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WIKI ANALYSIS
Eli Lilly and Company (NYSE: LLY) is the seventh largest pharmaceutical company with total sales of $21.8 billion, of which almost a quarter came from Zyprexa, a schizophrenia and bipolar disorder drug (see Antipsychotic Drug Market).[1][2] Although the patent for Zyprexa will expire in 2011, Eli Lilly has one of the youngest product portfolios in the industry -- the company has $6.64 dollars coming from new products (those launched within the last five years) for every dollar lost from patent-expiring ones, compared to an industry average of only 77 cents.[3]
Lilly's most promising pipeline products are Effient (prasugrel), a blood-thinner, and Byetta LAR, a long-acting-release version of the diabetes drug Byetta. Compared to Sanofi-Aventis and Bristol-Myers Squibb's Plavix, Effient is more effective at reducing heart attacks but also increases the risk of major bleeding, but for a net benefit.[4] Effient is under priority review by the FDA.[4] Byetta's biggest advantage over competitors is that it is just as effective but causes weight loss instead of gain, and there are indications that the long-acting version may be even more effective.[5]
2009 sales grew by 7% to $21.8 billion, largely driven by double-digit growth from the depression and pain-management drug Cymbalta (14%), diabetes drug Humalog (13%), and cancer drug Alimta (48%).[6]
Corporate Overview
Major Products
Eli Lilly's top eight products have each generated net sales of more than $1 billion for 2009.[8]
- Zyprexa (23% of 2009 sales), Eli Lilly's best-selling product, is in the antipsychotic drug market for the treatment of schizophrenia, bipolar disorder, and other psychological disorders. It has also been used off-label for depression and dementia.[9] In 2009, Zyprexa sales grew 5% due to higher prices and an increased international presence. A 2005 study showed that Zyprexa was the most effective of its class, but causes significant weight gain -- 30 percent of patients gained more than 22 pounds after a year on the drug -- which leads to an increased risk for diabetes.[10][9] Since 2005, Eli Lilly has spent $1.61 billion to settle 31,200 lawsuits from patients who claimed that Zyprexa caused diabetes or other illnesses.[11] The patent for the drug expires in 2011.[12]
- Cymbalta (14% of 2009 sales) is a treatment for depression, anxiety, and pain management for diabetics (see Antidepressant Drug Market). Sales of the drug grew 14% in 2009 to $3.1 billion due increased demand in its markets. The product's patent expires in 2013. [2]
- Humalog (9% of 2009 sales) is an insulin analog used for managing diabetes. In 2009, sales of Humalog grew 13% to $1.96 billion, driven by both higher prices and demand.
- Gemzar (6% of 2009 sales) is a chemotherapy drug for lung cancer, pancreatic cancer, and breast cancer. Gemzar mimics a DNA building block, preventing DNA replication and tumor growth.[13] Like many other chemotherapy drugs, this also stops the division of healthy cells, leading to severe side effects. Gemzar began to face generic competition in 2009, forcing sales to decline 21% from 2008 to $1.36 billion.
- Cialis (7% of 2009 sales) is the newest and longest-lasting erectile dysfunction drug on the market. In 2009, Cialis sales increased 8% to $1.56 billion, due to both increased prices and demand. Cialis' patent expires in 2016.
- Alimta (8% of 2009 sales) is a lung and chest cancer drug. In 2009, sales of Alimta grew 48% to $1.71 billion from higher demand. Alimta's patent expires in 2016.
- Evista (5% of 2009 sales) is an osteoporosis drug only approved for postmenopausal women. In 2009, sales of Evista fell 3% due to lower demand. Evista's patent expires in 2014.
- Humulin (5% of 2009 sales) is another insulin analog used for managing diabetes. In 2009, sales of Humulin grew 6%, driven by higher prices, but partially offset by lower demand.
