Recently, Eli Lilly (LLY) presented data from a mid-stage study of one of its pipeline candidates, tasisulam. The drug is being studied in a phase II trial as a second-line treatment in patients with metastatic melanoma.

While overall response rate was the primary objective of the trial, there were two secondary objectives – progression-free survival and overall survival. Of the 68 patients enrolled in the trial, 8 demonstrated partial response whereas disease of 24 patients did not progress. However, 25 patients witnessed progression in the disease while 11 patients could not be evaluated for their disease progression. The median progression-free survival was 2.6 months and the median overall survival was 9.6 months.

In 2009, tasisulam was granted orphan drug status for stage IIb-IV melanoma by the US Food and Drug Administration. Results from the study will be presented at the upcoming annual meeting of American Society of Clinical Oncology. 

In 2009, Eli Lilly earned 14% of its total revenues from the oncology segment. The company aims at further strengthening its pipeline in this therapeutic area. At present, more than 20 molecules are being studied for a wide range of cancers.

Lilly is trying hard to strengthen its pipeline as about eight products, representing 74% of 2009 total revenues are expected to lose exclusivity over the next few years. Zyprexa, the top contributor, is slated to lose exclusivity in major European countries in September 2011. US exclusivity will expire a month later in October 2011.
 
We are concerned about the lack of a significant enough pipeline to offset key patent expirations at Lilly. Additionally, it is clear that management is looking for more acquisition targets. Lilly’s pipeline needs to deliver in order to make up for the loss of revenues that will take place once the products lose exclusivity.
 
While we believe Lilly has a deep pipeline, we think that new product launches will not be sufficient to make up for the loss of revenues that will take place over the next few years. Moreover, the company has had its share of development and regulatory setbacks. These include a delay in gaining approval for Effient, the disappointing results of arzoxifene, the discontinuation of dirucotide (multiple sclerosis), the termination of the AIR insulin program (for type I and II diabetes) and a delay in Cymbalta gaining approval for chronic pain indication.
 
We have an Underperform rating on the stock.
 

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