Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Is Eli Lilly's Bad News Priced In?

By Peter Stephens - Mar 1, 2014 at 5:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Challenges from copycat drugs don't seem to be affecting Eli Lilly's (NYSE: LLY) share price. Is the bad news priced in?

As with many Pharmaceutical companies, Eli Lilly ( LLY -0.49% ) is struggling to counter the challenge posed by patent expiry and generic competition. Evidence of this could be seen in its full-year results, which were released at the end of January. They showed that fourth quarter net profit declined by 12%, as generic competition ate away at sales for many of its key drugs.

Furthermore, Eli Lilly is due to lose patent protection for its bone-building drug, Evista, as soon as next month. This, combined with the loss of patent protection on its top-selling drug, the antidepressant Cymbalta, means that 2014 could prove to be another tough year for the company.

However, shares have posted impressive gains so far in 2014, being up 16.8% while the S&P 500 is currently flat. Therefore, has the bad news been priced in, and can Eli Lilly deliver a strong performance in 2014?

News flow
Recent news flow has been mixed for Eli Lilly. On the one hand, it has lowered 2014 guidance, with earnings per share now forecast to be around $2.76, which is down from the $2.83 consensus market forecast. However, on the other hand, company news has been fairly encouraging, with Eli Lilly agreeing to buy a privately held, poultry vaccine maker to strengthen its Elanco animal health subsidiary. Although no further details have been announced, it is believed that acquisition costs are a major reason guidance has been reduced for 2014. The deal appears to make sense for Eli Lilly, because animal vaccines is an area in which it is aiming to expand in future.

Eli Lilly also announced last week that its experimental, once-weekly drug for type 2 diabetes, dulaglutide, was comparable to Novo Nordisk's once-daily drug, Victoza, in reducing a measure of blood sugar in a patient study. The drug could eventually deliver up to $2 billion of annual revenue (should it be approved by the FDA) and Eli Lilly is hopeful that the findings will give it a competitive advantage over Victoza.

Developments at pharmaceutical peers
Of course, animal health is also a key market for Merck ( MRK -1.55% ). It announced last week that marketing authorization has been granted by the European Commission for the veterinary medicinal product, Bravecto. This is positive news for Merck, since Bravecto is the first and only treatment that has been shown to quickly and effectively kill fleas and ticks for up to 12 weeks in a single dose.

Meanwhile, pharmaceutical peer GlaxoSmithKline ( GSK 1.49% ) received a positive opinion from the European Medicine Agency's Committee for Medicinal Products for Human Use regarding marketing authorization for two treatments for chronic obstructive pulmonary disease. The first is a once-daily maintenance treatment to relieve symptoms called Incruse, while the second is a once-daily maintenance bronchodilator treatment (also to relieve symptoms) called Anoro. The final decisions from the European Commission are expected in the next few months.

Looking ahead
So, while Eli Lilly is undoubtedly experiencing challenges with regard to generic competition, it seems as though the company is taking the necessary actions to counter this. Indeed, the market seems to be behind the company's strategy, as reflected in the share price strength seen in 2014. As a result, it could turn out to be a great year for investors in the stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Eli Lilly and Company Stock Quote
Eli Lilly and Company
$245.11 (-0.49%) $-1.22
Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
$72.28 (-1.55%) $-1.14
GlaxoSmithKline plc Stock Quote
GlaxoSmithKline plc
$42.38 (1.49%) $0.62

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/07/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.