Dec. 7 (Bloomberg) -- Eli Lilly & Co. projected a 2007 earnings increase that trailed analysts' estimates because the planned purchase of Icos Corp., maker of the impotence pill Cialis, will reduce profit more than some analysts expected.

Net income next year will be $3.25 to $3.35 a share, said the Indianapolis-based maker of Zyprexa, the world's top-selling schizophrenia medicine, at an investor meeting today in New York. Analysts surveyed by Bloomberg estimated profit of $3.38, excluding acquisition and plant-closing costs. The shares fell 1.6 percent.

Analysts at UBS Securities LLC ``view the guidance as a bit disappointing,'' wrote Roopesh Patel in New York, in a note today. Lilly said the pending acquisition of Icos will reduce profit 10 cents a share, more than the 3 cents UBS expected, Patel said.

Sales of the depression pill Cymbalta, introduced in 2004, doubled in the first nine months to $892 million and will exceed $1 billion this year, Lilly said. Revenue from Zyprexa, Lilly's biggest product, will be stable. Chief Executive Officer Sidney Taurel aims to use other new drugs including the diabetes treatment Byetta and Cialis to sustain earnings growth in the next two years.

Shares of Lilly fell 87 cents, or 1.6 percent, to $53.99 at 4 p.m. in New York Stock Exchange composite trading. The stock lost 4.6 percent in 2006, lagging behind a 9.7 percent increase in the 14-member Standard & Poor's 500 Pharmaceutical Index.

`Basically In Line'

Today's forecast is ``basically in line with expectations,'' said Barbara Ryan, an analyst with Deutsche Bank Securities in Greenwich, Connecticut, in an interview today. ``No surprises.''

Lilly agreed in October to acquire the Seattle-based biotechnology company Icos, its partner on Cialis, for $2.1 billion. New York-based HealthCor Management LP, holder of 5.4 percent of Icos shares, may exercise its right to oppose the purchase, the group said earlier this week. The group said Icos should be worth $40 a share, $8 more than Lilly agreed to pay.

In today's statement, Lilly said net income next year won't include expenses related to the Icos purchase and plant closings, which will reduce this year's earnings by 36 cents a share. Lilly repeated its October forecast of $2.74 to $2.84 for 2006 net earnings, and said its 2006 profit adjusted for acquisition costs will be $3.10 to $3.20 a share.

`Low Expectation Stock'

``Lilly has become a low-expectation stock, and is likely to continue to remain so,'' said Jami Rubin, an analyst with Morgan Stanley, in an interview today. ``For a long time it had a premium valuation compared with its global peers. That is coming down now. Investors are questioning the company's outlook post- 2011, when Zyprexa goes off patent.''

The company has 30 experimental drugs in development, including 10 that Lilly announced at today's investor meeting. Sales next year will expand ``in the high single or low double digits,'' compared with growth at ``the low end of 7 to 9 percent'' this year.

``Our goal is to launch at least one new product per year on average through the remainder of this decade, and to position ourselves to launch two per year early in the next decade,'' Taurel said in today's statement.

Lilly also said today it applied for U.S. approval of the osteoporosis drug Evista to reduce breast cancer risk in postmenopausal woman. Researchers believe Evista might have an effect on breast cancer and heart disease, like other drugs that modify the effects of the female hormone estrogen.

`Increased Comfort'

``They do have some projects that increase your comfort that the company's growth could be protected beyond the Zyprexa patent expiration,'' said Catherine Arnold, an analyst with Credit Suisse, in an interview at the meeting.

Patel at UBS estimated that Cymbalta will account for 37 percent of sales growth through 2010, Byetta 14 percent and Cialis 22 percent.

Taurel, in an interview, said Cymbalta has ``potential not only in the current approved indications of depression and diabetic neuropathic pain, but also for general anxiety disorder and fibromyalgia. We are going to talk today about pursuing an indication of chronic pain,'' he said.

`Growth Coming'

Taurel said Lilly launched nine products in the past four years that are at their peak growth time. The company will seek added uses for some of the drugs, giving them ``new-product like'' sales potential, he said.

Steven Paul, Lilly's executive vice president for science and development, said the company spends 20 to 21 percent of sales on research and development, the highest percentage spent in the industry.

``Every company that's struggling is struggling because they can't innovate fast enough to replenish the drugs that are being lost to patent expiration,'' Paul said in an interview at the investors' conference. ``It's the pipeline, stupid.''

Demand for Zyprexa leveled off in 2006 after two years in which the drug's prescriptions declined, said John Lechleiter, Lilly's chief operating officer, in a presentation today. The company changed its sales message to emphasize that Zyprexa works for patients in urgent situations.

``Doctors believe Zyprexa is best for patients for whom the stakes are high,'' Lechleiter said.

Prasugel

Lilly said it may file in mid-2007 for U.S. approval of prasugrel, an experimental blood thinner that would compete with Bristol-Myers Squibb Co. and Sanofi-Aventis SA's Plavix. The product may generate sales of $1.2 billion in 2010, JPMorgan Securities analyst Chris Shibutani said in a Dec. 4 note.

Plavix, with $6.3 billion in 2005 sales, was the world's second biggest-selling drug behind Pfizer Inc.'s Lipitor.

Patients taking the medicines include 6 million people who have had drug-coated stents inserted to keep their arteries propped open. U.S. regulators this week suggested that longer therapy with blood thinners such as Plavix would help reduce the risk of potentially lethal clots.

The company is studying 13,000 patients, comparing rates of cardiovascular events between Plavix and prasugrel.

``Lilly has become a stock riding on how the prasugrel trial works out,'' Shibutani said in an interview. ``Right now, in the aftermath of Pfizer's torcetrapib failure, everybody is cautious. It becomes a pivotal event for Lilly in terms of whether the trial turns out.''

Pfizer Inc. last week said its experimental cholesterol pill, torcetrapib, caused more deaths than expected in a patient trial. The company halted the trial and ended the drug's development, causing shares to drop.

The two drugs aren't comparable, Taurel said.

``Torcetrapib was the answer to Lipitor's patent expiration,'' Taurel said in an interview. ``That was embedded in the stock price. The relative importance of that product to them is much higher than the importance of prasugrel to us.''

Prasugrel isn't being developed as a replacement, he said. ``It's the entrance to a new therapeutic class. Just the growth from Cymbalta alone in the short term is larger than the expectations for prasugrel.''

To contact the reporter on this story: Duncan Moore in Chicago at dmoore35@bloomberg.net.

Last Updated: December 7, 2006 16:07 EST