Dec. 11 (Bloomberg) -- Eli Lilly & Co. is betting its future on biotechnology after buying ImClone Systems Inc. and might follow rival Merck & Co. into generic biologic drugs.

Lilly, burdened by last month’s $6.5 billion acquisition of ImClone, forecast 2009 profit that missed analysts’ estimates and will post a net loss for 2008 because of ImClone charges, the Indianapolis-based drugmaker said today in a statement. With ImClone, creator of cancer drug Erbitux, Lilly is the world’s fifth-largest biotechnology company and half its most promising experimental drugs are based on living cells instead of chemicals, the company said.

Lilly’s investment in the $94 billion market for biotechnology drugs also may include copying other biologic medicines, said Chief Executive Officer John Lechleiter. Merck this week became the first big U.S. maker of pharmaceuticals to start a new division for generic biologics and said it will begin selling a half-dozen treatments based on the technology within eight years.

“We’re very much considering that,” Lechleiter told analysts and investors in New York as the company presented its financial and research strategy. “We believe there are some opportunities there.”

Lilly’s biotechnology move is “all branding,” Michael King, a Rodman & Renshaw analyst in New York, said in an e-mail. All big drugmakers are trying to buy into biotechnology, he said, though Lilly’s investment shows seriousness.

‘Not Recession-Proof’

Lilly is the second major U.S. drugmaker to forecast 2009 profit that missed analysts’ estimates as the once recession- resistant industry joins other struggling manufacturers. Net income excluding one-time items will be $4 to $4.25 a share, dragged down by ImClone by 30 to 35 cents a share, the company said. The forecast missed analysts’ $4.27 average estimate.

Merck also forecast 2009 profit that missed analysts’ estimates. U.S. drugmakers are struggling with slowing American demand and international sales declines as the U.S. dollar rises, said Jami Rubin, a Goldman Sachs Group Inc. analyst in New York.

Lechleiter said Lilly is “less affected” by the economy than companies in most other industries. “We’re not recession- proof,” he said.

Lilly rose 61 cents, or 1.7 percent, to $35.62 at 4:15 p.m. in New York Stock Exchange composite trading. The company sank 34 percent this year before today.

Excluding ImClone charges, Lilly’s 2009 forecast is “a little higher than” analysts expected, said Barbara Ryan, a Deutsche Bank Securities Inc. analyst in Greenwich, Connecticut, in an e-mail.

Development Costs

Lilly will cut its cost of bringing new drugs to market by a third in two years, to about $800 million from $1.2 billion. The company this year sold its Greenfield Laboratories site and began joint drug-discovery ventures with companies in India and China.

“We’ve been able to reduce the absolute costs by reducing cycle times and identifying drugs that fail earlier in the development,” Chief Financial Officer Derica Rice said in an interview.

Lilly is developing new treatments for Alzheimer’s disease, diabetes and osteoporosis, the company told analysts today.

Lilly and partner Daiichi Sankyo Co., of Tokyo, remain in talks with the Food and Drug Administration about the experimental clot blocker prasugrel, central to Lilly’s plan to replace revenue from drugs that face generic competition in coming years. Lechleiter said Lilly plans to begin selling the drug in 2009.

Weekly Zyprexa

Development of the cancer drug enzastaurin, for lymphoma, has been delayed as Lilly expands a final-stage trial. The company now plans to seek U.S. approval in 2013.

Lilly also has submitted more information to the FDA on a long-acting version of the antipsychotic drug Zyprexa. The regulator rejected Lilly’s application for the drug in February because of concerns about excess sedation side effects.

In a separate statement today, Lilly affirmed that it plans to seek FDA approval to sell a once-weekly version of diabetes drug Byetta by the first half of 2009.

Because of ImClone charges, Lilly chopped its 2008 earnings forecast and expects a loss of $1.56 to $2.06 a share. Lilly said its 2008 forecast excluding ImClone and other one-time charges is unchanged, at $2.44 to $2.49 a share.

To contact the reporters on this story: Tom Randall in New York at trandall6@bloomberg.net; Elizabeth Lopatto in New York at elopatto@bloomberg.net

Last Updated: December 11, 2008 16:42 EST