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Is pain in the future for Eli Lilly Company?

November 10th, 2010 by John Eastman

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Eli Lilly & Co. (LLY), the 10th largest pharmaceutical company in the world, recently obtained approval to sell the antidepressant drug, Cymbalta, as a pain killer. The Food and Drug Administration (FDA) cleared Cymbalta for remedies for arthritis and chronic lower back conditions.

As with most drug firms, Lilly is playing the game of patent expiration—squeezing the most revenue out of a patented drug before that patent expires and generic offerings dilute their profits. So the news of an expanded use seems positive, but nonetheless, Cymbalta’s patent still expires in approximately 3 years (2013), effectively causing a plunge of revenue.

Cymbalta is Lilly’s second-biggest revenue producer with sales of over $3 billion last year. But this staggering number represents 14% of their entire sales, a significant vulnerability when patent expiration occurs. Lilly, like other pharma firms, are under constant pressure to produce new revenue and fend off generic competition.

But is broader approval a good idea? A major depressive disorder med for pain relief? Will the medical profession open the door for yet another pain reliever in the musculoskeletal pain market? Cymbalta was not developed for pain relief. While some analysts predict revenue from this drug to surge up ranging from 10 to possibly 16%, it seems like a far shot. Lilly has other worries on the horizon as well. Insulin treatment Humalog, its third sales leader also expires in 2013, and Zyprexa, its top drug, an antipsychotic is up for expiration in 2011, right around the corner.

In order to address its business growth, market and revenue issues, the firm is focused on research and development that concerns personalized medicine in which are more broadly defined as tailored therapies.

Regarding clinical development, the firm is working on biotech solutions together with traditional chemistry-based work in with a goal to deliver innovative treatments for a broad range of diseases that include cancer, diabetes, osteoporosis, and Alzheimer’s disease.

According to the firm’s 10-Q report filed October 29, 2010, Revenue for Nine Months Ended Sept 30, 2010 (dollars in millions) was $16,889, an increase from $15,901.8 same period last year, while net income reported was $3,899.9, an increase from $3,413.4 same period last year. Earnings per share are up from $3.53 over $3.11 while dividends paid per share were $1.47 for both like periods.

Lilly is headquartered in Indianapolis, Indiana, U.S.A, and employees nearly 39,000 employees, of which nearly 7,000 are engaged in research and development in 8 countries. Clinical research is conducted in more than 50 countries, while their products are marketed in 143 countries.

On the news, Lilly’s stock was up almost 1, percent. The long-term view at this point for Lilly looks rocky, unless they develop several new major hitters to avoid the pain of revenue loss from patent expiration.

Note: This report is also published on www.seekingalpha.com, where John Eastman is a contributing writer.

http://seekingalpha.com/article/235803-is-pain-in-eli-lilly-s-future

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