Friday, October 19, 2007

Weekend Bits

For those of you who caught my posting yesterday, you may note that I had promised to update the news since Pfizer was not the only drug company to release its earnings yesterday. I must apologize, but I simply forgot to do that yesterday, so I'll address that here, along with a few other miscellaneous items.

Lilly Profits Up, But Few Signs of Improvement Seen in Insulin Business

While Pfizer made the news for its decision to pull the plug on its inhalable insulin product Exubera yesterday, a real powerhouse in the insulin market, Indianapolis-based Eli Lilly and Company also released earnings yesterday. Lilly said its Q3 2007 profit rose 6% on strong sales of drugs such as its Cymbalta depression treatment, and it raised its outlook for the year. Its blockbuster Zyprexa also contributed significantly to the bottom line.

Although Lilly's drug pipeline is somewhat healthier than many of its competitors (Pfizer being a notable example), the company's legendary insulin franchise has, to put this politely, hit the skids in recent years. Furthermore, if you look at the company's clinical trial registry for diabetes, there aren't a lot of new products being investigated (particularly for type 1 diabetes, which account for about 75% of insulin sales according to the CDC), mostly studies are being done to validate insulin therapy. Lilly the only global manufacturer without a complete portfolio of, as rival Novo Nordisk likes to call them, "modern insulins" (a nice way of saying insulin analogs, as they aren't technically insulin), with no basal insulin in its entire portfolio (they took Ultralente off the market in 2005, leaving them with no basal insulin at all). Furthermore, Lilly shares profits with partner Amylin Pharmaceuticals for Byetta and Symlin, so in spite of great performance, Lilly takes about half of what these drugs sell.

In recent quarters, Lilly has underwhelmed investors, in part, because the the top executives in the company are, in the opinions of some investors, dramatically overpaid for basically mediocre performance (see my post here for more). Perhaps more of a concern is the fact that company is so incredibly reliant on "blockbuster" drugs (drugs that sell more than $1 billion per year) for most of its performance. The problem is that once the patents expire, those revenue streams dry up. As Lilly discovered in the mid-1990's when its patent on the blockbuster antidepressant Prozac expired, the company was left with a huge hole in its revenue stream, which resulted in large company layoffs and hard times for a number of years.

To be sure, insulin remains an important part of Lilly's business. Insulin still accounts for just under one-third of the company's revenues. But in September 2005, Lilly ceded its title as the market share leader for U.S. insulin sales to rival Novo Nordisk, the first time since the discovery of insulin. The company has seen its market share plunge from 82% in 2000 to 43% in 2006 according to data from IMS Health. Novo Nordisk and Sanofi Aventis have been the primary beneficiaries, as both companies offer complete portfolios of so-called "modern insulins", while Lilly does not.

As the Indianapolis Star reported, "Lilly's problems in the insulin market grew in part out of a tough choice the company made 7 years ago."

Facing a cash crunch when its blockbuster antidepressant Prozac lost its U.S. patent protection in 2001, Lilly knowingly chose to take money from its insulin marketing budget at a time when insulin sales were poised to take off, and the company dramatically cut back its insulin sales force 5 years ago.

Having said all this, it does raise questions about the major product Lilly is investing in for its insulin business: AIR® Inhaled Insulin, especially given Pfizer's defeat which made the news yesterday. But, Lilly may not make the same mistakes as Pfizer did. If you look at at Lilly's presentation made at the September 25, 2007 UBS 2007 Global Life Sciences Conference, you get a sneak peak at Lilly's product. It does not look like Pfizer's insulin bong, that's for sure! Maybe Lilly's will succeed where Exubera failed.

But having a closer look at Lilly's "insulin franchise" reveals some interesting findings (this is an excerpt from the company's Q3 2007 Earnings Release, which can be seen here). First, the long-term trend for Humalog sales, while up 12% during Q3, has been less than impressive:

The 12% increase is due, in part, to price increases (which sells for at least 20% more than Humulin insulin), and those are worldwide results, not exclusively U.S. statistics (note that the IMS data depicted in the chart above is U.S.-only). Lilly did note that U.S. sales of Humalog were up 9% during Q3, while international sales were up more than twice that amount -- 20%. But if you move on to slide #14 of the presentation, its revealed that Lilly's Humulin business, which collectively sells almost as much as the insulin analog Humalog in spite of having lost patent protection several years ago, we learn that the old standbys, synthetic human insulin, showed surprising strength, especially since the company salespeople do little, if any marketing of these products. Humulin sales increased a still-healthy 6% to $243 million (although in the U.S., sales fell 6% whereas international sales increased 14%).

The following was excerpted from the Q3 Earnings transcript, specifically, the following statement was from John Lechleiter, President and COO, Eli Lilly and Company:

"Reinvigorating Humalog in the U.S. remains a top priority. The battle for market share is a month-by-month fight, but we remain confident in our strategy and our ability to grow Humalog market share. Let me be clear, we are not where we want to be with Humalog in the U.S. But the story is much better now than a year ago and the gains we've made this year, including continuing positive progress and leading indicators of performance demonstrate our focus and commitment to winning in this highly competitive market.

