Biodel, Inc. As Acquisition Bait for Eli Lilly & Co. or Sanofi-Aventis?
In the interim, even though Biodel's finances are quite sound for a biotech startup, there is already speculation that Biodel could well be sold to an established pharmaceutical company. Two names on the top of those speculators' lists: Eli Lilly & Co. or Sanofi-Aventis. While both of these companies already hold a dominant postition in the global insulin market, Lilly's insulin business continues to lose market share to Novo Nordisk (and to a slightly lesser extent Sanofi-Aventis), routinely being dropped to second-tier status from many insurance company formularies or being dropped altogether. What's more, the patent for Humalog (insulin lispro rDNA origin) expires about a year from now, and the prospect for generics has never been greater now that U.S. law is forcing the FDA to outline approval procedures for follow-on biopharmaceuticals. A meeting will be held at the FDA this month to discuss this issue further and resolve some outstanding concerns.
Lilly has no long-acting analogue to compete with Sanofi-Aventis' blockbuster Lantus (insulin glargine rDNA origin), which is the world's best-selling insulin variety representing $4.0 billion in sales each year, or Novo Nordisk's Levemir (insulin detemir rDNA origin), putting the company at a competitive disadvantage when insurers choose preferred insulin brands. For Sanofi-Aventis, Biodel has some technology that could not only make it's Apidra (insulin glulisine rDNA origin) work even faster (even though the patents for Apidra don't expire for a few more years), but also make it's mega-blockbuster Lantus (whose patent expires in 2014) work better by extending the profile (longer and "peakless") and/or adjustable, thus enabling a possible patent extension for a modified version of Lantus to potentially be sold down the road assuming it gains regulatory approval.
Why would either company want to buy Biodel when the company is basically re-tooling their existing products?
Simple, as these products reach the end of their patent lifecycles, the margins on these products will either be cut by at least 75% or more, or sales will go to new generic versions (the FDA calls them "follow-on" biologic medicines). Both Lilly's Humalog as well as Sanofi-Aventis' Lantus will expire soon (Novo Nordisk's Novolog/Novorapid also expires in 2013) and with companies like Novartis Sandoz unit, Teva Pharmaceutical Industries Ltd., as well as the Pfizer/Biocon deal announced this spring eager to sell generic versions of these products, it's safe to say that the losses to the companies' bottom lines will be quite severe.
Lilly, in particular, faces what has been called a "patent cliff". Not only does Humalog's patent expire in late 2012, but Lilly also faces generic competition for 4 of its 5 top-selling products including its schizophrenia drug Zyprexa, antidepressant Cymbalta, cancer drug Gemzar and osteoporosis treatment Evista. Sales of these drugs make up about half of the company's annual revenues. What's more, several Lilly's drugs in late-stage development (including an extended-release version of the type 2 drug exenatide that Lilly, along with partners Amylin Pharmaceuticals, Inc. and Alkermes, Inc. was calling Bydureon, as well as a type 1 diabetes autoimmunity drug called teplizumab being jointly developed with Macrogenics, Inc.) have all failed to meet their primary efficacy criteria. In April 2008, John Lechleiter, Lilly’s CEO cited teplizumab as one of three most promising experimental drugs in the company's pipeline. With those products unlikely to become blockbusters soon, that means the urgency for new drugs at the Lilly is even greater, and a small acquisition like Biodel might help to fill several huge voids in it's pipeline. It may work in selected segments of the sample population, but the prospects as a billion+ dollar drug seem dashed.
Sanofi's Lantus is a $4 billion drug whose patent expires in 2014, or for all practical purposes, a little over a year from now. That product is one where anything that can extend the patent would have huge financial implications, and Sanofi-Aventis has already stated it's desire to be the leader in the insulin space. Although it's rapid-acting analogue will enjoy patent protection until June 2018, the looming question is whether the advent of generic Humalog and Novolog varieties might destroy sales growth for Apidra? After all, if insurance companies can offer not one, but two alternatives for less, we can safely assume that Apidra's sales is probably NOT safe from biosimilars/follow-ons even though it enjoys patent protection for a few more years.
Ultimately, the delay in approval on Biodel's Linjeta is regrettable, but the finances for Biodel appear quite solid, and the pipeline looks very attractive for several big pharma companies who have not invested sufficiently in their insulin businesses in preparation for their eventual patent expirations, perhaps hoping they could delay regulators for many more years to come. In the meantime, the prospects for Biodel's products remain quite solid (additional trials on a small population might enable them to re-submit the application, although details won't be available until Biodel management meets with the FDA), it seems that Biodel's shares are now cheaper than they were before. For investors, this might be a good opportunity to pick up shares for a great price, with longer-term prospects of having the company sold to a bigger rival looking more likely with each coming day.
http://blog.sstrumello.com/2010/11/...ls-linjeta-is.html#.Vwd69Ydf19A
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