Seeking the Tao of Eli Lilly

As Eli Lilly prepares to deliver its first-quarter financial report on Thursday, Wall Street has once again shifted into its "Double W" mode -- wondering about the company's future drugs and worrying about its existing ones.

The worrying has been going on for some time, especially about Zyprexa for schizophrenia, Strattera for attention-deficit hyperactivity disorder and, more recently, Cymbalta for depression.

However, the wondering has intensified as a couple of experimental drugs come closer to regulatory decisions. The drugs are Prasugrel, an anticoagulant, and Arxxant, a treatment for diabetic retinopathy, a condition in which diabetes causes vision damage.

John Boris, an analyst with Bear Stearns, describes having a yin and yang investment thesis on Lilly. The yang side of the equation features declining sales for Zyprexa and Strattera, while the yin side examines the R&D prospects.

Noting that Lilly has some new products with "high growth potential" and won't be plagued by major patent expirations for several years, Boris rates the Indianapolis-based drugmaker as "peer-perform."

He's voting with the majority. According to Thomson First Call, 14 analysts are neutral on the stock, 11 have buy ratings and two have sell ratings.

The first quarter should offer some hints about trends for existing drugs, most notably Zyprexa, whose sales fell 5% in 2005 to $4.2 billion, and Strattera, whose sales fell 17% to $552 million last year. Launched in late 2004, Cymbalta enjoyed a powerful start with $680 million in sales last year, but Boris and some other analysts detect signs of flattening prescription growth.

Boris expects Lilly to produce first-quarter earnings per share of 75 cents, matching consensus estimate. For the first quarter of 2005, Lilly earned 68 cents a share.

Even though Lilly won a lawsuit 12 months ago protecting the U.S. Zyprexa patent, the schizophrenia drug still dominates Wall Street's view of the company.