By Lewis Krauskopf
(Reuters) - Eli Lilly & Co forecast a sharp plunge in profits for 2012, the first full year its top-selling Zyprexa schizophrenia treatment faces generic competition, and its shares fell as much as 3.6 percent.
Like other drugmakers, Lilly is facing patent expirations on its most important medicines, leading generic competitors to erode billions of dollars in revenue. But unlike rivals such as Pfizer Inc, Lilly is not significantly cutting spending, including on research, in order to shore up profits.
The Indianapolis-based company said it will maintain or even slightly increase its investment in research and development this year compared with 2011, while spending on sales and administration in 2012 would be higher than what analysts generally expected.
Chief Financial Officer Derica Rice told analysts on a conference call that Lilly had pared down costs for several years to prepare for the Zyprexa patent expiration, including cutting more than 7,000 jobs since 2004. The company does not plan any additional major restructuring, he said.
"Having substantially reduced our infrastructure, we are positioned to fund the R&D that will drive our future growth" Rice said.
The company projected earnings of $3.10 to $3.20 per share for 2012. Analysts' average forecast is $3.61, according to Thomson Reuters I/B/E/S.
For 2011, Lilly said it expects to meet or exceed its previous profit forecast of $4.30 to $4.35 per share excluding one-time items. Including items, it expects $3.84 to $3.89 per share.
Zyprexa, a $4.5 billion-a-year product, began facing U.S. competition in October from low-cost generic versions. Lilly's Cymbalta antidepressant, with $4 billion in annual sales, goes generic in mid-2013, and generic forms of its Evista osteoporosis drug arrive in 2014.
DIFFERENT THAN RIVALS
Chief Executive John Lechleiter has vowed to remain independent through the three-year patent cliff, rather than merging with another big drugmaker to cushion the generic blows. He has defended his stance on R&D spending as necessary to usher in a new era of innovative medicines.
Deutsche Bank analyst Barbara Ryan said Lilly's spending levels were "inconsistent" with rivals, so investors should not expect other drugmakers to issue similarly disappointing forecasts.
Lilly said it had 12 drugs in late-stage, Phase III clinical studies, exceeding its goal of having 10 at that stage by the end of 2011.
"Today's guidance reaffirms the ongoing earnings pressure to Lilly's results over next few years ... at a time when the company simultaneously needs to invest heavily in its pipeline," JPMorgan analyst Chris Schott said in a research note.
Lilly stood by its previous forecast for net income of at least $3 billion on revenue of at least $20 billion each year through 2014.
For 2012, Lilly said it expects revenue of $21.8 billion to $22.8 billion. That would be a significant drop from the $24.2 billion analysts are looking for in 2011.
Lilly expects Zyprexa sales to decline by more than $3 billion, which will be somewhat offset by growth in products such as Cymbalta, erectile dysfunction drug Cialis and its Humalog and Humulin insulins.
Overall operating expenses will stay "essentially flat" in 2012, Lilly said. R&D spending will stand at $5 billion to $5.3 billion in 2012, the company said, which will be flat or slightly higher than in 2011.
Wall Street is eagerly awaiting late-stage results for Lilly's experimental Alzheimer's disease drug, solanezumab, which could be a huge seller. But many analysts doubt the product will prove effective.
A panel of outside safety experts overseeing the Phase III trial for solanezumab will meet later this month and the company said it plans to provide an update at the end of January.
JPMorgan's Schott earlier this week projected that Lilly's earnings per share would decline 5 percent a year on average through 2017.
Lilly shares were down 1.9 percent at $39.93 at midday on the New York Stock Exchange, off an earlier low at $39.25.
(Reporting By Lewis Krauskopf in New York; Editing by Michele Gershberg, John Wallace and Matthew Lewis)