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Waiting to Inhale

Aventis Challenges Lilly-Novo Insulin Duopoly

By David Mendosa

Last Update: January 28, 2006

Aventis is coming. The European pharmaceutical giant, Aventis S.A. (NYSE: AVE), born of the merger last year of Hoechst AG and Rhône-Poulenc S.A, is jumping into the U.S. insulin market.

Determined not to be just another "me too" player, Aventis expects to be the first to market pulmonary (inhaled) insulin. Placing a huge bet on this pioneering role, Aventis and its partner Pfizer (NYSE:PFE) have begun construction of the world's largest insulin plant in Frankfurt, Germany, at an estimated cost of about $140 million.

The inhaled insulin product under development for Aventis and Pfizer by Nektar Therapeutics, formerly Inhale Therapeutic Systems (NASDAQ:INHL), is in Phase III clinical trials. Depending on FDA approval, it could be in the lungs of U.S. consumers as early as 2002. That would be a year or two ahead of competitor Novo Nordisk A/S (NYSE:NVO). Eli Lilly & Co. (NYSE:LLY) appears to be running even further back in the race.

And yet inhaled insulin is but one aspect of Aventis' multi-faceted insulin strategy for entering the American insulin market. Its lead insulin product, just approved by the FDA after exactly a year of review, has no peaks or valleys for 24 hours or more. This unique basal insulin analog, Lantus® (insulin glargine [rDNA origin] injection), was formerly known as HOE901. Aventis plans to launch it here in September, according to Robert J. Glenski, a U.S. brand manager for Lantus in Kansas City, Missouri.

The company also has a fast acting insulin with a fast onset of action compared to human insulin in phase I trials. This insulin is positioned to compete with Lilly's lispro (Humalog), the first insulin analog.

Another part of the Aventis insulin strategy is highly concentrated U400 insulin that Aventis developed for MiniMed (Nasdaq NM:MNMD) for use in its MiniMed 2001 Implantable Insulin Pumps. Finally, the FDA also approved use of Lantus with the OptiPenTM One Insulin Delivery Device manufactured by Disetronic Medical Systems AG (SWX: DMS) for Aventis.

The Aventis insulin impetus comes entirely from the Hoechst side of the company, rather than from Rhône-Poulenc. Hoechst, the number three producer of insulin worldwide, produced the first insulin manufactured in Europe in 1923.

But its insulin production has slipped well below that of the two market leaders. Last year Lilly had 48 percent of the worldwide market in volume terms and Novo Nordisk had 44 percent, according to IMS Health, the leading market research firm tracking the global pharmaceutical industry. Aventis (at that time Hoechst) had 5.5 percent.

In the U.S. Lilly has an 86 percent share of the retail pharmacy market compared to Novo's 14 percent. But Lilly's share drops to 78 percent when you factor in insulin use in hospitals and elsewhere where prescriptions aren't required.

The Aventis decision to focus its U.S. diabetes strategy on insulin rather than glucose lowering agents plays from its strengths. The company doesn't appear to have any such agents in the pipeline.

While Aventis currently markets two oral agents for diabetes, both are in the oldest class, sulfonylureas, which help the body release more insulin. It introduced Diaßeta® (glyburide USP) in the 1980s and Amaryl® (glimepiride tablets) in 1996.

A little-known biotech startup in San Carlos, California, Inhale Therapeutic Systems, holds the keys to the insulin kingdom for Aventis and Pfizer. Among seven products in clinical trials, its inhaled insulin is the company's lead product.

Inhale hasn't sold any commercial products and doesn't anticipate any revenue from product sales or royalties in the near future. From its inception in July 1990 through the end of last year the company incurred a net lost of $94.5 million.

But Pfizer has believed enough in Inhale to be an investor since 1995. Pfizer now has a $10 million equity investment in Inhale, according to Inhale's chairman, Robert Chess.

