Eli Lilly & Co. and Boehringer Ingehheim GmbH announced a broad diabetes collaboration Jan. 11 giving Lilly access to two oral drugs in new classes and BI two insulins and the commercial expertise of an experienced diabetes marketer as it prepares to launch its first diabetes drug.

Collaborations have become more common among big pharmas as drug makers look to reduce development and regulatory risk and share commercial costs, particularly in expensive areas of drug development like diabetes. But the Lilly/BI arrangement marks one of the largest risk-sharing deals to date, spanning four drugs with an option to add a fifth.

Under the deal, the drug makers will develop and commercialize a portfolio of diabetes drugs in mid- to late-stage clinical trials. The program includes two oral diabetes drugs from BI, linagliptin, a dipeptidyl peptidase-4 (DPP-4) inhibitor, and BI10773, a sodium-dependent glucose co-transporter-2 (SGLT-2) inhibitor, and two basal insulin analogues from Lilly: the novel basal insulin LY2605541 and an insulin glargine product LY2963016.. The deal also gives BI an opportunity to opt in to co-develop and co-commercialize Lilly's anti-TGF-beta monoclonal antibody, in development for chronic kidney disease, pending the outcome of Phase II data.

Combined, the drugs could have potential peak sales of $10 billion, with each having peak sales potential above $2 billion, Boehringer Ingelheim predicted.

Lilly is a stalwart in the field of diabetes, though focused only on injectable products with a portfolio that includes Humalog insulin and the glucagen-like peptide-1 analogue Byetta (exenatide), which it markets with Amylin Pharmaceuticals Inc. In a notable setback, however, FDA has twice bounced the companies' application to launch a long-acting form of exenatide, Bydureon.

In contrast, BI, a newcomer to diabetes, is better known for its products like Mycardis (telmisartan) for cardiovascular disease and Spiriva (tiotropium) for chronic obstructive pulmonary disease. More recently, the company beat out big pharma rivals like Pfizer Inc., Bristol-Myers Squibb Co. and Johnson & Johnson to launch the first oral anticoagulant to compete with warfarin, Pradaxa (dabigatran), a first-in-class direct thrombin inhibitor.

BI's potential as a serious diabetes contender only began to emerge recently. The company presented 18 posters, including four Phase III trials on linagliptin, at the American Diabetes Association meeting in June 2010 (Also see "Boehringer Ingelheim Plays Catch-Up In Diabetes, Close To Filing DPP-4 Drug" - Pink Sheet, 19 July, 2010.). As a private company, however, BI isn't under pressure to provide regular updates to investors about its research, enabling its diabetes pipeline to fly under the radar. Nonetheless, for a company that came into diabetes recently, in 2001, the German firm has put together a significant pipeline ('Boehringer Ingelheim: Privacy Has Its Virtues,' IN VIVO, October 2009).

By collaborating in diabetes, Lilly and BI enhance their pipelines and commercial footprints without relying on disruptive M&A, a stated goal of both companies. Lilly in particular, however, is facing one of the steepest patent cliffs in the industry. With the loss of Zyprexa (olanzapine) later this year and additional drugs to follow in the years ahead, on top of several recent pipeline setbacks, however, this risk-sharing deal in diabetes is not likely to be enough to appease investors.

"While it is good that Lilly is making strides towards filling up its pipeline, none of the four main drugs that Lilly/BI will share are first-in-class, and the two companies will face competition in all of these categories," Bernstein Research analyst Tim Anderson commented in a same-day note.

Management from both companies espoused the benefits of the deal during separate same-day conference calls. "It will allow both companies to generate more value than each company alone would have been able to do," said BI's Engelbert Tjeenk Willink, member of the board of managing directors, marketing and sales, human pharma. "It is a new way of working together in the industry, and it will be a win-win situation to all parties involved."

"Combining BI's and Lilly's development and commercial expertise and expanded presence with a broad portfolio will allow each company to generate more value than we could have generated on our own," added Lilly's Enrique Conterno, president, Lilly Diabetes. "This deal also creates an innovative balanced portfolio that will allow us to offer treatments to patients and physicians across the progression of the disease."

