|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Lilly Looms Over Patent Precipice
Posted by: Muhammad Bazil (IP Logged)
Date: September 30, 2012 02:32PM
The Indianapolis based drug manufacturer Eli Lilly (LLY) faces a tough Q3 earnings report on October 24th. With upcoming patent expiration on Cymbalta and Evista, it will be very difficult to show means of long-term growth. Cymbalta currently accounts for $5 billion in revenue annually and will go generic in late 2013; Evista brings in close to $1 billion and loses exclusivity in 2014. If we look back to their last Q3 earning report from 2011, they saw 9% growth (a 1.8% decrease from the year prior). It’s unlikely that we’ll see greater than 9% come the end of October, as the company will have to continue shifting profit margins to Research and Development to combat dried out pipelines. Nonetheless, the company has a few lucrative developments positioned for the future, so you may not want to cut your losses just yet.
Solanezumab, Lilly’s latest Alzheimer’s treament, has little chance of being granted even conditional approval at this point. The drug’s small window was nearly slammed shut with William Theis, chief medical and scientific officer at Alzheimer’s Association (a patient advocacy group), announcing that they will not be pressuring the FDA to grant conditional approval. However, if it does happen to scrape through, it should offer some new revenue streams. Alzheimer’s disease affects over 5 million people in the United States alone, ranking as the sixth leading cause of death. If Solanezumab finds approval expect it to generate some strong revenue in this largely, unmet market. Especially given Pfizer’s (PFE) and Johnson and Johnson’s (JNJ) decision to pull development of Bapineuzumab, an injectable treatment for Alzheimer’s, given poor stage-3 clinical results and an overall failure to show efficacy.
A silver-lining in the pharmaceutical giant’s future is its positioning in international markets. Cialis, their 5th most profitable drug, has received approval for BPH (benign prostatic hyperplasia) from the European Union’s Committee for Medicinal Products for Human Use. The final approval from the euro zone will come in one to two months, but the committee’s nod all but ensures its approval. The drugmaker has also seen strong growth in Asian markets with 28% growth in China and 15% in Japan. At the same time, Eli Lilly has also been making inroads to continue that growth internationally with expanded collaboration with Novast Laboratories, a generic drug manufacturer in China, which should allow for faster deployment of new drugs across the Pacific.
Its international growth considered, big performers will need to come through the pipeline to outweigh upcoming patent expirations and clinical setbacks. Zyprexa, an antipsychotic indicated for schizophrenia and bipolar disorder, has come off patent – and besides Japan – revenue for the drug has continued to decline rapidly. Also in bad shape is Effient; the Daiichi Sankyo (DSKYF) partnered blood thinner, was proven to be no more safe than competitor Bristol-Myers Squibb’s (BMY) Plavix in 2 clinical trials that were released on August 26th. Alimnta, Lilly’s chemotherapy drug has also proved less applicable to other areas than was hoped – with a study showing its not effective in extending the lifespan of late-stage lung cancer patients when the drug is combined with Roche’s (RHHBY) Avastin. The study’s unfortunate conclusion falls harder on Lilly which has a much older portfolio than Roche, which maintains patent exclusivity on Herceptin and Avastin through 2019.
The oncology space has been earmarked as a source of upcoming growth for most pharmaceutical companies and Eli Lilly has one drug in particular which should help in the coming years. Ramucirumab, currently in phase 3 trials is indicated for gastric and liver cancer which some analysts expect to be a $1.5 billion market by 2020. With that considered, some analysts are holding estimates for ‘ramu’ at $500 million for 2015, which will fall far short of the billions being lost on Cymbalta and Evista’s patents expirations.
Short term, LLY is well positioned with international growth helping to ward off revenue losses from Zyprexa in the U.S. Long term, the drug maker is a tough sell with dried up pipelines and modest estimates on new products for the future. One caveat is that the patent problem does not fall squarely on Lilly’s shoulders and other major drug manufacturers will feel similar growing pains in the coming years.
Stocks Discussed: LLY, BMY, JNJ, PFE,