Deal could give Lilly full diabetes deck

Eli Lilly and Co.'s diabetes partnership with German company Boehringer Ingelheim GmbH represents a new kind of disease-focused strategy that some consultants think is key to pharma companies’ futures.

Indianapolis-based Lilly traditionally has been strong in injectable medicines to help diabetics control their blood glucose—insulins taken at mealtime and Byetta, which inhibits proteins similar to glucose and requires twice-daily injections.

But Lilly has stumbled in developing more convenient diabetes medicines, such as the once-daily insulin Lantus or oral diabetes pills like Januvia.

That has led the company to lose quite a bit of worldwide market share in the past decade, even though the growing incidence of diabetes has kept its overall diabetes sales growing.

Lilly’s suite of diabetes products is currently racking up about $3.8 billion in annual sales, up a total of 17 percent in the past three years.

Lilly’s $1.2 billion deal with Boehringer would give it 50-percent rights to two oral diabetes medicines that are in late stages of development. Boehringer’s linagliptin already has completed clinical trials and is expected to receive approval to launch in the United States, Europe and Japan this year. The other drug, known as BI10773, is in Phase 3 clinical trials, the last step before regulatory submission.

In addition, Lilly has two daily insulins in development, for which it will now get some help from Boehringer—both in bearing the cost of further development and, should they win approval, promoting them to doctors. They could hit the market as soon as 2014, and Boehringer would pay up to $650 million to Lilly as they reach key developmental milestones.

If the companies can get at least one oral diabetes pill and one daily insulin onto the market, Lilly will be able to boast the broadest portfolio of diabetes drugs, ranging from the oral medicines patients take in the early stages of diabetes to the types of insulins they take as the disease worsens.

“You’ve got 300 million people worldwide with diabetes and the disease burden is growing,” said Lilly CEO John Lechleiter. “Many of those are going to move on and progress in their treatment from oral medications to insulin.”

Providing medicines—as well as helpful education materials and other services—could be a way to win patient loyalty, and therefore boost sales, according to Deloitte consultant Terri Cooper.

In a 2008 report, she predicted that pharmaceutical companies will form themselves around specific diseases and tailor medicines to smaller groups of patients that respond to medicines in common ways because they share genetic traits.

“There will be a lot more focus around disease states, rather than the therapeutic areas,” she said in an interview the following year.

Later that year, Lilly reorganized itself into distinct business units, with one of them solely focused on diabetes. And on Tuesday, Lilly’s president of diabetes, Enrique Conterno, predicted that by beefing up its diabetes portfolio overall, the company would see higher sales of some of its existing diabetes medicines.

“What this alliance I think provides is the critical mass that we have of all of these products,” he said. “This alliance is highly complementary and highly strategic for us.”

Wall Street analysts tended to agree, even if they don’t see the deal doing that much to fix Lilly’s looming patent challenges. The company will see five of its bestsellers face generic competition by the end of 2013, sapping roughly half its revenue.

“This deal should inject some life into [Lilly's] diabetes franchise, which has been losing share, given the broad range of products they should eventually be able to offer,” Credit Suisse analyst Catherine Arnold wrote in a note to investors.