Lilly posts 3Q profit; analysts doubt future sales

By TOM MURPHY

posted: 35 DAYS 6 HOURS AGO

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INDIANAPOLIS -Eli Lilly & Co. turned a third-quarter profit as sales volume on several drugs climbed, but its newest drug and a possible key source of future revenue started slowly.

The results highlighted concerns about the Indianapolis company's plans to fill a giant revenue hole that will develop in coming years when drugs that account for more than half of its sales lose patent protection and become exposed to generic competition.

Lilly said its worldwide revenue rose 7 percent. Its top-seller, the anti-psychotic Zyprexa, brought in $1.2 billion, or 3 percent more than it did the same quarter last year. The company's second-best seller, the antidepressant Cymbalta, showed 10 percent growth.

Sales climbed 47 percent for cancer treatment Alimta, which benefits in part from its effectiveness with some lung cancer patients and fewer side effects than other chemotherapies.

"That's really been a phenomenal drug for Lilly and probably has a lot more growth and upside than people may be modeling today," Leerink Swann analyst Seamus Fernandez said.

But Zyprexa's patent expires in 2011, and protection for Cymbalta, Alimta and several other drugs will end a few years later.

Company leaders told analysts Wednesday they intend to rely on their drug pipeline — not big mergers and acquisitions — to help fill that void. They said they have about 60 molecules in various states of development.

"We are solely focused on our No. 1 priority ... which is progressing the assets in our pipeline," Chief Financial Officer Derica Rice said.

Lilly's August U.S. debut of the blood thinner Effient, the company's first new product launch since 2005, started slowly, according to some analysts.

Quarterly worldwide sales for the drug totaled $22.6 million, with $1.5 million of that coming from outside the U.S. Effient was launched in Europe earlier this year.

Lilly developed Effient with Japanese drugmaker Daiichi Sankyo Co., and the companies will share revenue. The drug, which some analysts think will eventually surpass $1 billion in annual sales, could become an important revenue source for Lilly.

Company officials told analysts the launch was proceeding as scheduled, and they were meeting with hospitals and managed care companies to negotiate pricing and access, a process that could take several months.

Edward Jones analyst Linda Bannister said she expected more progress from Lilly.

"I think that's part of what's weighing on the stock today," she said, adding that pipeline concerns in general also may be affecting the price.

Lilly shares fell $1.58, or 4.5 percent, to $33.66 in Wednesday trading.

Fernandez noted that Effient sales came primarily from wholesalers stocking up on the drug, and he hasn't seen "a lot of pent up demand" from retail pharmacies outside hospitals. He said prescription levels were muted for a drug with blockbuster expectations.

Effient is more expensive than its competition, Plavix, the world's second-bestselling medication. Fernandez said price also may be something holding up hospital negotiations.

While Lilly eschews megadeals like Pfizer Inc.'s recently completed $68 billion acquisition of Wyeth, it paid $6.5 billion last year to buy biotech ImClone Systems for its cancer treatment Erbitux and several other drugs in its pipeline. Lilly officials said Wednesday they wouldn't rule out partnerships or the purchase of additional drugs to complement their holdings.

Last month, the company also announced a plan to cut annual costs by $1 billion by 2011 and produce new drugs at a faster clip. Chairman and CEO John Lechleiter said it still takes 10 to 15 years to move a drug molecule from the lab to patients, the same amount of time it took when he started at Lilly almost 30 years ago.

"We don't believe that has to be accepted as gospel," he said. "We believe that we can apply new tools and new technologies in a more robust fashion and a more consistent fashion in order to reduce that cycle time and also to reduce hopefully cost and risk along the way."

In the third quarter, Lilly earned $941.8 million, or 86 cents per share. Excluding restructuring and other costs, Lilly earned $1.20 per share. Thomson Reuters said analysts on average expected $1.02 per share.

A year ago, Lilly lost $465.6 million, or 43 cents per share, after setting aside almost $1.5 billion to settle government investigations into Zyprexa marketing.

Revenue grew to $5.56 billion from $5.21 billion, exceeding Wall Street expectations of $5.41 billion.

Lilly also raised its 2009 profit forecast for the second time since July. The company now expects a full-year profit of $4.30 to $4.40 per share, excluding one-time items, up from $4.20 to $4.30 per share. Analysts expected $4.29 per share.

Lilly had previously raised its outlook from a range of $4 to $4.25 per share.

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AP Business Writer Marley Seaman in New York contributed to this report.

2009-10-21 18:16:40