Financial analysts expected Eli Lilly's 2012 earnings to slip after the drugmaker lost patent protection for a key product, but they didn't envision a decline as steep as the one Lilly forecast Thursday.
The Indianapolis company said it will earn between $3.10 and $3.20 per share in its first full year after losing the U.S. patent that protects its antipsychotic Zyprexa from generic competition. Analysts expect, on average, earnings of $3.60 per share, according to FactSet.
Zyprexa rang up more than $5 billion in 2010 sales. Lilly's top-selling drug also brought in $3.87 billion through the first nine months of 2011 before the patent expired in October. But Lilly expects revenue from Zyprexa, which has lost patent protection in most markets outside Japan, to plunge by more than $3 billion in 2012.
Lilly executives said during a Thursday conference call that Wall Street projections came in higher than their forecast because analysts assumed a slower erosion of Zyprexa sales and a lower level of spending in the new year than the company does.
The company's 2012 earnings forecast equates to a drop of about 27 percent from its prediction for 2011 earnings of $4.30 to $4.35 per share.
Morningstar analyst Damien Conover said the forecast was disappointing. He expected that Lilly would cut costs beyond its $1 billion goal by 2011, which Lilly said Thursday that it had met.
Several big drugmakers are dealing with patent expirations on key products, but analysts say Eli Lilly and Co. faces one of the biggest hits. In addition to Zyprexa, the company will lose protection for its second-best seller, the antidepressant Cymbalta, in 2013.
By 2014, the drugmaker will have lost U.S. patents protecting five drugs that generated 64 percent of Lilly's U.S. product sales in 2010.
Lilly has spent years preparing for this. It plans to offset the revenue loss by reducing costs, improving productivity and growing its animal health business as well as sales in Japan and emerging markets like China. The company also is betting on its pipeline of drugs under development.
Lilly said Thursday it now has a dozen potential drugs in late-stage clinical testing, the last phase before a company seeks regulatory approval. That beat its goal of 10 by year-end.
"This is our future, and it is our first priority," Chief Financial Officer Derica Rice told analysts.
Rice said the company expects the completion of several clinical trials this year and U.S. regulatory decisions on new or expanded uses for several products. He also said the company can fund the research it needs to drive future growth while also continuing to pay a quarterly dividend at least at its current level, which is 49 cents per share.
The drugmaker expects annual earnings of at least $3 billion on revenue of at least $20 billion through 2014.
Lilly will report fourth-quarter and full-year 2011 results on Jan. 31. It expects to meet or beat its 2011 forecast for earnings of $4.30 to $4.35 per share. Analysts expect earnings of $4.34 per share.
Company shares fell 65 cents to $40.06 in afternoon trading while broader indexes also were down slightly.
Lilly shares spent most of 2011 trading below $40 before a rally that started in late November carried the stock to a closing price of $41.56 on Dec. 30, the last 2011 trading day. That represents a gain of more than 18 percent for the year.