Lilly Not Ducking M&A, But Will Play To Strengths In Cancer And Diabetes

The Indiana-based big pharma will focus on product-level acquisitions in its core areas of strengths now that it has rounded out its animal health business with its $5.4 billion acquisition of Novartis Animal Health.

Animals were on the brain during Eli Lilly & Co.’s first quarter earnings calls when CEO John Lechleiter compared the company’s ongoing business development activities to a “duck floating on the water, the feet paddling away.”

Earlier this week, Lilly made its second-largest acquisition in recent years – paying $5.4 billion for Novartis Animal Health. While this is dwarfed by some of the other deals that have been kicked around the pharma industry this week, it made analysts question the company’s ability to conduct other business development activities in the near-term (Also see "Lilly Feeds The Beast, But Is Novartis Animal Health Unit Worth The Price?" - Pink Sheet, 22 Apr, 2014.).

Lechleiter quieted their anxieties by suggesting the company is “looking at opportunities that might complement our strengths and our current portfolio of products which could be used in combination with those [oncology and diabetes] products and in bio medicines, which covers a whole broad range of therapeutic areas.”

“You can expect that we'll continue to remain vigilant and opportunistic when other opportunities come along,” added Lechleiter. Lilly likely will make “product-level” acquisitions “earlier back in the pipeline,” the CEO continued.

Investors will be watching those activities with a keen eye over the next few years – they are disappointed with the company’s present financial position. Lilly reported revenues on April 24 that were down 6% worldwide in the first quarter to $4.6 billion and profits that dropped 53% to $727.9 million year over year.

The negative results were no surprise, now that Lilly faces generic competition for two of its best-selling drugs: the antidepressant Cymbalta (duloxetine) and the osteoporosis drug Evista (raloxifene). Previously the company’s biggest earner, Cymbalta sales dropped 64% to $478 million, while Evista fell 38% to $119 million.

Lilly management continues to tell investors that growth will return next year, but that promise will depend largely on two franchises – oncology and diabetes.

What About Immunotherapy?

The oncology franchise was off to a good start during the first quarter. Lilly announced earlier this week that it received approval from FDA for Cyramza (ramucirumab) as a single-agent treatment for patients with advanced or metastatic gastric cancer or gastroesophageal junction adenocarcinoma with disease progression on or after prior fluoropyrimidine- or platinum-containing chemotherapy.

The approval was a save for Lilly; the vascular endothelial growth factor (VEGF) receptor 2 blocker failed to meet its primary endpoint in a Phase III breast cancer trial, dampening investor enthusiasm for the drug (Also see "Lilly’s Ramucirumab Fails In Breast Cancer Trial, Clears Second Gastric Cancer Study" - Pink Sheet, 26 Sep, 2013.). Yet recent results in a late-stage non-small cell lung cancer trial showed the compound still offers promise in other indications.

Lilly also is studying ramucirumab in liver cancer and colorectal cancer with results of both trials expected in 2014 (Also see "Lilly Drug Shows Survival Benefit In NSCLC, Raising Its Prospects" - Pink Sheet, 19 Feb, 2014.). The company also is expecting to combine the drug with other agents. A marketing application has been submitted in the EU and one is on track to be submitted in Japan this year.

Ramucirumab is expected to launch later this quarter with a price tag of $24,480 per patient, said President of Lilly Oncology Susan Mahony, who was basing the price on the number of infusions typically given during the pivotal REGARD trial for a 70 kg patient. The company estimates that 22,000 people will be diagnosed with gastric cancer this year.

Behind ramucirumab is the company’s CDK 4/6 inhibitor bemaciclib (LY2835219), which is expected to start Phase III in breast cancer in combination with fulvestrant (AstraZeneca’s Faslodex) later this year, as well as Phase II studies as a single-agent treatment (Also see "Pfizer’s Latest Palbociclib Data Could Mean Slimmer Lead Over CDK4/6 Rivals" - Pink Sheet, 14 Apr, 2014.).

Despite the progress in these programs, analysts questioned whether Lilly truly can be a leader in oncology without an immunotherapy program. Mahony admitted that there have been “a lot of exciting data” coming from immuno-oncology programs at other companies, but argued Lilly isn’t absent from the area.

“We don't have a PD-1 and PD-L1 inhibitor. We do have a number of molecules in our pipeline though that do work on immune systems. The TGF-beta pathway is important in immune defects in a number of tumor types and we have both large molecules and small-molecule inhibitors to TGF-beta,” said Mahony. “We also have other molecules in our pipeline in earlier phases including our CXCR4 antibody, CSF-1 receptor antibody and our p38 small molecule inhibitor, as well as our research efforts focused on it. So, no, we don't believe that we are absent in immuno-oncology at all.”

Leadership In Diabetes

The Indianapolis company also is relying heavily on its diabetes franchise. Lilly received a “complete response” letter from FDA during the quarter for its SGLT-2 inhibitor empagliflozin. The delay was due to previously cited issues at the manufacturing facility where its partner Boehringer Ingelheim GMBH will produce the drug (Also see "Manufacturing Woes Result In “Complete Response” For Lilly’s Empagliflozin" - Pink Sheet, 5 Mar, 2014.). The agency did not ask for further clinical trials. Lilly wouldn’t comment on when BI would resubmit the NDA, but said regulatory approval could come later this year.

The drug already has been approved in Australia and has received a positive opinion from the CHMP, with a European launch expected in the third quarter.

Lilly announced earlier this year that FDA has accepted an NDA for a fixed-dose combo of empagliflozin and linagliptin, a DPP-4 inhibitor.

The company will announce the full results of the AWARD 6 trial at the American Diabetes Association conference later this year that shows its once-weekly GLP-1 agonist dulaglutide is not inferior to Novo Nordisk AS’ Victoza (liraglutide), the current class leader (Also see "Lilly Brings Non-Inferiority Data To GLP-1 Show Down" - Pink Sheet, 25 Feb, 2014.).

“We believe that the GLP-1 market could expand in a very significant way, but we have not seen that at this stage. I’ll be very frank, we are counting on dulaglutide to be an enormous catalyst for that growth,” said Lilly Diabetes President Enrique Conterno. “The big opportunity that we have in this particular case is to ensure that we can expand the GLP-1 class in a very significant way, and once again we see dulaglutide as a pretty important catalyst to that.”

The company’s insulin products Humalog and Humulin brought in $650 million and $316 million, respectively, during the quarter.