Eli Lilly and Co. and Clinical Trials and Health Care and FDA and Health Care Businesses and Health Care & Life Sciences and Pharmaceutical

Lilly expects FDA approval of long-acting version of Zyprexa

February 4, 2008

Eli Lilly and Co. hopes to extend the life of its best-seller Zyprexa with a potentially lucrative, long-acting form of the antipsychotic drug.

But first, the Indianapolis-based drugmaker must win over a panel of medical experts convened by the U.S. Food and Drug Administration on Feb. 6.

FDA officials called the meeting, indicating in a public notice that they want to discuss a potential side effect of Zyprexa Adhera, which would be administered as an injection every two or four weeks. In clinical trials, some patients receiving the injections developed excessive sleepiness.

But analysts expect the drug to win approval, clearing the way for Lilly to bring it to market. Lehman Brothers analyst Tony Butler puts the chance of approval at 70 percent, maybe higher.

If Zyprexa Adhera does come to market, it could bring Lilly hundreds of millions in new revenue. And since Zyprexa Adhera has patents that are good until 2018, it could soften some of the blow when the daily pill forms of Zyprexa lose their patents in 2011.

Makers of generic drugs, which challenged Zyprexa's patents in court but lost, are sure to launch cheaper versions of that drug as soon as they can.

Zyprexa is a huge concern for executives at Lilly's headquarters just south of downtown. Cheaper generics would sap the nearly $4.8 billion in sales Zyprexa racked up last year, one-quarter of Lilly's total.

What's more, Zyprexa accounts for nearly half of Lilly's profits, according to estimates by IBJ and by Wall Street analysts. In 2007, Lilly posted profits of $3 billion.

Zyprexa has sparked thousands of lawsuits, as well as investigations by federal and state governments. In December 2006, The New York Times disclosed internal company memos that suggested Lilly instructed its salespeople to promote Zyprexa to doctors for uses not approved by the FDA. The drug's only approved uses are for schizophrenia and bipolar disorder.

On Jan. 30, the Times reported that Lilly is in talks to settle those probes for more than $1 billion.

Anything that extends the life of Zyprexa would be highly profitable for Lilly. Since Zyprexa has been on the market 12 years and already has a mammoth market presence, extra sales would have extremely high profit margins. Manufacturing of chemical pharmaceuticals typically adds less than 10 percent to the cost of a drug.

"It's nice profits," Butler said. He added, "Every approval for every company is highly significant."

How much sales Lilly could derive from Zyprexa Adhera isn't clear. Butler isn't guessing before Lilly wins approval. Morgan Stanley analyst Jami Rubin predicts Zyprexa Adhera will hit the market this year and ramp up to $400 million in sales by 2011.

The only approved drug similar to Zyprexa Adhera is Risperdal Consta, which is sold by a subsidiary of New Jersey-based Johnson & Johnson. Schizophrenia patients take Consta by injection every two weeks.

Sales of Consta grew 20 percent in the last three months of 2007, J&J reported this month. For the year, Consta sales exceeded $1 billion. Butler said many patients who were taking daily Risperdal pills have switched over to the long-acting injections.

Lilly envisions doctors or their nurse staffs administering those injections, said company spokesman Charlie McAtee.

"There are many people with schizophrenia that have a challenge of remembering to take a pill every day," McAtee said. Since Zyprexa Adhera requires patients to show up in person to take the medicine, "physicians will know right away if a patient has missed a dose."

Lilly doctors will present clinical data about Zyprexa Adhera to the FDA panel. The doctors sitting on the panel also will present comments and questions. And members of the public will have an opportunity to speak.

The panel is scheduled to make a recommendation by voting at the end of the hearing. The panel's decision is not final, but the FDA typically follows the decisions of its advisory panels.

Bernstein Research analyst Tim Anderson, who is also a physician, predicts the FDA will approve Zyprexa Adhera, with the stipulation that Lilly note the potential for excessive sleepiness on the product's label.

Lilly submitted Zyprexa Adhera for approval in the second quarter of 2007. Anderson expects it to win approval between April and June.

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