Eli Lilly needs to win battles like Strattera
The surprise loss of patent protection for Eli Lilly’s Strattera, which looks like it will be succumbing to generic competition a painful six and a half years earlier than anticipated, provides investors with a stark reminder of the challenges facing the US drug maker.
Coming so soon after the July defeat of Gemzar, which will probably face copycats in November, the news is particularly painful. Admittedly, Strattera is not amongst Lilly’s most important products, but it was forecast to generate some helpful revenues over the next few years; $4.25bn between now and 2016, according to consensus forecasts. These are the fights Lilly needs to be winning at the moment, not losing.
Method of use
A court in New Jersey ruled yesterday that the method of use patent protecting Strattera out until 2017 was invalid. Actavis was fighting this case, but Lilly has sued a clutch of other generic manufacturers who have sought approval for generic versions of the drug in the US, including Apotex, Sandoz, and Teva.
The company will of course appeal this decision. Given that method of use patents are not viewed as strong as core composition of matter patents, not many seem to rate Lilly’s chances of success. The recent Gemzar patent that fell was also a method of use patent.
Lilly said in its latest annual report that the 30-month stay preventing generic Strattera entries expires in November. Its statement yesterday, lowering revenue growth guidance for the year from mid-single digits to low-to-mid single digits, suggests it is preparing for the worst.
Loss in value
Still, the table below shows that on a net present value basis, Strattera only ranks as Lilly's 12th most valuable product. However, its patent was supposed to stretch out to 2017, one of the lengthiest in the table, which certainly does not bode well.
Changing the patent expiry date to November 1, 2010, slashes the product’s value by 70%, according to EvaluatePharma’s NPV Analyzer, to $375m. This is equal to a loss of $889m in value to the company overall, which would erase 2.1% from the share price.
The decision, which came after the market closed yesterday, caused Lilly shares to dip 3% in early trade today, to touch $35.55.
Strattera is a non-stimulant drug prescribed to treat attention deficit hyperactivity disorder (ADHD). The drug, generically known as atomoxetine, is a selective noradrenaline re-uptake inhibitor.
Sales inched 2% higher to $609m last year, as diminishing demand in the US, by far the largest market for hyperactivity drugs, offset stronger growth elsewhere.
This picture was likely to remain pretty constant over the coming years, analysts believed, as some pretty nasty side effects capped demand. The drug’s prescribing label not only emphasises the potential for liver damage warnings but also has a black box warning about an increased risk of suicidal thinking in children and adolescents. This has crimped growth, and the product has struggled to move its share of the ADHD market above 6%.
Still, these steady revenues, annualising $600m a year, are attractive to the generics firms.
For Lilly, which is also facing a final court decision on the Evista patent, this setback is hugely unwelcome. Gemzar and Evista were already discounted, but Strattera was viewed as a stable cash cow. The development could well prompt renewed speculation about the company's long term chances of an independent future.
|Eli Lilly's most valuable products||WW Sales ($bn)|
|Rank||Product||Therapeutic Subcategory||Patent Expiry||2009||2016||change||Today's NPV||NPV as % of Share Price|
|5||Cialis||Sexual dysfunction||Nov 2017||1.6||1.9||21%||3.4||8%|
|6||Humulin ReliOn||Anti-diabetics||Apr 2000||1.0||1.0||-7%||3.2||7%|
|8||Forteo/Forsteo||Bone calcium regulators||Dec 2018||0.8||0.9||10%||2.4||6%|
|9||Erbitux*||Anti-neoplastic MAbs||May 2019||0.4||0.5||28%||1.9||5%|
|11||Humatrope||Growth hormones||Nov 2009||0.4||0.4||-17%||1.4||3%|
|13||Effient||Platelet aggregation inhibitors||Jul 2021||0.0||0.9||-||1.2||3%|
|14||Evista||Bone calcium regulators||Mar 2014||1.0||0.1||-88%||1.1||3%|
|*Royalty & supply income||19.6||16.6||-15%||59.6||141%|