Wednesday, May 02, 2007

The Business of Diabetes: Q1 2007 Earnings from Lilly & Novo Nordisk

Earnings season is upon us, and often, we can get clues as to what we're likely to see in diabetes treatment from the the earnings releases from major pharmaceutical companies, so I've assembled some relevant information here. Note that I have archived the presentations rather than included links to the companies' websites, as many firms do not retain this data on their websites for an extended period of time.

Eli Lilly and Company

In mid-April, Eli Lilly disclosed earnings fell 39% during Q1 2007, largely driven by charges due to the cancellation of an insulin factory in Virginia and charges related to its acquisition of Icos, the company responsible for Cialis, a drug to treat the urgent condition of erectile dysfunction in males. In Lilly's earnings presentation, management noted that Humalog sales increased 11% to $340 million. U.S. and international sales were comparable (U.S. sales increased 11%; international sales increased 12%). Humulin sales increased 3% to $226 million, and although U.S. sales decreased 3%; international sales increased 8%. Sales of Humalog was slower than Novo Nordisk's insulin analogs, but consistent with worldwide growth for the market as a whole. The company also reiterated that it was committed to re-acceleration of the Humalog franchise; specificially with a 40% sales force increase and new pen launches, but nothing was disclosed about a long-acting insulin analog, meaning Lilly is largely a one-trick pony in the current insulin business, and its unclear whether the new insulin pens will be enough to halt the company's market share slide in recent years.

In March, the the FDA rejected Lilly's appeal of an approvable letter for Arxxant for diabetic retinopathy and reiterated its request for further data that would require an additional 3-year study. Lilly subsequently withdrew its Arxxant application in Europe and is currently considering the next steps for the drug. The company was hoping that Arxxant would become another blockbuster (in other words, its next $1 billion drug), but now the outlook for this drug remains unclear.

Meanwhile, according to The Wall Street Journal's Health Blog, a week after a Senate committee released a report on charitable and educational contributions made by pharmaceutical companies, Eli Lilly is finally releasing its own detailed report on the grants it makes to nonprofit groups, educational institutions and for-profit educational companies. The Senate committee's report said that while there is separation between grants and sales and marketing, potential for abuse remains. Lilly decided to disclose the details after an internal analysis showed the marketing department wasn't influencing the grant office's decisions, says Michael Bigelow, Lilly's assistant general counsel. Lilly shouldn't have to feel "apologetic" about the grants, he adds. But they might want to feel apolgetic about their contribution to JDRF! In that report, we discover that Lilly gave $40,000 to JDRF's Indiana Chapter. Considering the company sold $566 million in insulin during the first quarter alone, this contribution seems comparatively small considering the huge financial benefit this customer segment has generated for Lilly's shareholders.

Novo Nordisk

Today, Novo Nordisk released its quarterly earnings results. Overall sales in North America increased by 16% (27% in local currencies), including a 32% (39% in local currencies) worldwide increase in so-called "modern insulins" (better known as insulin analogs). The investor presentation notes that insulin analogs accounted for 65% of total sales growth, whereas human insulins accounted for a mere 2% of growth. However, the difference in performance was due largely to the huge price differential between analogs and human insulins. Net profit increased by 41% to DKK (Danish Krones) 1,709 million. Earnings per share (diluted) increased by 44% to DKK 5.35.

One noteworthy comment was a quote from Lars Sørensen, the President and CEO, who said: "We are pleased with the solid sales growth that we have seen in the Q1 2007 despite the depreciation of key invoicing currencies. The U.S. modern insulin market is a significant growth driver and we expect the U.S. growth to continue supported by the expanded U.S. sales force which will be in the field by the end of Q2."

This increase, which was announced last year, has caused rivals Eli Lilly and Company and Sanofi Aventis to step up their salesforces for insulin as well. The downside to this development is that many doctors complain they simply do not have time to see all the salespeople who are knocking on their doors while also treating their patients. Not that it has stopped them from doing so, as nearly 95% of physicians in the U.S. receive free food, beverages, drug samples, sports tickets or other benefits from drug company sales reps eager to influence their prescribing habits, according to a recent report published in the New England Journal of Medicine.

