Lilly sales dip 11% as diabetes drugs feel payer pressure

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Price increases and belt-tightening helped prop up Eli Lilly's third quarter, but loss of formulary positioning on two key products hurt sales. The company, pushing through a patent cliff, missed analysts' revenue and earnings estimates but guided for a return to growth post 2014, when several late-stage pipeline assets could reach market.

Overall sales slipped 11% vs. the same quarter last year to $5.4 billion, as the firm missed analysts' consensus by $180 million. Behind the lackluster results were weakness in Lilly's diabetes and animal health portfolios. US sales of insulin products Humalog and Humulin fell 2% to $337.3 million and 7% to $131.9 million, respectively, due in part to a loss of formulary positioning in the US.

During a call to discuss the results, analysts questioned whether the firm was losing share to Novo Nordisk, which controls 50% of the total insulin market (including modern and human insulins). “We do see pricing pressure in the US,” said Enrique Conterno, SVP, Lilly diabetes, during the call. “In particular, what we see is negotiations with some major payers are more difficult...They have the ability to move share as they restrict access to products, given the contracts that they're able to establish.”

US sales of animal health products grew 16% to $275.3 million, and worldwide sales rose to $479.4 million, a 6% increase compared with the third quarter of last year—less than the growth seen in previous quarters. Lilly attributed the slower growth to a variety of factors.

The weaker diabetes and animal health performance pose “a real concern,” noted Jefferies analyst Jeffrey Holford in an investor note, “given these are the higher quality parts of the business.”

Loss of exclusivity on schizophrenia drug Zyprexa in many markets late last year continued to exact a toll, reducing that drug's sales by 68% vs. third-quarter 2011, to $374.5 million. Lilly got a strong performance from depression drug Cymbalta, up 16% to $1.4 billion compared to the year-ago period, and a price increase on bone biologic Forteo helped boost sales 20% to $288.7 million.

Total expenses declined by 3%, driven primarily by reductions in selling, general & administrative expense although R&D spending was up 5% due to a number of clinical trials. “We still see further opportunities to continue to improve our base,” said Derica Rice, CFO, during the call, adding that he expects the firm to return to growth “post 2014.”

That's when several parts of the pipeline could begin to deliver revenue: Phase III Alzheimer's drug solanezumab, which failed to meet primary endpoints, both cognitive and functional, in either of two trials in patients with mild-to-moderate forms of the disease but did show encouraging results in a pooled analysis; experimental gastric cancer drug ramucirumab; and diabetes drug dulaglutide, which is being tested as a once-weekly addition to the GLP-1 class and which met its primary endpoints in three Phase III studies comparing it to GLP-1 exenatide and to Merck's Januvia.

Baracitinib, an oral JAK-inhibitor drug which Lilly is co-developing with Incyte for treating rheumatoid arthritis, is advancing into Phase III, Lilly said.

The company added that a district court reaffirmed that its patent on anti-cancer med Alimta is valid through January 2017. If it prevails in an ongoing patent challenge, it could extend commercial life to at least 2020.

Lilly's Phase III pipeline “is now among the fullest in the industry” and could become additive to P&L from 2014 onwards, wrote Bernstein analyst Tim Anderson in an investor note. It faces a difficult year in 2014 due primarily to loss of patent protection for Cymbalta.

The firm has also been stung by some pipeline setbacks of late. It halted testing of Phase III schizophrenia treatment mGlu2/3, and a trial pitting anti-platelet drug Effient plus aspirin against the combination of aspirin and Plavix (clopidogrel), which recently went generic, did not demonstrate superiority for the Effient regimen.

Lilly also said it collected a $1.3 billion payment from Amylin in satisfaction of its revenue-sharing obligation on GLP-1 drug exenatide. The firm had co-marketed the exenatide diabetes franchise for 10 years but reached a deal to end its Amylin relationship in the US last November. It's set to transfer ex-US commercial rights in 2013.

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