Full article reprinted from IN VIVO October 21, 2009
Teetering on the brink of a vast patent cliff, Eli Lilly & Co. in mid-September announced a reorganization and cost-cutting initiative designed to reduce costs by $1 billion by the end of 2010. The move is as much about enhancing R&D productivity as creating a leaner organization, according to the company.
Full article reprinted from IN VIVO October 21, 2009
Like other Big Pharmas who have reshuffled their businesses in recent years—such as Pfizer Inc. and Merck & Co. Inc., Lilly stands to lose billions of dollars in the coming years as key blockbuster drugs go generic. Unlike those rivals, Lilly has yet to bulk up via megamerger—though it has acquired a handful of biotech firms, most notably ImClone Systems Inc. in 2008. [200810174] Lilly's patent cliff, which begins in 2011 when its top-selling drug, the antipsychotic olanzapine (Zyprexa), goes off patent, comes later than it has for others. Zyprexa accounts for nearly one-quarter of Lilly's sales (the drug brought in $4.7 billion worldwide and $2.2 billion in the US for Lilly in 2008), but the pain that will come from generics extends beyond Zyprexa. Generic versions of Lilly's chemotherapy gemcitabine (Gemzar) and osteoporosis drug raloxifene (Evista) are also expected near-term.
Lilly's announcement of the reorganization comes on the heels of compounding negative news. For one, the firm decided to cut its losses with the Phase III osteoporosis candidate arzoxifene in August after data showed the drug fell short on key secondary outcomes measures. Then, a US district court found a method of use patent for Gemzar invalid, which could hasten the availability of generic versions of the drug. On top of that, AstraZeneca PLC released positive data on its antiplatelet candidate ticagrelor (Brilinta), a potential competitor to Lilly's recently approved prasugrel (Effient), at the European Society of Cardiology congress, leading some analysts to downgrade sales projections for the Lilly clot buster. Lilly did get Effient—a competitor to Bristol-Myers Squibb Co.'s clopidogrel (Plavix)—onto the market in August, but even that success was overshadowed by what was nearly a one year delay in FDA approving the drug.
Lilly has no other drugs currently under review at FDA and its Phase III pipeline includes only six candidates, two of which are in the risky Alzheimer's space. Its Phase I and II pipelines are richer, with 58 molecules in development, as of July. But without new medicines to make up for lost revenues, short-term growth is unsustainable. Like much of the industry, the problems Lilly faces are as much about R&D productivity as generic losses.
"Lilly faces a challenge not that dissimilar from many of our competitors," admits Steven Paul, MD, EVP of science and technology and president of Lilly Research Laboratories. "Our late-phase pipeline at this point will not completely substitute for the loss of revenue streams when our patents expire on blockbuster drugs."
And so as part of the reorganization, Lilly will establish a new development Center of Excellence, an organization that it says will accelerate late-stage drug development. The new center will operate as part of Lilly Research Labs under the direction of Paul. Once a decision is made to commercialize a drug, the molecule will be handed over to one of four new pharmaceutical business units, which will then oversee development of the molecule. Generally, the hand-off will occur after Phase II with the exception of oncology, when the transition will take place earlier.
Lilly's COE will house two business areas that will be headed by Timothy Garnett, PhD and Tom Verhoeven, PhD. Garnett, currently chief medical officer and SVP of global medical, regulatory and safety, will oversee medical, regulatory, global product safety, translational medicine and global health outcomes. Verhoeven, president of global product development, will be responsible for the clinical development organization, product R&D, toxicology and project management.
The reorganization is not just about altering the structure of R&D, but enhancing the quality and speed of the molecules getting to market, Paul emphasizes. "Structure is important, but it's the tools that we are going to use here, the tools of advanced analytics, the tools of tailored therapies, or stratification segmentation of clinical trials early ... and the tool of Critical Chain methodology." Lilly has been piloting Critical Chain--a project management methodology--for two years, and now plans to institute the program across R&D. "It has now been implemented on 40% of our pipeline and our projects are 100% on time delivery compared to about 60% for the other 60% of the molecules that are in the more traditional development programs," Paul says.
Chorus, Lilly's independent development unit that conducts small-scale targeted experiments, will continue to operate separately from Lilly Research Labs. Chorus is still "incredibly valuable," according to Paul, and has helped increase productivity of early-stage drug discovery at Lilly by moving experimental medicines rapidly to proof-of-concept. The fast-to-failure strategy Chorus espouses is "cloning" the group, according to Gino Santini, SVP of corporate strategy and business development at the drug maker. Santini noted during Windhover's September Pharmaceutical Strategic Alliances meeting that new Chorus-like groups would emerge in both Indianapolis and in India, where Lilly operates via agreements with a handful of local biopharmas.
Lilly's four pharma units—oncology, diabetes, established markets and emerging markets—are complemented by the company's Elanco animal heath business. The cancer emphasis is not surprising, given that following Lilly's acquisition of ImClone last year, one-third of the pipeline is now in oncology. John Johnson, currently CEO of Lilly's ImClone subsidiary, will lead the oncology unit. Lilly bought the cetuximab (Erbitux) marketer for $6.5 billion, a move intended to strengthen its pipeline and position Lilly as a serious contender in the oncology space. But much of Lilly's justification for the acquisition hinges on ImClone's early pipeline, and the firm will need to get differentiated drugs to market quickly to rationalize the premium price tag.
Diabetes, an area of business where Lilly has long been a leader with the insulins Humulin and Humalog, will be led by Lilly USA president Enrique Conterno. The established markets unit, meanwhile, will include what Lilly terms "other important therapeutic areas," including neuroscience, osteoporosis/bone and cardiovascular. Lilly's decision to group drugs from these three therapeutic areas into one business division seems surprising, given blockbusters like Zyprexa, and the depression juggernaut fluoxetine (Prozac) and its follow up duloxetine (Cymbalta), have been responsible for much of Lilly's earnings growth in the last decade.
Despite appearances, Lilly says it is not moving away from CNS or osteoporosis.
"We have a very rich pipeline of neuroscience drugs ...These molecules will hit in the '13, '14, '15 timeframe and will be growth drivers for the company down the road," Paul maintains. Potential drugs include solanezumab and semagacestat in Phase III for Alzheimer's disease and a drug targeting the mGlu2/3 receptor in Phase II for schizophrenia.
Nonetheless, Lilly's currently marketed osteoporosis and CNS drugs are reaching the end of their natural lifecycle, he acknowledges, and will thus be managed as mature products. The established products unit will be headed by Bryce Carmine, currently EVP of global marketing and sales, and will host Lilly's global marketing organization. Its geographic focus will include the US, Japan, Europe, Canada and Australia/New Zealand.
Lilly's final business unit, headed by Jacques Tapiero, currently president of Lilly's intercontinental region, is an emerging markets unit, mandated to increase the its presence in such fast-growing countries as China, Russia, Brazil, Mexico, South Korea and Turkey.
Lilly's new R&D structure, its creation of autonomous business units, and a greater emphasis on emerging markets mimic some other recent industry reorganizations, particularly Pfizer's overhaul last year. (See "Pfizer Restructures for a More Flexible Future," Facing generic competition for its blockbuster atorvastatin (Lipitor), Pfizer cut $2 billion in costs in 2008, reorganized its R&D priorities, restructured its development organization and aligned commercial operations into separate business units including, like Lilly, oncology, established markets and emerging markets. (Though Pfizer executives clearly felt its reorganization wasn't enough: the Big Pharma is now about to close its acquisition of Wyeth.)
--Jessica Merrill
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