"But more importantly Pfizer is providing the funding for the development of the insulin product," he says. "Plus Pfizer and Aventis are funding the clinical trials. That is vastly more than the $10 million investment—well over 10 times that."

In November 1998 Hoechst Marion Roussel (now a part of Aventis) and Pfizer entered into a worldwide alliance to co-manufacture, co-develop, and co-promote Inhale's inhaled insulin. Aventis and Inhale have no direct financial relationship.

In June 1999 Hoechst and Pfizer made a tangible demonstration of their belief in Inhale by breaking ground on the Frankfurt plant to manufacture inhaled insulin. Construction of the plant, which is equally owned by Aventis and Pfizer, is expected to take two years plus a few months for regulatory approval, according to Lauren Parran, consultant for global products communications, of Aventis Pharma in Bridgewater, New Jersey.

Trailing perhaps, but not to be left out, the two companies that together have shared the U.S. insulin market are developing long acting insulins and have made corresponding strategic alliances with firms that are developing inhaled insulin. Novo is partnered with Aradigm Corporation (Nasdaq NM:ARDM) in Hayward, California. Lilly's agreement is with Dura Pharmaceuticals (Nasdaq NM: DURA) in San Diego.

Novo's long acting insulin, formerly known under the code name NN304 but now called Insulin Detemir, is in Phase III clinical trials, says Peter Hansen, director of investor relations for Novo Nordisk of North America in New York.

From a marketing standpoint Novo recently terminated the co-marketing agreement with Shering-Plough (NYSE:SGP) that included Novo's entire diabetes care. At the same time Novo changed its focus from endocrinologists to primary care physicians. "We are planning to go from the 200 reps that we have at present to 1,000 in the next three years," he says.

Novo has already made $22.4 million in milestone and product development payments to Aradigm plus $5 million from the purchase of its common stock at a 25 percent premium to market price. Potentially, Novo could make another $38 million in milestone payments and $10 million in equity investment when Aradigm's inhaled insulin comes to market.

Another early stage company that has not had any material product sales, Aradigm has incurred a net loss of $74.9 million since it began in 1991. The company doesn't expect any significant revenue from product sales this year.

While Inhale has developed dry powder processing for its inhaled insulin, Aradigm uses existing liquid formulation. That's the most obvious difference, says Aradigm CEO Richard Thompson.

"But maybe in the end that will be the least important to patients," he says. "Patients are going to care about whether they get the dose they meant to give themselves and adjust it they way they need to. If you can't do those things, then you are going to have a real problem, and that is probably where the biggest differences are between the products."

That's a difference without a distinction, maintains Inhale Chairman Robert Chess. "We've found—and Pfizer has published on this—that the reproducibility [of Inhale's insulin] is equivalent to injection," he says. "The control that people get is equivalent in injection in terms of reproducibility. And we have different dose strengths."

Lilly's partner, Dura, also believes that accurate dosing is a non-issue. "It is comparable to what you get from traditional subcutaneous administration," says President David Kabakoff of Dura Technologies, a division of Dura Pharmaceuticals.

Unlike Inhale and Aradigm, Dura has product. It currently sells 11 prescription product lines and also owns a separate mail service pharmacy, Health Script Pharmacy Services, which dispenses respiratory pharmaceuticals. Last year it had net income of $30 million on revenue of $301.4 million.

That's about all that Kabakoff would tell us. "Lilly wants to maintain tight confidentiality on the details of the program."

"We don't say a lot about our compounds until they reach the pivotal stage of testing, Phase III," says Thane Wettig, Lilly's marketing director for Humulin and Humalog. He allows, however, that a third player in the U.S. insulin market focusing on inhaled insulin could shake it up.

"The question is to what extent," Wettig says. There is still a lot to be known about pulmonary insulin. When it first comes out it will only be in the form of a mealtime inhalation, and not a basal. You will still have to have some sort of basal coverage, and it is still not proven what kind of efficacy it will provide."

