sustain insulin sales. Should Bydureon become successful it will adversely impact not just Lilly’s insulin sales but Novo’s and Sanofi-Aventis (NYSE:SNY) insulin franchises. Rather than embrace the growing GLP-1 market as Novo and Sanofi have done, Lilly just couldn’t or wouldn’t warm to the fact that the insulin market is becoming a commodity style market which will soon face generic competition.

A fact which seems odd since Lilly has basically capitulated to this fact with their aggressive pricing and rebating for their insulin products. Rather than embrace an innovative therapy option they had with Bydureon, a drug which will not face generic competition for some time and a product which will command a higher margin and is set to be the leader in an expanding market, the company instead wants to capture an increasing share of what is becoming a declining market; a business strategy which to our knowledge does not lead to long term success.

It also seems odd that the drugs being develop in conjunction with BI, are a series of me-too, copycat late to market offerings which even if they get to market will face some every stiff competition. Tradjenta is a perfect example of this, a DPP4 which is basically a Januvia wannabe, offers little in the way differentiation from Januvia and comes to market well behind Januvia an established blockbuster. Making matters even worse, as if the drug didn’t already have enough problems, is the lack of formulary placement. About the only way Lilly/BI can salvage this dog of a drug would be to resort to huge discounts and rebates which carries with it lower margins.

The harsh reality that few have been willing to accept is that Lilly made a huge mistake here and there diabetes strategy has been lost in the wilderness for some time. Like another diabetes company, also based in Indianapolis, the company once a leader in diabetes became arrogant and took their eye off the prize. The stood around in their Ivory Tower and watched as Novo came aggressively into the US market, took valuable market share and only when they had fallen into third position did they realize that Emperor has no clothes.

They sat around and watched Sanofi-Aventis kick their booty while Lantus was becoming the number one selling insulin across the globe.  They didn’t even have the stones to try and compete letting Novo once again come out with Levemir which basically prevented any chance they would have had to be a player in the long-acting insulin market. Although Levemir has not supplanted Lantus in the market, Novo has captured some share and the revenue that comes with it. To their credit Novo did not just surrender the long-acting insulin market to Sanofi, at least tried to compete. Lilly decided not even to play the game and is now paying a heavy price for their decision to do nothing.

As become standard operating procedure at Lilly when they finally do decide that they need to do something, they do it only half way and rather slipshod. When they finally awoke to the fact that Novo was kicking their butts in the insulin market the company also awoke to the fact that one of the reasons was Novo offered their insulin in a patient friendly easy to use insulin pen. As we have noted many times while the insulin companies will beg to differ all the short-acting insulin’s do basically the same thing the same way and it really doesn’t make a clinical difference which a patient uses. Again to their credit Novo understood this fact and also understood that the easier it is to inject insulin the better and came out with some of the best insulin pens in the business.

So what does Lilly do? They come out with insulin pens that are so poorly designed and un-patient friendly that were so bad the company had to go back to the drawing board. Here too the company was late to the game and when they finally did introduce their new line of insulin pens, they could not make up lost ground. While the new lines of pens were a vast improvement over their initial pen offerings, not a tough hurdle, Novo and Sanofi also upgraded their offerings putting Lilly once again behind the eight ball.

Unlike the fantasyland that Lilly is living in, the facts and history clearly state that this once proud and dominate player in diabetes has lost their way. Based on their actions and not words, it’s clear to Diabetic Investor that Lilly is headed in the wrong direction and without Bydureon will not recover. With Bydureon, Lilly at least had a chance to turn things around and once again become a serious player in the diabetes market. Without Bydureon and with their current crop of offerings combined with a weak pipeline they will be regulated to third tier status for the foreseeable future.

As we noted when we first wrote about the split with Amylin, the company will one day look back and wonder just went wrong. They will sit around and watch another company, a company who understand the diabetes market and sees were the market is going, come along and snap up Amylin.  At the moment Diabetic Investor isn’t sure who that will be – Sanofi, GlaxoSmithKline (NYSE:GSK), Pfizer (NYSE:PFE) and even Novo are all possibilities. We’re also not sure when this will happen as we believe that Amylin will need to demonstrate that Bydureon is for real and worth owning.

What we do know is that when the going gets tough, Lilly has consistently demonstrated they don’t have the stomach or gumption to fight. That their conservative style will come back and haunt them. The fact is the diabetes landscape is changing and success in the future will come to companies who are willing to take on some risk. Based on everything that’s know about Bydureon it’s not as if they would have been throwing caution to the wind and acting recklessly. Yes there is a risk that Bydureon will not succeed or run into some unexpected issue, every new drug carries this risk. Diabetic Investor suspects that there are several companies who would be willing to embrace the risk and take a calculated chance on Amylin.

This past Tuesday a new champion was crowned at the famous World Series of Poker. A champion who faced some formidable and talented competition, experienced his share of ups and downs but in the end came out on top. This was not accomplished without the champion making his fair share of risky bets or being willing to go all in and risk losing all his chips. As any experienced poker player knows while a player can’t lose any of their chips they don’t bet, they can’t win any either if they don’t play.

When it comes to diabetes Lilly isn’t just unwilling to take on some risk, they aren’t even willing to play. Just how they plan on winning this game is anyone’s guess. The facts and history tells Diabetic Investor when the going gets tough, Lilly takes a powder. Sad but true.