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Lilly and a Heavy Dose of Zyprexa


OH Lilly!

As professor Succo commented earlier, Tony Butler, the pharmaceutical analyst at Lehman spoke yesterday with the judge hearing the Eli Lilly(LLY:NYSE)-Zyprexa patent challenge case and made some observations this morning as to the timing of the ruling. While most of the Street had pinned down Judge Young for an end of the summer ruling considering he had finished reviewing all materials and the judge's office seemed eager to pass judgment, Butler learned the final decision now would not come before October and most likely not until November/December thereby rendering September options and to a more modest extent October options virtually worthless for those that had bid them up in anticipation of an imminent ruling.

Ultimately, as John had pointed out, this has created reverberations within the options market but the actual ruling could have far reaching implications for the broader pharmaceutical industry if a negative ruling is levied. To put it in its proper perspective, most of the Street agrees that only a small probability exists for a Lilly loss ranging anywhere from a 10% probability to as high as 25% chance.

To review, Zyprexa, for treatment of Schizophrenia, is being challenged by generics Ivax(IVX:NYSE) and Doctor Reddy's(RDY:NYSE). Zyprexa represents roughly 40% of Lilly's '05 EPS worldwide, but more importantly 15% of U.S. sales for them which is where the verdict would have its impact on EPS. In stock prices terms, an adverse ruling could at its worst mean a loss of over 40% by some analysts estimates but while the Street is at odds with the stock impact, one item agreed on is the nightmare Lilly's peers could wake up to when the doors open up for the generic manufacturer to enter the forbidden markets sooner than expected and more than rattle big pharma from its perch of plentiful revenue stream. Bristol-Myers(BMY:NYSE) Plavix and Pfizer(PFE:NYSE) Lipitor both face similar litigation in the next several months, and although at a smaller extent, could face a 20% hit each to their EPS if LLY fails to convince Judge Young.
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