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Surprise Friday

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Drugs stocks have been a bitter pill for investors this year, with the sector falling some 7% in '08 alone. But with Schering Plough posting better-then-expected earnings on Wednesday, and Goldman Sachs upgrading the sector Friday morning, is Big Pharma ready to make a big turnaround?

John Lechleiter, the President and CEO designate Of Eli Lilly joins the panel for this conversation. Following is a synopsis of his main points.

Would you buy Lilly stock?

“I think our stock is a pretty good bargain right now if you look at our guidance,” replies Lechleiter. “On top of that we expect to see double digit earnings growth through the early part of the next decade.”

How important is the election?

“I think we’re neutral on that,” Lechleiter says. “As an industry I think we’ve proven that we can work with both parties. In an election year you tend to get a lot of tough talk. But at the same time I think each of the candidates understands how important the industry is.”

Are you in fact in talks to settle a Zyprexa lawsuit, as reported by the Wall Street Journal?

“I can’t comment on the details of the article,” replies Lechleiter, “but if you look at our cash flow we generated over 5 billion and we have a strong balance sheet. I believe we can weather this storm.”

Any chance of a merger?

There has been a lot of consolidation in the industry already,” replies Lechleiter. “It’s not obvious to me what the next step in consolidation would be. We remain resolute in our belief that combination for the sake of size alone doesn’t make sense today. We’re going to continue to invest in R&D. And use cash to bring in new technology to the company.”

“My focus as CEO is to make sure we have solid investments in R&D. The success story in this industry has always been about innovate new medicines and I believe there are plenty of medicines in our labs right now that can meet the rising expectations we see all around us. That will continue to be my point of emphasis.”

Traders?

I think Lilly is cheap on a valuation basis, says Guy Adami, but I also think they need to get the Zyprexa problem out of the way.

I also like Merck and the drug plays in general, adds Jeff Macke.

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Trader disclosure: On Feb.15, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (YHOO), (INTC), (ATVI), (HAS), (DIS); Finerman Owns (GS), (KFT); Finerman's Firm Owns (MSFT), (MO), (SKS), (TSO), (VLO), (WMT), (YHOO), (BR); Finerman's Firm Is Short (SPY), (MDY), (IYR), (IWM), (IJR); Finerman's Firm And Finerman Own (CROX) And (CROX) Options; Finerman's Firm And Finerman Own (HD); Finerman's Firm Is Short (LEH) And Owns (LEH) Puts; Seymour Owns (DELL), (INTC), (MER); Seygem Asset Management Owns (GFI)