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Get Defensive With Pharma?

Investors are placing their 2010 bets on health care, in part on comments made by CEO John Lechleiter at Eli Lilly’s annual investors meeting in New York on Thursday.

At the event he said earnings could grow more than 10 percent next year and he touted Lilly's pipeline of drugs under development and said they expect to launch two new medicines per year starting in 2013.

However, Lilly shares closed lower with analysts unconvinced that the company will be able to generate enough revenue to make up for a huge wave of patent expirations looming in a couple years.

Lilly will lose patent protection for its best-selling drug, the antipsychotic Zyprexa, in 2011 as well as four other drugs that each generated more than $1 billion in annual sales last year including antidepressant Cymbalta.

But if you think that means Lilly is looking for a mega-merger, think again. At least that’s what CNBC’s Mike Huckman told us after his interview with Lilly CEO John Lechleiter .

According to Huckman:

When talking about the potential of M&A, Lechleiter made it pretty darn clear he isn't interested in a mega-merger. "This is not our path," he said rather emphatically.

Later, an analyst asked CFO Derica Rice if the balance sheet could handle a $15 billion deal. He said, "Yes," but added, "That's not our intent."

Instead, Rice said Lilly's looking to do partnerships and acquisitions that "augment and compliment" its pipeline and portfolio.

Considering shares of Lilly are down 13% ytd, while Merck is up 24% and GlaxoSmithKline is up 13%, what's the trade?

Lilly's is going to have to do something, speculates Pete Najarian. With so many drugs coming off patent I just have to believe they make an acquisition.

In this space, I think the best play is Abbott Labs, says Guy Adami.



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