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Analyst: Lilly outlook bleak until 2020

June 27, 2011

Forget this year’s loss of best-selling-drug Zyprexa’s patent. Eli Lilly and Co. faces the bleakest outlook in the pharma industry the rest of this decade, according to Bernstein Research analyst Tim Anderson.

Anderson, who has for several years been one of the more bearish analysts on Lilly, estimates that by 2020 the Indianapolis-based company stands to lose $12 billion, or 55 percent of its pharmaceutical revenue—a higher percentage than any other major pharma company.

Even when factoring in non-pharma revenue, such as Lilly’s Elanco animal-health division, as well as some new revenue for pipeline products, Anderson still predicts Lilly revenue will be 30 percent lower a decade from now—$7 billion less in sales per year than now.

By that measure, only U.K.-based AstraZeneca plc has a worse outlook. The website BNet has made Anderson’s charts available here and here.

The companies with the best outlooks in Anderson’s analysis are U.K.-based GlaxoSmithKline plc and Switzerland-based Novartis AG.

Lilly’s trouble is that its best-selling drugs are reaching the end of their patent lives. The patent expirations began last year with cancer drug Gemzar and will continue this fall when Lilly’s $5-billion-a-year drug Zyprexa loses protection in the United States and Europe. In 2013, antidepressant Cymbalta and insulin Humalog will lose their patents in Western markets. And in 2014, the cancer drug Evista will face generic competitors.

Analysts generally feel Lilly can muddle through its current string of patent expirations in the United States and Europe, which allow generic companies to steal away sales with cheaper copies. Its stock price, stuck for a couple of years near $35 per share, is about as low as it's going to get.

But they say something major will have to change before Lilly loses patent protection on its rising stars Alimta, a lung-cancer drug, and Cialis, an impotence and hypertension medication. Those drugs lose their patents in 2016 and 2017, respectively.

Lilly CEO John Lechleiter has said for years that Lilly will focus on bringing new drugs to market, not on acquiring a large competitor to patch holes in its revenue stream. Analysts expect him to give the same message on Thursday when Lilly stages its annual presentation to investors in New York.

Lilly will no doubt talk voluminously about its pipeline of experimental drugs, which has nearly 70 medicines in human testing.

However, Deutsche Bank analyst Barbara Ryan said Lilly’s pipeline, especially in the final Phase 3 stage, is fraught with risk.

“We caution that LLY's Phase 3 pipeline is dominated by investments on therapeutics for [Alzheimer’s disease] and cancer, areas with historically high late-stage attrition rates,” Ryan wrote in a recent research note, referring to Lilly by its ticker symbol. She added, “We reiterate that LLY’s pipeline is large but high-risk.”
 

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