Elii Lilly Cuts It Throat, Could The Stock Drop To $40?

The New York Times hits Lilly (LLY) almost daily with a new article on how the drug company dupped doctors and patients into thinking that its drug for schizophrenia was safe and did not have horrible side effect. The Times sums it up: “The original results showed that patients on Zyprexa, Lilly’s pill for schizophrenia, were 3.5 times as likely to experience high blood sugar levels as those taking a placebo”

The drug is 30% of Lilly’s revenue at $4.2 billion in 2005.

For investors who like risky or distressed investments, Lilly represents an especially dangerout bet. Think of Merck’s Vioxx suits with the possibility that Lilly does not haved a good defence.

Although Lilly’s stock has dropped from $58 to $52 recently, it could go much, much lower. It has not been much below $50 since mid-2002, and that was for a brief period.

According to Morningstar, Lilly has $5 billion in debt. Its cash and equivalents cover that. Cash from operations for the last four quarters is about $3 billion.

Liability suits, if successful, can suck up Lilly’s earnings fairly quickly. And that is the risk. It appears that there are several smoking guns for plantiff’s attorney to take to court. And, the stock could get killed.