Lilly shares hit all-time high for the John Lechleiter era

April 7, 2014
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Note: Lilly's shares posted intraday highs of more than $60 on April 3 and April 4, but did not close at more than $60 per share until April 9. A previous version of this post described one of those intraday highs as a closing price.

Investors got excited last week after a federal judge in Indianapolis decided in favor of Eli Lilly and Co. in its latest patent case.

The decision, unless reversed on appeal, ensures nearly six more years of exclusive sales of its lung cancer drug Alimta. At last year’s U.S. sales, that’s an extra $1.3 billion for each of those six years, or $7.8 billion in revenue.

The ruling was not a surprise. But since about half the analysts covering Lilly had not assumed the patent victory, the news pushed Lilly’s shares up to $60.43 at Wednesday's closing bell.

Astonishingly, that’s the first time Lilly shares have closed above $60 apiece since April 20, 2007.

At that time, Lilly was led by Sidney Taurel, who was still eight months away from announcing his retirement. It was an entire year before John Lechleiter took the reins of the company.

In the seven years that Lilly’s stock languished below $60—and sometimes way, way below it—the company’s pipeline turned out more misfires (and here and here) than the villains in a James Bond movie.

Then Lilly started losing its U.S. and European patents on its two bestselling drugs—the antipsychotic Zyprexa and the antidepressant Cymbalta. Both had peak annual sales of $5 billion.

“The stock had been in the doldrums for a number of years, partly because of the lack of anything new coming from the pipeline and partly because of its extensive ‘patent cliff,’” wrote Sanford C. Bernstein  analyst Tim Anderson in a research note.

But investors buy on expectations, not present reality. So even as Zyprexa sales started disappearing in 2011, the future started looking a bit brighter for Lilly.

“However, pipeline excitement put the stock back on track again starting in late 2011,” Anderson added, “and looking forward into 2014 there are likely to be several reasonably important data sets that get released.”

“Data sets” is analyst-speak for news about pipeline drugs. Lilly is advancing several diabetes and cancer drugs toward market approval.

Now, the Alimta decision removes one of the biggest dark clouds that hung over Lilly.

That’s because, while the company looks like it can muddle through the loss of Zyprexa and Cymbalta, if it got to 2016 and 2017—the years when the $2 billion-a-year impotence pill Cialis and Alimta lost their patents—without having new drugs in the market generating significant sales, then things were not going to be good.

As it is, the odds of facing generic competitors to Alimta as early as 2017 are extremely low, noted Goldman Sachs analyst Jami Rubin. And that buys Lilly a few more years to get its newest drugs ramped up.

So while longtime Lilly investors can’t be happy about zero stock price appreciation in the past seven years, they can content themselves that Lilly is still paying its healthy dividend and that it looks like the company's finances, as battered as they are right now, can only get better from here.

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  • Boring!
    ...what a boring post compared to the previous one. :)
    • To Mr. Boring
      Yeah, I guess I can't make all of them as spicy as talking about doctor pay. I'll try to make things more interesting next time.

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