Eli Lilly Shares down Slightly on Guidance - Analyst Blog

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Shares of Eli Lilly and Company ( LLY ) were down about 0.8% over the two trading sessions immediately after the company announced guidance for 2014.

While the company reiterated its 2013 guidance (issued at the time of reporting third quarter results: earnings of $4.10 to $4.15 per share on revenues of $22.6 billion - $23.4 billion), Eli Lilly now expects 2014 revenues of $19.2 billion - $19.8 billion. 2014 earnings are expected in the range of $2.77 - $2.85 per share. Earnings guidance was in-line with expectations - the Zacks Consensus Estimate for 2014 is $2.83 per share.

Meanwhile, the revenue guidance was below the company's earlier forecast of revenues of at least $20 billion through 2014. Basically, 2014 will be an extremely challenging year for Eli Lilly with two major products - Cymbalta and Evista - facing generic competition this year. Cymbalta has already lost exclusivity in the U.S. and should see a sharp decline in sales and Evista is slated to lose exclusivity in March.


Products like Humalog, Trajenta, Cialis, Forteo and Alimta and the animal health business should help partially offset the impact of genericization. China should also see strong growth though Japan will be weaker due to currency movement.

Gross margin is expected to decline significantly in 2014 mainly due to the patent expirations. 2014 gross margin is expected to be 74%.

Eli Lilly expects a significant decline in total operating expenses in 2014. While marketing, selling and administrative expenses are expected in the range of $6.2 billion to $6.5 billion (down about 10% compared to 2013 guidance), research and development expenses are expected in the range of $4.4 billion to $4.7 billion (down about 15% compared to 2013 guidance).

The company said that it remains on track to meet its goals of generating net income and operating cash flow of $3 billion and $4 billion, respectively, this year. Eli Lilly is looking to continue paying dividends at the current level at least and will continue pursuing share buybacks and business development activities.

The 2014 guidance does not include the impact of a $200 million upfront fee that will be payable to Pfizer ( PFE ) if the partial clinical hold on pipeline candidate, tanezumab, is lifted. Eli Lilly expects to return to growth from 2015.

Our Take

Eli Lilly's 2014 guidance was mostly in line with expectations. This will be a tough year for the company with two products facing generics. However, Eli Lilly is progressing with its pipeline and has several pipeline-related events lined up especially for ramucirumab (oncology), empagliflozin (type II diabetes), and dulaglutide (type II diabetes) among others.

Eli Lilly currently carries a Zacks Rank #3 (Hold). Some better-ranked large-cap pharma stocks include GlaxoSmithKline ( GSK ) and Novartis ( NVS ) with both carrying a Zacks Rank #2 (Buy).



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LILLY ELI & CO (LLY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: GSK , LLY , NVS , PFE

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