Eli Lilly (LLY) reported first quarter earnings of $1.18 per share, a couple of cents below the year-ago earnings, but above the Zacks Consensus Estimate of $1.11. Revenues increased 9% year-over-year mainly due to robust performances by Cymbalta, Alimta, Cialis and the Animal Health business.
While strong sales from key products such as Cymbalta, Cialis, the diabetes business and Alimta will be the fundamental strength to revenue growth in 2010, we remain concerned about the patent cliff being faced by Lilly. We expect the top-and bottom-line to come under pressure from late 2011 with the loss of exclusivity on Zyprexa. Barring significant cost-cutting efforts or additional revenue catalysts, 2013 will be the beginning of a very challenging period, with Cymbalta losing US patent protection during the year.
We do not believe the short-term catalysts will translate into sustainable long-term growth until the pipeline significantly improves. As such, we downgrade the stock to Underperform with a $32 target price.Zacks Investment Research
