Lilly's Rough Patch Has Analysts Questioning Strategy
Monday, February 14, 2011 by ARSITEKTUR
Eli Lilly (LLY), which has taken one body blow after another of late, on Tuesday threw in the towel on its much-anticipated Alzheimer's treatment, semagacestat. The drug failed in its phase-three trials, Lilly said.
Lilly separately has recently suffered two court losses to generic-drug makers.
Eli Lilly CEO John Lechleiter wants the drugmaker to reinvent its
Eli Lilly CEO John Lechleiter wants the drugmaker to reinvent its "innovation engine," but some analysts want to see a more aggressive strategy. AP View Enlarged Image
Observers say it's time for the company to change strategy and look to make some acquisitions.
That runs smack-dab opposite the strategy extolled by Lilly CEO John Lechleiter. His strategy is "reinventing our innovation engine here," as he put it in an earnings conference call with analysts last month.
But the engine is sputtering. Lilly is appealing a judge's ruling Thursday that invalidated its patent for the ADHD drug Strattera. On Monday, Lilly asked a U.S. District Court to block all generic versions of the drug until Lilly exhausts all appeals.
The patent was to run until 2016.
Generic-drug makers Teva Pharmaceutical (TEVA), Mylan (MYL) and others are ready to launch generic Strattera. Generic competition commonly knocks 80% off the cost of a branded drug.
And on July 28, Lilly failed in another court to protect the patent for its chemotherapy drug, Gemzar. That patent was to expire in 2013.
A failed drug in phase-three trials means a write-off of many millions in already-incurred costs. The loss of a product to generic competition can cost billions in future revenue.
Lilly's stock has fallen more than 9% since Aug. 10, after sliding 2.3% Tuesday to 34.75.
Gemzar sales were $750 million in 2009. Lilly's Strattera sales last year were $600 million worldwide, $450 million in the U.S.
If prices fall 80%, then that's more than $1 billion off the company's top line, which was $22 billion last year. Add it up over the years until patent expiration, and that's more than $5 billion in forgone revenue.
"It's hard to see a reason for the stock to go up without a major pipeline success or without the company making some aggressive strategic moves," said Seamus Fernandez, an analyst with Leerink Swann, which has done business with Lilly.
Lilly's last big deal was its $6.5 billion purchase of ImClone in 2008, though it has made some acquisitions since. Last month, it bought privately held Alnara Pharmaceuticals for an undisclosed sum. Alnara is working on biologic drugs for metabolic diseases.
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