Eli Lilly CEO: Revenue Growth Now Driven by Volume, Not Pricing

In addition to the changes in senior management at the beginning of the year, whether it was selling two antibiotic factories to Yiteng Pharmaceutical, or the eventual launch of dulaglutide in China, or finally catching the second wave of volume-based procurement, any one of these events made 2019 an extraordinary year for Eli Lilly, a global giant in diabetes medications.

On October 23, Eli Lilly and Company released its third-quarter 2019 financial report. According to the report, Eli Lilly’s revenue for the third quarter increased by 3.2% year-on-year to $5.48 billion, slightly below analysts’ expectations of $5.5 billion. Among this, sales of the blockbuster diabetes drug dulaglutide (Trulicity) grew by 24% to $1.01 billion, surpassing the $1 billion mark, but still falling short of the expected $1.08 billion. Sales of Humalog, a type 1 diabetes medication, decreased by 2.4% year-on-year to $648.9 million.

Overall net profit increased by 9.1% year-on-year, reaching $1.25 billion. During the same period, operating expenses rose by 2%, “reflecting increased investment in late-stage pipeline development,” Eli Lilly stated in its financial report. Market demand for dulaglutide remained strong; however, the company’s profits and revenue were impacted by the need to pay higher discounts or rebates to intermediaries such as pharmacy benefit managers (PBMs).

The first three quarters of this year have been a period of significant change for Eli Lilly, particularly for its operations in China. During the earnings conference call, Chief Financial Officer Josh Smiley stated that Eli Lilly’s sales in the Chinese market grew by 33% year-over-year in the third quarter. In addition to several executive changes at the beginning of the year, every major development—from the sale of two antibiotic manufacturing plants to Yiteng Pharmaceutical, to the long-awaited launch of dulaglutide in China, and finally securing a place in the second round of volume-based procurement—has made 2019 an extraordinary year for Eli Lilly, the global pharmaceutical giant specializing in diabetes treatments.

Great Change

From a regional perspective, the United States remains unequivocally Eli Lilly’s largest global market. Financial reports indicate that Eli Lilly’s sales in the U.S. market reached $3.06 billion in the third quarter. Although sales of its well-known men’s health product, Cialis, declined by 61% year-over-year due to patent expiration, this adverse impact was largely offset by strong sales of key products such as dulaglutide, the blockbuster psoriasis drug Taltz, and the new migraine medication Emgality.

However, in terms of sales growth, the 33% sales revenue growth rate in the Chinese market cannot be ignored. In 2017, its blockbuster anticancer drug pemetrexed was included in the National Reimbursement Drug List for the first time, while its blockbuster diabetes drug dulaglutide was approved for marketing in China for the first time in February this year. In addition, a batch of new drugs, including the new rheumatoid arthritis drug Olumiant (baricitinib tablets) and the new psoriasis drug Taltz (ixekizumab injection), have also been successively approved domestically, which is undoubtedly beneficial to Eli Lilly's layout in the domestic market.

However, from the perspective of the overall global market, performance fell short of expectations, primarily due to competitive threats and patent expirations. Novo Nordisk’s oral diabetes medication, Rybelsus, recently received FDA approval and is expected to pose a threat to Trulicity, which requires injection. Another factor dragging down Eli Lilly’s revenue was the withdrawal of its anticancer drug, Lartruvo, from the market.

A. Ricks, Chairman and Chief Executive Officer of Eli Lilly and Company, stated: “Eli Lilly continued to deliver strong performance in the third quarter, driven largely by growth in new products and our ability to effectively manage costs, while launching globally in a highly competitive environment and funding our next generation of novel therapies. Eli Lilly’s revenue growth was volume-driven rather than price-driven, as an increasing number of patients benefited from our recently launched medicines. Our continued investments in oncology, diabetes, immunology, and neuroscience research will continue to yield results, with multiple new drugs expected to be launched and made available to patients in the coming years.”

In fact, Eli Lilly’s growth has indeed been driven by the strong performance of its new drugs. The biggest contributor to the company’s year-over-year revenue growth in the third quarter was Verzenio, a breast cancer drug, whose sales surged 86% to $157 million. However, the company’s best-selling drug remains Trulicity. Sales of this diabetes medication rose 24% year over year in the third quarter, reaching slightly above $1 billion. Four other new drugs in Eli Lilly’s portfolio—Basaglar, Cyramza, Taltz, and Jardiance—each posted year-over-year revenue growth of at least 20%. In addition, the new migraine treatment Emgality and the rheumatoid arthritis drug Olumiant demonstrated robust growth momentum in the third quarter.

