Eli Lilly and Co (LLY.N) on Tuesday forecast its profit will fall by up to one-third this year, as cheaper generic forms of its Zyprexa schizophrenia treatment and Cymbalta depression drug hurt results, but the outlook was in line with expectations.
The U.S. drugmaker said it expects earnings, excluding special items, at $2.77 to $2.85 per share in 2014. Analysts, on average, estimated $2.78 per share, according to Thomson Reuters I/B/E/S.
The Indianapolis-based company, whose shares were little changed in late-morning trading, forecast revenue this year between $19.2 billion and $19.8 billion, also in line with analysts' expectations.
Atlantic Equities analyst Richard Purkiss said 2014 will be the "trough year" in Lilly's painful three-year patent cliff, which began in October 2011, when it lost U.S. patent protection for Zyprexa, then its biggest product.
Despite lingering skepticism among many investors about Lilly's prospects, Purkiss said he expects company revenue to bounce back strongly in 2015, and for the company to have mid-teens percentage growth in earnings from 2014 to 2017.
"The company with the poorest growth over the last couple of years will be right at the top of its large-cap peers globally," Purkiss predicted. "It will be a top-line recovery, driven by good growth from existing products and sales of newly approved medicines."
In the meantime, JP Morgan analyst Chris Schott said Lilly's expected gross profit margin this year - 74 percent - is well below the 79 percent to 80 percent range that Wall Street expected for 2013, and reflects bigger-than-expected declines for Cymbalta. Lilly said the weaker margin will be offset by a $800 million drop in research spending.
Zyprexa, which had annual sales of more than $5 billion at its peak, now brings in only $1 billion. Rising prices of Cymbalta have helped cushion Zyprexa's decline, but sales of the $5 billion-a-year antidepressant are expected to plunge following the loss of its own patent protection last month.
The company's pain will intensify in March, when Lilly's Evista osteoporosis drug, with annual sales of $1 billion, goes up against generics.
Early last year Lilly had projected revenue of $20 billion for 2014, but in October it said it would be hard-pressed to reach that goal because of the devaluation of the yen and slower growth in emerging markets.
The drugmaker said on Tuesday it expects to achieve its goals for net income of $3 billion and operating cash flow of $4 billion in 2014, and plans to maintain its dividend at the current level.
The company, which reports fourth quarter and 2013 results on January 30, said its 2013 financial expectations also remained unchanged.
Lilly's seemingly unending patent cliff has soured many investors and hurt its stock. Company shares rose only 3 percent in 2013, woefully underperforming a 27 percent jump in the ARCA Pharmaceutical Index of large drugmakers .DRG.
But other investors have been attracted by the company's generous dividend, with its 3.8 percent yield, and hopes of a rebound for its respected research laboratories.
"Investors are largely focused on the company's (drug) pipeline and less on the near term," said Edward Jones analyst Judson Clark. He maintained a "hold" rating on Lilly, saying its stock appeared to be "appropriately valued."
Shares dipped 0.2 percent to $51.45 in late-morning trade.
One of the company's biggest hopes is an experimental drug called ramucirumab. When used by itself, the drug prolonged survival of patients with stomach cancer in late-stage trials. Some analysts believe annual sales could top $1.5 billion by 2020 if it is approved for the hard-to-treat condition, and for other forms of cancer, including of the lung, liver and colon.
U.S. regulators have assigned a priority review to ramucirumab and could decide by the second quarter of 2014 whether to approve it.
In a conference call with analysts on Tuesday, Lilly Chief Executive John Lechleiter said diabetes drugs will remain a company mainstay and be an "entree" into emerging markets.
He said two experimental Lilly diabetes drugs now in late-stage trials, an injectable medicine called dulaglutide and a basal insulin, offer potential advantages over the competition.
(Refiled to correct final paragraph to show product is basal insulin, not an insulin glargine similar to Lantus.)
(Editing by Jeffrey Benkoe)