Eli Lilly has told investors that earnings will continue to rise for the next couple of years as its well-stocked pipeline gets closer to bearing fruit, but some analysts are not convinced about the firm’s ability to absorb the revenue fall that will follow its imminent patent cliff.
Lilly’s research chief Steven Paul noted that the company has more than 60 new molecules in clinical trials, including 25 in Phases II and III. It hopes to have at least ten molecules in late-stage development by the end of 2011 and plans to launch two new medicines per year beginning in 2013.
Highlights of that pipeline include semagacestat, a gamma secretase inhibitor which is being studied in two large Phase III trials to assess its effect on the progression of Alzheimer’s disease and solanezumab, a monoclonal antibody which “holds the potential for slowing down the progression of Alzheimer’s”. Enrollment began in May in two multinational late-stage studies.
Lilly is working on nine cancer drugs, including ramucirumab, which is in Phase III trials for breast and gastric cancer, while two late-stage studies for necitumumab have been initiated in non-small cell lung cancer. Phase III trials of cixutumumab in various tumour types are planned to begin in 2010.
The company also stated its desire to expand its presence in six of the “pharmerging markets” – China, Russia, Brazil, Mexico, South Korea and Turkey. The priority will be China, where Lilly has doubled the size of its affiliate this year to about 2,200 employees, and it is currently building a second manufacturing plant in Suzhou to produce insulin.
Profits-wise, Lilly is predicting low-double-digit earnings-per-share growth for next year and 2011, but analysts are extremely concerned as to what will happen after that. Its blockbuster antipsychotic Zyprexa (olanzapine) will be going off-patent in the USA in 2011, while the years up to 2014 will see big-sellers lose protection, notably the antidepressant and fibromyalgia drug Cymbalta (duloxetine).
Chris Schott, an analyst with JPMorgan Securities, issued a research note saying that although Lilly has “a growing mid-stage pipeline, these assets remain several years away from the market, leaving the company in the difficult position of needing to heavily invest in its next wave of product opportunities at a time of significant erosion”. Tim Anderson at Sanford Bernstein agreed that “many of these compounds have novel, unproven mechanisms of action” and while “novelty is clearly a good thing…it also implies a higher chance of clinical failure”.
Lilly’s shares ended the day down 4.2% at $35.02 as investors showed their concern. However the company is not going to try buy its way out of the challenges Lilly, and indeed the whole sector, faces and a big merger has been all but ruled out.
Chief executive John Lechleiter noted that “we see a divergence of strategies among our peers to deal with these challenges, including the wave of consolidation this year. Many companies are seeking to lower risk by reducing their focus on innovative medicines. This is not our path”.
