UPDATE: Analysts praise Lilly diabetes deal with Boehringer

Back to TopCommentsE-mailPrintBookmark and Share

The deal Eli Lilly and Co. announced Tuesday morning with Boehringer Ingelheim GmbH sounded a lot like a baseball trade—with five drugs and payments to be named later—but analysts and investors generally liked what they heard.

Indianapolis-based Lilly agreed to pay nearly $390 million upfront and as much as $1.2 billion over time for rights to co-market two diabetes pills with Germany-based Boehringer.

In exchange, Boehringer said it would pay up to $650 million for 50-percent rights to two experimental, daily insulins in Lilly’s pipeline, and the firm could buy the  rights to a third diabetes drug for another $525 million.

“Essentially, this allows us to trade up,” Lilly Chief Financial Office Derica Rice said in a conference call with analysts. He added, “This allows us to have a breadth of [diabetes] portfolio that is unmatched, at least, in the industry.”

Shares of Lilly’s stock lifted slightly on the news, rising as much as 1 percent to $34.85 apiece. And several analysts, somewhat unusually, congratulated Lilly on the deal.

“From a strategic perspective, obviously these kinds of deals in the industry make a ton of sense,” said Jami Rubin, a pharmaceutical analyst at Goldman Sachs Group who often is one of the most critical of Lilly’s strategy.

She asked if Lilly planned to partner with Boehringer for any other kinds of medicines, such as cardiovascular drugs. The answer? No.

In the short term, the best part of the deal for Lilly is that it might generate sales—even as soon as this year. That's vital because in November, Lilly entered a three-year period in which U.S. and European patents will expire on five of its bestselling drugs, sapping roughly half its total revenue. One of its best hopes for new sales, a diabetes injection called Bydureon, had its approval delayed in October until 2012.

In the second half of 2010, Boehringer submitted its Type 2 diabetes pill linagliptin for market approval in the United States, Europe and Japan. The two companies expect to launch the drug later this year into the fast-growing market for so-called dipeptidyl peptidase-4 inhibitors, which analysts project could grow to $7 billion in global sales by 2015.

However, there are already two similar drugs on the market—Januvia, made by New Jersey-based Merck & Co. Inc. and Onglyza, made by United Kingdom-based AstraZeneca plc and New York-based Bristol-Myers Squibb Co.

Linagliptin is one of four other drugs being developed by drug companies in the same class.

"The big challenge will be that by the time linagliptin comes to the market, prescribers will have four to five years of experience with Januvia," Klaus Dugi, Boehringer’s head of medical affairs, told Bloomberg News in October 2009. "It will be an uphill battle to convince them of the benefits of linagliptin."

On the upside, very little of linagliptin needs to be processed by a patient’s kidneys, compared with the existing treatments. That’s significant among diabetics, one in four of whom have kidney damage due to the chronic disease, noted Enrique Conterno, Lilly’s president of diabetes.

“That’s simply going to be easier for physicians to go with this drug,” Conterno said in an interview. “We think this has the potential to be best-in-class for many patients.”

Boehringer’s other drug in the deal is also an oral diabetes pill, BI10773, which is in Phase 3 clinical trials.

Lilly contributed two experimental insulins: LY2605541 and LY2963016, which are expected to begin Phase 3 trials this year. Lilly has not yet launched a long-acting or daily insulin to compete with Lantus, made by France-based Sanofi-Aventis SA. That drug racked up sales in 2009 of nearly $4 billion and was growing at a 10-percent pace through September.

It made sense to look for Boehringer’s help developing such a drug because Lilly could have a much larger sales force promoting the drug—along with the companies' many other diabetes treatments—to primary-care doctors, who handle care for about four in five diabetics in the United States and Europe, said Lilly CEO John Lechleiter.

“We think the alliance of the two companies will be better able to cover primary care,” he said, adding,“This is one of the most significant and one of the most ambitious partnerships that we’ve ever undertaken.”

The third drug Boehringer could buy rights to is a protein called a monoclonal antibody that targets a specific growth-related receptor on cells, called TGF beta. That drug just entered Phase 2 testing.

Lilly and Boehringer have worked together in the past on drugs, most notably European rights to Cymbalta, an antidepressant that is Lilly’s No. 2 seller now. In August, Lilly paid $400 million to buy back those rights.

Because of the deal, Lilly will record a charge of $300 million, or 27 cents per share. Also, the deal will dilute its profits this year by another $200 million to $250 million.

The company said it would factor the charge into its 2011 profit forecast, which it will issue on Jan. 27. Analysts are expecting profits per share of $4.41.


Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. So as I read this the one question that continues to come to me to ask is. Didn't Indiana only have a couple of exchanges for people to opt into which were very high because we really didn't want to expect the plan. So was this study done during that time and if so then I can understand these numbers. I also understand that we have now opened up for more options for hoosiers to choose from. Please correct if I'm wrong and if I'm not why was this not part of the story so that true overview could be taken away and not just parts of it to continue this negative tone against the ACA. I look forward to the clarity.

  2. It's really very simple. All forms of transportation are subsidized. All of them. Your tax money already goes toward every single form of transportation in the state. It is not a bad thing to put tax money toward mass transit. The state spends over 1,000,000,000 (yes billion) on roadway expansions and maintenance every single year. If you want to cry foul over anything cry foul over the overbuilding of highways which only serve people who can afford their own automobile.

  3. So instead of subsidizing a project with a market-driven scope, you suggest we subsidize a project that is way out of line with anything that can be economically sustainable just so we can have a better-looking skyline?

  4. Downtowner, if Cummins isn't getting expedited permitting and tax breaks to "do what they do", then I'd be happy with letting the market decide. But that isn't the case, is it?

  5. Patty, this commuter line provides a way for workers (willing to work lower wages) to get from Marion county to Hamilton county. These people are running your restaurants, hotels, hospitals, and retail stores. I don't see a lot of residents of Carmel working these jobs.