Lilly terminates licensing partnership with Adocia for pre-phase 3 ultra-rapid insulin BioChaperone Lispro – January 27, 2017

Executive Highlights

  • Adocia announced Lilly’s decision to terminate their licensing agreement for phase 2 ultra-rapid-acting insulin BioChaperone Lispro.
  • The rights for BioChaperone Lispro has reverted back to Adocia, which intends to seek a new partner while continuing preparations for a phase 3 program.
  • We view this decision as driven by Lilly’s increased focus on its non-insulin diabetes products, its very robust portfolio of newly-launched products, and the very high internal bar for drug development at Lilly coupled with R&D resource allocation considerations.

In a very unexpected announcement early this morning, Adocia shared that Lilly has terminated its licensing agreement with Adocia for ultra-rapid-acting insulin BioChaperone Lispro. The rights for BioChaperone Lispro have reverted back to Adocia and the company stated that it intends to continue preparations for phase 3 while seeking a new clinical partner. Notably, Lilly did point out in a conversation with us that it has been transparent with Adocia that Lilly had multiple ultra-rapid insulin programs in development, and that they intended to take one option into phase 3. Specifically, the company noted, “Lilly continuously makes decisions about the allocation of resources to our development efforts. This decision was about making a choice.” Lilly did put into its pipeline as of 2Q16 multiple phase 2 compounds for ultra-rapid acting insulin – we missed reporting on these in our pipeline review.

As a reminder, the BioChaperone Lispro candidate had completed phase 2 trials, with positive results presented at ADA 2016, and was awaiting a decision from Lilly on whether or not it would advance the insulin into phase 3. This decision is a blow to Adocia, which just earlier this week emphasized its new business model centered on licensing partnerships for its phase 3-ready candidates and especially highlighted its partnership with Lilly. Adocia’s maintains an extensive mid- to early-stage pipeline of insulin-related products and recently pivoted to focusing exclusively on diabetes. Certainly, Lilly’s decision will at best delay Adocia’s efforts to seek a development partner for BioChaperone Lispro or its other pipeline products. The consequences of this terminated partnership could possibly be worse given the current commercial environment for insulin – it is highly disappointing that a promising young biotech has such a challenging environment in which to develop a compound that is in real need of improvement. To be sure, while it appears that many of the pharmaceutical giants in the diabetes field are increasingly focused on disruptive (sometimes non-insulin) products – Novo Nordisk recently refocused its entire R&D strategy on disruptive innovation in diabetes and diabetes-adjacent indications – we also believe that better insulins are a “must” for the environment given how poorly people with advanced diabetes are doing. The pursuit of a “closed loop”, in particular, suffers from an absence of faster insulin and we believe that demand will continue for faster-acting insulin even as the environment in which to develop it itself becomes more challenging due to formulary pressures, declining profitability in the field, and delays in type 2 patients moving to MDI. Although we believe will eventually result in more patients living longer and ultimately moving to MDI, the current environment in which there are fewer profits to share indeed must be challenging for small biotechs who simply can’t develop products on their own.

