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BY THERESA AGOVINO
AP Business Writer | Friday, January 27, 2006 | (No comments posted.)
NEW YORK | Eli Lilly and Co. has been largely immune from many of the woes bedeviling the pharmaceutical industry, and the company's chief executive can tick off the reasons why.
Indianapolis-based Lilly avoided mergers, embraced the biotech revolution early, partnered with smaller companies and pours a larger than average percentage of revenues back into research, said chairman and CEO Sidney Taurel.
The result: Lilly introduced nine new drugs in the last four years, the pipeline holds additional promising drugs and no significant patent expirations are imminent. And the company recently hasn't had to withdraw a product or launch a major restructuring to shore up earnings like some of its brethren.
"I think history is proving us right if you look at our stock price," said Taurel, looking confident and relaxed as he sat in the lobby of a Manhattan hotel.
On Thursday, Lilly reported its 2005 earnings totaled $1.98 billion, or $1.81 per share, versus $1.81 billion, or $1.66 a share, a year ago. Sales rose to $14.65 billion from $13.86 billion. And its estimates for 2006 were above Wall Street's predictions. Its stock closed at $56.93 Thursday, close to 18 times 2006 earnings estimates, among the highest multiples in the industry.
"It is our top pick," said Chris Schott, an industry analyst at Banc of America Securities. "I like the lack of patent expirations...They have a portfolio of new products."
Schott's not alone in his enthusiasm. Only Pfizer Inc. has more analyst buy recommendations than Lilly, according to Zacks Investment Research. And while the number of Pfizer's recommendations is falling, Lilly's is increasing.
But even Lilly's advocates concede that some of Lilly's shine is derived from being compared to tarnished companies. Lilly has had its share of problems. Sales of its best selling drug, anti-psychotic Zyprexa, fell 5 percent in the first nine months of the 2005 because of concerns about its ties to diabetes. Lilly's primary growth driver, antidepressant Cymbalta, has slowed lately and safety concerns have clipped sales of attention deficit disorder drug Strattera.
"Lilly has been more innovative than most other companies but done worse at execution," said Barbara Ryan an analyst at Deutsche Bank. "There's betting on a pipeline that hasn't panned out in the past."
In each of the last four years, analysts earnings projections fell through the 12 months, according to Zacks, reflecting negative developments or sentiment.
"The company is not without controversy," said Schott. Yet, he is willing to trust Lilly because he likes the management and the strategy.
Born in Morocco and fluent in four languages, Taurel is a favorite among analysts for his direct but personable style.
Taurel acknowledged some products' performance has been disappointing, most notably Xigris, an expensive biotech drug against sepsis which is only effective in a limited population.
"We had so many new products in a short time that maybe we didn't do the best job with each," Taurel concedes.
Zyprexa's links to diabetes triggered 6,400 lawsuits, by Lilly's estimate; the company said it will establish a fund of up to $690 million to settle claims.
Taurel said he was dismayed by the slowdown in Cymbalta prescriptions but has taken steps to boost sales. More sales people are now touting Cymbalta and Lilly launched an advertising campaign encouraging individuals to seek treatment for depression.
Some analysts note Cymbalta may be helped when Pfizer's Inc. Zoloft loses patent protection later this year because Lilly will no longer be competing against the company considered the best marketer in the business. But others point out the whole category is flagging because of safety concerns.
Revitalizing Cymbalta growth is key to Lilly achieving success, said Jason Napadano, a Zacks analyst.
"If Cymbalta doesn't work, the Lilly story doesn't work," he said.
Strattera's links to liver problems and suicidal thinking among children and adolescents crushed sales, with revenue falling 21 percent to $384.1 million in the first nine months of the year. Lilly is strengthening its marketing to the adult population, which showed no indication of increase in suicidal thoughts.
Taurel worries that safety concerns are being blown out of proportion in the aftermath of Merck & Co.'s decision to withdraw pain reliever Vioxx from the market
"People are focusing on the side effects without looking at the benefits," said Taurel. "It is a lopsided debate."
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