The Slowly Wilting Lilly

Yesterday, Eli Lilly (NYSE: LLY  ) beat expectations and raised guidance ... and the stock ended down almost 2%.

Looks like investors are thinking a little more long-term than usual.

Revenue was up 10% at constant currencies, considerably better than peers Pfizer (NYSE: PFE  ) , Merck (NYSE: MRK  ) , and Johnson & Johnson (NYSE: JNJ  ) . But how much does that really matter with the company facing a massive patent cliff in the next couple of years? Patents on its top three sellers -- Zyprexa, Cymbalta, and Humalog -- expire in 2011, 2014, and 2013, respectively. That's not that far away, Fools.

It would be OK if Eli Lilly had a pipeline of late-stage molecules to make up for the loss of those blockbusters, but that just isn't the case. The drugmaker has 66 compounds in clinical trials, but most are still in phase 1. Only seven of those drugs are in phase 3 trials at the moment, and it has one awaiting regulatory approval, not counting drugs submitted through partnerships, such as once-weekly Byetta with Amylin Pharmaceuticals (Nasdaq: AMLN  ) and Alkermes.

There is some potential for growth of recently approved drugs. Effient, which was approved earlier this month, will compete with sanofi-aventis' (NYSE: SNY  ) and Bristol-Myers Squibb's (NYSE: BMY  ) multibillion-dollar blockbuster, Plavix, but it's not likely to take much of Plavix's sales, what with its current limited approval. Alimta got its label expanded this month as well, but it's not going to be enough to make up for the $4 billion-plus in lost sales of Zyprexa that will be coming.

Essentially, if you want to invest in Eli Lilly right now, you'll have to be content to enjoy the solid 5.7% dividend yield while you wait for some of those compounds to work their way through the clinical-development marathon. It's not a bad strategy; just don't expect current earnings to do much to move the stock.

Move on to this Foolishness:

Johnson & Johnson is an Income Investor recommendation. To see how dividend-paying stocks can offer both secure income and the opportunity for growth, take a free look at this newsletter with a 30-day free trial. 

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is a recommendation of the Inside Value newsletter. The Fool has a disclosure policy.


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  • Report this Comment On July 23, 2009, at 3:40 PM, withoutlimits wrote:

    Also if you want to invest in Lilly, first look at what their products do. Check out www.cchr.org to see what their psychiatric drug can do. After getting this data I hope you would decide to invest in something that actually helps rather that harms people.

    Thank you,

    Tom Campbell

  • Report this Comment On July 23, 2009, at 4:06 PM, DannyHaszard wrote:

    Eli Lilly Zyprexa can cause diabetes

    I took Zyprexa a powerful Lilly schizophrenic drug for 4 years it was prescribed to me off-label for post traumatic stress disorder was ineffective costly and gave me diabetes.

    This is a powerful drug that can damage a young person physiologically for life.

    Please take with caution and learn as much as you can about side effects.

    Eli Lilly's #1 cash cow Zyprexa drug sale $38 billion dollars so far,has a ten times greater risk of causing type 2 diabetes over the non-user of Zyprexa.

    So,here we have a conflict of interest that this same company also is a big profiteer of diabetes treatment.

    WARNING-

    If a drug (Zyprexa) lists anything about the pancreas among the side effects, it probably means it can cause diabetes.

    Unlike your liver, the pancreas does not regenerate itself. If it gets damaged, diabetes is very likely.

    Zyprexa is glorified Thorazine at ten times the price

    Daniel Haszard http://www.zyprexa-victims.com

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