Lilly Diabetes Sales Growth Slows; Newer Products Take The Lead

Despite efforts to strengthen its position in the diabetes market, revenue from Lilly's diabetes care franchise - Humulin , Humalog , Actos and Byetta - increased just 5% to $701.7 mil. in the second quarter, primarily on the strength of Byetta.

Lilly's U.S. diabetes care sales grew 6% to $392.6 mil., compared to the second quarter of last year, the company reported July 21.

Market share trended downward for several of Lilly's insulin products, which captured 40% of U.S. market share this quarter, down from 47% in Q2 2005.

Sales of Humulin declined 12% to $219.8 mil., largely due to a drop in demand. Sales of the insulin brand in the U.S. fell 22.1% to $79.9 mil. from competitive pressures.

In April, Lilly announced that Takeda would take over U.S. sales and marketing for the type 2 diabetes treatment. The company completed its detailing obligations for Actos in the U.S. at the end of Q1 but will continue to receive royalties on Actos sales through the end of September, at which time it will begin receiving a declining residual royalty on Actos sales.

[ Editor's note: A previous version of the story incorrectly stated that the Takeda agreement expired in April.]

As a result, Lilly said revenues from the agreement will vary quarter-to-quarter based on the contract terms, making quarterly comparisons difficult.

Lilly had aimed to re-energize its Humalog franchise through the launch of a 50/50 mixture in the first quarter (¹ (Also see "Lilly Is Reinvesting In Diabetes, Injecting New Life Into Humalog Franchise" - Pink Sheet, 2 Jan, 2006.), p. 16).

However, sales of the insulin lispro injection increased 8.2% in the quarter to $320.5 mil. on higher prices, but were offset by a drop in demand in the U.S., Lilly said. In the U.S., sales grew 8.1% to $196.6 mil.

Growth in the diabetes segment was driven primarily by Byetta (exenatide), which recorded a 46% jump in sales to $98.6 mil. compared to the first quarter. Lilly reports revenue from its marketing agreement with partner Amylin as 50% of Byetta's gross margins and sales of Byetta pen delivery devices to Amylin, which were $52.1 mil for Q2.

However, sales of Byetta, approved in April 2005 as the first product in the incretin mimetic class, were stymied by a cartridge shortage.

In June, Lilly issued an advisory recommending physicians against prescribing Byetta to new patients because of an inability to meet cartridge demand.

Lilly has said it expects to resolve the supply constraints in the third quarter (² (Also see "Pfizer Holding Its Breath On Exubera DTC Advertising To Focus On Education" - Pink Sheet, 19 Jun, 2006.), p. 5).

A potential diabetes growth driver for Lilly could stem from a June development agreement between Nastech and Amylin for an exenatide nasal spray formulation, under which Nastech may supply commercial product to Lilly.

A nasal spray product would fit with the industry's focus on non-injectable diabetes treatments.

Lilly is also looking to expand its diabetes portfolio with a diabetic retinopathy treatment Arxxant (ruboxistaurin), currently pending at FDA. A decision is anticipated in August.

Seeking to launch an inhaled insulin product, Lilly and its commercial partner Alkermes said in June that they will wait to file an NDA for AIR until the completion of a two-year safety study. The companies completed enrollment in June.

Although Lilly's inhaled insulin would not be first-in-class (Pfizer's Exubera is launching in September), Lilly is touting AIR's best-in-class potential based on pricing flexibility and the small size of the accompanying inhaler (³ (Also see "Exubera Lung Test Will Be Advised Until More Data Is Collected, FDA Says" - Pink Sheet, 30 Jan, 2006.), p. 3).

Lilly reported that "newer products" - Alimta , Byetta, Cialis , Cymbalta , Forteo , Strattera , Symbyax , Xigris and Yentreve - accounted for 24% of Q2 sales, up from 17% in the second quarter of 2005. Collectively, sales of those products increased 48% to $920 mil.

"Our portfolio of nine new products contributed 24% of overall revenue and represents a growing portion of total sales," Lilly Investor Relations Exec Director James Ward stated during a July 21 earnings call.

"This portfolio combined with the encouraging trends in Zyprexa and Cymbalta provide the basis for our sales growth guidance," he added.

U.S. sales of the antidepressant Cymbalta, approved in 2004, increased 78.5% year over year to $269.9 mil.

Lilly attributes the boom in sales to the company's direct-to-consumer branded advertising campaign, sales force realignment and a "new message around the product," COO John Lechleiter said.

"I believe it's a case of really, really starting to fire on all cylinders," he said.

Cymbalta is approved for the treatment of major depressive disorder and diabetic peripheral neuropathic pain; the company has also filed for a generalized anxiety disorder indciation. Action on the application is expected in the first quarter of 2007. The drug is also in Phase III trials for the treatment of fibromyalgia.

Lilly said it has been suffering from difficult comparisons with the antipsychotic Zyprexa (olanzapine) in the U.S., but noted that it is encouraged by recent trends.

"If those continue, the year-on-year comparison for Zyprexa will become easier, thus showing a greater impact of that new product portfolio in helping with the volume," Lilly Manager of Investor Relations James Greffet said.

Sales of Zyprexa increased 1.7% year-over-year to $1.1 bil. in Q2, although U.S. sales fell 1.2% to $542.9 mil. on lower demand.

Lilly is promoting Zyprexa for schizophrenia and bipolar disorder for use in "urgent patients," Lechleiter explained.

"The basic message that we're giving to prescribers for both schizophrenia and bipolar disorder is to really focus on Zyprexa as the drug of choice to treat what we call the 'urgent patient,'" Lechleiter said. An estimated 40% of patients seeking treatment qualify for this category.

"It's getting back to the core value of the product, and we're particularly getting good traction in schizophrenia," he added.

Going forward, the company said it expects SG&A to grow at a lower rate than sales.

[Editor's note: A previous version of the story incorrectly stated the company expected SG&A to grow at a higher rate than sales.]

"We have put more investment behind Cymbalta, we have sustained investment in Zyprexa, we're in the process of trying to reaccelerate our worldwide insulin franchise," Lechleiter said.

"We're very, very focused on productivity at the same time. The products that are going to be the engines of our growth are going to get the investment that they need and deserve."