Lilly’s strong Q1 cushions the blow of FDA thumbs-down on high-dose baricitinib

Eli Lilly
Eli Lilly's diabetes franchise continues to grow, but the prospects for baricitinib, its experimental RA drug, are less secure. (Eli Lilly)

It's been a good news-bad news 24 hours for Eli Lilly. Its closely watched RA prospect baricitinib didn't exactly sail through Monday's FDA committee meeting. But Tuesday morning, Lilly rolled out first-quarter results that beat sales and earnings expectations. Upshot? Analysts are still worried about a baricitinib approval. 

Yesterday an FDA advisory committee dealt a blow to the big expectations Lilly and its partner Incyte have pinned on baricitinib. The panel backed only the 2mg version of the rheumatoid arthritis drug—a low dose some analysts predict will struggle to compete with Pfizer’s Xeljanz.

The panel’s verdict on the troubled drug, beset by safety concerns, came just hours before Lilly announced first-quarter earnings that exceeded expectations—news that should have drawn attention away from the baricitinib saga.

Lilly’s shares dropped nearly 4% in after-hours trading to $77.14 before rebounding after the earnings report to open at $81.17. Lilly's first-quarter sales leapt 9% year-over-year to $5.7 billion, beating the consensus estimate of $5.52 billion. Strong sales from diabetes meds Humalog and Trulicity and cancer med Alimta helped drive the top-line beat. And the company’s non-GAAP earnings per share came in at $1.34, soaring past the consensus estimate of $1.13.

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Still, analysts focused on baricitinib during Lilly's earnings call, namely the FDA advisory panel’s concerns that its 4-mg dose would raise the risk of blood clots, and in turn, pulmonary embolism and deep vein thrombosis. The FDA doesn’t have to follow the advice of its advisory panels, but it usually does, and the prospect of losing the higher dose in the U.S. is a worry.

Lilly CEO David Ricks noted that the advisory panel acknowledged that both baricitinib doses are effective against rheumatoid arthritis—and that the company's disappointed with the vote. “We are confident in the benefit/risk profile of both doses, 2 mg and 4 mg, for the treatment of patients with RA, supported by the clinical data generated to date, and by the experience in more than 40 countries in which both doses are approved and available,” he said. “We’ll continue to work with the FDA on this important application.”

Bernstein analyst Tim Anderson, M.D., wrote in a note to investors prior to the earnings call that “bears may argue that without the 4 mg dose, the perception and commercial profile of baricitinib is wounded.” During the call, several analysts pushed Lilly’s executives to speculate about what will happen if the FDA only approves the smaller dose.

Christi Shaw, president of Lilly Bio-Medicines, said repeatedly that that the company would continue to make a case for both doses of baricitinib, armed with strong safety data from both clinical trials and real-world experience. Both the 2-mg and 4-mg doses are approved in 40 countries, but doctors mostly prescribe the higher dose—which is delivering "remarkable efficacy," she said.

“Really patients [are] getting their lives back," she said. "And the safety continues to hold up,” she added.

Analysts were also concerned about sales of Taltz, Lilly’s psoriasis drug, which came in at $146.5 million for the quarter—missing expectations by $50 million. Sales of osteoporosis drug Forteo also came up short at $313 million. The company blamed wholesale and retail buying patterns, as well as lower pricing on Forteo.

Analyst Umer Raffat said in a note to investors that the Forteo pricing decline is interesting, considering Lilly “had raised prices quite a bit on this product.” Raffat speculated that pricing pressure from rivals was to blame.

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During the call, Shaw said demand for Taltz actually was up during the quarter, and that the company feels some rebating and discounting to insurers is necessary to “make sure that patients get access.” New prescriptions of Taltz grew 30% sequentially in the first quarter, she said. “So we’re seeing real demand coming through.”

Of course, there were plenty of upside surprises during the quarter, particularly in Lilly’s diabetes franchise. High demand for Trulicity and Jardiance drove sales up 82% to $678 million and 104% to $151 million respectively. Higher pricing on Humalog helped sales grow 12% to $792 million.

When one analyst asked during call why Jardiance growth hasn’t been stronger, Enrique Conterno, president of Lilly Diabetes, said CVS’s decision to kick the drug out of its 2018 formulary wasn’t helping. But he’s confident the product, which was the first diabetes med to win an approval for reducing cardiovascular risks, will continue to grow. And Lilly is doing everything it can to rack up more positive data. Just last month, the company and its partner, Boehringer Ingelheim, said they’re adding two phase 3 trials to show the benefits of Jardiance in heart failure patients.

Lilly raised its non-GAAP EPS expectations for this year from $4.81 to $4.91 to $5.10 to $5.20.

But during an appearance on Bloomberg TV Tuesday morning, Ricks was asked why investors aren’t giving Lilly more credit for that. Ricks demurred, calling the first quarter a “good start,” and insisting “the company’s in a new phase of growth.”