Is This What the Doctor Ordered for Eli Lilly & Co. (LLY)?

After the failure of its pipeline products for Alzheimer’s and rheumatoid arthritis, the drug giant Eli Lilly & Co. (NYSE:LLY) finally has some good news to report. Releasing top-line results for its type II diabetes experimental drug dulaglutide, the company announced that patients taking the drug had manageable side effects, showed better blood sugar control, and lost more weight compared to existing drugs.

If Lilly gains FDA approval for dulaglutide later this year, the drug could hold a lot of promise for the company, which has been among the worst hit by the so-called patent cliff.

Dulaglutide and diabetes drugs

Dulaglutide is a long-acting glucagon-like peptide 1 (GLP-1) receptor agonist that Eli Lilly & Co. (NYSE:LLY) has been studying as once-weekly treatment for type II diabetes. It works the same way as a certain digestive hormone, which stimulates the pancreas to produce insulin after food intake in order to control sugar level in blood.

Roughly 350 million worldwide and 26 million people in the U.S. have diabetes. Type I diabetes is where the body does not produce insulin at all; it accounts for 10% of all diabetics. Type II diabetes, where the body produces (or can utilize) less than the required amount of insulin, is the most common variety, accounting for about 90% of all cases.

In the safety and efficacy results announced on June 22, Lilly reported better results for dulaglutide compared to patients on Merck & Co., Inc. (NYSE:MRK)’s Januvia (sitagliptin) and Bristol Myers Squibb Co. (NYSE:BMY)’s Byetta (exenatide).

Besides Merck and (NYSE:MRK) Bristol, dulaglutide is also expected to compete with Victoza (liraglutide) from Novo Nordisk A/S (ADR) (NYSE:NVO). Liraglutide is another GLP-1 analog approved by the FDA and EMA for treatment of type II diabetes.  Victoza, which contributed $1.64 billion to the company’s revenues last year, is scheduled for comparison with dulaglutide by the end of the year.

Two months ago, on March 29, the FDA approved another drug for treatment of type II diabetes – Invokana (canagliflozin) from Johnson & Johnson (NYSE:JNJ). It’s part of a new class of drugs known as sodium-glucose co-transporter-2 (SGLT2) inhibitors, which work to lower blood sugar levels by blocking absorption of glucose and increasing excretion through urine.

What does dulaglutide mean for Eli Lilly?

There is a lot riding on the success of dulaglutide. With the patent loss of its blockbuster drugs Zyprexa and Cymbalta, and competition from generic versions looming large, Eli Lilly & Co. (NYSE:LLY) needs a new blockbuster drug very badly.