Tired of the company’s tepid stock performance, Eli Lilly (NYSE:LLY) shareholders may clear a proposal this year that would make it easier for an unwanted suitor to gobble up the Indianapolis-based pharmaceutical giant.
Given the dearth of new drugs flowing from the Lilly pipeline and expiring patents on some of its best sellers, a takeover may be shareholders’ only salvation. The stock has been on a fairly steady decline during the past four years. After trading just above $60 in April 2007, Lilly slid as low as $27.98 before recovering to the $35 level it trades at now. At least investors can take heart in the fact that the dividend yield on the stock is a healthy 5.7%.
Last year’s proposal to remove the “supermajority” requirement to approve acquisition of Lilly fell just short of receiving the needed 80% approval of company shareholders. This will be the fifth consecutive year the proposal has been made at Lilly’s shareholders meeting. But it is just the second year the measure has been supported by Lilly’s board. Growing anxiety about the company’s prospects may just help put the proposal over the top this time.
There’s plenty to be concerned about. For example, Lilly has introduced only one product in the last five years, the blood thinner Effient, and the drug’s early sales have been disappointing. It has virtually no new products to sell until 2013, when it hopes to start rolling out two a year.
Moreover, in 2011 the company loses its patent on the schizophrenia drug Zyprexa, which accounts for nearly a quarter of the company’s $23 billion in annual sales. The anti-depressant Cymbalta loses patent protection in 2013, when sales are expected to be more than $4 billion.
One analyst expects Lilly sales to dip to $18.6 billion by 2015 while another urges the company to make drastic changes.
Takeovers have been prominent among suggested changes. Some industry analysts urge Lilly to look for a smaller partner to help fill its new drug void, while others have suggested the company throw in the towel and actively seek another member of Big Pharma to join at the altar.
But even if shareholders lowered the acquisition barrier, the question remains: Who’s big and strong enough to absorb Lilly, given its nearly $39 billion market cap? One mutual fund manager says there are only a handful of possible suitors and claims that they’re somewhat in the dumps themselves.
Lilly CEO John Lechleiter dismisses all the outside advice and says Lilly just needs to stay the course. He adamantly opposes Lilly being on either side of any large merger and is confident the company’s pipeline will see it through the next few years and enable Lilly to reclaim its storied position of yesteryear.
Whether Lechleiter gets to follow this strategy may depend on how shareholders vote on the supermajority proposal.
At the time of publication, Barry Cohen owned shares of Lilly.
