Will What Happened to Lilly in 2012 Stay in 2012?

What happens in Vegas stays in Vegas. That's what they say, at least. Does the same principle apply for time? Eli Lilly (NYSE: LLY  ) is one company that probably hopes that what happened in 2012 stays in 2012.

The past year wasn't a great one for the giant pharmaceutical company. However, my hunch is that the main stories from 2012 will carry over into 2013 and beyond. Here are three of the most important happenings for Lilly over the last year -- and how they could impact the company in the coming year.

1. Missing Zyprexa
Lilly missed Zyprexa in 2012 to the tune of $2.5 billion and counting. That's the impact it had through the first nine months of 2012 because of lost sales of the anti-psychotic drug. Lilly's U.S. patent for Zyprexa expired in October 2011.

If Lilly hoped that growth in its insulin drugs Humalog and Humulin might help pick up some of the slack, those hopes were crushed. CVS Caremark (NYSE: CVS  ) removed the drugs from its formulary for 2012. Sales for the two drugs were up less than $70 million combined in the first nine months of the year. 

A couple of the company's other drugs did help regain some ground, though. Cymbalta's sales grew 20% to nearly $3.6 billion in the first three quarters of the year. Sales for Forteo increased by 22% during the same period to $836 million. Effient sales jumped by 59% to $337 million. Even with these strong results, they weren't enough to offset the losses from Zyprexa.

The bad news for Lilly is that the current growth rates for its other drugs won't make up for Zyprexa's lost revenue in 2013, either. The worse news is that some of those drugs also lose patent exclusivity soon. Humalog, which accounted for 10% of total revenue in 2011, and Cymbalta, which made up 17% of 2011 revenue and even more this year, both lose patent protection in 2013.

2. Pipeline leaps and leaks
Can promising drugs in Lilly's pipeline come to the rescue? This past year showed glimpses of hope and frustration.

Both the Food and Drug Administration and the European Medicines Agency gave the thumbs-up to Jentadueto for treating adults with type 2 diabetes in 2012. In April, the FDA also approved Amyvid, a diagnostic agent used in brain imaging of patients with cognitive decline. 

Another success came in July with FDA approval of Erbitux along with the chemotherapy regimen FOLFIRI for first-line treatment of a specific variant of metastatic colorectal cancer. The drug was developed in partnership with Bristol-Myers Squibb (NYSE: BMY  ) . 

Some victories stemmed from drugs that are still well away from receiving approval. For example, in November, Lilly and Incyte (NASDAQ: INCY  ) announced good results from an ongoing phase 2b study of rheumatoid arthritis drug baricitinib. The drug stands ready to advance to phase 3.

However, there were several disappointments in 2012. In August, Lilly halted a phase 3 study of schizophrenia drug pomalgumetad methionil after primary endpoints were not met in another phase 2 study of the drug. Later in the year, the company canceled one of three phase 3 studies of tabalumab in treating rheumatoid arthritis.

One setback that will still play out in 2013 involves potential Alzheimer's disease drug solanezumab. While the drug didn't meet primary endpoints in earlier phase 3 studies, the company still holds hope that it can be useful in treating patients with milder forms of Alzheimer's disease.

3. Animal spirits
While much of the past year could be somewhat depressing for Lilly shareholders, there was a bright spot. The company's animal health business grew sales by 22% to nearly $1.5 billion during the first nine months of the year. 

Lilly also completed a key acquisition early in the year that better positioned the animal health business. In February, the company bought privately held ChemGen for $206.9 million.

With animal health looking like one of the few true positives for the company right now, I don't expect Lilly will seek to made any radical changes. While Pfizer (NYSE: PFE  ) will spin off its animal health unit into a new company called Zoetis in January, Lilly will probably leave well-enough alone. 

History rhymes
Mark Twain once said: "History doesn't repeat itself, but it does rhyme." That's probably not the favorite quote for Lilly's management team these days. Unfortunately, though, I suspect Mr. Twain's sentiment might still be applicable.

Next year will probably feature many of the same stories that 2012 did, albeit with some differences. Lilly will still reel from the loss of Zyprexa's patent protection. The loss of Humalog and Cymbalta will just make a bad situation worse. Like nearly any year for nearly any drug company, it will see successes and failures with its pipeline. Animal health will probably keep on flourishing.

2012 is almost gone. 2013 arrives in a short time. Lilly's history might not repeat itself, but I bet it will tend to rhyme. 

Over the next two years, Eli Lilly will see nearly $0.40 of every $1.00 in sales exposed to generic competition. How does the company plan to respond to this huge patent cliff? Better yet, what does this mean for investors? In a brand new premium report on Eli Lilly, The Motley Fool's top pharmaceuticals analyst delves into everything investors need to know about the stock today. Simply click here now to claim your copy.


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