STEPHEN LEEB

CHIEF INVESTMENT OFFICER

LEEB CAPITAL MANAGEMENT

COMPANY: Eli Lilly

TICKER: LLY (NYSE)

PRICE: $53.42 (as of 4 p.m. yesterday)

52-WEEK RANGE: $49.47-$60.98

MARKET CAPITALIZATION: $60.36 billion

Stephen Leeb is the chief investment officer at Leeb Capital Management in Manhattan and has more than 25 years of investment experience. Eli Lilly is a large pharmaceutical company. Mr. Leeb spoke to David Dalley of The New York Sun about why he believes the stock has been overlooked by the market and could increase by 15% over the next six to nine months.

What does Eli Lilly do?

They’re a major pharmaceutical company, which has been under some pressure and which is not getting nearly enough credit by the market for several of its really important drugs.

Why do you like it?

I think Wall Street has missed a lot of positive things currently happening at the company. They have a number of important drugs in development and they have very few drugs going off patent anytime soon, so they’re not particularly affected by generic competition. The stock has nevertheless been under a fair amount of pressure and has been underperforming the rest of the pharmaceutical sector.

What do they have in development?

Over the last while, another development stage pharmaceutical company called Amylin has really gone from nothing to something. They’ve introduced a drug called Byetta, which is probably the best drug for treating type II diabetes, for a number of reasons. For one, it has no real negative side effects, and in fact has a number of positive side effects. Aside from the diabetes treatment, it causes weight loss, lowers bad cholesterol levels, and lowers blood pressure. It’s probably the best drug around for treating the more general condition known as metabolic disorder, one of the most widespread chronic diseases in the country.

The problem with it right now is that it can only be administered via twice daily injections. Despite this, it has been tremendously successful for obvious reasons. They’re now testing a version that would only need to be injected once a week. That becomes very interesting, because then this drug would be not only a candidate for people with diabetes, but also for people with high cholesterol, blood pressure, weight problems, etc. – the market could be enormous.

What’s the relationship between Byetta and Lilly?

Lilly basically has half the rights to Byetta in the U.S., and about 80% in the rest of the world. Lilly and Amalyn are 60-40 partners, globally. Wall Street has been totally oblivious to this. If the long-acting version of Byetta is approved, we’re talking about a massive drug and huge revenues. This has not been reflected at all in Wall Street research. There are virtually no mentions in any analyst reports of the connection between Lilly and Byetta. No one is focusing in on how important it could be to the company.

Lilly is a much bigger company than Amalyn, though. Is Byetta really that significant given its size?

It’s obviously a bigger deal in relation to Amalyn since it’s all they have. Lilly is about 10 times as big as Amalyn, but it’s still a significant product to them. At least 10% of the benefit that Amalyn is receiving from the market, Lilly should be receiving.

What do you think the stock’s worth?

Lilly is a company that has a superb credit rating, it’s AA-rated, it’s yielding about 3%, and it has this wonderful combination of high potential growth that is currently unrecognized by the market, and not a whole lot of risk in terms of drugs coming off patent.

I’d expect that over the next six to nine months it would be about 15% higher. I see it trading somewhere in the $60s. It will very likely be the fastest growing major pharmaceutical company over the next five years.