Moody's cuts outlook on Eli Lilly to 'negative'

Eli Lilly took a blow from Moody's Investors Service, as the ratings agency cut its outlook on the company to "negative." Moody's cited impending patent expirations--beginning with Zyprexa in October 2011--as factors, as well as a less-than-overwhelming launch of Lilly's new clotbusting drug Effient.

The investment firm also noted that Lilly's credit grade could suffer: "Pressure on Lilly's strong credit rating is steadily building," SVP Michael Levesque said (as quoted by Dow Jones). The company's current rating is A1, four steps down from the tip-top rating of Aaa.

As Dow Jones notes, Lilly faces more patent expirations in a shorter period of time than just about any other drugmaker. About three-quarters of Lilly's current revenue comes from eight drugs that will lose patent protection in the U.S. and other countries between now and 2017.

Moody's new outlook for Lilly also stems from some recent delays in new indications for Lilly products, including the use of Cymbalta for chronic pain. Plus, as a big supplier of drugs to the government's Medicaid program, the company is expected to suffer disproportionately from higher Medicaid rebates imposed by the U.S. healthcare reform legislation.

The good news? Moody's might change its mind if Lilly settles some patent disputes, improves its long-term earnings outlook or shows signs of a stronger pipeline of new meds. Not so good, but perhaps comforting to Lilly, is the fact that other drugmakers are facing similar challenges--and just like Lilly, are cutting costs, shedding jobs, and expanding into fast-growing markets such as China. So Lilly is far from alone in its woe.

- read the Dow Jones story