Insisting they are not playing catch up overseas, Eli Lilly executives outlined plans for growing their business in the so-called emerging markets that are now a hot terrain - and a familiar phrase - among the biggest drug makers.

"The strategy is to maximize our existing assets, including patented and post-patented products," Derica Rice, Lilly's senior vice president and chief financial officer told a crowd of Wall Street analysts who attended the drug maker's annual briefing in New York on Dec. 10. "We've doubled our sales in these markets over the past five years and we plan to double them again in the next five years."

In discussing their hopes, Lilly execs said they foresee a mix of acquisitions, alliances, co-marketing and co-promotional agreements aimed at boosting the drug maker's overseas presence, particularly in China. Already, though, Rice noted that through the third quarter of 2009, emerging markets accounted for $1.5 billion, or 9 percent, of overall revenue of $15.9 billion.

[Editor's note: In an Also see "Eli Lilly Global External R&D Director Yetunde Taiwo On Partnering Plans For Discovery Research: An Interview With PharmAsia News" - Scrip, 30 October, 2008. , Eli Lilly Global External R&D Director Yetunde Taiwo spoke with PharmAsia News' India Burea about Lilly's global hunt for molecules to bolster its pipeline.]

The discussion comes three months after Lilly followed several of its peers in creating a unit that will focus on China, South Korea, Brazil, Turkey, Mexico and Russia. Although Lilly has co-development pacts with other companies in India, notably Jubilant Organosys and Piramal, Rice said India won't be a focus of its emerging markets effort.

In fact, on the same day that Rice expressed Lilly's overseas goals, the head of GlaxoSmithKline's emerging markets unit, Abbas Hussain, was quoted at a briefing in London as saying he plans to pursue still more acquisitions and alliances.

These moves, of course, come as health care spending in emerging markets is forecast to increase just as growth in developed nations starts to slow. Rice cited IMS Health forecasts in noting the markets Lilly is targeting will account for more than one-third of global pharmaceutical growth through 2013.

"The opportunity comes at a critical time," Rice said.

Analysts Not Sure Strategy Can Work

Though the emerging markets strategy has already been eagerly embraced by the likes of Novartis, Pfizer, AstraZeneca, Sanofi-Aventis and Glaxo among others, some Wall Streeters view the shift in focus as less than compelling and remain unconvinced that Lilly's efforts will amount to much.

"They are a sign of desperation and don't have the margins or sales numbers to really matter," says Jon LeCroy, an analyst at Hapoalim Securities, who believes emerging markets is "just a buzzword" to deflect attention from a failing R&D model. "All of the companies are doing this, so it is not a lay up….it shows how the classical model has actually fallen apart."

Indeed, Lilly execs acknowledged as much during their briefing as they discussed their homegrown Chorus experiment, which involves small units of employees who try to take compounds to the proof-of-concept stage faster than the traditional Lilly R&D personnel. To underscore its commitment to the concept, Lilly is now creating a second in-house Chorus team in hopes of speeding discovery and development as a way to compensate for the upcoming patent cliff.

Nonetheless, skepticism over Lilly's model was on full display yesterday as investors sent company shares down more than four percent after the drug maker suggested its earnings could fall once its biggest-selling medicines - such as the Zyprexa (olanzapine) antipsychotic, the Cymbalta (duloxetine) antidepressant and the Evista (raloxifine) osteoporosis treatment - lose patent protection between 2011 and 2014.

The reaction underscored the challenges Lilly faces as it grapples with not only a looming patent cliff, but a dearth of late-stage medicines to compensate for the pending revenue losses. In fact, its late-stage pipeline numbers just a half dozen compounds, most of which target cancer or Alzheimer's - and such compounds have a higher-than-usual attrition rate.

"We have at least some concerns - either from a regulatory or a commercial perspective - about several pipeline drugs in the latest stages of development," Sanford Bernstein analyst Tim Anderson wrote in a Dec. 10 investor note following the Lilly meeting.

These concerns partly explain why Rice went out of his way to emphasize that China - the world's fastest-growing economy - is Lilly's top overseas priority. And in an attempt to convince analysts that Lilly is positioned to capitalize on that growth, he trotted out a few statistics.

For instance, Rice maintained that Lilly is already the No. 1 player in China's central nervous system market and the No. 2 player in the Asian nation's insulin market. To build its presence in diabetes, Lilly is expanding its sales force and erecting a second facility to produce insulin.

Nonetheless, competition in China and the other emerging markets is only going to become more intense, especially as Lilly finds itself going up against better-capitalized rivals, such as Glaxo.

"They [Lilly] needed to add some zest to their story," said Caris & Co. analyst David Moskowitz. "The strategy really is to take their unique products and bring them to those markets. So technically, they should have a lock in some ways. But it is going to get more competitive as more companies shift there and also look for deals. The long-term question is how competitive and profitable can they be as they compete with other companies, and other brands and generics."

- Ed Silverman (e.silverman@elsevier.com)

[Editor's note: This story also appeared in 'The Pink Sheet' DAILY, Dec. 10, 2009.]

Eli Lilly Talks Up Emerging Markets, Especially China, As One Salve For Its Problems

More from Archive

More from Scrip