Lilly Makes Bid for
TheStreet.com Staff Reporter
7/20/2005 1:31 PM EDT
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research) enters the third quarter trying to impress
investors with strategies for expanding its diabetes
franchise and protecting its position in neuroscience.
A successful offense and defense will
determine how well the Indianapolis-based company can inject
life into its stock, which trails an index of large
drugmakers as well as the S&P 500. In the past 12
months, Lilly's stock is off 13%, the Amex Pharmaceutical
Index is up 3.4%, and the S&P 500 has gained 11.5%.
On the diabetes front, Lilly starts the
quarter with a new product, Byetta, on the market, a new
licensing deal with Japan's Taisho for an
experimental drug, some hopeful signs from the laboratory
and decent reviews coming from last month's American
Diabetes Association scientific conference.
As for neuroscience, Lilly is breathing a
bit easier now that a
patent challenge to its schizophrenia drug Zyprexa has
been defeated (although the challengers plan to appeal). But
Lilly is still coping with weakening U.S. sales of Zyprexa,
its best-selling drug, and with disappointing sales of
Strattera, a treatment for attention deficit hyperactivity
The pushing and pulling of good news, bad
news and uncertain news means many analysts are sitting on
"In spite of overall positive views on
Lilly's fundamentals, our neutral rating reflects our view
of uncertainty stemming from the Zyprexa patent decision
and, regardless of the patent dispute outcome, Zyprexa
performance," says Chris Shibutani of J.P. Morgan in a
recent research report.
Shibutani and 13 other analysts are
neutral on the stock, according to Thomson First Call. There
are nine buy ratings and two sell ratings.
Zyprexa's sales have been hurt since 2004
by newer drugs from Bristol-Myers Squibb (BMY:NYSE
research) and AstraZeneca (AZN:NYSE
research) that cause fewer side effects, such as weight
gain, Shibutani says.
Worldwide Zyprexa sales for the first half
of 2005 should reach $1.08 billion, down 11% from the same
period last year, he says. Foreign sales for the second
quarter should be up 10%, but U.S. sales will probably be
down 26%. The analyst doesn't own shares, but his firm has
had an investment banking relationship with Lilly.
The company will report its latest
financial results Thursday, and Wall Street analysts, on
average, expect Lilly to earn 67 cents a share in the second
quarter and $2.82 for the year. The revenue estimates are
$3.69 billion for the quarter and $14.8 billion for 2005.
quarter ended June 30, 2004, Lilly had a profit of
60 cents a share and sales of $3.56 billion.
To move Shibutani out of neutral,
Lilly would have to produce better-than-expected
sales for Zyprexa and Strattera and enjoy
"earlier-than-expected progress" among key
Robert Hazlett, of
SunTrust Robinson Humphrey, takes the same
information on Zyprexa and other drugs, but he comes
up with a buy rating. Yes, Zyprexa has troublesome
side effects, Hazlett tells investors in a July 6
research report, but "we continue to maintain that
Zyprexa's full range of benefits and risks will
continue to drive prescription growth."
He says Zyprexa is still the most
effective drug among its peers, and "it is this
efficacy, along with a moderate side effect profile,
that we believe will continue to result in
prescription growth for the drug," he adds.
Hazlett says the chance of a
generic competitor overturning
a federal judge's ruling in mid-April is
"small." An adverse appeals court ruling would wreck
the stock, but he doesn't expect a ruling until late
2006. He expects any appeals court decision to be
appealed, too, thus extending the legal saga for
several more years.
"With Lilly's excellent late-stage
pipeline now coming on line, and with even more
potential blockbusters in the wings ... we remain
convinced Lilly has the potential for sustained
midteens EPS growth over the long term," says
Hazlett, who doesn't own shares and whose firm has
had a noninvestment banking relationship with the
Diabetes products accounted for
about 20% of corporate sales last year, and much of
the encouraging news for Lilly is related to drugs
now in clinical trials or new to the marketplace.
Hazlett says the deal with Taisho
enabled Lilly to license a drug, in early stage
clinical trials, for helping the body produce
natural insulin in response to rising levels of
blood sugar. This compound belongs to a class of
drugs called DPP-IV inhibitors, and many of the
world's pharmaceutical giants are trying to develop
this next-generation treatment.
Another experimental drug -- "a
potential blockbuster," he says -- being examined is
a treatment for a host of ailments linked to
diabetes, such as nerve pain, eye damage and kidney
damage. Lilly may submit an application to the FDA
by the end of the year.
Tuesday, Lilly and its partner Alkermes
research) said they had started a
late-stage trial of an inhaled insulin. The
product is about two years behind the
leading inhaled insulin candidate, Exubera,
which is being reviewed by the FDA. Exubera
is made by Pfizer (PFE:NYSE
research), Sanofi-Aventis (SNY:NYSE
research) and Nektar Therapeutics
Lilly and another partner,
Amylin Pharmaceuticals (AMLN:Nasdaq
research), recently began marketing
Byetta, which helps patients manage their
blood-sugar levels. Lilly says most patients
in long-term clinical trials lost weight
while taking Byetta, which was originally
isolated from the saliva of the Gila
monster. The drug must be injected twice a
the first marketed drug in the class called incretin
mimetics. "First in class Byetta emerged as one of
the stars of the [American Diabetes Association]
conference," says a recent report from Sagient
Research Systems, of San Diego, whose BioMedTracker
report follows the research and investment prospects
of biotechnology companies.
"While the number of doctors we
spoke with at the ADA conference were initially
hesitant about Byetta -- citing they would rather
just start insulin -- minds were changed as
physicians learned more about the possible
benefits," the Sagent report says.
Noting that "physician education
will be important," Sagient says the big question
for patients, and for Byetta sales, will be their
willingness to be injected.