Ten years ago, some industry observers wondered if Eli Lilly (NYSE:LLY) could survive as an independent company when it lost patent protection on Prozac. At the time, they pointed to the fact that the anti-depressant accounted for more than one-third of company sales.
But the Indianapolis-based pharma giant survived that blow and avoided being driven into the arms of a waiting suitor. The question today is: Can Lilly do it again?
That’s because in less than two weeks — Oct. 23, to be exact — the company will wave goodbye to the U.S. patent on the best-selling drug in its 135-year history, Zyprexa. Beginning that day, competitors can start cranking out cheaper generic versions of the powerful antipsychotic drug that millions of patients have taken to control hallucinations, delusions, confused thought and manic-depression.
For the past 15 years, Zyprexa has generated billions of dollars in sales and profits for Lilly. In 2010 alone, the company booked more than $5 billion in Zyprexa sales — more than 20% of its total revenue.
Losing exclusivity on Zyprexa is bad enough. But it’s hardly the only unpleasant news facing Lilly. In the next several years, the company also will lose patent protection on its other blockbusters, including the antidepressant Cymbalta, the erectile-dysfunction drug Cialis and diabetes drugs Humalog and Byetta.
Despite these punches to Lilly’s gut, many industry observers think the company can get up off the canvas and not only live to fight another day, but be a force in the industry. Investors who back the Big Pharma underdog might be rewarded down the line if they’re willing to ride out what appears to be a few lean years.
“It’s going to be a challenge for Lilly, but survivability is not a question,” said Linda Bannister, a drug analyst at Edward Jones and Co. in St. Louis, according to an article in the Indianapolis Star. Bannister, who has a “hold” rating on the stock, pointed out that the company has “some interesting things in the pipeline, and if they are successful, Lilly could be a growth company again.”
The company has about 70 experimental drugs under development, with 33 in Phase II or Phase III. They include about 10 in late-stage clinical testing for serious ailments such as Alzheimer’s disease, depression, cancer, schizophrenia and diabetes.
Furthermore, Zyprexa won’t be disappearing from the Lilly arsenal. The company expects many doctors and patients to continue with the brand-name treatment because of the reluctance to switch from a drug that has permitted people with severe mental illness to resume a normal life. Keeping just 20% of Zyprexa sales will mean $500 million in annual revenue for the company.
Just as encouraging, two years ago Lilly won approval to sell a long-lasting version of the drug, called Zyprexa Relprevv, under a new patent that won’t expire until late this decade. Some analysts are projecting $1 billion in annual sales by 2015 for that version.
Investors certainly haven’t thrown in the towel on Lilly. They might have faith in the company’s ability to overcome the obstacles lying in its path and be attracted by Lilly’s healthy dividend yield of 5.2% — at least two possible reasons the stock is up more than 8% year to date.
As of this writing, Barry Cohen was long LLY.