Eli Lilly Analysis --- I

Overview

Eli Lilly and Company (LLY) was incorporated in 1901 in Indiana to succeed to the drug manufacturing business founded in Indianapolis, Indiana, in 1876 by Colonel Eli Lilly. Eli Lilly discover, develop, manufacture, and market products in two business segments —human pharmaceutical products and animal health products. The mission of human pharmaceutical business is to make medicines that help people live longer, healthier, more active lives. Most of the products they sell today were discovered or developed by their own scientists, and their success depends to a great extent on our ability to continue to discover, develop, and bring to market innovative new medicines. Animal health business, operating through Elanco division, develops, manufactures, and markets products for both food animals and companion animals. Eli Lilly manufacture and distribute products through facilities in the United States (U.S.), Puerto Rico, and 11 other countries. Their products are sold in approximately 120 countries.

Eli Lilly’s Products

Human Pharmaceutical Products
Endocrinology products	Humalog®, Humulin®, Trajenta®, Jentadueto®, Jardiance®, Trulicity™, Glyxambi®, Forteo®, Evista®, Humatrope®, Axiron®
Neuroscience products	Cymbalta®, Zyprexa®, Strattera®, Prozac®, Amyvid®
Oncology products	Alimta®, Erbitux®, Gemzar®, Cyramza®
Cardiovascular products	Cialis®, Effient®, ReoPro®
Animal Health Products
Food animals	Rumensin®, Posilac®, Paylean®, Optaflexx®, Tylan®, Micotil®, Pulmotil®, Pulmotil AC™, Coban®, Monteban®, Maxiban®, Surmax™ (sold as Maxus™ in some countries)
Companion animals	Trifexis®, Comfortis®
Novartis AH* products	Denagard®, Milbemax®, Atopica®, Fortekor™
*On January 1, 2015, we completed our acquisition of Novartis Animal Health (Novartis AH) in an all-cash transaction for approximately $5.4 billion. Novartis AH operates in approximately 40 countries.

Competition: Highly Competitive

Human pharmaceutical products compete globally with products of many other companies in highly competitive markets. Animal health products compete globally with products of animal health care companies as well as pharmaceutical, chemical, and other companies that operate animal health businesses.

Generic Pharmaceuticals

In the U.S. and the EU, the regulatory approval process for human pharmaceuticals (other than biological products (biologics)) exempts generics from costly and time-consuming clinical trials to demonstrate their safety and efficacy, allowing generic manufacturers to rely on the safety and efficacy of the innovator product. Therefore, generic manufacturers generally invest far less than Eli Lilly do in research and development and can price their products much lower than our branded products. Also, public and private payers typically encourage the use of generics as alternatives to brand-name drugs in their healthcare programs.

Biosimilars

Several of Eli Lilly’s current products, including Cyramza, Erbitux, and ReoPro, and many of the new molecular entities (NMEs) in their research pipeline are biologics. Competition for Lilly’s biologics may be affected by the approval of follow-on biologics, also known as biosimilars*. Globally, governments have or are developing regulatory pathways to approve biosimilars as alternatives to innovator-developed biologics, but the patent for the existing, branded product must expire in a given market before biosimilars may enter that market. The extent to which a biosimilar, once approved, will be substituted for the innovator biologic in a way that is similar to traditional generic substitution for non-biologic products, is not yet entirely clear, and will depend on a number of regulatory and marketplace factors that are still developing.

*A biosimilar is a biologic for which marketing approval is granted based on less than a full safety and efficacy package due to the  physical/structural similarity of the biosimilar to an already-approved biologic as well as reliance on the finding of safety and efficacy of the already-approved product.

Managed Care Organizations

The growth of MCOs* in the U.S. is also a major factor in the competitive marketplace for human pharmaceuticals. It is estimated that approximately two-thirds of the U.S. population now participates in some version of managed care. MCOs have been consolidating into fewer, larger entities, thus enhancing their purchasing strength and importance. Pharmaceutical companies compete aggressively to have their branded products included. Where possible, companies compete for inclusion based upon unique features of their products, such as greater efficacy, fewer side effects, or greater patient ease of use. A lower overall cost of therapy is also an important factor. Price is becoming an increasingly important factor in MCO formulary decisions, particularly in treatment areas in which the MCO has taken the position that multiple branded products are therapeutically comparable.

* MCOs can include medical insurance companies, medical plan administrators, health-maintenance organizations, Medicare Part D prescription drug plans, alliances of hospitals and physicians, and other physician organizations. MCOs typically maintain formularies specifying which drugs are covered under their plans. Exclusion of a drug from a formulary can lead to its sharply reduced usage in the MCO patient population.

Risk

A number of Eli Lilly’s top-selling human pharmaceutical products have recently lost, or will lose in the next several years, significant patent protection and/or data protection in the United States (U.S.) as well as key countries outside the U.S., as illustrated in the tables below:

Product	Revenues ($ in millions)	Worldwide Revenues	Patent / Data Protection - U.S.
Alimta	1,229.50	6%	Compound patent plus pediatric exclusivity 2017; Vitamin dosage regimen patent plus pediatric exclusivity 2022
Cialis	1,039.90	5%	Compound patent 2017
Forteo	539.00	3%	Formulation and related process patents 2018; use patents 2019
Strattera	452.50	2%	Use patent plus pediatric exclusivity 2017
Effient	394.50	2%	Compound patent 2017; use patents 2022
Evista	207.20	1%	Use patents March 2014

Product	Revenues ($ in millions)	Worldwide Revenues	Patent / Data Protection - Major Europe / Japan
Alimta	1,562.50	8%	Major European countries: compound patent December 2015, vitamin dosage regimen patent 2021; Japan: compound patent December 2015, use patent to treat cancer concomitantly with vitamins 2021
Cialis	1,251.10	6%	Major European countries: compound patent 2017
Cymbalta	1,194.20	6%	Major European countries: data package protection 2014; Japan: data package protection 2018
Zyprexa	917.50	5%	Japan: Compound patent December 2015
Forteo	783.00	4%	Japan: Data package protection 2018; formulation and related process patent 2019

*Numbers are from 2014 annual report.  

Reference:

Eli Lilly's Annual Report