Lilly pitches plan to overcome key patent losses

TOM MURPHY - AP Business Writer
A sign in from of the Eli Lilly and Co corporate headquarters is pictured in Indianapolis, Thursday, June 30, 2011. Eli Lilly and Co. is only months away from losing patent protection for its top-selling drug, and told investors Thursday the keys to overcoming this and other patent losses lie in its labs and emerging markets like China.  (AP Photo/Darron Cummings)
View photos
A sign in from of the Eli Lilly and Co corporate headquarters is pictured in Indianapolis, Thursday, June 30, 2011. Eli Lilly and Co. is only months away from losing patent protection for its top-selling drug, and told investors Thursday the keys to overcoming this and other patent losses lie in its labs and emerging markets like China. (AP Photo/Darron Cummings)

INDIANAPOLIS (AP) — Eli Lilly and Co., only months away from losing patent protection for its top-selling drug, told investors Thursday the keys to overcoming this and other patent losses lie in its labs and emerging markets like China.

The company has 33 potential drugs in mid- or late-stage testing in its development pipeline. Company leaders said during a webcast of a meeting with the investment community in New York City that while revenue may dip in the next few years, they expect some of these drugs to fuel growth after 2014.

They also expect strong growth from Japan, the company's animal health business and countries like China, which has a growing middle class that will fuel a demand for new treatments.

The strategy Lilly outlined was nothing new to analysts, many of whom question the company's reliance on its labs to replace lost sales. They have said pipeline failures could pressure the company into a big acquisition or a reduction in its quarterly dividend, which stands at 49 cents per share.

Lilly reiterated Thursday it has no plans for a large-scale deal or to diversify outside its core business. It also said it expects to maintain its dividend "at least at its current level."

Patent expirations will sweep over the pharmaceutical industry in the next few years. Competitors like the world's largest drugmaker, Pfizer Inc., and Merck & Co. have made major acquisitions or trimmed research and development expenses to deal with the impending revenue loss.

Lilly is an "outlier" among major pharmaceutical companies because it hasn't chosen similar paths, said Erik Gordon, an analyst and professor at University of Michigan's Ross School of Business,

Gordon said in an email that Lilly Chairman and CEO John C. Lechleiter is the "bravest CEO in major pharma" for sticking with this approach.

Bernstein analyst Dr. Tim Anderson said in a note Lilly's pipeline remains incapable of replacing patent-related losses. He projects annual sales of the antipsychotic Zyprexa, Lilly's top seller, to fall from $5 billion last year to about $1.4 billion by 2020.

Lilly loses U.S. patent protection for Zyprexa in October. In the next two years, the drugmaker will lose U.S. patents protecting drugs that produced 46 percent of its 2010 revenue.

It expects patent expirations to reduce annual revenue by about $7 billion from 2010 to 2014. But the company plans to counter that with growth in emerging markets that also include Russia, Brazil and Mexico. The company said it is building a diabetes research center in China, where it expects to reach $1 billion in sales by 2015.

Lechleiter also told analysts Thursday that about 10,000 baby boomers turn 65 every day in the United States, and they will need medicines to keep them active and productive.

Lilly has nine potential drugs in late-stage testing, the last phase before companies seek regulatory approval. They include the cancer treatments ramucirumab and enzastaurin.

But analysts have noted that drugs in late-stage testing offer no guarantee of regulatory approval, and Lilly has had some notable failures at that stage, including a potential Alzheimer's treatment it stopped developing last year.

The drugmaker also said Thursday it remains on track to cut costs by $1 billion by the end of this year. It employed 38,165 people at the end of the first quarter, a roughly 10 percent drop from the more than 42,000 employees it had five years ago.

"We're building a leaner, more agile and adaptive company," Lechleiter said.

Lilly shares rose 28 cents to $37.55 in afternoon trading.