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Analyst Says Lilly's A Loser

Monday, 31 Aug 2009 | 8:55 AM ET
AP

After a long delay, Eli Lilly finally launched its new bloodthinner Effient just this month. But analysts are already buzzing about what's next.

Over the weekend at a big cardiology conference in Barcelona researchers presented results of a late-stage study on AstraZeneca's bloodthinner Brilinta. While analysts are slicing and dicing the data, overall the drug worked better at preventing death, heart attacks and strokes than Plavix from Bristol-Myers Squibb and Sanofi-Aventis. What's more, Brilinta doesn't appear to have the risk of excessive and potentially fatal bleeding that Effient carries. BMY and SNY also unveiled positive data for a high dose of Plavix working on a subset of patients.

There's a whole bunch of analyst commentary coming out on what this all means for the multi-billion dollar bloodthinner segment of the drug industry. But Seamus Fernandez at Leerink Swann may have the most eye-catching call. Fernanddez has been bearish on LLY with an "Underperform" (aka "Sell") rating on the stock, but in a research note to clients this morning he's taking a hatchet to his Effient sales forecast, dropping it by $1 billion in 2015 to a total of $900 million. That wipes out as much as 20 cents in annual earnings per share down the road.

Fernandez says Lilly's back is against the wall. "With our concerns over a muted Effient launch, over 70 percent of forecasted 2010 sales losing patent in 2011-2016, and an uninspiring late-stage pipeline, we believe LLY must move aggressively on partnering and acquisition activity. We believe that a major restructuring or a major acquisition (or both) will be necessary to return investor interest beyond its dividend yield (5.8%)."

Lilly just absorbed ImClone and took ownership of its cancer drug franchise Erbitux along with the company's development pipeline. Still hanging in the balance is the fate of what could be the first once-a-week diabetes drug that LLY shares with Amylin and Alkermes. Lilly executives always say they're happy with the company's relationship with AMLN, but that doesn't stop analysts from speculating that LLY will someday by the company, especially since billionaire activist investor Carl Icahn now has AMLN board representation. And we all know what his MO is.

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