* To keep R&D spending at as much as 25 pct of revenue
* Expects annual revenue at least $20 bln from 2011-2014
* Intends to boost share of diabetes market
* Shares up 0.7 percent
(Adds analyst, CEO comments)
By Ransdell Pierson and Lewis Krauskopf
NEW YORK, June 30 Eli Lilly and Co (LLY.N) is
again defying the accepted wisdom of its pharmaceutical
While rivals have engineered huge mergers and whittled, or
slashed, research budgets, Lilly said on Thursday it will
remain independent and may even boost research spending through
2014 to produce a new crop of drugs as its top-sellers lose
Lilly outlined its spending plans at a meeting with
analysts and investors in New York. It also pledged to maintain
its hefty dividend, while avoiding large-scale mergers.
Global spending on research and development has begun to
slide as companies try to shore up profits in the face of
generic competition and the failure of their big budgets to
produce important drugs.
But Lilly's chief executive, in an interview with Reuters,
said he could not understand how the drug industry still
expects to come up with promising new treatments while
"It would be a mistake for us to disinvest in any
significant way in R&D," CEO John Lechleiter said.
"As a company that is focused on innovation and seeking new
treatments and cures, it's important that we maintain a steady
approach and a consistent approach in investing in R&D, and I'm
confident it will pay off," Lechleiter said.
Pfizer Inc (PFE.N), whose Lipitor cholesterol fighter loses
U.S. marketing exclusivity in November, said earlier this year
it would chop its research budget by up to $2 billion and lay
off thousands of researchers in the process. Britain's
GlaxoSmithKline (GSK.L) has slashed 28 percent of its research
staff in the last five years.
The global drug industry cut research spending for the
first time ever in 2010 after decades of relentless increases,
according to Thomson Reuters data released earlier this week.
"It's crazy; first of all, by definition this is a research
and development-based industry," Lechleiter said.
END OF THE DRY SPELL?
Lilly sees an end to a five-year dearth of big new drugs,
with new and experimental medicines in diabetes -- where it
aims to be the global market leader by the end of the decade --
as well as for cancer, rheumatoid arthritis, lupus and
Lilly said it still expects annual revenue of at least $20
billion between 2011 and 2014, down from more than $23 billion
last year. It expects a full-year profit of at least $3 billion
during the period, meaning a possible 40 percent decline from
the $5.1 billion generated in 2010.
Lilly plans to earmark as much as 25 percent of annual
sales for research and development. That would mean perhaps $5
billion a year, or more, during the three-year period, when top
medicines will lose patent protection. Lilly spent $4.88
billion on R&D last year, or 21 percent of sales.
In 2009, Lilly said it would eliminate 5,500 jobs and cut
costs by $1 billion by the end of 2011 to bolster its finances
ahead of its patent cliff. Its R&D operation was largely
unscathed, and savings from the restructuring are slated for
research and to protect Lilly's hefty dividend.
"Lilly is showing it is very committed to the innovative
R&D model," JP Morgan analyst Chris Schott said at the meeting.
"We will have an answer to this investment in the next two
Lilly has 70 medicines in clinical development and said it
was on track to meet or exceed its goal of 10 new drugs in
late-stage clinical studies by the end of the year.
"They're coming out of a fairly dry spell over the last
five years," Leerink Swann analyst Seamus Fernandez said. "It
looks like that's poised to change."
AIMING FOR LEAD IN DIABETES
Lilly recently launched Tradjenta, a once-daily tablet for
diabetes. Research chief Jan Lundberg said the drug could be
simpler to prescribe for patients with liver or kidney problems
than Merck's (MRK.N) similar, and widely used, Januvia.
Lilly has a handful of experimental diabetes medicines that
could hit the market in the next five years, including Bydureon
-- a once-weekly version of its Byetta treatment that has been
approved in Europe but delayed by U.S. regulators.
"Diabetes is one of the great opportunities for Lilly
moving forward," Lundberg said in an interview, adding that the
company aims to be the No. 1 player by the end of the decade.
For other conditions, Lilly has seen encouraging mid-stage
data for a rheumatoid arthritis drug, known as an IL-17
antibody. It is also in late-stage trials as a lupus medicine
that Lundberg said could be better than Benlysta, the newly
approved drug from Human Genome Sciences HGSI.O and Glaxo.
Two late-stage studies for Lilly's closely watched
Alzheimer's treatment solanezumab are expected to be completed
in the first half of next year.
"Solanezumab is a risky bet, but if the data are positive
it's a huge opportunity," Chief Financial Officer Derica Rice
said in an interview.
Lilly's $5 billion-a-year Zyprexa schizophrenia treatment
will face generics in October. Anti-depressant Cymbalta -- with
annual sales of $3.5 billion -- goes generic in 2013 or 2014.
Cancer drug Gemzar already faces generic competition and its
Evista osteoporosis medicine could face steep declines
beginning March 2014.
Patent expirations will slash annual revenue from the four
drugs by $7 billion from 2010 to 2014, Lilly said. The company
said the decline will be significantly offset by higher sales
in Japan and emerging markets, as well as demand for the
company's animal-health products.
Lilly expects its earnings per share to decline from 2011
to 2012, rise in 2013 and then fall again in 2014. It expects
to return to profit growth after 2014.
Lilly shares were up 0.7 percent at $37.51 in afternoon
trading on the New York Stock Exchange.
(Reporting by Ransdell Pierson and Lewis Krauskopf; Editing by
Derek Caney, Dave Zimmerman, Gary Hill)