BioPharm Executive: Lilly's Shopping Plans Go Against the Grain

Published: Oct 27, 2010

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Lilly's Shopping Plans Go Against the Grain

Eli Lilly is not up for sale. That's the official message that CEO John Lechleiter delivered to investors during the company's third quarter conference call last week. But the very fact that he's stating his opposition to any "large-scale combinations" that would end Lilly's independence means such considerations are very much on the table, at least as far as investors go. And while Lechleiter's resistance to the idea is well supported by the history of large pharma company mergers, he may feel increasing pressure to go down that road anyway.

But if Lechleiter gets his way, he'll deal with his company's woes by doing something surprisingly few large corporations are willing to do these days: Loosen the purse strings and go shopping.

Make no mistake, Lilly's troubles are serious, and they got worse this month. A couple months back, this column discussed some of the setbacks that exacerbated the company's already dire patent expiration issues. Developments during October did not help. Bydureon, an extended-release version of the diabetes drug exenatide (Byetta), got delayed by the FDA last week instead of receiving the expected approval--news that also knocked back Lilly's partners on Bydureon, Amylin and Alkermes. The agency is concerned about possible QT effects on the heart at higher doses and are asking for a new study that probably pushes back approval 18 months or so.

Yet probably more important for Lilly in the long run, another diabetes drug in development--the monoclonal antibody teplizumab being developed in partnership with MacroGenics for Type I disease--failed this month in a pivotal trial. Unlike Bydureon, which will probably reach the market eventually, this one is likely gone for good. And Lechleiter considered it to be one of the three most promising products in the company's pipeline. (It lost another of these, the Alzheimer's disease candidate semagacestat, this summer.)

So if a merger is to be avoided, Lechleiter will have to go shopping in order to shore up its thinning late-stage pipeline. Amylin is an obvious candidate, particularly since it just lost half its value, but Lilly will likely be looking elsewhere, too.

This isn't a bad thing. Right now, U.S. corporations hold over $1.8 trillion on their balance sheets, and they are unwilling to part with it. It's a viscous cycle, where executives worry about the weakness of our economic recovery and stay on the sidelines, ensuring that the weakness continues. Earnings are strong, coffers are full, but no one is getting hired, and few major growth initiatives are being undertaken.

Lilly certainly fits the picture insofar as it has a lot of cash--over $5 billion--it could put to work. The company has done some admirable cost-cutting, but there's no getting around the need to find new products, and so Lechleiter will need to do what most CEOs are avoiding. Lilly has let fewer R&D staff go than many of its competitors; perhaps it may even need to increase its headcount.

Let's hope he's rewarded for it, by investors and by the eventual improvement of Lilly's fortunes. Because things aren't going to stabilize until more CEOs get out their wallets.

-Karl Thiel

Read the BioPharm Executive online newsletter October 2010.

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