Providing value to customers starts with innovative therapy options and we are leading the industry with new insulin pens. We launched two reusable pens earlier this year, and we are pleased to announce the FDA approval of our third new pen, a next generation pre-filled device called the KwikPen that we'll launch in the U.S. in early 2008.

Product innovation is only part of the equation. We believe our focus on providing solutions beyond therapy alone, such as superior disease education and a new customer centric approach to form a true partnership with physicians will differentiate LillyDiabetes in the market and contribute to growth for Humalog.

We are encouraged by improvements in several leading indicators, including brand equity scores. For the third consecutive quarter Humalog brand equity score improved relative to competitors. We've seen our biggest gains in two areas, quality and innovation of delivery devices and overall brand preference for Humalog, which has been increasing throughout the year compared to competitive meal-time products.

Beyond the U.S., Humalog is performing well internationally. In the third quarter, Humalog showed volume growth in all of our top nine OUS markets. Italy and Mexico had volume growth in excess of 30%, Japan volume grew more than 20% and the UK, France, Spain and Canada were in the high single low double-digits.

Humulin sales for the quarter were up 6% to $243 million, driven primarily by increased volume outside the U.S. and the favorable impact of foreign exchange rates offered in part by declining process outside the U.S. and lower demand in the U.S."

In the grand scheme of things, the news on Humulin is a good sign. There has been talk of eliminating all forms of human insulin for the market, leaving only patent-protected insulin analogs on the market. Nevermind the large cost differential, or the fact that the safety record on these products has been proven for decades, whereas we have only 10 years follow-up on analogs ... this is about profits. Rival Novo Nordisk's CFO, in effect, admitted to CNBC News in a radio interview last year that Novo intended to eliminate all forms of human insulin from the market because analogs were much better for the company's bottom line. (Hmmm, how exactly does that fit into the company's so-called "triple bottom line" of social responsibility, environmental soundness, and economic viability?). But these numbers suggest that Lilly could foil Novo's desires because of the continued strength of the Humulin business and because the company depends on these products for continued performance in the insulin business, at least until the company can come up with some new products.

Read into this what you like, I just thought these were some interesting take-aways that were worth sharing.

DRI's World of Hope Research Conference Coming November 3rd

Next, my friends at the University of Miami's Diabetes Research Institute (the DRI) would like me to let everyone know about their upcoming "World of Hope Research Conference" being held on Saturday, November 3, 2007 near the DRI's campus in South Florida. It will be held from 8:00AM - 3:00PM, and will feature the DRI's gregarious researchers presenting an update on progress made in the field of cure-related diabetes research. Its open to the public (if you make reservations to attend), and tickets are just $25/person or $60 per family of up to 4 people. Details can be found at the DRI's website.

Sadly, I will not be able to attend this year due to the timing and location (I'd have to fly in), but I have attended the DRI's conferences in New York City in the past, and have to say these events are highly worthwhile. Not only are they informative, and also a well-organized event with a sit-down meal, and better still, participants also have the opportunity to meet and interact with the researchers!

JDRF Celebrity Chef Sam Talbot Wins Title of America's Steamiest Chef

In case you missed this, it looks like JDRF "SpokeChef" Sam Talbot, finalist of season 2's "Top Chef" and restaurateur was the winner of the GLAD SimplyCooking Steamiest Chef Contest, which was an online contest where consumers could vote for who is named America's steamiest chef. Sam will be donating an additional $25,000 to JDRF as a result of this victory.

Sam said, "Even in its simplest form cooking can be very sensual. When I create a meal for a guest in my home kitchen I want the experience to solicit a meaningful, even steamy response. I'm proud to be in the running for Steamiest Chef because my involvement will help the JDRF International fund research and support children with diabetes."

By the way, for those of you New Yorkers who wish to visit Sam's restaurant which opened in June, known as Spitzer's, you can catch some more background info. from The New York Times here. However, it appears he may have parted ways with his partners, so he may have left that venture already. I'm sure he's working someplace, but the question is where?


Allison said...

Hmm. Maybe we should try to have an NYC meet-up at his restaurant? Could even get him to come say hello... Not that I really have any idea who he is. Never did watch that particular reality show.

Anonymous said...

On October 19, in the fourth paragraph, you said, "Furthermore, Lilly shares profits with partner Amylin Pharmaceuticals for Byetta and Symlin, so in spite of great performance, Lilly takes about half of what these drugs sell."

While Eli Lilly shares profits with Amylin Pharmaceuticals with regards to Symlin it does not do so with Symlin. Symlin was developed and is marketed solely by Amylin Pharmaceuticals. Lilly derives no profits from Symlin.

Enjoy your Blog and miss your comments on

John Kinsley

Anonymous said...

He left spitzer's earlier this year.. word is he is working on a restaurant in Manhattan

Anonymous said...

In a manner of speaking, Lilly's Humalog Mix 25 does add a basal insulin analogue option (neutral protamine lispro) to their portfolio - even if it's available only in the premix suspension.

And it must be said that there are still lots of people using bad ol'NPH.

But yes, they really are behind the times when it comes to their insulin portfolio.

Bennet said...

Lilly bought into MacroGenics T1 pipe line. What i wonder about is how JDRF financing is effected.

I asked JDRF about it and wrote about it here:

BetterCell said...

Re: AIR® Inhaled Insulin
Its not about making the device look is more about the route of delivery via pulmonary route.