With the launch of blood thinner Effient, Eli Lilly has snapped a 4-year dry spell without a new drug.
It was a long time coming — four years, two months and nine days.
During all that time, Eli Lilly and Co. didn’t launch a single new drug, despite its multibillion-dollar research budget and team of thousands of scientists.
While its competitors were launching new drugs for cancer, osteoporosis and other diseases, Lilly ran into problems with one experimental drug after another, forcing the company to scrap or shelve them.
Investors had begun to give up hope. Lilly’s stock sank 41 percent over that rocky period, a sharper dive than the 24 percent drop in the Standard & Poor’s 500 Index.
So finally, nine days ago, when the Food and Drug Administration gave the green light for Lilly to market Effient, a blood thinner it had spent more than a decade developing, the company had reason to celebrate.
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Lilly’s pipeline drought — the longest in decades — had ended.
So is the company now back in the game, ready to launch a string of new medicines and win back skeptical investors?
Not so fast or easy, analysts say.
Lilly still has a big uphill climb. It faces a wave of patent expirations on its blockbuster drugs beginning in 2011 and must find replacements for 70 percent of its revenue in the next seven years.
How will it close that gap? Primarily by developing new drugs. Lilly is testing dozens of new drugs for a wide range of medical conditions, but most of the compounds are still years away from FDA review.
Another option is to buy a biotech company or license its research. But Lilly, fresh off the biggest acquisition in its history, has less cash than many of its competitors, giving it fewer options.
“Lilly is still in a very tight position,” said Seamus Fernandez, a drug analyst at Leerink Swann in Boston, who has an “underperform” rating on the company. “They can’t rest. Their situation continues to be urgent.”
On Wednesday, Lilly will try to win back investors when it releases second-quarter earnings and gives an update on its pipeline.
It won’t be a slam dunk. Of the 21 analysts who follow Lilly, only six have a “buy” recommendation, while 10 have a “hold” and five have a “sell” recommendation.
In the months ahead, Lilly must keep its eye on four key issues, analysts say, if it is to turn its recent victory with Effient into a long-term winning position.
Development of new medicines
Lilly has more than 60 compounds in development, an all-time high, to treat such diseases as cancer, depression, obesity and Alzheimer’s disease. The number and types of compounds under development impress many analysts.
But several say Lilly’s late-stage pipeline — drugs in widespread patient testing — is modest. In a best-case scenario, Lilly is still three or four years away from its next wave of new medicines hitting the market.
That will be too late to make up for the loss of billions in sales when blockbuster drugs lose their patent exclusivity, including antipsychotic Zyprexa (2011), diabetes medication Humalog (2013) and cancer drug Gemzar (2013).
“We continue to believe Lilly’s pipeline remains too early-stage to convince us of its ability to meaningfully offset the loss of key drugs,” J.P. Morgan analyst Chris Schott wrote in a research note.
Lilly acknowledges it will have a revenue fall-off in coming years but says it will be temporary and that it expects to launch 15 to 20 new medicines in the next eight years. The company said it will have 11 drugs in late-stage clinical testing by the end of this year.
“If you adjust for size, I don’t think there’s another (drug) company anywhere that has the number of high-quality molecules in the pipeline, especially in Phase 1 and Phase 2,” said Dr. Steven Paul, Lilly’s executive vice president of science and technology. “We feel very, very good this new wave will break through and get to the market right around 2012, 2013, 2014.”
One thing in Lilly’s favor: More than 40 percent of the compounds in its pipeline are biotech-based. Biotech drugs have a higher success rate for making it through research and development than do traditional chemical drugs. Their protein engineering often leads to better treatments in individual patients, compared with one-size-fits-all drugs.
Already, Lilly is the fifth-largest biotech company in the U.S., based on sales, with such products as Humalog and Byetta for diabetes, Forteo for osteoporosis and Xigris for sepsis.
Acquisitions and partnerships
Last year, with its pipeline still sputtering, Lilly made the largest acquisition in its 130-year history, buying cancer biotech ImClone Systems of New York.
The deal gave Lilly the cancer drug Erbitux, as well as several experimental drugs for its pipeline. But at a cost of $6.5 billion, the deal swallowed much of Lilly’s cash.
Lilly has shown it is willing to pay top dollar for what it wants, outbidding several competitors to win ImClone. In past years, Lilly has closed a raft of smaller deals, such as buying out its partner in the erectile-dysfunction drug Cialis.
But it won’t be so easy to keep up that pace. Analysts say Lilly’s cash flow will peak and decline in the next few years as its blockbusters go off patent. That means Lilly will have less cash to do deals. In the meantime, just about every other big drug maker is also shopping for deals.
