Lilly said it would set up a joint venture with Boehringer Ingelheim to develop and sell a range of diabetes drugs, as companies struggle to deal with looming patent expiries of the series, and to restore its once dominant diabetes portfolio.
In effect Lilly will trade some of the potential gains from two of its mid-stage insulin compounds in return for near-term revenues from two oral diabetes agents produced by the unlisted German company.
Boehringer has an option to develop one additional Lilly molecule.
Lilly will pay Boehringer a one-time fee of €300m but each company will receive milestone payments if the drugs that they first developed perform well. They will share costs and margins and will receive extra fees depending on sales performance.
Still, in the near term Lilly expects the deal to trim between $0.45 and $0.50 from its earnings per share in 2011, and ongoing but diminishing reductions in profits until 2013. If its leading drug candidates are approved, the deal could add to profits starting in 2014.
Tim Anderson, with Bernstein Research, noted that investors might be concerned about the level of near-term profit loss. Analysts were already expecting Lilly’s profits to decline significantly over the next several years due to generic drug competition.
“While it is good that Lilly is making strides towards filling up its pipeline, none of the four main drugs that [the joint venture] will share are first-in-class, and the two companies will face competition in all of these categories,” Mr Anderson said.
Lilly estimates the market for oral diabetes treatments to be about $15bn a year, while the market for regular insulin is about $12bn a year. Both are growing rapidly as obesity and other factors raises the incidence of diabetes.
In the 1920s, Lilly pioneered efforts to refine insulin for use in the treatment of diabetes ultimately developing Iletin, the first commercial insulin product, in 1923.
Diabetes medications still make up about 17 per cent of Lilly’s $22bn revenues, but in recent years it has lost ground to rivals such as Merck and Sanofi-Aventis. Its deal with Takeda for its Actos oral diabetes medication is also winding down.
At the same time Lilly faces a series of significant patent expiries, including its blockbusters Zyprexa and Cymbalta, but its own internal development pipeline will take several years to mature.
John Lechleiter, chairman and chief executive officer of Lilly, said the deal would augment its own internal development pipeline of drugs which could have 10 compounds in late-stage trials by the end of the year.
It has experienced some setbacks. Last year, US regulators failed to approve Bydureon, a diabetes drug Lilly developed with Amylin Pharmaceuticals, and asked the company to work on further studies.
"In business like ours is very difficult to order the product patents are due for replacement so it will be inevitable ups and downs. Our goal is to build a long-term sustainable growth of the business, this agreement is an important step towards this, "He Lechleiter said.

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