Who Suffers From Steepest Patent Cliff Among Big Pharma?

File this under ‘you could see it coming.’ It is no secret on Wall Street that Eli Lilly (LLY) has its problems. But in case you had tried to overlook the issue, Fitch Rating this morning revised its outlook for the drug maker to negative from stable. Why? Lilly has the steepest patent cliff in the industry, pressured margins and $4.9 billion in debt.

Makes one wonder what investors have been thinking for the past year, as in this stock chart.

LLY Chart

LLY data by YCharts

Perhaps seduced by the dividend yield?

LLY Dividend Yield Chart

LLY Dividend Yield data by YCharts

Under the circumstances, one might wonder what took the Fitch analysts so long. In any event, the ratings services offers a few rationales for its move, including patent expirations on products that represent approximately 35 percent of sales for the latest 12-months ending this past June 30. The Zyprexa antipsychotic lost patent protection in 2011.

LLY Dividend Chart

LLY Dividend data by YCharts

Fitch also anticipates the loss of market protection for the Cymbalta antidepressant and the Humalog insulin will result in sales that will decline at a compound rate of nearly 8 percent between 2012 and 2014, even when including potential commercialization of the growing late-stage R&D pipeline.

And the margin pressure from those two losses could jeopardize its ‘A’ Issuer Default Rating which, of course, would hurt its credit rating. Making matters worse, Lilly also faces yet another period of key patent expirations in 2017, involving the Alimta cancer treatment, the Strattera ADHD pill and the Cialis sexual dysfunction drug.

LLY Profit Margin Quarterly Chart

LLY Profit Margin Quarterly data by YCharts

To read the remainder of this article, go to Pharmalot.

Ed Silverman is the editor of Pharmalot and a contributor to YCharts, which includes the just-released YCharts Pro Platinum for professional investors.



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