Eli Lilly and Co. and Diabetes and Health Care & Life Sciences and Health Care & Insurance and Pharmaceutical

Lilly's insulin dip concerns analysts

October 29, 2012

Eli Lilly and Co. suffered a tough week on the stock market, in part because of a disturbing bit of news buried in its third-quarter earnings report: Lilly’s insulin sales are down.

The Indianapolis-based drugmaker is relying heavily on sustaining $3.5 billion in annual sales of its Humulin and Humalog insulins to carry it through its current string of patent expirations on other drugs—at least until it can launch new drugs to pick up the slack.

But in the third quarter, sales of Humalog fell 3 percent and sales of Humulin fell 5 percent, compared with the same quarter a year ago. Lilly officials said they lost share in the insulin market in the first half of the year, although the situation has stabilized now.

Still, those problems sparked a lot of questions from Wall Street analysts during a conference call Oct. 24. And Lilly’s share price slipped 3 percent from its close on Oct. 23 until the end of the week. The stock closed Friday at $50.26 per share.

“The Humalog and Humulin sales were light relative to our expectations,” noted Goldman Sachs analyst Jami Rubin during the conference call with Lilly executives. She added, “Insulin scripts have been strong. So what’s happening with the pricing environment?”

Both Humalog and Humulin suffered because they were removed from the formulary of a large third-party payer this year, Lilly reported. Also, the contract between Lilly and Wal-Mart to use Humulin for Wal-Mart’s ReliOn brand was terminated.

But in addition to those things, Lilly officials said, third-party payers are more aggressively threatening to remove or de-emphasize each drugmaker’s insulins from their formularies if the drugmakers don’t offer better prices.

“The negotiations that we basically have with some of the major payers are more difficult. And we have seen their leverage increase as they have the ability to be able to move share as they restrict access to products given the contracts that they're able to establish,” said Enrique Conterno, president of Lilly’s diabetes unit. “So, yes, there is some pressure.”

And in addition to that, doctors are prescribing insulin later to diabetics because they first try to control blood sugar with a relatively new class of oral medicines called DPP-4s, such as Januvia and Tradjenta, and through injectible medicines known as GLP-1s, such as Byetta, Bydureon and Victoza.

“To some extent, that is delaying the initiation on insulin and some of the earlier use of insulin,” Conterno said. “We believe that some of these impacts are more short term. I think we saw similar impacts when, for example, metformin was introduced in the U.S. many years ago. So my sense is that we will continue to see long-term insulin growth rates that are much more aligned with historical rates. But we are seeing some depressed rates now.”

Lilly’s overall results in the third-quarter were “ho-hum,” according to one analyst. The company lowered its full-year profit forecast by 4 cents per share.

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