Q: Why hasn't Eli Lilly & Co. stock performed better? It's a big retirement holding of mine.-- R.C., via the Internet
A:Although the pharmaceutical giant will continue to be a big-time player, its lowered expectations for the rest of this year have taken a toll on its stock.
After previously forecasting 7 percent to 9 percent sales growth for 2006, management now expects results in the lower end of that range. That's due in part to disappointing sales of its insulin drugs.
It also faces increased competition for its Zyprexa antipsychotic medication, its top-selling drug that has seen its sales slip slightly in the U.S. It loses patent protection in 2011.
Shares of Eli Lilly (LLY) are flat this year, following a small dip last year and a 19 percent decline in 2004. Sales were up 5 percent in its recent quarter on gains in treatments for depression and lung cancer. The new Medicare drug benefit that offers prescription-drug coverage to elderly and disabled people has generally helped earnings of drug companies this year.
Lilly is committed to research and development. Big pharma is, after all, a battle of products. Lilly's Cialis drug for erectile dysfunction had worldwide sales of $750 million last year, though Pfizer is suing Lilly with a claim that Cialis infringes on Viagra patents. Lilly ranks as the third-largest maker of biotechnology-based drugs, behind Amgen Inc. and Genentech Inc.
Consensus rating on stock of Lilly is a "buy," according to Thomson Financial. That consists of five "strong buys," seven "buys," 13 "holds" and one "underperform."
Earnings are expected to increase 9 percent this year, in line with the major drug manufacturing industry. Next year's projected 8 percent rise compares to 12 percent forecast industrywide. The five-year annualized return of 10 percent is slightly better than the 9 percent projected for its peers.
The U.S. Food and Drug Administration has approved use of Lilly's drug Gemzar to treat recurrent ovarian cancer when used in combination with carboplatin chemotherapy.
Lilly is awaiting a ruling from U.S. regulators on approval of Arxxant, a drug to combat eye damage in diabetics that could become a big seller. The company is testing an anti-cancer pill that could shrink brain tumors and potentially other forms of cancer.
A federal jury recently ruled Lilly infringed the patent of Ariad Pharmaceuticals with its drugs Evista and Xigris, ordering it to pay $65.2 million.
Q: What's your opinion of Artisan International Value Fund? It hasn't been around too long, I realize, but I have heard good things.-- C.R., via the Internet
A: So far, so good.
Launched four years ago, the $969 million fund has turned in a fine performance by investing in a concentrated portfolio of 40 stocks. Portfolio manager David Samra favors stocks that are inexpensive enough to provide a potential 30 percent return but not in financial distress.
Artisan International Value Fund (ARTKX) has gained 27 percent in the past 12 months to rank in the top 10 percent of foreign small- and mid-cap value funds. Its average annual return of 28 percent over the past three years ranks in the top 40 percent.
"I recommend this fund as an all-capitalization value fund that just happens to be at the lower end [small- and mid-cap] because that's where it has found more value," said Paul Herbert, analyst with Morningstar Inc. in Chicago. "It would complement an individual's portfolio that has domestic stocks, though, rather than having it as your only international holding, you might also invest in a growth-stock international fund."
Emerging markets are limited to 20 percent of the portfolio, no country can exceed 35 percent of assets and currency hedging rarely occurs.
Nearly two-thirds of its portfolio is in United Kingdom and other Western European stocks. Japan, North America, Latin America and non-Japanese Asia are other concentrations.
Top holdings of Artisan International Value Fund recently included the UK's Diageo, Countrywide, Vodafone Group and MFI Furniture Group; Tyco International Ltd. in the U.S.; Germany's Pfeiffer Vacuum Technology; the Netherlands' Wolters Kluwer; Japan's Meitec and Central Japan Railway; and the Swiss firm Givaudan.
This "no-load" (no sales charge) fund requires a $1,000 minimum initial investment and has an annual expense ratio of 1.31 percent.
Q: You told B.N. of Villa Park, Ill., that the IRA custodian wished to market products to him when they asked for his net worth, tax bracket and total assets. As a member of the NASD Board of Arbitrators, I might add that in most instances that information is collected to protect the custodian from inappropriate lawsuits. In arbitration cases, those bits of information could have a major impact, showing suitability (or lack of) and perhaps affecting other issues.-- C.F., Arlington Heights, Ill.
A: My recent response to the reader who didn't want to supply personal financial information to an IRA custodian shook a hornet's nest, mostly of irate brokers.
The fact is, the IRS does not require that information and pointedly leaves the determination of whether a contribution is deductible up to the investor. For example, the IRA application at Vanguard Group doesn't require net worth, total assets or tax bracket. It asks for information such as name, address, phone, Social Security number and birth date to verify identity.
It is in the case of the "suitability" rules of the NASD, a self-regulatory organization, and the New York Stock Exchange that--as C.F. points out--such personal financial information is requested. That is because those brokers are advising clients on their investment decisions. And yes, they also use the information to market products.
An IRA custodian who requires such questions does have the option of refusing to sign you up if you won't answer.
Andrew Leckey is a Tribune Media Services columnist. E-mail him at email@example.com.