ELI LILLY - Relief from Tax rate but unsustainable beyond 2013 due to high impact Cymbalta loss
LLY reported its Q4-2012 financial results 2012 which is in-line with our expectation. The increased 2013 EPS guidance is mainly due to the potential R&D tax credit which will be realized from 1Q 2013. But beyond 2013, we see loss of Cymbalta sales to generic competition as painful. Assuming the same level of R&D expense going forward, Cymbalta loss can knock off more than 50 percent of LLY’s current cash flows. The R&D pipeline continues to be fickle and we look at the recent long term guidance issued by LLY with caution. A major cut in R&D expense seems to be the only way that LLY can meet expectations inbuilt in the current price. Despite the increasing growth of diabetes therapy, the revenues from Humulin and Humalog continued to be flat due to competition.
