Pictures of Lilly

I wish I weren't old enough to remember the old Who classic, "Pictures of Lily," and I'm sure the management at Eli Lilly (NYSE:LLY) would like to forget the last few weeks. Lilly's stock is down more than 10% since Merck's (NYSE:MRK) Vioxx disaster on Sept. 30, noticeably worse than the U.S. health-care sector.

Lilly reported third-quarter earnings of $0.69, beating the Street by a penny. The company reported revenues of $3.28 billion, a slight year-over-year increase but lower than expectations of $3.46 billion. The company also guided lower for its fourth quarter. Analysts had been expecting $0.76. Management set a new range of $0.73-$0.75 and also announced 1,000 job cuts and asset impairment. As part of the guidance, the company estimated restructuring charges of between $320 million-$420 million to be taken in the fourth quarter of 2004.

Some of Lilly's well-known drugs showed declining sales. Prozac and Zyprexa sales both fell 9%. Oy.

There was a little good news. New drugs like Cymbalta, Cialis, Symbyax, and Forteo contributed 12% to the top line compared with 6% a year ago.

Lilly does have a few things going for it; it has demonstrated over the years that it can consistently bring new successful drugs to market, it devotes $2.3 billion to research and development, and although you would not know it by the price action, it has no exposure to Cox-II inhibitors.

Lilly is an often forgotten company. Its headlines usually take a back seat to Pfizer (NYSE:PFE) and Merck even though it has had some revolutionary drugs. Even today it does not have the drug company spotlight to itself as Merck and some of the big European drug companies are also reporting numbers.

Going unnoticed as the ugly stepchild may have some benefits, though. Clearly the news today is not good but it is nowhere near as bad as what is going on in the rest of the group. Lilly's lack of truly horrible news may make it a relative winner by default.

Keep that in mind -- "by default" -- because, in my opinion, the large U.S. pharmaceuticals are not going to recover anytime soon. But while the market waits for drug stocks to recover, investors can collect Lilly's 2.5%, safe, dividend.

Despite its recent troubles, Merck's big dividend yield earned it a spot among other Motley Fool Income Investor recommendations. Want to discover other companies that will pay you to own them? Take a free, no-obligation trial to Income Investor today.

Fool contributor Roger Nusbaum is an investment manager and wildland firefighter in Prescott, Ariz. At press time, neither he nor his clients owned any of the stocks mentioned .