Friday, December 15, 2006

The Business of Diabetes: Recent Comments from Wall Street

This is my inaugural posting for what I am calling postings on the "Business of Diabetes". Many companies that sell their products and treatments to serve patients with diabetes are publicly held firms, therefore Wall Street expects regular updates from management on the state of affairs. Sometimes we can get a "sneak preview" of what's to come based on information senior management gives to investors. While people with investment accounts have access to this information (although they may still need to look for it), for others, unless the news is released to the general press, may never hear about it. That is my motivation behind this "series".

By the way, speaking of the business of diabetes, Close Concerns is a San Francisco-based consulting firm that provides consulting services on diabetes to a wide range of established and start-up corporate clients, including pharmaceutical, medical device, and biotechnology companies. Their focus is diabetes. One of the principals of the company is Kelly Close, someone I had the pleasure of meeting at their offices personally this past August.

Their consulting services are likely not directly relevant to patients since they do not work directly with diabetes patients. But its worth mentioning that Close Concerns very recently introduced a patient newsletter on diabetes which is called "diaTribe" which is out now and available on the company's new website for patients, According to their website, "diaTribe examines the latest research and products that readers can apply to their own lives." A free sample of the diaTribe report is available now on the website. Readers can join their mailing list for free, and subscriptions to the newsletter itself are a reasonable $29 per year. I haven't subscribed yet, but its definitely worth looking into. Details are available on the diabTribe website noted above.

Anyway, back to my posting on the Business of Diabetes:

As some of my readers are aware, on August 2, 2006, Novo Nordisk had requested a preliminary injunction to keep Pfizer from selling Exubera® as part of a patent-infringement case the company brought against Pfizer. The company claims that Pfizer's Exubera infringes on its patents, which cover methods for administering inhaled insulin to patients with diabetes.

In an order made on December 14, 2006, U.S. District Judge Leonard B. Sand in Manhattan said he wouldn't grant a preliminary injunction to stop Pfizer from selling the inhalable insulin Exubera. The judge referred to "public health reasons" as one of the reasons for not granting a preliminary injunction. While I cannot see what kind of "public health reason" might exist, and patients aren't exactly beating down the doors to add Exubera to their treatment plans, I'm still pleased that the judge did not grant a preliminary injunction.

Novo Nordisk affirmed its committment to protecting its intellectual property following the denial of its motion for a preliminary injunction to prohibit Pfizer from marketing its inhaled insulin product Exubera in the U.S. The court stated that issues of infringement and validity "will be best served through closer inspection at trial." Novo Nordisk did not regard the ruling as impairing the strength of the underlying case, and also noted that the ruling involves only one of the five patents at issue.

Novo Nordisk says it remains confident in the strength of its patents and "looks forward" to a full trial on the merits of the infringement case against Pfizer. A company spokesperson said "We continue to believe that our commitment to changing diabetes, innovation, and to helping people with diabetes depends upon respect for patents." Of course, all pharmaceutical companies, including the plaintiff Pfizer, are very familiar with the courtroom, so the results of this case will be interesting.

Although the biggest player in the insulin market today, Wall Street analysts have warned that Novo Nordisk is falling behind its competitors in the development of new type 2 diabetes treatments. The type 2 market is growing very rapidly on a worldwide basis, but Novo's GLP-1 medicine (Liraglutide) and its inhaled insulin (Aerx) aren't anticipated to reach the market until 2009.

The company has played down the issue, saying it isn't worried about the time lag. "We might not always be first, but we will always be best," Chief Executive Lars Rebien Sørensen said in September.

Separatly, Eli Lilly & Co. recently told investors about some type 2 diabetes medicines in late-stage development at an investor presentation. In the company's diabetes business, its main product is in development is Byetta (exenatide) LAR, a long-acting release formulation of its popular Byetta (a once-weekly injection for type 2 diabetes) and reported that Phase II results are "encouraging" (A1C levels improved ~2% vs. placebo, 12 out of 14 high-dose patients achieved A1C target of less than or equal to 7%, high-dose patients lost an average of 8.4 lbs vs. placebo, both doses were well tolerated with mild nausea being the most common adverse event, no severe hypoglycemia was reported). Lilly also stated it is working on "building out its manufacturing capabilities." As some people are aware, Lilly has struggled to meet unusually strong demand for Byetta, its jointly-marketed type 2 diabetes medicine with Amylin Pharmaceuticals. I would reiterate, however, that research has also suggested that Byetta may have some benefit to patients with type 1 diabetes, since it has been proven to increase beta cell mass, therefore trials are pending on both newly diagnosed type 1 patients, as well as among type 1 patients who recently underwent islet transplants.