- Forteo (4% of 2009 sales) is another osteoporosis drug that is approaching blockbuster status, growing 5% to $817 million in 2009.[2] Unlike most osteoporosis drugs on the market, which only inhibit bone reabsorbtion, Forteo also promotes new bone formation.[14] The drug is usually reserved for advanced cases of osteoporosis since it requires expensive daily injections.[10] Its approval was expanded in July, 2009, to extend to patients undergoing systemic glucocorticoid therapy. [15] Forteo's patent expires in 2018.
- Byetta (2% of 2009 sales) belongs to a new class of diabetes drugs that is based on a compound from the saliva of the Gila Monster and is jointly developed by Eli Lilly and Amylin Pharmaceuticals. As the first and only drug of its kind on the market, Byetta increases the natural production of insulin, slows digestion, and reduces appetite, which all work to lower blood glucose.[5] Byetta's biggest advantage is that it is associated with weight loss, unlike most other diabetes drugs, which cause weight ; however, it is more likely to cause stomach problems and requires an injection.[5] Byetta sales grew by 16% to $751.4 million in 2008.[2] Eli Lilly, Amylin, and Alkermes are developing a long-acting-release (LAR) version of Byetta that is more effective and requires fewer injections, which is currently under Phase III trials and is expected to hit the market in 2009-2010.[5][10]
Lilly's animal health division operates independently of its main pharmaceutical business and had sales of $1.09 billion in 2007.[2]
Upcoming drugs
- Effient is a blood thinner that Eli Lilly is jointly developing with Daiichi Sankyo Co., a Japanese pharmaceutical company.[16] A 2007 study compared it to the blood thinner Plavix by Sanofi-Aventis and Bristol-Myers Squibb and showed that Effient reduced heart attacks but increased risk of major bleeding -- for every 1000 patients on Effient, there were 23 less heart attacks but 6 more cases of major bleeding.[4] Effient is under priority review by the FDA.[4]
Business and Financial Metrics
In Q2 of 2010, Eli Lilly reported total revenue of $5.79 billion, a 9% growth from the same quarter of the previous year. The reported income for the same quarter was $1.35 billion that grew by 16% from the same quarter in 2009. Based on the strong first half results the company has raised its 2010 earnings per share guidance range to $4.44 to $4.59 from the forecasted $4.35 to $4.50 during the Q1 2010 report. The strong revenue growth was a result of both higher volumes (5% of revenue growth) and higher prices (2% of revenue growth)[17]
In Q1 of 2010, Eli Lilly reported total revenue of $5.49 billion, a 9% growth from the same quarter of the previous year. Eli Lilly reported a net income of $1.25 billion, which was a 5% decline that the company attributed to a $145 million impact on the bottom line by rebates and taxes connected to the health care reform. Eli Lilly also released a revised 2010 outlook, in which it forecasted $4.35 to $4.50 per share, down 7% from earlier estimates. This decreased outlook reflects $425 million that the company expects to lose from higher government rebates and taxes related to healthcare reform.[18] For 2011, Eli Lilly reflects these charges to amount to $600 to $700 million. While Eli Lilly's Q1 results beat analyst estimates, the decreased outlook due to healthcare reform sent shares down after the release.[19]
In December 2009, Eli Lilly released a forecast of its 2010 earnings, at between $4.65 amd $4.85 per share for a growth of 5.2 to 9.7% over 2009. These results fell in line with Wall Street estimates, however, share dropped 4.4% on the new amid concerns over Eli Lily's coming patent expirations. These expirations, which include patents for schizophrenia drug Zyprexa, antidepressant Cymbalta, cancer drug Gemzar and osteoporosis treatment Evista, will threaten the bottom line of the drug company in years to come. Eli Lilly forecasted revenues of at least $20 billion from 2012 to 2014, with earnings of at least $3 billion. While these numbers were used as a baseline minimum, the forecast fell below analyst estimates.[20]
In Q4 of 2009, Eli Lilly reported total revenue of $5.93 billion, a 14% growth from the same quarter of the previous year. Eli Lilly reported net income of $915 million, for a net margin of 15.4%.[21] Reported profit was in line with analyst expectations, but sales topped the consensus by 4.4%. Lilly also announced its 2010 earnings expectations, which it said would lie between $4.65 and $4.85 per share.[22]
