The good news for Eli Lilly
Unfortunately, the bottom line doesn't look so promising -- if you can call flat sales promising. Eli Lilly is forecasting for adjusted EPS of $4.15 to $4.30, down from 2010's adjusted earnings of $4.74 per share -- a 9% to 12% decline.
Most of that decline is attributable to health-care reform and the company's recent diabetes drug deal with Boehringer Ingelheim. Health-care reform will cost the company $150 million to $200 million to pay the mandatory pharmaceutical manufacturers fee. The Boehringer deal seems like a good move to gain access to late-stage drugs, but it doesn't come cheap; Lilly has to pony up about $390 million initially.
Eli Lilly is trading at 8.3 times the midpoint of next year's earnings estimate and has an insane 5.6% dividend. On the surface, that looks crazy-cheap. Peers Pfizer
But keep in mind that 2011 could be just the start of a long slide for Lilly. 2012 will see difficult year-over-year comparison since Zyprexa will see generic competition for the entire year. Then 2013 will see the loss of patent protection for Cymbalta and Humalog, which currently make up a quarter of Lilly's sales.
If Lilly had a decent pipeline, investors would have more confidence in the turnaround prospects. But the chance for a blockbuster to save Lilly seems to have died with blood thinner Effient, which was supposed to take a decent chunk of the blood thinner market from Bristol-Myers Squibb
Even with the fat dividend, I can't get excited about playing the get-paid-to-wait-for-growth game with Lilly.
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