The Business of Diabetes: Signs Suggest Lilly's Type 1 Diabetes Strategy May Be Evolving

Since 1923, Eli Lilly and Company's strategy for type 1 diabetes has been fixated on insulin replacement, and more recently, pushing the idea of intensified insulin therapy. Although Lilly's Humalog was the first insulin analog on the market, over the past decade especially, Lilly took its eyes off the ball and lost its position of dominance in the U.S. type 1 diabetes treatment market to rival Novo Nordisk and more recently, some share to Sanofi Aventis.

For the past several years (my first post on this subject was in 2005), I chronicled Lilly's squandering of insulin market share in the U.S., from as much as 85% of the U.S. insulin market back in 1995 to just 43% in 2006 according to data from IMS Health. This year, the company beefed up its salesforce for diabetes products to match Novo Nordisk's significant sales staff. But the market share slide cannot be resolved simply by hiring more people to push the stuff, the company must offer products to meet the needs of doctors and their patients. But Lilly should have been investing in this a decade ago, but didn't bother as it rode the Prozac pony to blockbuster status, only to see its share of that drug eaten by generics manufacturers when its patent expired. The company also invested in treatments for schizophrenia and other mental health conditions, while its insulin business was ignored by executives in Indianapolis, assuming its market dominance would continue in spite of massive changes in the way drugs are bought with managed care providers demanding big price breaks and a need to minimize the number of providers.

Management's solution to problems in the insulin business: a smarter insulin pen. Investors should be skeptical. Today, Lilly is a one-trick pony in the insulin market, offering no long-acting insulin whatsoever since removing Ultralente from the market in 2005, while rivals Novo Nordisk and Sanofi Aventis both have long-acting insulin analogs on the market. Indeed, Sanofi's Lantus is the world's best-selling insulin today. The long-term trend for Humalog has been a steady decline in market share to Novolog and Apidra.

The one bright spot for Lilly is continued strength in its Humulin biosynthetic insulins, although in the U.S., these products have lost market share, largely to Novo Nordisk's Novolin biosynthetic insulins.

This summer, Lilly hired Dr. Robert J. Heine to manage Lilly's diabetes business. But as I noted in September, the selection of Dr. Heine was not a terribly logical choice to manage this business. Dr. Heine's primary research interests and expertise is in the epidemiology and pathophysiology of type 2 diabetes, not type 1 diabetes. But Lilly's type 2 business actually remains fairly healthy (the Byetta franchise which is exclusively for the type 2 audience remains very healthy, although profits are shared with partner Amylin Pharmaceuticals, Inc.) while Lilly's insulin business aimed largely at the type 1 audience is the business that's in terrible shape, and slick pens are probably not sufficient to turn that business around.

This week, there was another announcement (see here) from JDRF and Eli Lilly and Company (on top of one announced in February) and in late October, and Lilly announced they had partnered with MacroGenics, Inc. in which the two companies have entered into a global strategic alliance to develop and commercialize teplizumab, a humanized anti-CD3 monoclonal antibody, as well as other potential next generation anti-CD3 molecules for use in the treatment of autoimmune diseases, including type 1 diabetes. As part of that deal, Lilly will acquire the exclusive rights to the molecule.

"We remain committed to maintaining our leadership role in diabetes care, including an expanded presence in the area of type 1 diabetes" David Moller, M.D., Vice President of Endocrine and Cardiovascular Research and Clinical Investigation at Eli Lilly and Co. said in a company press release.

These moves suggest that Lilly may be re-thinking its strategy for the type 1 diabetes market. As I commented on Allison's blog, recent announcements regarding Eli Lilly and Company and JDRF suggest that just maybe, Lilly has come to the realization that if they cannot win in the insulin market with Humalog only, perhaps funding efforts that might arrest the autoimmune attack that causes type 1 diabetes in the first place will give the company continued relevance in the type 1 market. It is a risky strategy, but the rewards, if successful, could be significant.

