Eli Lilly ( LLY) is looking pricey after its recent run-up, and its biggest drug's prospects are murky, an analyst said Friday. Lilly was recently down $1.03, or 1.5%, to $68.50 in the Instinet premarket session.

Merrill Lynch downgraded the stock to neutral, primarily because the shares currently trade at a substantial valuation premium to the sector, but also because the brokerage is unsure of how well Lilly's antipsychotic medication Zyprexa will sell in 2004.

Merrill lowered its estimate of U.S. Zyprexa revenue growth in 2004 to 5% from 7%. "Investors appear to be well aware of the impact Abilify is having on Zyprexa's growth," Merrill said, but warned they may be underestimating several positives for the Bristol-Myers ( BMY) product, including an expanding sales force, and the potential clearance of two additional treatments for bipolar disorder this winter.

Lilly cut its 2004 earnings estimate by 6 cents a share to $2.92. Analysts surveyed by First Call expect $3.01 a share.