Two wins to bring Lilly modest sales

May 9, 2011

Finally, some new revenue. Eli Lilly and Co. will enjoy modest new sales later this year after U.S. regulators approved a new diabetes drug developed by a partner company, and another firm nears approval on a drug that will produce royalties for the Indianapolis-based drugmaker.

The Type 2 diabetes drug, Tradjenta, approved May 2 by the Food and Drug Administration, is expected to ramp up to worldwide sales of $600 million by 2015, according to an estimate by Citi analyst John Boris.

The approval marks the fourth new drug approval won by Lilly in the past two years, following a nearly five-year dry spell. The other new drugs—which include the blood-thinner Effient, the statin Livalo and the testosterone booster Axiron—all have paltry sales so far.

Lilly would pocket only about $247 million of Tradjenta's annual sales, according to Boris, with the rest going to Germany-based Boehringer Ingelheim GmbH, which developed the drug. Tradjenta sales will be dampened by two similar drugs already on the market, Merck & Co. Inc.’s Januvia and Onglyza, made by Bristol-Myers Squibb Co. and AstraZeneca plc.

Lilly and Boehringer signed a co-development deal in January involving four diabetes drugs, with an option for a fifth. Tradjenta, chemically known as linagliptin, will be the first of those to hit the market.

"Our alliance with Boehringer Ingelheim represents one of the most robust diabetes pipelines in the pharmaceutical industry," said Enrique Conterno, president of Lilly Diabetes. "Tradjenta is the first regulatory approval of what we hope will be many new treatment options this alliance brings to the millions of Americans living with type 2 diabetes."

Lilly could see roughly the same amount of revenue by 2015 in royalties from telaprevir, a hepatitis C drug that appears primed for FDA approval on May 23, according to Wall Street analysts. The drug, developed by Massachusetts-based Vertex Pharmaceuticals Inc., won a unanimous recommendation from an FDA advisory panel on April 29.

Lilly helped identify and develop telaprevir in a collaboration with Vertex that began in 1997. But in December 2002, Lilly sold back most of its rights to the drug after reprioritizing its research portfolio.

Analysts estimate Lilly still has a claim to royalties on the drug’s sales, somewhere in the range of 3 percent to 9 percent. Neither Lilly nor Vertex has disclosed the exact terms.

But with analysts expecting telaprevir to be a blockbuster, Lilly (which must be kicking itself for letting the drug go) could still pocket some meaningful change. Bert Hazlett expects sales of $2.5 billion a year, meaning Lilly could pull in as much as $225 million per year.

Boris, the Citi analyst, thinks telaprevir could produce sales in 2015 of $4.8 billion. He expects Lilly to get no more than 5 percent in royalties, but that would still be nearly $240 million per year. And those royalties would be pure profit for Lilly.

The influx of dollars from Tradjenta and telaprevir, while less than $500 million combined, would still help Lilly offset the massive loss of revenue it faces from drugs whose patents are expiring, allowing patients to switch to cheaper generic copies.

In November, Lilly started facing generic competition for its $1 billion-a-year cancer drug Gemzar. Six months from now, its bestseller Zyprexa, a $5 billion-a-year antipsychotic, will face generics in the United States and Europe.

The patent on Cymbalta, a $3.5 billion-a-year antidepressant, expires in mid-2013. And the billion-dollar-drug Evista loses patent protection in 2014.


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