GLP-1 Race In Diabetes: Eli Lilly Vs. Competitors

| About: Eli Lilly (LLY)

In February Eli Lilly (NYSE:LLY) announced positive results from the sixth Award trial for the once-weekly experimental drug dulaglutide.

Dulaglutide is a long-acting GLP-1 (glucagon-like peptide 1) receptor agonist for the treatment of type 2 diabetes. In the trial the drug was proven as effective at lowering blood sugar levels as the market leader Victoza from Novo Nordisk (NYSE:NVO).

The trial had 599 patients enrolled. A once-weekly dose of 1.5 mg dulaglutide was compared head-to-head to Victoza, dosed once daily at 1.8 mg. The trial measured the reduction of HbA1c (hemoglobin A1c) levels from baseline at 26 weeks.

The result is good news for Lilly, which is counting on dulaglutide along with a few other drugs it plans to launch this year to rejuvenate its sales after heavy losses in key brands due to patent expiration.

Dulaglutide has been submitted to the FDA and the European Medicines Agency for approval, with a decision expected by September.

Dulaglutide

The HbA1c test, used in the Award series of clinical trials, is a common blood test used to diagnose type 1 and type 2 diabetes and then to gauge how well a person is managing it. The HbA1c test goes by many other names, like glycated hemoglobin, glycosylated hemoglobin, hemoglobin A1C or simply A1C.

The HbA1c test result reflects the average blood sugar level for the past two to three months. Specifically, the test measures what percentage of the hemoglobin (a protein in red blood cells that carries oxygen) is coated with sugar (glycated). The higher the A1C level, the poorer the blood sugar control and higher the risk of diabetes complications.

All previous five Award trials demonstrated superiority in reduction of HbA1c at the 1.5 mg dose against placebo and active comparators.

Lilly plans to present detailed data from the Award-6 (dulaglutide vs. Victoza), Award-2 (dulaglutide vs. insulin glargine), and Award-4 (dulaglutide vs. insulin glargine in combination with insulin lispro) studies at scientific meetings later this year.

Dulaglutide has already proved itself superior to other diabetes drugs, including metformin, Byetta and Januvia, in the Award series of clinical studies announced last year.

Competition

Dulaglutide is a GLP-1 or glucagon-like peptide. In 2005, Lilly helped launch the first GLP medicine of the industry, Byetta, in partnership with California-based Amylin Pharmaceuticals. Later the two companies also launched a once-weekly version of Byetta, called Bydureon.

But after a dispute between the two companies in 2011, Lilly agreed to sell its rights to Byetta and Bydureon for a $250 million break-up fee and royalties up to $1.2 billion over the life of Byetta.

The partnership ended badly but opened the door for Amylin to be purchased by Bristol Myers Squibb (NYSE:BMY) with the help of AstraZeneca (NYSE:AZN), only to see Bristol exit the diabetes business by selling its stake to Astra. All this craziness did not much help Bydureon sales.

Bydureon: Currently the only FDA approved once-weekly GLP-1 is Bydureon which is now wholly owned by AstraZeneca. While the drug seems to be gaining traction, sales so far have been disappointing.

The reason for poor sales can be traced to two issues. One is that the drug has to be mixed prior to injection and the second one is the size of the needle. Bydureon currently requires a cumbersome long, fat 23g gauge needle.

Both issues are promised to be rectified soon, when Bydureon's pen delivery system arrives, which AstraZeneca promised for the second quarter of this year.

Lilly subtly points to the convenience gap in its press release:

"If approved, dulaglutide would be the only GLP-1 agonist that is both once-weekly and ready-to-use."

Victoza: Victoza, made by Denmark-based Novo Nordisk, is a blockbuster.

Victoza's success can be attributed in part to the fact that Bydureon was a drug without a strategy and stable owner. Also, Victoza in trials has proved to be superior to Byetta.

Victoza generated $2.07 billion in 2013 sales for Novo Nordisk, according to data compiled by Bloomberg, and was the top seller in its class.

Eperzan: Also waiting for regulatory approval is Eperzan from GlaxoSmithKline (NYSE:GSK), another once-weekly GLP-1. GSK also has accumulated massive study data that shows Eperzan is safe and effective.

Eperzan has been given a positive opinion from European regulators that will likely to lead to EU approval. The FDA last year pushed back an approval decision until April 15th 2014.