Like Novo Nordisk's inhaled insulin product, Lilly's AIR inhaled insulin is also in phase III development. Enrollment in a major two-year safety trial is complete and there are seven clinical trials that are either ongoing or actively enrolling. Lilly believes that its easy to use delivery device will encourage "earlier, more appropriate" use in type 2 diabetes patients. Lilly expects to see equivalence in efficacy AIR to injectable Humalog. A filing is expected in 2009 in the U.S. and Europe.

Lilly also showed investors that Byetta ranks 4th (vs. 8th last year) in gaining new prescriptions among common branded type 2 diabetes medicines and stated that more than 65,000 physicians have prescribed at least one sample. The company made a point of noting that "the main hurdle lies in getting the first prescription to the patient, as uptake from that point on appears to be good."

Smith Barney analysts were quoted as saying "Our enthusiasm for Lilly is tempered by challenges to its in-line product portfolio (including Zyprexa, the insulin franchise, and Evista). We remain concerned about prescription trends for Zyprexa, the insulin franchise, and Evista, which comprise 54% of the company's worldwide pharmaceutical business in 2005."

The company's insulin franchise is also expected to face new competition from other inhaled insulins (notably, Pfizer's Exubera, as well as Novo's inhaled insulin product Aerx which is expected to be on the market around the same time as Lilly's) as well as increased competition from Sanofi's Apidra injectable rapid-acting insulin analog. To address these concerns, Lilly President John Lechleiter told Dow Jones Newswires on Deceber 7, 2006 that the company expects to increase the portion of its U.S. sales force marketing insulin products by 40% in 2007. The increased sales force "would support the launch of 5 new insulin pen-delivery products," he said. These "pen devices" would largely be for the new Humapen Memoir which I noted in my previous post following the ADA Scientific Sessions, as well as pen devices for Byetta and Symlin.

At the investor conference, Lilly affirmed its commitment to the insulin franchise and said it plans to increase sales rep support for that business by 40%. This was likely due to competitive pressures (Novo Nordisk is adding another 800 sales reps). Although Lilly remains one of the leading sellers of insulin, as I reported last year, Novo Nordisk and Sanofi-Aventis have aggressively taken market share from Lilly in recent years and in late 2005, Lilly lost its #1 market share position to Novo Nordisk. Dow Jones also noted that Lilly will modestly increase its worldwide diabetes sales force, mainly to try to fuel growth of Byetta, a newer treatment for type 2 diabetes jointly marketed with Amylin. Lilly has already doubled the sales force for the diabetes business in the UK and tripled its reach in Brazil.

In addition, the company's pipeline appears uninspiring, but Smith Barney said it views "its most high-profile pipeline project, prasugrel, as a high risk/high reward opportunity." They wrote "All considered, we rate the shares of Lilly Hold, given a lackluster pipeline, challenges to its in-line product portfolio and the stock's valuation (~5% premium to 2008E drug's P/E [Price to Earnings ratio])."


Scott K. Johnson said...

Did I read correctly that Novo is looking to add 800 (!?) sales reps! Cripes! That sounds like a lot...

Great summary - once again I'm grateful for your knack of clearly updating us on these types of things.

Scott S said...

Yes, you read correctly (at least according to Wall Street analysts). Novo already has more salespeople, which is why Lilly felt the need to boost its salesforce by another 40%!

This is part of a big problem in the pharmaceutical industry -- they now spend more on marketing than they do on research (at least that's the case with Pfizer) and most doctors complain they simply do not have time to see all of these salespeople. The salespeople are not getting the welcome they once did, and doctors are telling them that THEY will call when they want to speak with a pharmaceutical salesperson.

I don't think this can continue like this forever!