Will Eli Lilly & Co. (LLY) Help You Retire Rich? – GlaxoSmithKline plc (ADR) (GSK), Johnson & Johnson (JNJ)

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Since we looked at Eli Lilly last year, the company has dropped two points, as earnings and free cash flow have dropped. But the stock hasn’t held back even in that tough environment, rising more than 40% over the past year.

Lilly took a big sales hit from its patent cliff throughout 2012, as its Zyprexa anti-psychotic drug went off patent in 2011. With Zyprexa having brought in $4.6 billion in worldwide income in 2011, the loss was substantial. Moreover, even though Lilly had other drugs step up to fill the gap, it’s slated to lose protection on current top-selling depression drug Cymbalta and insulin-product Humalog this year, with osteoporosis treatment Evista following next year.

Lilly has tried to take steps to sustain profits during its difficult patent-cliff period. Its efforts to cut costs have been a mixed bag, with operating expenses starting to fall but margins having contracted in recent years. Lilly has generally kept its focus throughout the period, eschewing the major corporate maneuvers that rivals have made. Yet international growth hasn’t panned out to the extent it had hoped.

Unfortunately, Lilly has seen some setbacks recently. It ended trials on its rheumatoid arthritis drug tabalumab when it showed no benefit against the disease, although the company hopes the drug may still be effective in treating lupus. GlaxoSmithKline plc (ADR) (NYSE:GSK)‘s Benlysta drug hasn’t ramped up as quickly as some had hoped, and so if Lilly is fortunate, it may still be able to catch up in that area. Moreover, its Alzheimer’s treatment solanezumab failed in two phase 3 trials last year, joining Pfizer Inc (NYSE:PFE), Johnson & Johnson (NYSE:JNJ), and Elan Corporation, plc (ADR) (NYSE:ELN) in the loss column against the disease.

For retirees and other conservative investors, Lilly hasn’t given shareholders the dividend boosts they’re used to see from income stocks, and its stock’s advance raises questions about whether the valuation is too rich. For now, you may be better off waiting to see how Lilly’s patent-cliff plans work out before paying up to buy shares at current levels.

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The article Will Eli Lilly Help You Retire Rich? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson.

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