Transcript:

Brenton Flynn: Next up is Eli Lilly; not as precarious a situation as AstraZeneca, but certainly not a great situation.

David Williamson: Yeah I think, of the big pharma guys, you probably picked the two steepest patent cliffs. Eli Lilly is not too distant a third. I do jokingly refer, around the office, that "AstraZeneca is Eli Lilly without hope," so clearly Eli Lilly's in a little better place, but they have significant issues.

That 2010 famous New York Times article that talked about them, in just a couple of years losing nearly three quarters of their revenue, it was legitimate. We've seen Zyprexa go off patent; we've seen Gemzar go off patent. In 2013, we're going to see Cymbalta go. Humalog's going to go, and then Evista in 2014.

Those three drugs that haven't gone yet, that's roughly a third of the company's revenue, so these are serious losses. Eli Lilly is really still ramping up its drug pipeline.

I have this right here; they have 12 molecules in phase 3, 22 in phase 2, and then 27 in phase 1. I don't put much weight on the phase 1 molecules, but that's still a fairly robust mid- and late-stage pipeline. They have the diabetes drug that you mentioned, dulaglutide, that's had some really good success, that's going to go against AstraZeneca and Bristol-Myers' Bydureon once weekly.

They have ramucirumab in stomach cancer, but they're testing that in a number of cancers. An interesting way to play that would actually be Sunesis,* which has a stake in that. There is some interesting stuff.

Unfortunately, their Alzheimer's, which they were hoping would be a real boost; it's a really tough disease to treat, we've seen a lot of failure. Johnson & Johnson, Pfizer, and Elan all contributed to bapineuzumab. That failed both of its phase 3 trials. They pulled the plug on that.

Eli Lilly's drug, solanezumab, failed both of its phase 3 trials but they continued to press forward because when they pooled the data they saw it might work on people with mild versions of the disease, so they're running another phase 3 trial.

Max Macaluso: Actually, the share price jumped after that news was released.

David: Yeah, because if they could get it approved... The drugs that are out there have so little effect that if this might possibly have some effect... The ones that are out there are huge sellers. This has blockbuster potential.

Brenton: Yeah, there's a low hurdle, right? If you can show efficacy of any sort, really, without major risks associated with it, then you've got a blockbuster on your hands.

David: Yup.

Brenton: Even if it's not doing anything more than maybe slowing the progression of the disease in a meaningful way.

David: And Lilly's shares were just as depressed as AstraZeneca. They've actually rallied, basically since the solanezumab data, and we saw some other development along that phase 3 pipeline. They've been buoyed because investors are thinking, "Well, maybe Eli Lilly does actually have hope. They can start ramping sales back up," but in the meantime sales are going to fall off.

Zyprexa hasn't collapsed the way Lipitor and some others have, but it is going to decline and continue to decline. The question is, there's going to be a lot of short-term pressure on Eli Lilly; will this late-stage pipeline help mitigate that until some of those 20-some mid-stage compounds can really drive growth again in the future?

Max: Before we close the segment, to circle back to AstraZeneca share price. To be fair to the company, the stock dropped over the summer, but it's rebounded slowly for the second half of the year. It's up about 1%, year to date, so maybe investors are a little bit more bullish concerning the new CEO coming in.

Editor's note: At 1:45, David meant to say ImClone Systems, which is a subsidiary of Eli Lilly, rather than Sunesis.

Brenton Flynn has no positions in the stocks mentioned above. David Williamson owns shares of Pfizer. Max Macaluso has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend Elan and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.