A Commercial Ramp Up Gets Underway

The deal will double the commercial strength behind each drug, marketing power that will be needed as the new drugs launch in competitive markets, most of which will already have entrenched rivals.

Lilly said it plans to begin ramping up its sales organization immediately, though the force's ultimate size is not yet certain, at least publicly. Lilly declined to provide details on the size of the sales force, but in a follow up interview Conterno said, "It is going to be significant. It is beginning as we speak."

"We are going to be scaling up in pretty much every region where we market our products," he said.

The partnership could launch its first drug already later this year, sometime in the first half. Linagliptin was filed with regulatory authorities in the US, EU and Japan in the second half of 2010.

Turning linagliptin into a blockbuster won't be easy. If approved, it will be the third DPP-4 inhibitor to launch in a market owned by Merck & Co.'s Januvia (sitagliptin). Bristol-Myers Squibb Co./AstraZeneca PLC's Onglyza (saxagliptin) - which launched in 2009 under a similar risk-sharing arrangement inked between those two firms in 2007 - has yet to become a commercial success, generating just $85 million in sales in the first nine months of 2010. Januvia, in comparison, generated $1.71 billion in sales during the time period and Janumet, a line extension combined with metformin, generated another $666 million.

BI and Lilly argue that linagliptin's differentiating profile could allow it to compete effectively. Only about 5% of linagliptin is excreted through the kidneys, versus 75% to 80% for Januvia, which could offer a safety advantage, particularly for use in type 2 diabetes patients with moderate or severe renal impairment.

"A number of things will allow us to effectively compete," Contero said. "We are pretty excited and we do think that we are in a different position then Onglyza was when we look at the package we submitted to FDA."

Still, getting payer support will prove challenging, in an environment where payers give formulary preference to better known products with which they are comfortable, all things being equal. And the SGLT-2 inhibitor could find itself in a similar position, since Bristol/AZ are on track to launch the first SGLT-2 product, dapagliflozin, later this year.

The sponsors filed dapagliflozin with FDA in late 2010, whereas BI10773 is currently in Phase III testing, with a regulatory filing targeted for 2013. Expectations for the class in general have been muted, however, due to a side effect profile that includes genital and urinary tract infections.

The two insulins are further out in development. Lilly expects the novel basal insulin to be a long-acting option that could offer improved glucose control over existing products, of which Sanofi-Aventis SA's Lantus is the market leader. The product is being tested in two Phase II clinical studies, which are expected to complete in the second quarter. Phase III trials are planned to begin later this year, with a regulatory filing targeted for 2014. The insulin glargine product is being developed as a cost-effective, user-friendly option, a product that could be positioned as either a biosimilar or a cost-effective brand drug depending on the regulatory environment at the time of its submission, intended in 2014, Lilly said.

Deal Will Be Dilutive To Lilly In 2011

Under the terms of the agreement, Lilly will make an initial one-time payment to BI of €300 million ($388.6 million). Each company will be eligible to receive success-based regulatory milestones, €625 million ($809.7 million) for BI for linagliptin and BI10773, and $650 million for Lilly for the two insulins. Should BI opt-in to the Phase III development and commercialization of the anti-TGF-beta monoclonal antibody, Lilly would be eligible for another $525 million in opt-in and success-based regulatory milestone payments. The companies will share equally ongoing development, as well as future commercialization costs and profits. Each company could also earn performance payments on sales of the molecules they contribute to the collaboration.

Lilly expects the transaction will have a dilutive effect on 2011 earnings per share in the range of $0.45 to $0.50 per share, including a charge of approximately $0.27 per share related to the one time payment. The company expects the deal to be progressively less dilutive in 2012 and 2013, pending a successful launch of linagliptin, and to contribute no dilution in 2014 before becoming accretive in 2015 and beyond. The company will provide updated 2011 guidance during its fourth quarter sales and earnings announcement Jan. 27.

-Jessica Merrill (j.merrill@elsevier.com)

Lilly/BI Eye Diabetes Leadership In Expansive Risk-Sharing Collaboration

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