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Eli Lilly puts faith in drug pipeline

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Year In Review

Eli Lilly and Co. started to tip over its massive “patent cliff” this year, yet announced little publicly that will significantly soften its inevitable sales plunge.

On Nov. 15, generic versions of Lilly’s cancer drug Gemzar hit the market in the United States—the first of five blockbuster drugs that will lose patent protection in the United States or Europe over the next five years. Those losses will wipe out half the Indianapolis-based company’s $22 billion in annual revenue. And the picture got even worse this summer, when a court struck down the U.S. patent on Lilly’s drug Strattera.

The drugmaker has 68 experimental drugs in human testing right now, and it hopes to launch two of them per year, beginning in 2013, to revive its sales. But Lilly’s labs have produced that kind of performance only three times in the past 60 years.

Given those long odds—and Lilly’s recent struggles to win market approval for new products—most investors are cool on the stock. Lilly’s share price has been flat for two years, buoyed mainly by its rich dividend.

Lilly did win market approval late this year for a new underarm testosterone treatment it licensed from an Australian firm. But Lilly also suffered more than two years of further delays this year on Bydureon, its once-weekly diabetes medicine. And Lilly’s biggest pipeline hope—an experimental Alzheimer’s drug—failed miserably in a Phase 3 clinical trial, actually making the condition worse for patients.

Analysts have demanded to know what else Lilly plans to do to shore up its revenue and profits before its biggest drug, the antipsychotic Zyprexa, loses patent protection in November 2011 and more than $4 billion of sales evaporate.

Lilly’s answer has been consistent: no big merger, but instead efforts to grow sales in international markets and animal health and diagnostics, while it waits for its pipeline to deliver. At the same time, Lilly is slashing expenses by cutting jobs: It has eliminated more than 2,700 jobs on a path to 5,500 positions by the end of 2011.

“Our fundamental strategy remains intact,” Lilly CEO John Lechleiter said. “Nothwithstanding the setbacks, we’re confident we can execute on that strategy.”•

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  1. The $104K to CRC would go toward debts service on $486M of existing debt they already have from other things outside this project. Keystone buys the bonds for 3.8M from CRC, and CRC in turn pays for the parking and site work, and some time later CRC buys them back (with interest) from the projected annual property tax revenue from the entire TIF district (est. $415K / yr. from just this property, plus more from all the other property in the TIF district), which in theory would be about a 10-year term, give-or-take. CRC is basically betting on the future, that property values will increase, driving up the tax revenue to the limit of the annual increase cap on commercial property (I think that's 3%). It should be noted that Keystone can't print money (unlike the Federal Treasury) so commercial property tax can only come from consumers, in this case the apartment renters and consumers of the goods and services offered by the ground floor retailers, and employees in the form of lower non-mandatory compensation items, such as bonuses, benefits, 401K match, etc.

  2. $3B would hurt Lilly's bottom line if there were no insurance or Indemnity Agreement, but there is no way that large an award will be upheld on appeal. What's surprising is that the trial judge refused to reduce it. She must have thought there was evidence of a flagrant, unconscionable coverup and wanted to send a message.

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  5. http://www.abcactionnews.com/news/duke-energy-customers-angry-about-money-for-nothing

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