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Lilly Cuts Outlook as Prozac Sales Drop

Drug maker Eli Lilly & Co. on Wednesday cut fourth-quarter profit expectations because of plunging U.S. sales of antidepressant Prozac, which lost patent protection on Aug. 2. 

Indianapolis-based Lilly said third-quarter earnings would match current Wall Street expectations of 66 cents per share, but fourth-quarter earnings would be in a range of 59 cents to 61 cents per share. It had expected to earn 63 cents to 67 cents per share in the fourth-quarter. 

Analysts had been looking for fourth-quarter earnings of 60 cents to 67 cents per share, with a mean estimate of 65 cents, according to research firm Thomson Financial/First Call. 

In the four weeks after the lose of exclusivity, Prozac's U.S. market share tumbled by more than 80 percent as such rivals as Barr Laboratories Inc. and Pharmaceutical Resources Inc. flooded drug stores with cheaper copycat medicines. 

Shares of Lilly traded down in pre-open activity Wednesday, falling $2.87 to $80 on Instinet from a close of $82.87 Tuesday. The stock is off 10 percent since the start of the year, slightly outperforming its peers in the American Stock Exchange Pharmaceutical index, which is down 11 percent over the same period. 

Arnhold & S. Bleichroeder analysts said the revision in earnings was not a surprise given the Prozac patent expiration. 

``When all is said and done, it doesn't mean a lot in terms of basic fundamentals and valuations because these earnings were going to fall away at some point,'' he said. ``But psychologically, any time a company has to revise earnings, it causes reactions in a stock that can be disproportionate.'' 

Wall Street analysts expect major branded drugs, with total annual sales of more than $40 billion, to lose patent protection between 2001 and 2005. Lilly became one of the first of the major U.S. drugmakers to face this new round of generic competition with expiration of its patent on Prozac. 

``With nearly two months of Prozac sales data available, the erosion in prescriptions is the most severe ever for a blockbuster product in our industry,'' said Sidney Taurel, Lilly chairman, president and chief executive. 

``This affects our financial expectations for 2001 and 2002, with a particular impact in the fourth quarter of this year,'' he said. 

Prozac had global sales of about $2.5 billion in 2000, making it Lilly's flagship medicine that year. Its recent sales decline prompted analysts to forecast a 7 percent drop in Lilly's earnings per share for the third quarter. 

Lilly said it expects to post 2001 operating earnings per share of $2.75 to $2.77, compared with $2.76 a year ago, resulting in single-digit earnings-per-share growth for 2001. it had previously forecast $2.76 and $2.84 for the year. 

The company hopes to revive sales by introducing a new drug with blockbuster potential, named Xigris. It is awaiting approval from U.S. regulators to treat sepsis -- a deadly syndrome linked to blood infections. The drug is slated to come under review by an advisory panel to the U.S. Food and Drug Administration in Washington on Oct. 16. 

Lilly said Wednesday that it received an approvable letter from U.S. regulators for its osteoporosis drug Forteo, another drug it hopes will propel future growth. 

The company reaffirmed its expectations for single-digit sales growth for 2002. 

Analysts polled by First Call expect Lilly to earn $2.81 in 2001 and $2.94 in 2002.