In Q3 2009, Eli Lilly reported revenue of $5.56 billion , a growth of 7% from the same quarter of the previous year. Gross margin increased 3.3 percentage points to 81.1%, resulting in an operating income of $1.14 billion and a net income of $942 million.[23] These earnings, which totaled $1.20 per share, beat Wall Street projections of $1.02 per share. Total revenue also beat projections, which averaged $250 million less, or $5.41 billion.[24] Despite the higher-than-projected financials, Eli Lilly shares fell nearly 3% amid worries about upcoming patent expirations.[25]
Trends and Forces
The Expiration of Zyprexa Patent Exclusivity in 2011
On April 23, 2011, Eli Lilly's most profitable drug, Zyprexa, will lose its patent protection, exposing it to generic competition.[26] Zyprexa sales ($4.7 billion) constituted 23% of Eli Lilly's total sales for 2008,[27] and loss of patent exclusivity will cut into market share and lower prices for the drug. As Eli Lilly prepares for this revenue hit, the company announced that it cut 13.5% of its workforce, or 5,500 jobs in an effort to cut annual costs by $5 billion.[28] Eli Lilly's ability to cope with the loss of its major revenue generator will significantly impact the company's value.
Pipeline Risks
For more detailed information on the FDA approval process, see also Clinical trials.
Lilly's two most promising drugs in development are Effient, a blood thinner that will compete with Bristol-Myers/Sanofi's Plavix, and Byetta LAR, a long-acting-release version of its existing diabetes drug Byetta.
Developing a new drug is a time-consuming and costly endeavor. Hundreds of thousands of candidate compounds must be screened to identify a handful of potential drugs, and even fewer of these candidate drugs are found to be effective at treating a disease. The drug must then pass strict safety standards in several series of clinical trials. The entire process of developing a new drug and bringing it to the market takes up to 10 to 15 years and on average costs $800 million.[29]
Young Product Portfolio
Eli Lilly has one of the youngest product portfolios in the industry -- the company has $6.64 dollars coming from new products (those launched within the last five years) for every dollar lost from patent-expiring ones, compared to an industry average of only 77 cents.[3]
When a drug loses patent protection, generic brands of the drug can be made, breaking the monopoly that the brand-name drug originally possessed. Sales of the iconic antidepressant Prozac fell from peak sales of $2.8 billion in 2001 to a negligible amount (out of the company's annual reports) after its patent expired in 2001.[30] The patent for Zyprexa, Lilly's best-selling drug, expires in 2011.[12]
Generic Drug Competition
Eli Lilly, like all major pharmaceutical companies, constantly faces the threat of generic copies of its drug portfolio. When patents expire, generic copies can reduce the price of a drug to a mere fraction of the patented original. Even when patents still apply to its drugs, Eli Lilly must still for remain vigilant in looking for any generic competitors and incur legislative costs to enforce any patent breaches.
On December 4, 2008, Eli Lilly filed a case against two Indian companies, Aurobindo Pharma and Lupin, for patent violation of its antidepressant drug Cymbalta. The infringement case is Eli Lilly's sixth outstanding patent lawsuit in the US. [31]
Tightening FDA Regulations
When FDA commissioner Margaret Hamburg began her tenure in 2009, she announced that the FDA would toughen it's enforcement efforts to protect public health.[32] As the FDA has drawn criticisms for its failures in preventing deaths caused by drugs such as Vioxx, Hamburg has come in with several fixes that include stricter monitoring of drug adverse events, more funding for the agency, stronger ability to force product recalls, and more scientific expertise within the agency.[33] On May 19, 2010, the FDA announced 21 proposals aimed at increasing transparency to the public regarding regulatory information.[34]
Such information will increase the amount of information accessible to the public with regard to companies' pipeline drugs and manufacturing facilities that might otherwise not have been disclosed. While the tightened regulations and increased transparency will eventually improve the overall quality of pharmaceutical products, there will be growing pains as companies adjust to the stricter standards and stronger enforcement. Eli Lilly's ability to adjust to these new standards will impact its valuation and financial success.
