Eli Lilly & Company (LLY): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report


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Lilly's third-quarter 2014 earnings per share were $0.66, in line with the Zacks Consensus Estimate but 41% below the year-ago earnings. Third-quarter revenues fell 16% to $4.876 billion, reflecting generic competition for Cymbalta and Evista in the U.S. However, revenues were slightly above the Zacks Consensus Estimate of $4.83 billion. The biggest near-term challenge for Lilly will be to replace the revenues lost due to the Zyprexa, Cymbalta and Evista genericization. The Animal Health business and the diabetes franchise should provide some downside support. We are also pleased to see Lilly pursuing small acquisitions and in-licensing deals to boost its pipeline. We remain Neutral on the stock.


Indianapolis, IN based Eli Lilly and Company is a global healthcare company with core products in a number of primary-care pharmaceutical markets. Lilly generates revenues from its pharmaceutical product and animal health segments. The pharmaceutical product segment consists of several divisions: neuroscience (Zyprexa, Cymbalta, Strattera, and Prozac), endocrinology products (Humalog, Humulin, Actos, Evista, Forteo, and Humatrope), oncology (Alimta and Gemzar), and cardiovascular (Cialis, ReoPro, Xigris, and Effient).

The company's portfolio includes Zyprexa (schizophrenia and bipolar disorder), Gemzar (pancreatic cancer), Evista (osteoporosis), Cymbalta (depression), Cialis (erectile dysfunction), Strattera (attention deficit hyperactivity disorder - ADHD), and Alimta (chemotherapy). The $6.5 billion purchase of ImClone Systems in Nov 2008 brought with it blockbuster cancer compound Erbitux. In addition, Lilly develops drugs in the areas of antibiotics, growth hormones, anti-ulcer agents, cardiovascular therapies and animal health products. These products (other than Erbitux) are manufactured either at its own or leased facilities, and are sold in approximately 120 countries around the world. However, many of these products are facing generic competition.

Over the past few years, Lilly has been actively seeking acquisitions and in-licensing deals to boost its product portfolio and pipeline. While the ImClone acquisition helped expand Lilly's oncology pipeline and biotechnology capabilities, the Aug 2008 acquisition of SGX Pharmaceuticals, Inc. gave Lilly access to SGX's fragment-based, protein structure guided drug discovery technology, and several preclinical oncology compounds. The Jan 2007 acquisition of ICOS Corporation gave Lilly full control over erectile dysfunction drug, Cialis.

Other acquisitions include those of Hypnion, Inc. (a neuroscience drug discovery company focused on sleep disorders) and Ivy Animal Health, Inc. (an applied research and pharmaceutical product development company focused on the animal health industry). Lilly also expanded its animal health business through the acquisition of the European rights to some of Pfizer's animal health products, consisting of vaccines, parasiticides and feed additives for both companion and production animals, and the acquisition of the animal health business of Janssen. Lilly also acquired ChemGen Corp., which specializes in the development and commercialization of innovative feed enzyme products that improve the efficiency of poultry, egg, and meat production.

The company is boosting its animal health business further through the acquisitions of Lohmann Animal Health, a privately-held company headquartered in Cuxhaven, Germany, and Novartis' animal health segment. While the Lohmann deal closed in Apr 2014, the Novartis animal health acquisition is slated to go through in the first quarter of 2015.

Lilly has collaboration agreements with several companies including Bristol-Myers Squibb and Merck KGaA (Erbitux), Daiichi Sankyo (Effient), Boehringer Ingelheim (diabetes) and TPG-Axon Capital (solanezumab) among others.

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