Lilly Q2: It's Downhill From Here, Say Analysts; Cialis Gains on Viagra

Last Updated Jul 22, 2009 2:49 PM EDT

Eli Lillys' revenues from bloodthinner Effient (prasugrel) were conspicuous by their absence in the company's Q2 2009 earnings report today. Launched in several countries in Q2, prasugrel made only $300,000, according to a note from Leerink Swann:
This heightens our concerns surrounding prasugrel & its int'l & U.S. launches (U.S. launch expected mid-August), particularly in light of the new data we will see at the European Society of Cardiology mtg (8/30) on Plavix (CURRENT OASIS 7, 600mg loading dose vs. 300mg) and AZN's Brilinta (full PLATO dataset). We believe this will be a big question for LLY ...
The basics: Revenue rose 2.8% to $5.29 billion despite foreign currency weakness. Net income was $1.16 billion, up 21 percent.

With both sales and revenues rising while giants like Pfizer and J&J see those lines declining, this quarter looks pretty good for Lilly. But check the signs of trouble:

  • Lilly's top drug, antipsychotic Zyprexa, was down 3% at $1.2 billion. The company said it's still growing both in the U.S. and abroad but was clobbered by foreign currency weakness. Last quarter it was flat. Has this brand peaked?
  • Second, the revenue yield on every dollar Lilly spends on sales and marketing declined below the psychologically annoying $3 level to $2.99. That's the lowest level of productivity Lilly's marketing dollars have seen since Q4 2007.
The prasugrel launch and the ImClone acquisition were supposed to improve Lilly's prospects, but they do not seem to be enough for Wall Street. Leerink's Seamus Fernandez and Kathryn C. Alexander wrote to investors:
We believe LLY's cash flow will peak in the next two years with the potential to decline for the next several years due to a challenging series of patent expirations. Recent developments that negatively impact our perception of prospects for two key LLY pipeline drugs (most notably exenatide LAR and the mGlu 2/3 prodrug) more than offset potential upside from a better-than-expected launch of prasugrel.

... We believe there is little reason for long-term investors to own LLY for anything other than its dividend at this time.

One bright spot: Cialis sales in the U.S. were up 16 percent to $149.4 million. Pfizer's Viagra was up only 4 percent at $207 million. Looks like that once-a-day positioning is starting to pay off.