Lilly Diabetes Setbacks Mount

Lilly’s diabetes pipeline is taking its lumps this week, a situation that has all but quashed any notions of earnings growth in coming years. The first setback came on Tuesday, when FDA issued a complete response letter for Bydureon, a long-acting form of the diabetes treatment Byetta. Lilly and its partner Amylin won’t be able to submit a response to the CRL until late 2011, significantly pushing back the much-needed new revenue stream. Now, along with today’s third-quarter earnings report, Lilly said teplizumab, an anti-CD3 antibody, had failed Phase III trials in Type 1 diabetes. Although expectations for the treatment were modest, the latest disappointment doesn’t do much for confidence in the company’s pipeline. Further, the setbacks of Bydureon and teplizumab are not the only challenges to the company’s diabetes portfolio. Last month, in a move that was not entirely surprising, Lilly and Transition Therapeutics dropped development of TT-223, a gastrin analogue that failed to meet its goals in a small study testing the drug in combination with a Lilly GLP-1 analogue in Type 2 diabetes. Meanwhile, news this week that Pfizer was paying $200 million for Biocon’s biosimilar insulin program caused some to worry that Lilly’s generous slice of the insulin market was at risk. On a call with analysts this morning, Enrique Conterno, president of Lilly Diabetes, tried to quell investor concerns. Bangalore, India-based Biocon “basically sells when it comes to insulin about 1% of what Eli Lilly sells today,” he noted. Conterno acknowledged that Pfizer could put some heft into the Indian biotech’s commercial infrastructure, but suggested that innovation around delivery devices would differentiate players in diabetes. “Clearly this is something we will watch, but we feel very confident in our ability to be effective with our insulin portfolio,” he added. But Lilly’s pipeline woes are not limited to diabetes. In August, the company experienced a major blow when it ended development of semagacestat after the compound worsened cognition in people with Alzheimer’s disease. Semagacestat, a gamma secretase inhibitor, had been viewed as a leading contender to be the next big Alzheimer’s drug on the market. As it stands, Lilly’s profits through 2014 will be driven by what is in its pipeline and efforts to rein in costs. Last fall, the company said it would eliminate 5,500 jobs, and for those keeping track of industry-wide layoffs, today said it was only about halfway through that process and has no immediate plans to expand the cuts. The company is staring down a wave of patent expiries on key products, and with the recent pipeline setbacks, earnings growth is “moving into sharply negative territory from 2012-2015,” Bernstein Research analyst Tim Anderson said in a note to investors today. As such, Lilly will likely need to buy-in growth. After the Bydureon news, Leerink Swann analyst Seamus Fernandez noted that “the pressure on Lilly to either do a deal and/or partner some of its pipeline products and reduce its cost structure likely will intensify.” So, dear readers, who are potential M&A candidates? Is there any deal that could even fill this gap?

Author: Lisa Jarvis

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