IBJNews

Court defeat lost in Lilly's gloomy long-term outlook

Back to TopCommentsE-mailPrintBookmark and Share

Eli Lilly and Co.’s loss of a patent on one of its blockbuster drugs in court late last month received a collective yawn from investors.

A U.S. appeals court ruled July 28 that Lilly’s cancer drug Gemzar received a second patent it shouldn’t have—a patent Lilly was counting on to ward off generic competitors of the drug for another three years.

Now, cheaper generic versions of the cancer medicine will hit the U.S. market when Gemzar’s first U.S. patent expires in November. That will wipe away most of Gemzar’s $750 million in annual U.S. revenue off Lilly’s books. Gemzar is approved to treat ovarian, breast, pancreatic and non-small-cell lung cancers.

But since the decision, Lilly’s stock price has actually risen slightly. It closed Friday at $36.98.

That's because most Wall Street analysts were already assuming Lilly would lose in court, in spite of confident predictions by company executives.

Lilly was trying to defend its discovery that Gemzar is effective against cancer, which is called a method-of-use patent. Such patents are much harder to defend than Lilly’s first patent on Gemzar, which protects Lilly’s discovery of the molecule itself, known as composition of matter.

“Every sell-side analyst looks at composition-of-matter patents as being those that never fall in a court and any other patent, including use or manufacturing, as being not sacrosanct,” said Barclays Capital analyst Tony Butler.

But the larger reason for the lack of investor reaction is that Lilly’s short-term successes and setbacks make little change in its long-term outlook. The company will lose patent protection on so many monster drugs in the next few years that a little good news or bad news doesn’t change the picture much.

“They lose a little bit more financial flexibility,” Miller Tabak & Co. analyst Les Funtleyder said of the Gemzar patent loss. “But they’re already less flexible.”

Funtleyder, who advises hedge funds on health care stocks and is now managing his own health care mutual fund, said he’s waiting for Lilly to do something significant enough to make a dent in the revenue it will lose from patent expirations over the next five years.

“Even without Gemzar, we know and they know the next couple of years are going to be difficult,” he said.

Beginning with the loss of U.S. and European patents on Zyprexa, Lilly’s $5 billion-a-year antipsychotic, the company stands to lose patent protection on five best-selling drugs by 2014.

Those events could zap $10 billion a year in sales, or nearly half its current revenue of $21.8 billion a year.

“It’s not that it’s irrelevant,” Butler said of the Gemzar patent loss. “It’s just one of many. It doesn’t improve or deteriorate any view of the company.”

Indeed, many analysts were assuming a 2011 drop-off in Gemzar revenue due to a court loss, which will allow Israel-based Teva Pharmaceuticals Inc. to launch the first generic Gemzar on Nov. 15.

For example, Goldman Sachs Group analyst Jami Rubin predicted Gemzar’s nearly $1.4 billion in global sales would dwindle to a paltry $385 million next year. The drug has already lost patent protection in some foreign countries. Deutsche Bank Securities analyst Barbara Ryan also assumed Gemzar would tail off next year.

But others, such as Dr. Tim Anderson at Bernstein Research and Bert Hazlett at BMO Capital Markets, assumed Gemzar would keep generating more than $1 billion in worldwide sales for three more years.

Lilly executives had assumed a court victory and had built that expectation into their 2010 profit forecasts. In the wake of the decision against Lilly by a panel of judges at the U.S. Court of Appeals for the Federal Circuit, Lilly executives said they would explore any remaining legal options they have.

"We strongly disagree with the ruling by the U.S. Court of Appeals regarding Gemzar's method-of-use patent. We continue to believe that our Gemzar method-of-use patent should be found valid and should remain in effect until mid-2013," said Bob Armitage, Lilly’s general counsel, in a statement.

Meanwhile, Lilly CEO John Lechleiter kept up his sunny view that, eventually, Lilly’s pipeline of new drugs will deliver new revenue to offset its old ones losing patent protection.

"Despite today's ruling, our business remains strong, supported by the growth of key marketed products and a promising pipeline of potential new medicines that currently boasts nearly 70 molecules in clinical development,” Lechleiter said in a statement. “We remain confident in our ability to deliver on our innovation-based strategy."

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:
 
thisissue1-092914.jpg 092914

Subscribe to IBJ
  1. Cramer agrees...says don't buy it and sell it if you own it! Their "pay to play" cost is this issue. As long as they charge customers, they never will attain the critical mass needed to be a successful on company...Jim Cramer quote.

  2. My responses to some of the comments would include the following: 1. Our offer which included the forgiveness of debt (this is an immediate forgiveness and is not "spread over many years")represents debt that due to a reduction of interest rates in the economy arguably represents consideration together with the cash component of our offer that exceeds the $2.1 million apparently offered by another party. 2. The previous $2.1 million cash offer that was turned down by the CRC would have netted the CRC substantially less than $2.1 million. As a result even in hindsight the CRC was wise in turning down that offer. 3. With regard to "concerned Carmelite's" discussion of the previous financing Pedcor gave up $16.5 million in City debt in addition to the conveyance of the garage (appraised at $13 million)in exchange for the $22.5 million cash and debt obligations. The local media never discussed the $16.5 million in debt that we gave up which would show that we gave $29.5 million in value for the $23.5 million. 4.Pedcor would have been much happier if Brian was still operating his Deli and only made this offer as we believe that we can redevelop the building into something that will be better for the City and City Center where both Pedcor the citizens of Carmel have a large investment. Bruce Cordingley, President, Pedcor

  3. I've been looking for news on Corner Bakery, too, but there doesn't seem to be any info out there. I prefer them over Panera and Paradise so can't wait to see where they'll be!

  4. WGN actually is two channels: 1. WGN Chicago, seen only in Chicago (and parts of Canada) - this station is one of the flagship CW affiliates. 2. WGN America - a nationwide cable channel that doesn't carry any CW programming, and doesn't have local affiliates. (In addition, as WGN is owned by Tribune, just like WTTV, WTTK, and WXIN, I can't imagine they would do anything to help WISH.) In Indianapolis, CW programming is already seen on WTTV 4 and WTTK 29, and when CBS takes over those stations' main channels, the CW will move to a sub channel, such as 4.2 or 4.3 and 29.2 or 29.3. TBS is only a cable channel these days and does not affiliate with local stations. WISH could move the MyNetwork affiliation from WNDY 23 to WISH 8, but I am beginning to think they may prefer to put together their own lineup of syndicated programming instead. While much of it would be "reruns" from broadcast or cable, that's pretty much what the MyNetwork does these days anyway. So since WISH has the choice, they may want to customize their lineup by choosing programs that they feel will garner better ratings in this market.

  5. The Pedcor debt is from the CRC paying ~$23M for the Pedcor's parking garage at City Center that is apprased at $13M. Why did we pay over the top money for a private businesses parking? What did we get out of it? Pedcor got free parking for their apartment and business tenants. Pedcor now gets another building for free that taxpayers have ~$3M tied up in. This is NOT a win win for taxpayers. It is just a win for Pedcor who contributes heavily to the Friends of Jim Brainard. The campaign reports are on the Hamilton County website. http://www2.hamiltoncounty.in.gov/publicdocs/Campaign%20Finance%20Images/defaultfiles.asp?ARG1=Campaign Finance Images&ARG2=/Brainard, Jim

ADVERTISEMENT