Eli Lilly and Company ( LLY - Analyst Report ) and partner, Boehringer Ingelheim, recently received a positive opinion from the European Medicines Agency's (EMA) Committee for Medicinal Products for Human Use (CHMP) for their type II diabetes candidate, Jentadueto.

Jentadueto is a twice-daily combination of linagliptin (trade name: Tradjenta/Trajenta) and metformin. Eli Lilly and Boehringer Ingelheim are looking to get Jentadueto approved in the EU for use along with diet and exercise to improve glycemic control in type II diabetes patients (adults) who are inadequately controlled on their maximum tolerated dose of metformin alone or who are already on a combination of linagliptin and metformin.

The EU approval of Jentadueto would provide diabetes patients with an additional treatment option in the form of a single tablet (twice daily).

We note that Jentadueto gained US Food and Drug Administration (FDA) approval in January 2012 to be used along with diet and exercise to improve glycemic control in type II diabetes patients (adults) when treatment with both linagliptin and metformin is appropriate.

The positive CHMP recommendation comes just a few days after Eli Lilly and Boehringer Ingelheim presented positive data on their type II diabetes drug, Tradjenta. The companies presented phase III data which showed that a significant reduction in hemoglobin A1c (HbA1c) levels were achieved in black or African American patients receiving Tradjenta (5mg, once-daily) compared to patients on placebo.

Patients in the Tradjenta arm achieved a reduction of 0.88% in HbA1c level compared to a reduction of 0.24% in the placebo arm at 24 weeks.

Tradjenta is approved as an adjunct to diet and exercise for the improvement of glycemic control in adults with type II diabetes. Eli Lilly and Boehringer’s strategic alliance, signed in January 2011, is focused on bringing new diabetes treatments to market.

Neutral on Eli Lilly

We currently have a Neutral recommendation on Eli Lilly, which carries a Zacks #3 Rank (short-term ‘Hold’ rating). The company is facing a challenging period with Zyprexa having losing patent protection in late 2011. With generic players like Teva ( TEVA - Analyst Report ) and Dr. Reddy’s ( RDY - Snapshot Report ) launching their generic version of the product, we expect rapid erosion in Zyprexa sales. In fact, the company expects Zyprexa sales to fall by more than $3 billion in 2012.

We expect the top-and bottom-line to remain under pressure as the contraction in Zyprexa sales more than offsets growth in Cymbalta, diabetes and new product sales. The generic threat will continue to pose challenges for Eli Lilly with Cymbalta slated to lose patent protection in 2013 and Evista in 2014. On the flip side, the Animal Health business and emerging markets should provide some downside support. We are also pleased to see Eli Lilly pursuing small acquisitions and in-licensing deals to boost its pipeline.