A Lilly-ImClone Deal May Offer the Drama that CEO Lechleiter Craves

(MoneyWatch)  Today came the news that Eli Lilly is one of the mystery suitors in the ImClone deal that Bristol-Myers Squibb was just booted from.

If CEO John Lechleiter were to scoop up ImClone -- thus bolting on the cancer specialist's pipeline to replace the absence of its own -- it would be just the sort of dramatic act that he seems to favor.

Either that or he's flailing around, looking for extra revenues from a company that is failing to produce them. Right now it's hard to tell which. After all, this is a company that hasn't produced a new drug in three years.

Consider recent history:

When he got the job at the beginning of this year, Lechleiter could fairly have expected to inherit the position just in time for Lilly's new blood-thinner, Effient to hit the market. But with the FDA repeatedly delaying its approval of Effient, Lechleiter has been forced to ask what else is in Lilly's bag of tricks -- and he has discovered that the answer is not much.

Last week, Lechleiter gave a big speech. Midwestbusiness.com said he "thundered":

We've embarked on a transformation - the likes of which our company has never experienced.

To be fair, it's the same sort of transformation that Pfizer, GlaxoSmithKline and all the others are undergoing right now -- a desperate search for a way to avoid the 2011 patent cliff. Lilly's position in that race of lemmings is especially dire. Zyprexa expires in 2011 and Cymbalta expires in 2013. Lechleiter is proposing layoffs, of course. The company's late-stage pipeline is thin, according to analysts. If you look at Lechleiter's second quarter earnings call, you'll notice that he leads off by talking about new drugs entering phase I rather than those emerging from phase III.

Also note in that call that Zyprexa was not approved as a long-acting injection, and that Lilly bet too early on the Effient approval and blew a bunch of money pre-marketing the drug, thus unnecessarily increasing the company's expenses.

The Zyprexa news is telling because it is indicative of Lilly's core marketing strategy right now: In the absence of actual new drugs Lilly is attempting to add indications and uses to its existing drugs.

In some cases, the company has stretched claims for its existing drugs so far that people have begun to notice. The FDA slapped the company's wrists for its marketing of Strattera, saying it had falsely broadened the drug's indication and wrongly implied that its side effects were transient when, the FDA said, it had failed to present evidence that was the case. Lechleiter himself was accused of this kind of stretching in 2003, when an email surfaced in court that implied he encouraged off-label promotion of Zyprexa.

Similiarly, the company was caught by the blog ClinPsyc publishing the same study in two different journals in violation of one of those journals' policy prohibiting such.

And as I noted recently, the bloom may be off the Byetta rose.

Analysts have also begun to notice this sort of desperation. In the last call, David Risinger of Merrill Lynch asked whether increased revenues from yet another extension of the indications for Cymbalta weren't showing up because the drug was already being used for that purpose off-label. He was assured that it was too early to tell.

All of the above means that Lechleiter is under considerable pressure to do something. ImClone would fit that bill.