Lawsuits
In January of 2009, Eli Lilly pleaded guilty to charges that it illegally marketed Zyprexa for treating dementia in the elderly, an unapproved use. The company will pay a record $1.42 billion in fines, which includes the largest criminal fines the U.S. government has ever imposed on a company. The case began in 2002 and concerned misleading marketing practices in 1999.[35]
Competition
Zyprexa competes with Pfizer's Geodon, AstraZeneca's Seroquel, Johnson & Johnson's Risperdal, and Bristol-Myers Squibb's Abilify in the antipsychotics market. A studied showed Zyprexa to be most effective in its class,[10] but the drug causes significant weight gain[9] while Geodon does not.[36]
Cymbalta competes with Forest Laboratories' Lexapro and Wyeth's Effexor in the antidepressant market, and Pfizer's Lyrica for diabetic neuropathy.[10]
Evista and Forteo compete with Merck's Fosamax and Novartis's Zometa in the osteoporosis market.[10] Amgen's Denosumab is a new contender in late stage clinical trials and may soon enter the market.
Gemzar competes with numerous chemotherapy agents, but is more tolerable than older drugs while retaining effectiveness.[10]
Humalog competes with other insulin analogs made by Novo Nordisk and Sanofi-Aventis to treat diabetes.[37] Insulin analogs mimic the role of natural insulin in regulating blood sugar and are generally all very similar in action.
Cialis competes with Pfizer's Viagra and Bayer's Levitra in the erectile dysfunction (ED) drug market. Cialis's primary competitive advantage is that it is effective for up to 36 hours on one dose, compared to the other drugs, which must be taken a short time before anticipated sexual activity.[38]
Competition in the pharmaceutical industry lies mostly in specific drug markets. For example, a new diabetes drug is not going to have any effect on an existing cholesterol drug, no matter how successful it is. As a result, financial data on the pharmaceutical companies do not tell the whole story. Instead, it may be more appropriate to analyze Eli Lilly's competitors by each drug market (See section on Major Drugs and Industry Trends).
The table below displays competitive operating metrics for competitors within the pharmaceutical industry. Note that the total revenue for Merck and Pfizer was influenced by revenue inherited from their acquisitions of Schering-Plough and Wyeth, respectively. In addition, net income for Merck was bolstered by $3.2 billion from the sale of its animal division [39], while Bristol-Meyers Squibb's net income saw a one-time $7.2 billion increase from the sale of its nutrition division.[40]
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Revenue (in billions of USD) |
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|
Total Revenue |
$61.9 |
$50.0 |
$44.3 |
$30.8 |
$27.4 |
$18.8 |
$21.8 |
$14.6 |
$7.0 |
$32.8 |
$49.1 |
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|
Gross Profit |
$43.5 |
$41.1 |
$32.1 |
$17.6 |
$18.4 |
$13.7 |
$17.6 |
$12.6 |
$5.4 |
$27.2 |
$34.4 |
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Revenue Growth from 2008 |
-2.9% |
3.5% |
4.0% |
4.2% |
15.0% |
6.2% |
7.2% |
-2.4% |
31.4% |
3.8% |
7.5% |
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|
Income |
|||||||||||||
|
Net Income |
$12.3 |
$8.6 |
$8.4 |
$5.8 |
$12.9 |
$10.6 |
$4.3 |
$4.6 |
$2.6 |
$7.5 |
$7.8 |
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|
Net Profit Margin |
19.8% |
17.3% |
19.0% |
18.7% |
47.0% |
56.4% |
19.8 |
31.5% |
37.6% |
22.9% |
15.9% |
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|
Operating Income |
$15.8 |
$10.8 |
$10.0 |
$6.2 |
$15.3 |
$5.6 |
$5.4 |
$5.5 |
$3.5 |
-$11.5 |
$11.9 |
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Diluted EPS Growth from 2008 |
-3.7% |
2.5% |
3.7% |
21.8% |
55.6% |
20.7% |
NA |
19.6% |
36.9% |
23.6% |
-11.8% |
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Other |
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R&D Spending |
$7.0 |
$7.8 |
$7.5 |
$2.7 |
$5.9 |
$5.1 |
$4.3 |
$2.9 |
$0.9 |
$4.4 |
$9.9 |
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References
- ↑ Fortune 500 2009: Industry: Pharmaceuticals.
