Lowered expectations depress Eli Lilly
August 13, 2006

Q: Why hasn't Eli Lilly & Co. stock performed better? It's a big retirement holding of mine.

R.C., via the Internet

A: Although the pharmaceutical giant will continue to be a big-time player, its lowered expectations for the rest of this year have taken a toll on its stock.

After previously forecasting 7 percent to 9 percent sales growth for 2006, management now expects results in the lower end of that range. That's due in part to disappointing sales of its insulin drugs.

It also faces increased competition for its Zyprexa antipsychotic medication; its top-selling drug has seen its sales slip slightly in the U.S. It loses patent protection in 2011.

Shares of Eli Lilly are down 4 percent this year, following a small dip last year and a 19 percent decline in 2004.

Sales were up 5 percent in its recent quarter on gains in treatments for depression and lung cancer. The new Medicare drug benefit that offers prescription-drug coverage to elderly and disabled people has generally helped earnings of drug companies this year.

Lilly is committed to research and development. Big pharma is, after all, a battle of products. Lilly's Cialis drug for erectile dysfunction had worldwide sales of $750 million last year, though Pfizer is suing Lilly with a claim that Cialis infringes on Viagra patents. Lilly ranks as the third-largest maker of biotechnology-based drugs, behind Amgen Inc. and Genentech Inc.

Consensus rating on stock of Lilly is a "buy," according to Thomson Financial.

Earnings are expected to increase 9 percent this year, in line with the major drug manufacturing industry. Next year's projected 8 percent rise compares to 12 percent forecast industrywide.

Q: What's your opinion of Artisan International Value Fund? It hasn't been around too long, I realize, but I have heard good things.

C.R., via the Internet

A: So far, so good.

Launched four years ago, the $969 million fund has turned in a fine performance by investing in a concentrated portfolio of 40 stocks. Portfolio manager David Samra favors stocks that are inexpensive enough to provide a potential 30 percent return but not in financial distress.

Artisan International Value Fund has gained 23 percent in the past 12 months to rank in the top 20 percent of foreign small- and mid-cap value funds. Its average annual return of 27 percent over the past three years ranks in the top half.

"I recommend this fund as an all-capitalization value fund that just happens to be at the lower end [small- and mid-cap] because that's where it has found more value," said Paul Herbert, analyst with Morningstar Inc. in Chicago. "It would complement an individual's portfolio that has domestic stocks. Though rather than having it as your only international holding, you might also invest in a growth-stock international fund."

Emerging markets are limited to 20 percent of the portfolio, no country can exceed 35 percent of assets and currency hedging rarely occurs.

Nearly two-thirds of its portfolio is in United Kingdom and other Western European stocks. North America, Latin America and Asia are other concentrations.

This "no-load" (no sales charge) fund requires a $1,000 minimum initial investment and has an annual expense ratio of 1.31 percent.

Source: http://www.orlandosentinel.com/business/orl-leckey1306aug13,0,1211760.story?track=rss