  • The decision to terminate its BioChaperone Lispro partnership is surprising in light of Lilly’s historical dominance in the rapid-acting insulin field especially and the patent expiry of its flagship Humalog (insulin lispro). Lilly had highlighted the phase 3 initiation for BioChaperone Lispro as a key event for 2017 as recently as during its 2017 Financial Guidance call in December 2016. While clinical data for next-generation rapid-acting insulin analogs such as BioChaperone Lispro and Novo Nordisk’s Fiasp (faster-acting insulin aspart) suggest that they may not be quite as much of a step forward as next-generation basal analogs are (and certainly not as much as a leap forward as “regular” insulin to rapid acting analogs were), many were excited for these products to move forward and themselves prompt even greater incremental progress further ahead. Furthermore, we had been expecting Lilly to continue development of BioChaperone Lispro as a move to protect its share of the rapid-acting insulin market.
  • As a reminder, Fiasp received a Complete Response Letter from the FDA in October 2016, which potentially would’ve provided an opportunity for Lilly to arrive on the US market not too far behind Novo Nordisk’s product. Although Lilly emphasized that it will continue to develop an alternative ultra-rapid insulin program as part of its vision to offer a more complete range of medicines for people treating diabetes, the prioritization appears to have changed, or they had a different opinion about success.
  • In terms of the landscape, Novo Nordisk has previously acknowledged that it views the development its own next-generation product Fiasp as more of defensive measure within the rapid-acting insulin market and it may well be (which we hadn’t previously considered – this is speculation) that Lilly expects the “next generation” prandial insulin landscape to be less competitive than it otherwise would have.
  • Given this decision not to advance BioChaperone Lispro into phase 3, we see Lilly signaling a potential step away from the forefront of the rapid-acting insulin market at least for the next few years. he insulin market as a whole and Humalog have faced significant challenges in recent years, we’re surprised to see this move by Lilly – we do believe, however, it may well be driven by Novo Nordisk’s delays in the same field and payer reluctance to reimburse next-generation products.
  • We see this move as driven in part by Lilly’s increasing prioritization of its range of diabetes medications, a number of them non-insulin medications (SGLT-2, GLP-1). In an exclusive statement to us, Lilly emphasized that “this decision was about making a choice” in terms of development resource allocation.
  • Notably, Lilly plans to initiate two cardiovascular outcomes trials of SGLT-2 inhibitor Jardiance in people with heart failure with and without diabetes in 2017 – these trials will likely be very large and expensive and we expect the majority of Lilly’s diabetes R&D will be devoted to this effort. Jardiance is clearly a centerpiece of Lilly’s diabetes strategy moving forward – the drug recently became the first diabetes drug to carry an indication for the reduction of cardiovascular death, based on the unprecedented EMPA-REG OUTCOME results, and Lilly has emphasized its efforts to promote the new label through extensive educational outreach with endocrinologists, cardiologists, and primary care physicians.
    • Lilly boasts one of the most robust and diverse portfolios of recently-launched diabetes products in the field. In addition to Jardiance, the company consistently highlights newcomer, once-weekly, patient-friendly GLP-1 agonist Trulicity (dulaglutide, launched in 2014) as a major driver of growth for Lilly and for the overall GLP-1 agonist class. Additionally, over the last six years, Lilly has also launched (i) DPP-4 inhibitor Tradjenta (linagliptin, 2011); (ii) fixed-dose combinations Synjardy (empagliflozin/metformin, 2015); (iii) Synjardy XR (empagliflozin/metformin extended-release, 2016); (iv) Jentadueto (linagliptin/metformin, 2012); (v) Jentadueto XR (linagliptin/metformin extended-release, 2016); (vi) Glyxmabi (empagliflozin/linagliptin); (vii) its first basal insulin analog, Basaglar (biosimilar insulin glargine, 2015); (viii) Humalog U200 KwikPen (2015); and (ix) Humulin U500 KwikPen (U500 human insulin, 2016). Lilly management has hinted that its diabetes marketing and promotion resources are already stretched to some extent with its current portfolio – the company previously acknowledged that investment in Glyxambi has been limited thus far while it focuses on positioning Jardiance as the standard-of-care diabetes treatment. Thus, we imagine that Lilly sees itself as having its hands full with new diabetes product launches at the moment and isn’t necessarily eager to bring another product to market immediately. 
  • This decision also reflects the very high internal bar at Lilly and the increasingly high bar for new diabetes medications in the field as a whole that we have begun to see over the last several years. Lilly management has previously emphasized its “glucose-plus” approach to diabetes drug development, in which it focuses on candidates that offer benefits beyond pure glucose-lowering. Lilly has been culling its phase 2 diabetes pipeline over the last year, and has especially applied a very high bar for its licensed candidates. In April 2016, Lilly also declined to advance its Transition Therapeutics’ partnered GLP-1/glucagon dual agonist TT401 into phase 3, despite the candidates positive (though modest) phase 2 results and its likely first-in-class status. We believe outcomes beyond A1c will be increasingly important in the future, particularly once CGM is a part of more medications for type 2 diabetes.
  • With this latest decision to terminate its partnership for BioChaperone Lispro, Lilly’s metabolic disease-related phase 2 pipeline is less robust than it has been historically, including only its Locemia-partnered intranasal glucagon (phase 3 initiation not expected until 1H18 – we are guessing this should now receive more attention) and PCSK9 inhibitor LY3015014. On the other hand, Lilly unveiled a robust preclinical and phase 1 pipeline of internally-developed products at its May 2016 R&D event that includes a number of insulin and non-insulin candidates.
  • In an exclusive statement to us, Lilly shared that it remains committed to the development of an alternative ultra-rapid insulin. Lilly’s clinical development pipeline page lists an internal, unpartnered ultra-rapid insulin. The candidate is said to be in phase 2 development, though the website only provides clinical data information for the Adocia-partnered BioChaperone Lispro candidate. Lilly’s internal ultra rapid-acting insulin lispro candidate was not a major talking point during the company’s past earnings updates, and we look forward to hearing more about this previously under-the-radar clinical program in the company’s upcoming 4Q16 update on Tuesday January 31.
    • We expect we may see Lilly return to the cutting-edge of the insulin field in the latter portion of this decade. In the meantime, it appears that Lilly’s insulin strategy is focused on providing a broad portfolio of insulins to address every stage of type 1 and type 2 diabetes (including basal insulin Basaglar, rapid-acting analog Humalog, and regular and highly concentrated forms of human insulin Humulin), rather than seeking new innovations on top of the advances already made in the insulin field. We certainly hope Lilly will continue its efforts in making these products accessible – such as through its newly-launched discount insulin program – and look forward to the company’s progress as it looks to establish its non-insulin products. 
  • Update: Adocia held a conference call Monday morning, January 30, to discuss next steps in the aftermath of the terminated partnership with Lilly.
    • Most notably, Adocia stated that it will proceed full steam ahead with the continued development of its BioChaperone Insulin Lispro candidate. Partner discussions are already underway according to management, though it is too early at this point to know the specifics.
    • Adocia reaffirmed that it has known of Lilly’s independent ultra rapid-acting insulin product for “a while,” though it is disappointed in the termination of the partnership. Adocia management additionally emphasized that Lilly’s decision was grounded purely in economics and should not reflect negatively on the clinical profile of the BioChaperone candidate. “There is no question about the quality of our candidate,” management noted, highlighting the room for innovation that exists in the $7 billion rapid-acting insulin market.
    • This disappointing turn of events demonstrates the increasing difficulty of demonstrating value in the diabetes space. This combined with the declining profitability in the environment makes us uneasy about the future of the partnership model in general. Small companies like Adocia show a great deal of innovation, but with such a difficult pricing environment, sharing profits is becoming an increasingly less attractive option. We certainly wish Adocia the best with its ongoing new partnership negotiation discussions and hope to see BioChaperone Insulin Lispro propelled into phase 3. We believe the field must change to demonstrating value through different means, including but not limited to “outcomes beyond A1c.”

-- by Helen Gao, Abigail Dove, and Kelly Close