- ↑ 2.0 2.1 2.2 2.3 2.4
- ↑ 3.0 3.1 Tough Projections for Big Pharmas: Drug Revenues Don't Look Promising.
- ↑ 4.0 4.1 4.2 4.3 Lilly's Prasugrel Is Granted FDA Priority Review.
- ↑ 5.0 5.1 5.2 5.3 Wikipedia:Byetta
- ↑ Lilly Sales and Earnings Press Release - FINAL.pdf Lilly Reports Fourth-Quarter and Full-Year 2009 Results
- ↑ Lilly Sales and Earnings Press Release - FINAL.pdf Lilly Reports Fourth-Quarter and Full-Year 2009 Results
- ↑ Lilly Sales and Earnings Press Release - FINAL.pdf Lilly Reports Fourth-Quarter and Full-Year 2009 Results
- ↑ 9.0 9.1 9.2 Wikipedia:Zyprexa
- ↑ 10.0 10.1 10.2 10.3 10.4 10.5 10.6 Cowen and Company. Therapeutic Categories Outlook. March 2008.
- ↑ LLY 2007 10-k pg. 19
- ↑ 12.0 12.1 LLY 2007 10-k pg. 13
- ↑ Wikipedia:Gemzar
- ↑ Wikipedia:Forteo
- ↑ [1]
- ↑ Wikipedia:Prasugrel
- ↑ Lilly Reports Strong Second-Quarter 2010 Results
- ↑ Lilly Reports First-Quarter 2010 Results
- ↑ Eli Lilly sees health reform hit in 2010, 2011
- ↑ Lilly suggests profit stumble after patent cliff
- ↑ Lilly Sales and Earnings Press Release - FINAL.pdf Lilly Reports Fourth-Quarter and Full-Year 2009 Results
- ↑ Lilly profit falls short, sales beat Street view
- ↑ Lilly Reports Solid Third-Quarter 2009 Results; Revises Full-Year 2009 EPS Guidance
- ↑ Lilly profit tops Street view, but shares fall
- ↑ Lilly profit tops Street view, but shares fall
- ↑ FDA Orange Book: Zyprexa
- ↑ Eli Lilly 2008 10-K Annual Report, p.23
- ↑ Lilly cutting 5,500 jobs before Zyprexa lapse
- ↑ "2007 Pharmaceutical Industry Profile".
- ↑ Eli Lilly: Life After Prozac.
- ↑ TradingMarkets. "Eli Lilly files suit against Lupin, Aurobindo in US." 4 December 2008
- ↑ New F.D.A. Chief Says She’ll Toughen Enforcement Efforts
- ↑ The FDA: A tough tonic
- ↑ FDA Transparency Could Tank Pharma Stocks
- ↑ http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=LLY%3AUS&sid=aOgHFAH8vV98
- ↑ Wikipedia:Geodon
- ↑ Wikipedia:Insulin analogue
- ↑ Wikipedia:Cialis
- ↑ Merck Announces Fourth-Quarter and Full-Year 2009 Financial Results
- ↑ Bristol beats forecast, helped by lower taxes
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