Lilly Puts On A Happy Face, But Will Investors Buy In?

It was all about the pipeline during Eli Lilly's fourth quarter earnings call, as company execs strove to convince analysts they can compensate for revenue losses from big-ticket products about to lose patent protection.

At issue is the imminent loss of blockbusters like the antipsychotic Zyprexa (olanzapine), which brought in $4.9 billion in 2009 and goes off patent in 2011. The oncologic Gemzar (gemcitabine), which brought in $1.4 billion, goes off this year. But while Gemzar sales arguably have been trending downward, Zyprexa was up 19 percent globally and 28 percent in international markets in 2009.

Lechleiter and his team talked up their R&D reorganization and other creative approaches the company is taking to reduce both the cost and time it takes to develop new drugs at a December analyst day (see ¹ (Also see "Lilly Tries to Buy Time" - In Vivo, 1 Dec, 2009.)). But if the audience was cool to Lilly's pitch then, it was only lukewarm after the Jan. 28 earnings call.

The problem is Lilly's efforts may be too little, too late. "We presently see no replacement for Zyprexa, whose patent expires next year," Herman Saftlas, a Standard & Poors healthcare analyst, said in a Jan. 28 note. "While we think [Lilly] has a robust R&D pipeline (over 60 drugs), we see it as heavily skewed toward early stage compounds."

Advancing that pipeline is Lilly's number one priority, Ronika Pletcher, a member of Lilly's investor relations team, said on the call. Lilly has shuffled its pipeline a bit since December, advancing four candidates into later stages, dropping one Phase I oncology candidate and adding another, she said.

Currently 29 of the 64 NMEs in the portfolio are in late-stage clinical development, with about 30 in Phase I.

Necitumumab Dust-Up Resolved

Lilly and Bristol-Myers Squibb have ended their dispute over rights to Erbitux (cetuximab) follow-on necitumumab (IMC-11F8), the compound that brought the two companies to blows after Lilly beat Bristol to the punch in purchasing ImClone in 2008.

Lilly and Bristol will share the cost of developing and potentially commercializing in the U.S., Canada and Japan, while Lilly retains full rights to the antibody in other global markets (² (Also see "BMS, Lilly Reach Agreement To Co-Develop Erbitux Follow-On" - Pink Sheet, 28 Jan, 2010.)).

Necitumumab, a fully humanized version of the EGFR-inhibitor cetuximab, is in Phase III trials for non-small cell lung cancer.

Lilly advanced its experimental oncologic tasisulam (LY573636) into an 800-patient Phase III study against metastatic melanoma, with the first patient visit in late December, Pletcher said. Though Phase II inquiries in several cancers are not completed, the molecule's activity in metastatic melanoma was so good it was "more than appropriate to advance it," said Steve Paul, president of Lilly Research Laboratories. "We'll be thinking about tailoring strategies, trying to find those patients who respond better to the agent, as we progress," he said.

Three candidates advanced into Phase II: LY2599506, a glucose kinase activator for diabetes; an anti-interleukin-23 antibody for psoriasis; and an EG-5 inhibitor for cancer. Proof-of-concept data should be available later in the year for the IL-23 drug, said Pletcher. Lilly also hopes to have some Phase II advanced data early this year on LY2624803, the dual-acting (histamine H1/serotonin 5HT2a antagonist) insomnia compound (HY10275) it gained through its 2007 acquisition of Hypnion, she said (³ (Also see "Lilly Adds Dual-Acting Insomnia Compound With Acquisition Of Hypnion" - Pink Sheet, 5 Mar, 2007.)).

In December, Lilly inked an exclusive worldwide license and collaboration agreement with Incyte for development and commercialization of an oral JAK1/JAK2 inhibitor, INCB28050, in inflammatory and autoimmune diseases (⁴ (Also see "With Lilly JAK Tie-up, Incyte Aims To Chase Pfizer In Rheumatoid Arthritis" - Pink Sheet, 21 Dec, 2009.)).

The compound is in an ongoing Phase II dose-ranging, crossover study in 100 patients with rheumatoid arthritis, and a larger Phase IIb study is planned to inform dose selection for Phase III, said Nick Lemen, Lilly IR. Incyte plans to share top-line three-month results in the first half, and six-month results at the American College of Rheumatology annual meeting in October, he said.

