Zyprexa

It cited doubts that the company's candidate for diabetic retinopathy, Arxxant, will be approved this August by the FDA.

At its current price, Merrill said, Lilly trades at 17.3 times its 2007 earnings estimate of $3.39 a share, compared with an average industry multiple of about 15.3.

"Although we believe Lilly's profile justifies a premium to the group, we do not anticipate much multiple expansion unless there is surprising good news or the market has a big upside move." Lilly fell $1.28, or 2.2%, to $57.39 Tuesday morning.

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