Global Insight Perspective | |
Significance | Eli Lilly announced yesterday that it expects 2007 revenue growth in the high-single-digit-to-low-double-digit range, aided by the addition of all revenues from erectile dysfunction (ED) drug Cialis (tadalafil) to the company's top line. |
Implications | However, despite this positive outlook on sales, the company added that it expects projected 2007 earnings to scrape just higher than 2006 levels, as the company's acquisition of ICOS drags on its bottom line. Lilly noted that while the deal is still contingent on the approval of ICOS shareholders, it expects closure by the end of the year. |
Outlook | Cialis represents a sure bet for Lilly's future revenue growth, and this income, added to the expansion potential of Lilly's current portfolio, and its robust pipeline, leaves the company confident that it can post solid performance for the remainder of the decade. |
Lilly Touts Organisational Strength
In a bullish performance from its management team, fronted by chairman and CEO Sidney Taurel, U.S. drug-maker Eli Lilly yesterday expounded its strategic priorities, pipeline progress and financial guidance through 2007 to analysts at an investors' meeting in New York. One of the key messages that company officials seemed particularly keen to project was the tightness of the ship that they run at Lilly. A constant theme throughout the company's presentations was the contribution that its adoption of "Six Sigma" business improvement methodology was making across all of its business areas. This, coupled with the company's aggressive headcount management and outsourcing initiatives, left the lasting impression that Lilly intends to remain a mean lean drug-making machine for the foreseeable future.
Accelerated Sales Growth in 2007
While Lilly noted that the pharmaceutical market faces a particularly challenging outlook, it also expects sales growth from its marketed products to accelerate during 2007, aided by the addition of all revenues from erectile dysfunction (ED) drug Cialis (tadalafil). The company noted that this addition is contingent on the successful closure of its pending US$2.1 billion acquisition of ICOS, but Taurel told investors that Lilly expects this deal to be completed by the end of the year. He also gave no indication that Lilly had any intention of increasing its October offer, despite some recent opposition to the deal from ICOS shareholders
Taking this acquisition into account, Lilly also provided earnings guidance for 2006 and 2007. The company reconfirmed that it was on track to meet its previously stated 2006 guidance of US$3.10-3.20 per share (on an adjusted basis), with revenue growing in the low range of 7-9%. Lilly expects the ICOS acquisition to be modestly dilutive in 2007, with earnings only scraping 1.5-8.0% higher than the company's 2006 expectations. Looking to the longer term, the company expects that the ICOS acquisition will be accretive to earnings from 2008, and it anticipates earnings per share to grow consecutively by high single to low double digits until 2010.
Lilly Touts Portfolio Strength
As well as receiving a revenue boost next year from Cialis, Lilly anticipates that its top-line growth will be driven by the expansion of its existing product portfolio. Specifically, the company expects that its anti-depressant Cymbalta (duloxetine), type 2 diabetes treatment Byetta (exenatide injection) and cancer drug Alimta (permetrexed) will lead the revenue charge, along with the use of Forteo (teriparatide) as a treatment for osteoporosis. Importantly, Lilly anticipates that Cymbalta will reach blockbuster status during 2007—only its second full year on the market—and this "key driver" will provide the company with a much more favourable balance to its portfolio. Lilly anticipates that the strong performance of these four products will be underpinned by the continued stabilisation of revenues from its best-selling drug, Zyprexa (olanzapine).
Zyprexa sales have posed a significant concern for Lilly; the drug is not only beginning to attract the attention of generic drug-makers, keen to muscle in on its success, but it has also seen a slide in prescriptions, as concerns over side-effects have blunted some of its competitive edge in the anti-psychotics market. The company has thus far managed to slow down the revenue slide from this drug by implementing price rises—a strategy that does not have strong long-term potential. Nevertheless, Lilly appears to see a more encouraging near-term future for the drug, primarily because of the success that it believes it has achieved in positioning the drug strongly on Medicare Part D plan formularies.
Outlook and Implications
Analysts have generally looked favourably on Lilly over the past few years, because—with the possible exception of Zyprexa—the company's products remain relatively free from generic challenges. However, attention has recently swung to focus on the performance of the company's pipeline, as investors look for where the company's future growth will come from. This focus has been intensified recently by the cloud that has descended on the commercial prospects for Lilly's diabetic eye drug Arxxant (ruboxistaurin mesylate). As a result, company management spent a large part of yesterday's meeting stressing the strength of the company's pipeline. In the near term, the company wants to strengthen its position in the U.S. insulin market through better positioning of its current diabetes care franchise; in the longer term, the company hopes that the addition of its AIR inhalable insulin treatment will allow it to gain a leadership position in this market. The company added that it anticipates making a regulatory submission to the U.S. FDA for this product, which it is developing in partnership with U.S. drug-delivery specialist Alkermes, in 2009.
Meanwhile, the biggest-ticket drug slated for a near-term launch by Lilly is its experimental blood-thinner prasugrel. This product has the potential to add blockbuster revenues to Lilly's books, but only if it proves to be considerably better than current the current market leading anti-thrombotic Plavix (clopidogrel; Sanofi-Aventis/Bristol-Myers Squibb (France/U.S.)). The company noted that enrolment in a head-to-head trial to study the two drugs was currently nearing completion, and that it anticipated making a submission to the U.S. FDA by the end of 2007.
Taking a broader view, however, Lilly's strategy is gradually turning towards the opportunities and advantages that it sees in biotechnology drugs. The company noted that these products now account for around one-third of its pipeline, and it believes that continued investment in biotech will allow it to replenish its already robust pipeline into the long term. Perhaps one of the most impressive claims that the company made was that it now intends to launch at least one biotechnology molecule per year, starting in 2011. This statement—if borne out—should see a strong performance from Lilly well into the next decade.
Related Articles
- United States: 5 December 2006: Lilly to Boost Biopharmaceutical Manufacturing in Ireland
- United States: 1 December 2006: Lilly Attacks CATIE
- United States: 22 November 2006: Lilly and Amylin Gain EU Approval for Byetta
- United States: 18 October 2006: Eli Lilly Buys Cialis Partner ICOS for US$2.1 bil.
- United States: 2 October 2006: Lilly Weighs Up Future of Arxxant Development Programme