“Other drug makers have more cash on their balance sheets than Lilly does, and can pay more for acquisitions,” said Fernandez, the Leerink Swann analyst. “All of these (small biotech companies) are going to be highly competitive.”
So while Lilly needs to do more deals, it will have less flexibility than other companies also shopping, including Johnson & Johnson, Novartis and GlaxoSmithKline, he said.
Some other analysts agree.
“If you’re going to stay competitive, you need to develop new drugs, license them or do acquisitions,” said Les Funtleyder, an analyst at Miller Tabak & Co. in New York. “Can Lilly do many more big acquisitions? The market is skeptical.”
Cost control
Lilly already has cut its work force by about 14 percent, or 6,500 people, from a peak in 2004. That leaves it with about 40,000 employees worldwide — and about 12,000 in Indianapolis.
While Lilly has avoided the sweeping job cuts that many of its competitors have made, it plans to continue shedding jobs, mostly through attrition.
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The pressure to contain costs is only going to increase.
Private insurers are stepping up demands that drug makers hold down prices, and the public is increasingly pressuring the government to hold down drug costs. Health-care spending accounted for about 17 percent of the U.S. economy last year. Drug costs have turned into a cornerstone of President Barack Obama’s health-care reform initiative.
That means drug makers have to cut wherever possible. Several months ago, Lilly said it had lowered development costs from an average of $1.2 billion a drug in 2007 to about $1 billion in 2008. It wants to lower them to $800 million by 2010.
That won’t come without aggressively outsourcing more and more functions, from toxicology to information technology. Last year, Lilly sold its Greenfield Laboratories — an early-stage drug development center in Hancock County that it operated for nearly a century — to Covance of Princeton, N.J., for $50 million.
Staying engaged
in health-care reform
With Congress in full swing to overhaul the health-care system, Lilly is not just sitting on the sidelines.
John Lechleiter, Lilly’s chairman and chief executive, has given speeches across the country, written op-eds in national newspapers and hired former Indianapolis Mayor Bart Peterson to oversee the company’s lobbying and communications.
The company’s argument: Putting price caps on drugs or setting up a government-run insurance program could hurt the development of new, lifesaving drugs for such maladies as cancer and Alzheimer’s disease.
Few drug makers have taken as visible a role.
“Lilly is pretty vocal about health-care reform, as anyone who is watching can see right away,” Funtleyder said. “I think they are going to stick to it.”
But Lilly can’t count on even its home state to stand squarely behind it. The Indiana chapter of the AARP is pressing for lower drug prices. The United Auto Workers, which represents 12,000 hourly workers in Indiana, would like to see a national health-care plan that would ease its burden. The UAW recently took over a medical fund for retirees from the Detroit Three automakers.
A few weeks ago, Lilly commissioned Indiana University to study the company’s economic impact in the state.
The study concludes that Lilly contributed $8.03 billion, or approximately 3.3 percent, to Indiana’s gross state product in 2007.
The company immediately took out large newspaper advertisements that touted its economic importance. “So as Indiana’s senators and representatives in Congress debate needed health-care reforms, it is important for them to remember that the decisions they make in Washington impact jobs and the economy here in Indiana,” one ad said.
Getting Effient to market was a big step forward.
Analysts and investors will be watching to see whether Lilly can take other, important steps in the months ahead.
Additional Facts
What’s next out of Lilly’s pipeline?
It’s tough to guess when a new drug will hit the market, but here is a look at several of Lilly’s late-stage drugs that could be the next out of the pipeline.
• Arzoxifene. This is Lilly’s big hope to succeed its blockbuster Evista, an osteoporosis drug that loses patent exclusivity in 2014. Lilly has wrapped up two major trials and expects to file for FDA review by the end of this year for three uses in postmenopausal women: treatment of osteoporosis, prevention of osteoporosis, and reduction of risk of invasive breast cancer.
• Once-weekly exenatide. This is a version of Lilly’s diabetes drug, Byetta, that analysts expect will be more popular than the standard version, which now requires two injections a day. Lilly and its partners (Alkermes and Amylin) said earlier this month that the FDA accepted once-weekly exenatide for review, following an earlier rejection.
• Enzastaurin. This cancer drug has been a long, tough road for Lilly. The company had hoped to use it to treat brain cancer, but scrapped that three years ago after an outside analysis showed the drug probably wouldn’t be more effective than chemotherapy. Lilly continues to test the drug as a maintenance therapy for diffuse large B-cell lymphoma, but tests have taken longer than expected. Lilly hopes to submit the drug for review by 2013.
Source: indystar.com
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