Meanwhile, Mr. Sørensen recently told Jim Hirsch and Kelly Close of Close Concerns a little bit more about new insulins in the company's product pipeline, which seemed like more of a yawn to me, and Sørensen even admitted that he wasn't sure how much they could improve upon insulin at this point, but I'm not sure how much can really be derived from a short statement. This does explain Novo Nordisk's fascination with the type 2 market in spite of the fact that the type 1 market has fueled the company's growth until recently. The following is an excerpt from a longer interview published in a recent issue of the industry newsletter Diabetes Close Up:

  • Jim: Switching gears - regarding your products, can the insulins get better than where we are now, or is it now just a matter of finding smarter ways of dosing?

  • Mr. Sørensen: That is the most exciting thing, that right now we are working on developing yet another generation of insulins, which are, in our view, and perhaps in your own view, better than the traditional human insulins that we have used for many years. So Levemir, when you look at it, is a fantastic basal insulin, but it is still having a duration of action that is slightly less than 24 hours. It has the benefit that you're not gaining as much weight as the traditional NPH or long-acting insulin. When we look at our research portfolio, we have in early research and early clinical trials new and further improved basal insulins. And these basal insulins might even be formulated as premixes, so two-thirds of the whole market, the basal insulins in the premix, we believe that we might even be able to improve further than where we are today. We're still talking about something which may not be available until another 5 years, but it's very, very encouraging research that we're seeing at the moment.

  • Kelly: This would be even beyond the analogs, like a super analog or something like that?

  • Mr. Sørensen: Yes. We prefer to call them modern insulins. So you have animal insulin, human insulin, and then you have modern insulin, and you can call the others postmodern insulins. But it's yet another generation, which has some further properties. Whether we can improve it even further from that, I don't know at this point, but this will give significant benefit to those that use our products. I'm quite certain about that.

Sanofi Aventis: FDA Approval of New Insulin Pen, Earnings Forthcoming

Sanofi Aventis recently announced that the U.S. FDA had approved Lantus SoloStar, prefilled disposable insulin pen for Lantus (insulin glargine). As I previously wrote, this pen was recently launched in Europe and it was only a matter of time before the company introduced it here. The company's Opticlik pen is seen by many as a weak element in the company's insulin business, and the new pen is smaller and more convenient. Because Lantus is the world's best selling insulin analog, its not surprising that a Lantus pen would be be introduced first, but at this time, there is no word on when an Apidra pen will be introduced. Typically, FDA approval is quick for a device and an insulin that both already have FDA approval.

The Sanofi Aventis general meeting of shareholders will not be held until May 31, 2007 in Paris at 3:00 PM (local time), where more details on Q1 2007 results will be disclosed.

Some company details were disclosed during the March 13, 2007 Cowen and Company 27th Annual Health Care Conference held in Boston. The presentation was given by Sanjay Gupta, who is the Vice President of Investor Relations for Sanofi Aventis. Note pages 15-16.

Finally, A Completely New Way to Dose Insulin!

This this one was simply too funny not to pass on to my readers. Oramed Pharmaceuticals, Inc. announced the addition of two provisional patents for -- I kid you not -- a suppository application for insulin!! I almost fell out of my chair from laughter when I read this -- its much funnier than insulin toothpaste. Now, if you aren't comfortable with inhaled Exubera, now you can try another method of dosing your insulin. Maybe they can call their product the first true insulin anal-og!

2 comments:

Anonymous said...

Scott--

Thanks so much for the cartoon. I shared it with a few of my old-time Type 1 friends. Despite their laughter, they each reported back to me that, on looking at it a second time, they could appreciate the irony of how dia-business perceives us--consumers/patients. Anything "new" that they can come up with, we should embrace with enthusiasm and appreciation. IOW words, they view us as revenue-generating, suppository receptors.

Melody

JK said...

Mr. Strumello -- I am a health care reporter at the Indianapolis Business Journal, for which I cover Eli Lilly. I am currently writing an article about Sidney Taurel's performance during his nine years as CEO. I'm asking a variety of investors, analysts and customers how they think Taurel has done leading the company, what he's done well and what mistakes he's committed. Would you be willing to chat with me? You can reach me by e-mail at jwall@ibj.com or by phone at 317-472-5399. Thanks for your time. -- J.K. Wall