8. Lilly: Looking to R&D for a 10th inning comeback win

Jan Lundberg

2013: $5.53 billion
2012: $5.27 billion
Change: Up 5%
As a % of revenue: 24%
Head of R&D: Jan Lundberg

These are perilous times for Eli Lilly. Projected losses from generic competition got much worse with the loss of patent protection for Cymbalta. A promised pair of drug approvals didn't materialize last year and were promptly forgotten by management. Over the past 5 years Lilly ($LLY) has had no significant approvals worth discussing, lost its leading role in the neurosciences field and has been painfully slow in bringing along a new set of diabetes drugs that are absolutely required to make sure that the pharma company's numbers start to rise again after this year's plunge.

Lilly is already insisting that it is starting to turn things around. One drug has been approved and two more green lights are expected as Lilly finally gets down to carving out a billion or more dollars from its R&D budget. Further failure, as they say at NASA, is not an option.

Lilly wound up 2013 with four drugs listed under its online regulatory review section. Oddly, that group still included an enzyme replacement therapy dubbed liprotamase, which was dumped in December after languishing for years at Lilly following an FDA rejection years ago. There's empagliflozin, an undistinguished SGLT2 diabetes drug that will sit on the shelf for some months to come--after the FDA rejected the treatment based on Boehringer Ingelheim's problems at one of its manufacturing facilities--while rivals who reached the market first get a chance to consolidate their position. And a biosimilar of Lantus appears to be stymied, perhaps until 2016, due to some widely forecast legal hurdles erected by Lantus' owner Sanofi ($SNY).

Lilly's top chance of finally distinguishing itself in the R&D field still rests with dulaglutide--a promising GLP-1 drug which managed to prove itself not inferior to Victoza (important for a drug with an easier dosing regimen)--and the newly approved cancer drug ramucirumab, which put up good numbers for two types of cancer, while blowing its shot at breast cancer. Ram, now being launched as Cyramza for stomach cancer, is not starting with the most lucrative approval in the world, but any kind of win in this environment is a plus for Lilly. And further approvals could make this one a blockbuster.

Several more approvals are promised for each of the next few years to come, which will rely on a collection of late-stage drugs that includes such long shots as their latest Phase III Hail Mary for the Alzheimer's drug solanezumab, the cholesterol drug evacetrapib and tanezumab, an anti-NGF pain therapy which the FDA put on hold in 2010 as a host of safety issues emerged for the class. Lilly is willing to gamble on a $1.8 billion deal--including $200 million upfront--that the safety issues can be addressed and this drug can make it to a big market.

Other hopefuls include tabalumab, an anti-inflammatory that flunked out for rheumatoid arthritis at the beginning of 2013, as well as baricitinib and ixekizumab. Tabalumab and baricitinib both deliver Phase III data in the second half, while specific late-stage results for cancer drug necitumumab are due to be released at ASCO.

Lilly CEO John Lechleiter

Most analysts overlook Lilly's original promise of new approvals in 2013, happy to give this pharma giant second, third and fourth chances in the hopes that it can turn things around. But the damage being inflicted by a series of late-stage failures in the clinic as generic competition crashed into its top franchises is serious. Net income for Q1 dropped 53% year over year. Salaries have been frozen, without hurting CEO John Lechleiter's major league income, and it's facing a tough set of rivals when it comes to carving a place for itself in diabetes.

This year Lilly plans to cut about $1 billion out of its R&D budget, a necessary maneuver if it hopes to ever whittle down the top 10's highest ratio of R&D spending to revenue. Adding Novartis' ($NVS) animal health division may help the bottom line, but Lechleiter's plan for relying largely on the internal pipeline projects is looking like too little, too late when it comes to saving the company's reputation for innovation.

For more:
Special Reports: Biopharma's Top R&D Spenders of 2012 - Eli Lilly | 20 Highest-Paid Biopharma CEOs of 2012 - John Lechleiter
FDA rejects Eli Lilly's SGLT2 diabetes drug empagliflozin
Lilly's dulaglutide hits the mark for comparability to Victoza in a blockbuster showdown
Sanofi blocks Eli Lilly's biosimilar of Lantus at the goal line, buys time

8. Lilly: Looking to R&D for a 10th inning comeback win

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