Eli Lilly & Co. (LLY -2.10%) was downgraded from "buy" to "neutral" by MKM Partners the day before it published its first quarter report. Let's examine two primary reasons long-term investors might want to still be bullish on Lilly's future opportunities. First, we'll look at how Lilly has repositioned itself in the marketplace, and second, we'll consider the promising new drugs that it has in development.

Animal health and product realignment
Indianapolis-based Lilly has entered into a significant deal to purchase the animal health division of Swiss pharmaceutical maker Novartis (NVS 1.48%) for $5.4 billion. Lilly will assume approximately $2 billion in debt, and pay the remainder in cash. 

The transaction will turn Lilly's current animal health division, Elanco, into the second largest in the world. The deal will not only give Lilly a bigger presence in large animal vaccinations, but also in the emerging business of fish farm vaccinations. Additionally, Lilly will gain a boost in the pet product market, picking up Novartis' Parastar flea and tick control along with the heartworm treatment Sentinel. In addition, Lilly has an agreement to acquire the privately owned German company Lohmann Animal Health, a deal which would also help Lilly grab more of the animal vaccine market, specifically poultry.

Lilly gains with the Novartis deal an enterprise that brought in sales of $1.1 billion for Novartis in 2013.   Bloomberg reported that Lilly expects in three years for the acquisition to result in an annual savings of $200 million. 

Lilly CEO John Lechleiter explained the rational behind the purchase during the first quarter report conference call: "You're seeing companies build on their strengths, add to existing areas of strength and get rid of assets where they might be sub-scale."

Lechleiter is referring not only to his company's heavier emphasis on animal health but to Novartis' move to concentrate on cancer drugs while reducing its emphasis on vaccines. Novartis agreed to purchase up to $16 billion of cancer drugs from GlaxoSmithKline (GSK 1.18%), and sell to Glaxo most of its vaccine business for $7.1 billion.  

The massive maneuvering is expected to result in each company being leaner overall while being decidedly stronger in the specific areas in which they excel.

Drugs in development
Lilly lost a significant portion of its revenue potential when it lost patent protection in December 2013 for its largest drug by revenue, antidepressant Cymbalta, which was responsible for over 20% of Lilly's revenue in 2013.

Then in March 2014, the patent expired for Lilly's osteoporosis drug, Evista. Those two losses resulted in revenue decline for the first quarter of 16%. 

Bloomberg quoted an email ISI Group LLC analyst Mark Shoenebaum sent to clients as saying that Lilly did not enjoy "a great quarter, but we doubt most shareholders will care. This is Lilly's trough earnings year, and investor focus is squarely on the pipeline."

So what does Lilly have in its development pipeline?

Cancer drug approved 
On April 21, 2014, days before the first quarter report was released, Lilly's new gastric cancer drug, ramucirumab, branded as Cyramza, was approved by the Food and Drug Administration.

Blomberg reported that analysts project the drug to bring in $1.4 billion by 2020. 

According to the FDA press release, Cyramza is designed to treat patients "with advanced stomach cancer or gastroesophageal junction adenocarcinoma, a form of cancer located in the region where the esophagus joins the stomach."

It's the first drug the FDA has approved as treatment after prior chemotherapy.

The approval process for Cyrmaza was expedited under the FDA's priority review program open to drugs that may offer "significant improvement in safety or effectiveness in the treatment of a serious condition."

Diabetes drug nearing FDA approval
Lilly's type-2 diabetic drug dulaglutide became in February 2014 the first drug of its type-- long-acting glucagon-like peptide 1 (GLP-1) receptor agonist – " to show non-inferiority against liraglutide's (Victoza) highest-approved dose in a Phase III trial," said Enrique Conterno, president of Lilly Diabetes. 

In other words, once approved, Lilly's dulaglutide could compete head-to-head with liraglutide. Lilly could induce patients and their doctors to switch to dulaglutide without fear of a loss of effectiveness. 

And when it comes to the dosing regimen, dulaglutide has a definite advantage. Lilly's drug is taken once weekly versus liraglutuide which has to be taken once daily. Dulaglutide's ease of use is one reason that Schoenebaum of ISI Group thinks that it could pull in $2 billion in revenue by 2020. 

European diabetes treatment pipeline
On April 14, 2014, Lilly, in conjunction with partner Boehringer Ingelheim Pharmaceuticals, announced that the European Medicines Agency's Committee for Medicinal Products for Human Use (CHMP) recommended approval of empagliflozin (Jardiance) to improve adult blood glucose levels in patients with type 2 diabetes. It prevents the kidney from reabsorbing glucose which is then excreted in the urine.

Lilly could expect to see $518 million from the drug by 2019, according to an average of five analysts contacted by Bloomberg. 

Empagliflozin stands to be the third diabetes product from the Lilly Boehringer diabetes project approved in Europe, which indicates that Lilly is doubling down on type 2 diabetes drugs at a time when the World Health Organization projects that the disease will be the seventh leading cause of death by 2030. 

What a long-term investor should consider
Lilly's revenue decline noted in the first quarter report was expected by both the company and the industry. All pharmaceutical manufacturers eventually lose patent protection and feel the resulting revenue pinch, so Lilly's present situation shouldn't deter long-term investors from considering the merits of investing in the company.

Lilly has shown that it is serious about repositioning itself in the global animal health business by its readiness to purchase both larger and smaller competitors.

And a look at Lilly's development pipeline shows that for the long-term investor there's much to be optimistic about.