The emphasis on new drugs is also reflected in the restructuring of personnel and business departments: Alongside the release of its third-quarter report, Eli Lilly announced that Conner Rui, currently Senior Vice President of Eli Lilly globally, President of Eli Lilly’s Global Diabetes Division, and President of its U.S. branch, will retire at the end of the year. Going forward, Eli Lilly’s Global Diabetes Division will no longer oversee the company’s business support operations in the United States, China, and Japan.

Ji Liwen, General Manager of Eli Lilly China, and his predecessors in the role reported directly to the President of Eli Lilly’s Global Diabetes Division. Going forward, they will report to Su Weida, President of Eli Lilly International. This shift may also signal that Eli Lilly’s business in China will pivot from its previous focus on diabetes medications to innovative drugs aligned with global launches.

In the first three quarters of this year, Eli Lilly China underwent significant changes. In addition to the departure of several senior executives at the beginning of the year and the appointment of Ji Liwen to a new role, Eli Lilly also experienced the sale of its off-patent drug manufacturing plant, the continuous launch of new drugs, and participation in the second round of volume-based procurement. Each of these events has made 2019 an extraordinary year for Eli Lilly China.

Get in the car

In addition to structural adjustments, Eli Lilly had long signaled its intention to integrate China into its global launch timeline. Since July, several of Eli Lilly’s newly launched global medicines have become available in China: In early July, the once-weekly GLP-1 receptor agonist Trulicity (dulaglutide) and Olumiant (baricitinib) 2 mg tablets, indicated for the treatment of adults with moderately to severely active rheumatoid arthritis, were launched in China. On September 4, Taltz (ixekizumab injection), indicated for adult patients with moderate-to-severe plaque psoriasis who are candidates for systemic therapy or phototherapy, received marketing approval from the National Medical Products Administration (NMPA).

Previously, Eli Lilly, having recognized the significant slowdown in the overall growth rate of China’s diabetes market, had already begun to “streamline” its operations in the region, including shutting down its R&D center and divesting its off-patent drug business.

In the first volume-based procurement (VBP) program, pemetrexed disodium for injection (Alimta), a classic anticancer drug under Eli Lilly’s Oncology Division, did not secure a spot in the initial pilot cities. Eli Lilly maintained its high-price strategy and showed no intention of reducing prices during the “4+7” pilot negotiations, with prices reaching RMB 2,676.58 per 100 mg vial and RMB 9,176.27 per 500 mg vial. Consequently, a significant share of the market was captured by Huiyu Pharmaceutical, a previously lesser-known domestic manufacturer. After experiencing the impact of the first round of VBP, multinational pharmaceutical companies have realized that there are no bystanders in the “4+7” gamble: they must either cut prices to participate or exit the market.

Therefore, although it missed the first opportunity, Eli Lilly implemented a nationwide price reduction after the first round of volume-based procurement. In March, Eli Lilly’s pemetrexed disodium was the first to undergo price adjustment in Zhejiang Province, making Eli Lilly the first originator pharmaceutical company in China to proactively apply for a price reduction. Adopting a low-profile strategy, it qualified for the second round of procurement, and ultimately, pemetrexed won the bid at a competitive price of RMB 809 per box (100 mg), representing a 70% price reduction compared to its quoted price in the “4+7” 11-city pilot program.

In April this year, Eli Lilly sold the rights to its antibiotic products Ceclor and Vancocin in mainland China, as well as the Ceclor production facility located in Suzhou, to Yiteng Pharmaceutical. Both Ceclor and Vancocin are long-standing products in its portfolio, having entered the Chinese market in 1993 and 1996, respectively, and have been active in the Chinese market for over 20 years. Moreover, these two products were the only antibiotics marketed by Eli Lilly. John Leighton, President of Eli Lilly China, stated that this move would enable Eli Lilly China to concentrate its resources and strengths on core therapeutic areas, bringing more innovative medicines to patients in China.

It is evident that for multinational pharmaceutical companies, including Eli Lilly and Company, the nationwide rollout of the “4+7” volume-based procurement policy has made widespread price reductions for numerous drugs virtually inevitable. In particular, with the pilot implementation and subsequent nationwide expansion of the Diagnosis-Related Groups (DRG) payment system, originator products from foreign pharmaceutical companies that lack pricing advantages will face even greater substitution challenges from domestically produced generic drugs that have passed consistency evaluations. As the high-revenue-growth model becomes unsustainable, innovative drugs are bound to become the key growth driver in the future market, which is likely to emerge as the primary battleground for multinational pharmaceutical companies in China.

Original Title:Eli Lilly’s Global CEO: Revenue Growth Is No Longer Driven by Price! China Region Posts 33% Growth—What’s Next After Expanding Centralized Procurement Wins?