Lilly leans on diabetes, Cyramza in predictions for 2015 growth

Eli Lilly ($LLY) disappointed market-watchers Wednesday with its 2015 forecast, which fell short of predictions that analysts have been tossing around. But Lilly executives said their numbers aren't so different from the Street's; it's just a matter of assumptions.

And there's a better way to look at this year's expectations, anyway, Lilly says. The company used the "underlying growth" argument that's grown familiar in recent years, as its Big Pharma rivals suffered through their own patent cliffs. GlaxoSmithKline ($GSK), Sanofi ($SNY) and others have pointed to sales increases in their newer products, to deflect attention from the generics slashing away at overall revenue.

For Lilly, that argument rests on a "mid- to high-single-digit" percentage growth in sales, before factoring in generic erosion, foreign currency effects and so on. Focus, please, on Lilly's growing diabetes franchise--including new entries Trulicity and Jardiance--plus its new cancer drug Cyramza and a handful of soon-to-come launches, the company argues.

That contention didn't stop Lilly shares from sliding this morning when the forecast went public. With a revenue range of $20.3 billion to $20.8 billion--only 2% higher than 2014--Lilly's expectations fell short of FactSet consensus of a bit more than $20.959 billion. The earnings forecast, at $2.40 to $2.50 per share, or $3.10 to $3.20 non-GAAP, also disappointed. Analysts were looking for $3.25, Morningstar notes.

As CFO Derica Rice pointed out during a call with analysts, Lilly's revenue expectations include some serious foreign-exchange effects. Generic versions of Cymbalta and Evista--which were a major drag on sales and profits in 2014--will take their toll on 2015, too, he said. Though he didn't mention the following, analysts did: Tax-rate guidance was higher than market-watchers had been predicting.

The good news is that those patent losses won't be so painful in 2016, Rice points out. And the hope is that new drugs will keep delivering that mid- to high-single-digit growth in Lilly's "base business." Lilly must also have its fingers crossed--as many fellow drugmakers do--that foreign exchange effects won't linger, either. "We hope those headwinds aren't continuing into 2016," Rice said during the call. "The [loss of exclusivity on Cymbalta and Evista] and so on."

At any rate, 2015 promises to be a better experience than 2014, Lilly's self-described "trough year." Better results won't come without hard work (and probably some luck, too). Lilly has to fulfill its promises to make Trulicity and Jardiance grab market share in a tough diabetes space. It has to grow Cyramza in lung cancer, in the face of competition from immuno-oncology meds such as Merck's ($MRK) Keytruda, which could come sooner than previously expected, perhaps as soon as this year.

"In the end, 2015 is a year of execution, and perhaps not 'transformation,' for [Lilly]," Evercore/ISI Group analyst Mark Schoenebaum pointed out in an investor note Wednesday morning. " 2016, however, gets far more interesting."

- read the release from Lilly

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