Also in December, Lilly partnered with Kowa on Livalo (pitavastatin), a statin that won FDA approval in August (⁵ (Also see "Seventh Statin Appoved: Kowa Will Take A Niche Strategy For Livalo" - Pink Sheet, 10 Aug, 2009.)). The deal allows Lilly to more effectively use its current sales force as it expands its product offerings in cardiovascular therapeutics, Lemen said. A mid-2010 launch is planned.

During the call, Lechleiter also defended slower than anticipated uptake of antiplatelet drug Effient (prasugrel) and downplayed FDA approval of Novo Nordisk's long-acting GLP-1 analog Victoza (liraglutide), a potential competitor to Lilly/Amylin's Byetta LAR ( once-weeklyexenatide), which is pending at FDA with a March 10 action date (⁶ (Also see "FDA Clears Victoza, But Warnings And More Studies Pose Hurdles" - Pink Sheet, 26 Jan, 2010.)).

A Rising Tide Lifts All GLP-1 Boats

A U.S. launch of liraglutide "obviously changes the landscape," Lechleiter acknowledged, adding that since the drug's launch in Europe a few months ago, Lilly has observed that "the overall market in this category is expanding."

"So, I think that to some degree if that happens here, all boats will rise, as it were."

Lilly will meet the challenge of Byetta LAR being the second long-acting GLP-1 to enter the U.S. market by standing on the strength of its marketing experience with Byetta , which was first approved in 2005 as a adjunct therapy for type 2 diabetes, Lechleiter said.

"We're going to emphasize the fact that ... Byetta has been used in over a million patients. I think there have been 10 million or so prescriptions written," he said.

Byetta won approval as a monotherapy in October after a regulatory struggle, but uptake hasn't been what Lilly and partner Amylin had hoped. Amylin reported Jan. 27 that Byetta sales for 2009 were $163.7 million, a meager increase over $162.7 million in 2008, and a miss against the consensus target of $173.4 million.

"Clearly we had been hoping to have better performance in 2009 than we had," said Phil Johnson, Lilly VP-investor relations. But "with uncertainties now behind us with regard to approval of monotherapy and the label updates that occurred late in the year," Byetta's performance will improve, he said.

With the monotherapy approval, FDA revised Byetta labeling to include a warning based on post-marketing data that the drug is associated with acute pancreatitis and renal impairment. It did not, however, add a black box warning (⁷ (Also see "FDA's Handling Of Byetta Pancreatitis Risk Could Bode Well For Other Diabetes Drugs" - Pink Sheet, 2 Nov, 2009.)).

The worry persists, however, that FDA will make a black box warning about thyroid cancer that is part of Victoza labeling a classwide requirement for GLP-1s - and hence for Byetta LAR.

Lilly's Johnson was upbeat about avoiding that prospect. Each of the products has a different preclinical and clinical data set, and Lilly's expectation is that FDA will look at that data and determine appropriate labeling for each molecule, he said, noting that Byetta has five years of post-market data to fall back on.

Johnson also called it unlikely that protocols now being finalized to test exenatide against liraglutide in an open-label study and to show whether exenatide improves cardiovascular outcomes will include monitoring calcitonin, a thyroid cancer marker. Drawing on suggestions raised during FDA advisory committee discussions of liraglutide, he said the testing might result in false positives and unnecessary surgeries.

Not Ready To Reset Effient Expectations

Despite a poor performance from the antiplatelet drug Effient, Lilly is going to "stick with the plans we have," Lechleiter told analysts.

Effient, for which Lilly is partnered with Daiichi Sankyo, is still rolling out in Europe and reached the U.S. market in August. It had worldwide 2009 sales of $27 million, of which U.S. sales were $22.5 million. "For all the attention the product has received over the past few years," Bernstein analyst Tim Anderson called the performance "very underwhelming."

Lilly is getting a handle on what it needs to do to position the product, Lechleiter said. "We're responding ... to the inputs we get from payers [and] we're pleased with the access that we're gaining unrestricted in tiers 2 and 3," he said.

Lilly is approved and stocking cath labs that perform in excess of 60 percent of PCI procedures, compared to 50 percent reported at the December meeting, added Johnson. In addition, FDA's Division of Drug Marketing, Advertising and Communications has approved promotional materials that will be in the hands of sales reps starting in February.

- Shirley Haley ( ⁸ [email protected] )