Dr. Jeffrey Bluestone at U.C. San Francisco has pioneered early work in this field, and clinical trials in Europe suggested that it works effectively on newly diagnosed patients, reducing their total daily dosage requirements for insulin and providing ongoing protection from hypoglycemia. But the big unknown is, and few studies have investigated, whether this treatment might also be applicable to long-standing type 1 patients. Perhaps Lilly will investigate this, and I would bet they also try combining treatment with Byetta, which has been proven to restore beta cell mass in patients with type 2 diabetes. Trials are planned to investigate this might help retain beta cell function on islet transplant patients, and there is considerable interest in looking at whether Byetta might also help restore beta cell mass in patients with type 1 diabetes. It may be wishful thinking for Lilly, but only trials will provide an answer to this question.

To be sure, others are pursuing similar strategies, notably, Dr. Denise Faustman will kick off her own trials at arresting the autoimmune attack in both newly diagnosed and long-standing patients with type 1 diabetes, reportedly starting in 2008. MacroGenics solution is just one of several in the groundbreaking field of immunology, a relatively understudied field of science that seems integral to solving the type 1 diabetes issue.

The bottom line seems very clear: Lilly has a tough road ahead of it as far as restoring its past dominance in the U.S. insulin market. Generics WILL emerge in the not-too-distant future, and its unclear whether the Humulin business will survive without major market share losses. Keep in mind that half of Lilly's insulin franchise consists of Humulin sales. It does seem, however, that Novo Nordisk plans to eliminate all forms of synthetic "human" insulin (Novolin) according to statements from that company's Chief Financial Officer. That could enable Lilly to retain some of this business, assuming Novo follows through on its plan. But Lilly could be the thorn in Novo Nordisk's side that prevents it from happening.

Lilly must consider partnerships, notably with Flamel Technologies S.A. of France. In 2003, Bristol-Myers Squibb announced that they had entered into a licensing and commercialization agreement to develop and market Basulin®, the first controlled release, unmodified synthetic "human" insulin to be developed as a once-daily injection for patients with type 1 or type 2 diabetes. But in late 2004, Bristol Myers terminated that agreement, thus opening the door for Lilly to step in. Flamel, whose U.S. headquarters are in Washington, D.C., has continued with human clinical trials using what they call Medusa®, a nanotechnology solution which can carry polyamino acids (think insulin), which the company claims is a very versatile protein carrier for the development of novel and second-generation long-acting protein medicines, such as insulin and human growth hormone among others.

In September, Flamel entered into a development and license agreement with Wyeth Pharmaceuticals. The agreement was for the development and licensing of a marketed protein to be delivered using Flamel's Medusa technology. Flamel will receive an upfront payment and potential development fees, milestones and royalty payments, the terms of which are not disclosed. However, appears that the Wyeth agreement was not an exclusive agreement, whereas the original agreement with Bristol Myers Squibb was, thus creating an opportunity for Lilly.

Stephen H. Willard, Flamel's Chief Executive Officer said at the time of the announcement "As with the four previous Medusa relationships that we have entered into this year, this agreement concerns our new uniform polymer which is applicable to a wide variety of proteins and peptides. This new relationship contributes to our goal of building a diverse set of relationships for our Medusa platform, which we expect will continue to grow. We are pleased that Wyeth has chosen to license our Medusa technology and are looking forward to working in the development of this exciting opportunity."

In October 2007, Flamel Technologies announced positive preliminary Phase I data from a trial comparing the safety, tolerability, and long-acting activity of its Basulin product compared to Sanofi's Lantus insulin analog. The press release said very specifically that "Flamel is seeking a licensing partner for that product."

Okay, Sidney Taurel (Eli Lilly and Company's Chairman and CEO), as well as Dr. Robert J. Heine, M.D. AND J. Scott MacGregor (a Communications Associate for the insulin business at Lilly), listen up: Your insulin business is in bad shape, and the prospects of generics could enable companies like Sandoz (Novartis), Teva, Barr and other generic manufacturers to eat into your lucrative Humulin franchise, too. Humalog may be a decent product (at least from a business perspective), but its clearly not enough to restore your former market share in insulin, and I would add that Pfizer's decision to pull the plug on Exubera suggests that your AIR inhalable insulin product may be only a niche market opportunity (one which rivals Novo Nordisk also plans on competing in). Take my advice, and look into partnerships with Flamel, or your days in the insulin market in the not-too-distant future could be numbered.