Is a weak Eli Lilly ripe for a takeover?

Everybody sees something different when they look at Eli Lilly ($LLY), which has recently dropped out of the top 10 pharma group. A number of analysts, some with good reason to shine up to CEO John Lechleiter, see a company that has hit bottom and is on the comeback trail, with new drug approvals to help bolster Lechleiter's bullish forecasts. The Financial Times today takes a look at the pharma semigiant and sees an organization that is ripe for a takeover, advancing a marginal new product and still in search of success for "moon shot" drugs that may never pan out--which could force a possible showdown next year.

Fund managers, asserts author David Crow, have been "dismissive" of Lilly and unwilling to invest, leaving them on the sidelines as the company enjoyed a big gain in its stock price last year. At $80 billion, he adds, Lilly would make a tempting target for a Pfizer ($PFE) or even Valeant ($VRX), which would have no trouble carving out huge savings from an R&D group that consumes 24% of the company's revenue. But we'll add that Bernstein's Tim Anderson, a Lilly bull, considers any hostile takeover highly unlikely under Indiana law.

Lechleiter meanwhile has a lot riding on risky late-stage programs for Alzheimer's (solanezumab) and for cholesterol. In both cases Lilly is following in the footsteps of some major failures, which isn't inspiring a lot of confidence. And one of its new drugs, cancer drug Cyramza, comes in for a jab as a marginally effective treatment that offers only a narrow gain in survival rates.

Eli Lilly's John Lechleiter

Lilly, meanwhile, has also been noticeably absent from the deal frenzy that has consumed much of the industry, largely staying away from a leading role in immuno-oncology even though it sees a big future for itself in the cancer arena.

"I've learned in 35 years you can be excited about something ... but you also need to temper your enthusiasm and be realistic," Lechleiter notes in his interview with The Financial Times.

This isn't the first time analysts speculated that Eli Lilly is facing a reckoning after years of setbacks in the clinic. But Lechleiter has managed to skip past those prognostications as Lilly nears another test of its ability to push major drugs through the pipeline. Without a home run hit in R&D, though, this is one player that will remain under a cloud. -- John Carroll (email | Twitter)

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