The Enemy of My Enemy: Drug Company's Salesforce Ordered to Tout Rival Brand

You've got to sympathize with Amylin (AMLN) in its legal battle with Eli Lilly (LLY) -- a federal judge has just ordered that Amylin's salesforce must start promoting another company's drug that competes directly with Amylin's main product, the diabetes injection Byetta.

This insane state of affairs has come about because the federal judge in the case, Janis Sammartino of Southern California, appears not to understand how companies define concepts like "confidential" and "harm" when they compete against each other.

The back story: In 2002, Amylin and Lilly entered a pact. Amylin would produce a daily injectable drug, Byetta, and Lilly's army of drug sales reps would promote it to doctors. It's worked well. In 2010, Lilly got $430.6 million in revenues from the deal, and Amylin got $559.3 million.

In 2011, Lilly entered a separate agreement with Boehringer Ingelheim to promote Tradjenta, another diabetes drug. Tradjenta competes head to head with Byetta, the judge noted in her first ruling on the subject. Lilly assigned some of its sales reps who had been promoting Byetta to work on the Tradjenta franchise. The judge wrote in May:

Love triangles exist in the corporate world too ... two sales representatives can be walled off but the mind of one cannot.

But after a month of thought, Sammartino reversed herself and has now ruled that Lilly's plan is kosher. Amylin's claim it would suffer "irreparable harm" from Lilly's knowledge of the Byetta business being used to promote Tradjenta was speculative, she said. Lilly is prevented by law from telling lies about Byetta or misleading doctors about any advantages Tradjenta may have over Amylin's product, the judge said, so there's no need for an injunction against Lilly.

You don't need to be a sales rep to be infuriated by this logic. It ignores the way business works in the real world.

First, Amylin expected its dealings with Lilly to be kept confidential, the rulings note. There is no way Lilly's knowledge of Byetta can be successfully walled off from its knowledge of Tradjenta. Someone, somewhere, in Lilly knows a lot about both drugs and will be tempted to apply that knowledge to the product that gathers most revenues. More obviously, the sales reps who touted Byetta but are now pushing Tradjenta have boxes full of Amylin's confidential sales manuals in their cars and homes. Now they're fighting for Boehringer's brand.

Second, the judge is using a definition of "harm" that requires Amylin to produce sales data from the future of an alternative universe in which Lilly is banned from acting with Boehringer, so that data can be compared with future data from this universe to see whether Amylin lost money because of Lilly's actions. This seems harsh. As a matter of common sense, everyone knows that when two companies compete, the advantage goes to the firm that has a complete knowledge of its rival's operation. In this case that's Lilly. Amylin is not only fighting in the dark against the Lilly/Boehringer brand, but some of its most experienced salespersons are now on the enemy's side.

Under the standard in Sammartino's latest ruling there is almost nothing that Lilly could do that would count as a breach of the contract.

Conspiracy theory: Diabetic Investor's David Kliff suggests that maybe Amylin just wants out of its marriage of inconvenience with Lilly and is hoping that the suit might tempt another company to acquire Amylin -- which would explain why AMLN has risen since over the last few months.

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