The drug met its main goal in five studies reported last year, but it did not demonstrate it was equally as good as Actos, a diabetes drug made by Takeda.

Industry analysts therefore suspect that it may have to struggle against competitors, including new drugs coming to the market. The consensus forecast for Eperzan currently forecasts a modest annual sales of about $400 million by 2018, according to a Thomson Reuters Pharma survey of six analysts.

Markets

About 25.8 million people in the U.S. have diabetes, or almost 8 percent of the population, according to the American Diabetes Association.

The Type 2 form of the illness occurs when the body loses its natural ability to control sugar using insulin produced by the pancreas. It can be caused by obesity.

Diabetes is the seventh-leading cause of death in the U.S., according to the Centers for Disease Control and Prevention. The disease, defined by high levels of sugar in the blood, affected almost 26 million people in the U.S. in 2010, or about 8.3 percent of the population.

The drugs in the class called GLP-1 receptor agonists tell the body to make more insulin when needed, as well as reduce the body's sugar production. Proof of the growing popularity of the class is the success of Victoza. The total size of the GLP-1 market currently is estimated to be around $3 billion a year.

Investors' summary

The numbers this year will be bad for Eli Lilly, there's no getting around that.

Recently Lilly had patents expire on two $5 billion-a-year drugs, Cymbalta and Cialis. The loss will lower Lilly's profit by an estimated 32 percent this year.

But 2014 is also a year of opportunity, if new drug approvals and successful launches work out as planned. Analysts are optimistic about the approval chances of four new drugs: ramucirumab for gastric cancer, necitumumab for lung cancer, and dulaglutide and empagliflozin for diabetes.

Failures Lilly had a series of well-publicized setbacks in the clinic. In December the company announced that edivoxetine did not meet primary end points of Phase 3 clinical studies as add-on therapy for major-depressive disorder. Prior to this, Lilly announced Phase 3 failures of enzastaurin for large B-cell lymphoma, solanezumab for Alzheimer's disease, and ramucirumab for breast cancer.

Lilly's strategy

Dulaglutide: Lilly's drug in the Award-6 trial wasn't shown to be superior to Victoza, only "non-inferior", but Victoza is required to be injected once a day. Common sense would favor a once-weekly injection over a once-daily injection, yet physicians usually hate to switch patients off a medication that's working.

Bernstein's Tim Anderson believes that dulaglutide's failure to achieve superiority in this trial does not matter all that much, given its once-weekly dosing vs. Victoza's once-daily administration and its small needle size (29 gauge).

Anderson forecasts a sales of the drug of $1.5 billion in 2020. The rising tide will probably lift the Lilly's entire diabetic franchise which accounted for about 19 percent of its sales in 2013, and could rise to 32 percent by 2020, if things work out.

The larger picture: Positive Phase 3 results have led to a record seven regulatory submissions of four molecules in 2013 and the expectation of launching three drugs in 2014 - empagliflozin, which was codeveloped with Boehringer Ingelheim for type 2 diabetes; dulaglutide, a once weekly treatment for type 2 diabetes; and ramucirumab.

At this writing, the company has 13 potential medicines in Phase 3, or under regulatory review. In addition, Lilly has 26 more projects in Phase 2, which is five times more than it had a decade ago.

Intent on refilling a pipeline decimated by the patent cliff, Lilly has been aiming to expand its diabetes portfolio, which now includes the Humalog/Humulin insulin and the co-marketed DPP-4 drug Tradjenta.

If dulaglutide, as well as SLGT-2 inhibitor empagliflozin and the insulin glargine biosimilar, reach market, Lilly would be in the position to have a medication in every major class of therapy for diabetics. A portfolio like that would offer doctors a broad spectrum of treatments and would provide a solid platform from which to negotiate with health insurers and pharmacy managers.

Though still in the top 10 of pharmaceutical companies, Lilly generates only about one-third the revenue of Johnson & Johnson (NYSE:JNJ) and half that of Merck (NYSE:MRK).

Lilly's chief medical officer Tim Garnett remarked in an interview that when it comes to therapeutic focus, the company has to be pretty disciplined which industry segments it selects to be active in. At this point, those areas are neuroscience, diabetes, endocrine oncology, and auto-immune disorders.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.