Wettig, however, has obviously considered the huge potential for inhaled insulin. It is less likely to come from the ranks of those 3 million people already on insulin, he believes, than those on oral agents. Physicians and patients are often reluctant to change an existing insulin regime. While all type 1 patients inject insulin, Wettig calculates that 20 to 25 percent of patients who have type 2 diabetes are on insulin.

Novo's Hansen agrees. His data shows that 18 percent of type 2 patients are using insulin alone and another 7 percent are using a combination of insulin and oral agents, for a total of 25 percent.

The potential market for inhaled insulin is "the billion dollar question," Hansen exclaims. He thinks the biggest market is from those 7 percent using a combination of insulin and oral agents and the estimated 54 percent on oral agents alone.

By Wettig's calculations the market could be as large as 4.5 million people. He calculates that right now there are 8-9 million people here on oral agents, about half of whom are not in good glycemic control. That means 4 to 4.5 million people need to be moved on to another stage of therapy, which may soon include inhaled insulin.

One of the biggest challenges facing all of the companies hoping to introduce inhaled insulin is the bioavailability issue. All three teams agree that inhaled insulin takes 5 to 8 times more to get an equivalent dose than injected insulin does.

This issue has several implications. First, inhaled insulin will be more expensive per dose to make. "It will be priced commensurate with that as well to take into consideration not only the incremental cost to produce but also the incremental value that it can provide for a patient in terms of fewer injections," Wettig believes. "It won't lead to a price war."

Inhaled insulin will, in fact, command a price premium over existing insulin, Hansen believes. This also means to Hansen that inhaled insulin will be introduced here before it is in Europe, where the governments pay for the medicine and have even tighter cost controls than insurance companies here.

"I don't think there will be downward price pressure," says one close observer of the scene, Christopher Price, CEO of Protein Delivery, a privately-held drug delivery company in Research Triangle Park, North Carolina. Protein Delivery is developing an oral form of insulin that will be absorbed directly into the portal vein, the same place that the pancreas delivers its insulin. This product is in Phase II trials.

The cost of inhaled insulin—and of Lantus—will not be less than that of insulins on the market now. "What I do believe will go down is the cost of treating diabetic side effects," Price says. "All of these approaches will cost more on a per-dose basis, but on a long term basis you will see better compliance. That means fewer side effects and less cost associated with treating those side effects."

"The question of the day" is what coverage U.S. insurance companies will provide for inhaled insulin, Price says. "If over time third party payers come to see the benefits—and it will take some time—they may be willing to pay for it or at least part of it."

Beyond questions of accurate dosing, bioavailability, and pricing, one clear limitation of inhaled insulin is that you can't use it to provide a long-acting basal dose. "The lung is naturally fast acting," Aradigm's Thompson says. "When you put insulin into the lung it is significantly faster than even regular insulin when you inject it. And if we used long-acting insulin it would also become fast acting."

Coincidentally, Lantus has a complementary limitation. It provides only the basal dose. The market development people at Aventis must be drooling at the prospect of patients using both Lantus and their inhaled insulin.

Although Aventis is the world's largest drug company, until now it has been merely a bit player on the American diabetes scene. No more. With its lead in inhaled insulin and its forthcoming launch of Lantus, Aventis is poised to break up Lilly and Novo's shared control of the insulin market.

It's not at all certain that Lilly's and Novo's insulin volume will decline. More likely, this new and very large competitor will probably change the playing field by enlarging it.


Update

Only four years late inhaled insulin is coming. The Food and Drug Administration approved Pfizer's Exubera on January 27, 2006. The European Union approved it the day before.

It is Pfizer's inhaled insulin, not Aventis' because Aventis, now known as Sanofi-Aventis, sold out its share to Pfizer for $1.3 billion. See http://www.pfizer.com/pfizer/are/news_releases/2006pr/mn_2006_0127a.jsp and http://www.nytimes.com/2006/01/28/health/28diabetes.html?_r=1&pagewanted=print


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