Lilly's Zyprexa Keeps Analysts Edgy

Meanwhile, the company's profit guidance is in line with Wall Street's forecast.
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Updated from 7:21 a.m. EDT

Eli Lilly

(LLY) - Get Report

produced better-than-expected first-quarter earnings Thursday, but analysts continue to raise questions about schizophrenia drug Zyprexa, which accounted for 27% of its first-quarter sales.

The Indianapolis-based company earned $834.8 million, or 77 cents a share, on revenue of $3.71 billion for the three months ended March 31. The average Wall Street estimate was a profit of 75 cents a share on sales of $3.8 billion.

For the same period last year, Lilly earned $736.6 million, or 68 cents, on sales of $3.5 billion.

The company said it expected full-year earnings of $3.10 to $3.20 a share, which is in line with the $3.13 consensus recorded by Thomson First Call. However, Lilly's second-quarter prediction of 74 cents to 76 cents was below the 77-cent consensus.

By early afternoon, Lilly's stock was off $1.41, or 2.6%, to $53.24.

Many analysts focused on Zyprexa, whose first-quarter worldwide sales fell 3% to $1.01 billion, a figure that includes a 5% drop in the U.S. to $493.9 million. The sales impact of lower demand was partly offset by higher prices.

"Zyprexa sales continue to erode," says Tim Anderson of Prudential Equity Group, in a Thursday research note. Although U.S. sales were better than he had anticipated, foreign sales were weaker, a "potentially worrisome" situation because foreign markets now account for more than half of

Zyprexa's sales.

Anderson is neutral on the stock. He doesn't own shares, and his firm doesn't have an investment-banking relationship with Lilly.

Among other major products, sales of Cialis rose 48% to $222.7 million. Lilly helps market the impotence drug developed by

Icos

(ICOS)

. The comparison was aided by reductions in U.S. inventories during the first quarter of 2005.

Sales of the osteoporosis drug Evista fell 3% to $241.6 million, while sales of the multiple-use cancer drug Gemzar rose 11% to $338.8 million. Later this year, Lilly will ask the Food and Drug Administration to approve Evista for preventing invasive breast cancer in postmenopausal women, thanks to

strong results from a recent clinical trial.

The lung cancer drug Alimta saw its sales grow 39% to $130.1 million, and sales of the osteoporosis drug Forteo advanced 90% to $127.1 million. A collection of diabetes drugs posted a 5% increase to $763.4 million.

Lilly also reported big gains for two neuroscience drugs. Cymbalta, for depression, more than doubled to $233.3 million, and Strattera, for attention deficit hyperactivity disorder, added 27% to $152.2 million. In a few months, Lilly plans to ask the FDA to approve Cymbalta for generalized anxiety disorder.

Strattera looked good because the latest quarter was bolstered by higher prices, and the year-ago quarter was affected by reductions in wholesalers' inventories. Lilly noted that demand for the drug has declined.

And despite its big gain, Cymbalta, which was launched during the third quarter of 2004, still causes concern among some analysts. Quarterly sales were less than Chris Shibutani had expected, "with the downside entirely attributable to

a somewhat disappointing U.S. performance." The JP Morgan analyst told clients he is keeping his neutral rating on Lilly's shares.

Shibutani says he doesn't expect much movement in the stock until he can better assess how "product-related challenges," involving Zyprexa and Cymbalta will be measured against "near-term pipeline uncertainties."

The two major uncertainties are Arxxant, a treatment for diabetes-caused eye damage that's now before the FDA, and Prasugrel, an anticoagulant in late-stage clinical trials. Shibutani doesn't own shares, but his firm has had a banking relationship with Lilly.