Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

At Eli Lilly, launch risk is the new pipeline risk. 

Drugs can fail at one of their two major life stages. In the development pipeline, they can fall short in a study or be rejected by regulators. Once out of the pipeline, after launch, they can fail to sell. At Lilly's R&D update on Monday, the drugmaker tried to convince investors it has minimized the pipeline risk, at least. And the company has indeed dramatically improved its R&D productivity and launched promising new drugs. Its psoriasis drug Taltz got FDA approval earlier this year, and there are more potential blockbusters on the way. 

Lilly needs these new drugs to overcome a $4 billion decline in revenue from its 2012 peak, prompted by patent expiration. Lilly's shares are up 23.6 percent since the approval of diabetes drug Jardiance in August 2014, the first fruit of the company's new wave of R&D productivity.

But investors applauding the R&D turnaround may underestimate the difficulty of what comes next. Many of Lilly's new drugs are entering competitive areas, at a time when slow and disappointing launches may be a new normal. 

High Hopes
Investors have great expectations for Eli Lilly's broad pipeline of new and in-development medicines
Source: Bloomberg

Launching a drug has never been easy. But there are signs it's now tougher than ever. As drug prices have increased, insurers and pharmacy benefit managers have gotten more adept and more aggressive at pushing for discounts and slowing the uptake of expensive new medicines in the U.S.

A cautionary tale for Lilly about this new, more hostile environment can be seen in the recent debut of highly effective, but highly expensive, cholesterol-lowering drugs from Amgen and Sanofi/Regeneron. Wall Street analysts expect the two drugs to combine for more than $550 million in sales this year. But amid severe payer restrictions on their use, they only managed $26 million in sales in the first quarter. 

A Ways to Go
Cholesterol lowering drugs from Amgen and Sanofi/Regeneron have run into a brick wall of payer restrictions. Analyst expectations may still be too high.
Source: Bloomberg

These drugs are unique in some ways: They target huge markets in treatment areas that have cheaper alternatives. It makes sense that payers would be reluctant to embrace them. But such reluctance is likely to be seen elsewhere, particularly in treatment areas where payers can play one drug against another.  

Lilly's exposure may be exacerbated by some of the choices it made as it worked to turn its R&D engine around. The company had a five-year period from 2005 to 2010 where it only managed to bring one molecule from clinical development to approved medicine. The company has said it focused too much on trying to make unique drugs through uncertain approaches. One reason for its improved R&D output has been a renewed focus on validated targets -- meaning research Lilly knew would produce successful medicines. This reflects Lilly's current belief that a "best-in-class" latecomer can be just as successful as a first-to-market drug.

This new approach will be put to the test, in a big way. The strategy seems to have paid off in getting drugs through the pipeline. But it also means a lot of Lilly's drugs are immediately running into competition, in an environment where drug effectiveness might not mean as much as it once did, given the pricing demands of payers. 

For example, Taltz will compete with an already launched psoriasis drug from Novartis, with more competitors coming from behind. Lilly's rheumatoid arthritis drug baricitinib, awaiting FDA approval, is trying to enter a market with well-established competition from older drugs such as Humira. A similar drug, Xeljanz, is already on the market. Other companies such as AbbVie and Johnson & Johnson are developing drugs in the same class.

Lilly's slate of new and incoming drugs is impressive, and its current position is better than an alternative, where a pipeline drought prompts desperate M&A or investment in iffy projects. 

But Lilly and its investors may find the transition from pipeline to launch risk is not as enjoyable as they might hope. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at

To contact the editor responsible for this story:
Mark Gongloff at