Looking for Lifeboats
Get Ready for the Roller Coaster
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Lilly needs drugs, and Lechleiter is trying to get them, fast. The quick fix—he hopes—is ImClone. The deal gives Lilly rights
to 29 percent of the sales of Erbitux, a blockbuster drug with more good years ahead of it. But even more important, Lilly
gains ImClone's broad oncology pipeline, including Erbitux successor IMC-11F8; the anti-angiogenesis drug IMC-1121B for breast,
skin, kidney, and liver cancer; and the human monoclonal antibody IMC-A12 for solid tumors. All are in Phase III or could
be by next year, which should make them ripe for harvest during Lilly's most vulnerable time.
Judging by the way Lilly's stock plunged on news of the acquisition, investors feel it is too risky. Cancer drugs are coming
under significantly more pricing pressure, which means that even if the drugs are approved, their commercial success is uncertain.
And there's some question as to whether BMS has a claim to US marketing rights for IMC-11F8, one of ImClone's crown jewels.
But for all the wear and tear on the company, ImClone has a viable upside. Besides, in a world of less-than-perfect deals,
Lilly needed to do something. (See "Lilly's Patent Cliff".)
"Lilly probably saw themselves falling into a similar situation as Pfizer," says Michael Latwis, an analyst with Decision
Resources "They have this huge patent cliff and they are doing a lot of deals, but it is all too early stage to make a difference.
With ImClone, they were trying to get late-stage products, and they saw an opportunity."
Investors wanted the company to snag a sure-fire molecule that could bring in revenue quickly—the way Lilly did when it partnered
on MBP8298, BioMS Medical's lead multiple sclerosis drug. "But perhaps the whole pursuit of ImClone is just a commentary on
what's available," says Latwis. "You can only get what's out there, and there's a lot of competition."
Lilly says it has the flexibility to finance the deal with a mixture of cash and debt—but if the $1 billion federal settlement
over Zyprexa goes through, it would surely compromise cash flow for future deals.
And by the looks of the pipeline, that might be a problem. After all, analysts have been ratcheting down expectations of Lilly's
lead candidate, the anti-clotting drug prasugrel. Although it was granted priority review, there have been several rounds
of delay, and it now seems FDA will decide prasugrel's fate no earlier than March 2009. Early hopes for the drug were sky-high;
Moody said it accounted for 40 percent of the value of Lilly's pipeline, while analysts saw it as a solution to the loss of
Zyprexa. The results of a 13,000-patient study were convincing: In a head-to-head trial with Plavix (clopidogrel), prasugrel
reduced the chance of cardiovascular death, heart attack, and stroke by 20 percent .
But it also significantly increased the risk of bleeding, and more cancer was discovered in the prasugrel than in the Plavix
study arm. Lilly maintains that it understands which patients would receive benefits from the drug that would outweigh the
risks, but if prasugrel is approved at all, it's likely to come with a battery of FDA-imposed risk management programs. As
a result, most analysts see it as a niche drug, targeted at about 15 percent of Plavix patients—perhaps even fewer when Plavix
goes generic.
Add that to the pipeline setbacks Lilly has encountered in recent years (inhaled insulin, anyone?), and the company's late-stage
pipeline comes up short. That means the Lilly is in for a roller coaster ride. Through 2010, the revenue will continue to
rise, fueled by the present product mix. But without a robust Phase III pipeline to sustain that revenue, the company will
see a Zyprexa-sized drop in sales by 2014. (See "Lilly's Roller Coaster Ride," page 80.) But the early to mid-stage pipeline
is more promising: The company says it has 44 drugs in development; by the end of 2011, it expects six new product launches
and at least 10 new molecules in Phase III.
This scenario hinges on speeding drug development. Like many senior execs, Lechleiter thinks it's time for pharma to create
a new model for R&D. And in sports-crazed Indianapolis, maybe he can be forgiven for couching his ideas in football terms.
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