Analyst: Lilly’s Jardiance diabetes pill could be a $6 billion-a-year blockbuster

It looks like Eli Lilly and Co. finally has a blockbuster that can replace its former stars Zyprexa and Cymbalta.

The Indianapolis-based drugmaker delighted physicians and investors last week when it unveiled test results of its diabetes pill Jardiance, showing that the drug not only lowers blood sugar but also decreased the risk of cardiovascular deaths by a whopping 38 percent.

The news, which had already been previewed by Lilly in August, sent the company’s stock price to nearly $90–levels not seen since Lilly lost patent protection on its former bestseller Prozac.

And some analysts are projecting Lilly shares could rise further, to as much as $115 or $120 per share. Lilly's stock languished for most of the past decade as investors focused on the expiration of patents on its antipsychotic Zyprexa, which had $5 billion a year in sales until its major patents expired in 2011, and Cymbalta, which also peaked at $5 billion in annual sales before its major patents in 2013 and 2014.

After the Sept. 17 Jardiance announcement, Jefferies & Co. analyst Jeffrey Holford quintupled his peak sales estimate for Jardiance, from $1.2 billion before the Sept. 17 announcement to $6 billion. Holford expects Jardiance, as well as combination products that contain the same drug, to reach that level of sales by 2020.

Holford bases that forecast on two things.

First, he expects to the class of drugs that Jardiance belongs to, known as SGLT2 inhibitors, to overtake another kind of diabetes pills, known as DPP-IV inhibitors. Right now, 9 percent of all diabetic prescriptions are for a DPP-4 drug, such as Merck’s Januvia, whereas less than 4 percent of prescriptions are for an SGLT2 drug.

Second, Holford expects Jardiance’s benefits for heart health to cause it to leapfrog from an also-ran in the SGLT2 market to the market leader. Since its launch a year ago, Jardiance has garnered less than 20,000 prescriptions, compared with Invokana, an SGLT2 inhibitor made by Johnson & Johnson, which has about 140,000.

“We expect that the SGLT2 class will overtake, but not destroy, the DPP-IV class, with Eli Lilly as the leader given its advantage on both safety and efficacy vs. Invokana,” Holford wrote in a Sept. 18 note to investors.

J.P. Morgan Chris Schott generally agreed. He predicted Jardiance and its related products, will achieve 2020 sales of $5.1 billion. His previous sales estimate was $1.35 billion in 2020.

“We expect that such a clinically meaningful benefit will drive a significant reacceleration of growth for Jardiance over time,” Schott wrote in a note to investors Monday morning.

Morgan Stanley analyst David Risinger called the Jardiance results a “ home run for diabetes”

It may be more like a triple for Lilly, which splits profits from Jardiance with Germany-based Boehringer Ingelheim GmbH, the company that discovered the drug. Most analysts estimate the two companies split profits roughly 50-50, although some analysts think Lilly’s share is only 40-45 percent of profits.

And not all analysts agree with Holford and Schott that Jardiance will become a dominant product in the treatment of diabetes. Many think patients and doctors will be reluctant to switch off well-known drugs like Januvia.

Also, some analysts noted that most physicians surveyed belief Jardiance’s benefits on heart health will prove to be common to all SGLT2 inhibitors, meaning Jardiance may not steal that much in sales from Invokana and a similar drug made by London-based AstraZeneca.

“While the positive tone from the physicians coming out of the meeting was obvious, we also believe that physicians will assume this data to be a class effect. Hence, while Lilly will benefit the most, the commercial benefit will have to be shared with the other players,” wrote UBS analyst Marc Goodman. He kept his 2020 sales estimate for Jardiance sales at $1.5 billion.

Dr. Tim Anderson, a pharmaceutical analyst at Bernstein Research, noted several challenges that remain for Lilly. The company still needs to get the U.S. Food and Drug administration to add cardiovascular benefits to Jardiance’s label, which will probably take six months.

Then Lilly will need to convince health insurance companies to place Jardiance in a more favorable position on their formularies than Invokana. But New Jersey-based Johnson & Johnson could fight that development by offering larger rebates to insurers, as well as arguing that Invokana likely has the same heart benefits at Jardiance.

He raised his 2020 sales estimates for Jardiance and related products from $865 million before Thursday’s to $2.7 billion—but didn’t raise it to the heights that Holford and Schott did.

“What [Lilly] will want to do is try to prove is that their SGLT2 is somehow magical in its effects,” Anderson said, “something that cannot be replicated by combining other drug classes.”