IBJNews

Analysts grill Lilly execs on strategy after setbacks

Back to TopCommentsE-mailPrintBookmark and Share

Eli Lilly and Co.’s vaunted pipeline has failed to produce any drug that will make a meaningful difference in the company’s revenue in the critical 2012 to 2014 period, and Wall Street analysts on Thursday demanded to know what new things Lilly executives are going to do about it.

The answer that came back over and over from Lilly CEO John Lechleiter and Chief Financial Officer Derica Rice during a one-hour conference call: Not much.

Analysts' questions came in a week when the Indianapolis-based drugmaker suffered a significant delay on its most promising new drug and had to abandon another after a late-stage clinical trial failed to achieve the needed results.

Those events didn’t stop Lilly from announcing robust profits of $1.3 billion during the third quarter ended Sept. 30, up 38 percent from a year ago. Excluding extraordinary items from a year ago, Lilly’s profit was up 2 percent, the company said early Thursday.

Lilly’s profit was helped by the 2,700 jobs it has cut in the past year, about halfway toward its goal of cutting 5,500 jobs by the end of 2011. Such “cost-containment efforts” are designed to save $1 billion in annual expenses.

In the third quarter, Lilly earned $1.18 per share—or $1.21 excluding special charges—beating analyst estimates of $1.15 per share, according to a survey by Thomson Reuters.

Lilly’s revenue for the quarter also rose 2 percent, to $5.65 billion, but was lower than the $5.79 billion analysts predicted. Lilly’s sales volume was flat in the quarter but the company grew revenue through price increases.

But third-quarter profit means little to Lilly investors, who are focused on the expiration of patents on five Lilly drugs between next month and mid-2013. The drugs represent more than half of Lilly’s current revenue.

The biggest losses will be the antipsyhcotic Zyprexa in 2011 and the antidepressant Cymbalta in 2013. When those drugs’ patents expire, most of their sales will shift to cheaper generic copies made by other companies.

Lilly has launched only one new drug in the past five years, the blood thinner Effient, which has had woeful sales.

Analysts expected Lilly to launch the new diabetes drug Bydureon before year’s end, with some projecting annual sales up to $1 billion. But on Tuesday, the U.S. Food and Drug Administration told Lilly and its development partners to conduct another study on potential heart risks of the drug, setting back its launch date at least 18 months.

Then on Wednesday, Lilly announced that another diabetes medicine, teplizumab, failed to prove effective at lowering patients’ blood sugar during a Phase 3 clinical trial. Lilly and its development partner halted the trial.

“The prevailing consensus among investors is that given some of the big expirations that lay ahead, at some point Lilly will have to do a larger acquisition to fill in the gaps,” said Dr. Tim Anderson, a pharmaceutical consultant at Sanford C. Bernstein & Co. He then asked, “Are all options on the table at this point?”

Lechleiter rejected the big merger idea, as he has done consistently for the past two years. During that time, Lilly rivals such as Pfizer Inc., Merck & Co. Inc. and Roche have all made a significant acquisition to bolster their sales prospects.

“Our fundamental strategy remains intact. We’re not interested in large-scale combinations,” Lechleiter responded, adding that Lilly will continue to count on its research and development work to bring new lucrative drugs to market. “Nothwithstanding the setbacks, we’re confident we can execute on that strategy.”

But Lechleiter’s answers hardly satisfied analysts, with many seeking some glimmer of a change in strategy from Lilly.

“We can appreciate that R&D is the lifeblood of the industry and your dedication to pursuing an improvement in R&D productivity.  I think that probably a lot of your competitors would say that they’re doing the same thing. But in the context of an environment that seems to be fraught with increased risk, they’re doing a lot of other things to sort of smooth that risk for their shareholders,” said Barbara Ryan, a pharmaceutical analyst at Deutsche Bank. “So can you just talk to us about what we should be expecting you’re going to be looking at over the next six months and specifically what kind of changes, if any, you may be making in R&D?”

Rice responded with a bit of exasperation, saying the investment community is not giving Lilly credit for the growing parts of its business that will help offset the lost revenue from patent expirations.

“I’m not as negative as maybe some of your commentary may indicate in terms of the outlook of our business,” Rice said. “What gets us between today and 2014 is primarily our ongoing trends of our currently marketed products as well as our cost containment efforts.  The pipeline will be more indicative of what our growth prospects look like coming out of 2014.”

Lilly officials took a lot of time during the call to highlight the company's sales growth in international markets, especially in Japan, where its patents on Zyprexa and other drugs last much longer. International sales grew 14 percent during the third quarter.

Also, the company’s Elanco Animal Health division grew its sales in the quarter by 12 percent.

Lilly also said clarification of the new U.S. health care reform law suggests its impact will be less than Lilly first expected. The company now expects the law to shave its 2010 revenue by $225 million to $275 million, down from an earlier estimate of $350 million to $400 million.

Because of that change, Lilly raised its 2010 profit forecast. The company now expects to earn $4.55 to $4.65 per share, up from a range of $4.44 to $4.59 per share predicted in July.

Lilly’s shares fell about 50 cents apiece after earnings were released this morning. At noon, shares were trading around $35.60.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. Those of you yelling to deport them all should at least understand that the law allows minors (if not from a bordering country) to argue for asylum. If you don't like the law, you can petition Congress to change it. But you can't blindly scream that they all need to be deported now, unless you want your government to just decide which laws to follow and which to ignore.

  2. 52,000 children in a country with a population of nearly 300 million is decimal dust or a nano-amount of people that can be easily absorbed. In addition, the flow of children from central American countries is decreasing. BL - the country can easily absorb these children while at the same time trying to discourage more children from coming. There is tension between economic concerns and the values of Judeo-Christian believers. But, I cannot see how the economic argument can stand up against the values of the believers, which most people in this country espouse (but perhaps don't practice). The Governor, who is an alleged religious man and a family man, seems to favor the economic argument; I do not see how his position is tenable under the circumstances. Yes, this is a complicated situation made worse by politics but....these are helpless children without parents and many want to simply "ship" them back to who knows where. Where are our Hoosier hearts? I thought the term Hoosier was synonymous with hospitable.

  3. Illegal aliens. Not undocumented workers (too young anyway). I note that this article never uses the word illegal and calls them immigrants. Being married to a naturalized citizen, these people are criminals and need to be deported as soon as humanly possible. The border needs to be closed NOW.

  4. Send them back NOW.

  5. deport now

ADVERTISEMENT