Lilly Ups GAAP Guidance

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Eli Lilly and Company (LLY) recently updated its reported (:GAAP) guidance for 2012 following the early payment of financial obligations from Amylin Pharmaceuticals. Eli Lilly raised its reported guidance to reflect the additional income received from Amylin.

Amylin, which was recently acquired by Bristol-Myers Squibb (BMY), has made a payment of $1.259 billion related to its revenue sharing obligation for exenatide. As a reminder, Amylin and Eli Lilly had terminated their long-standing partnership for the worldwide development and commercialization of exenatide in November 2011.

As a result of the early payment from Amylin, Eli Lilly raised its 2012 reported earnings guidance to $3.72 - $3.82 per share from $3.29 - $3.39 per share. Eli Lilly expects third quarter reported results to be boosted by about 43 cents due to the recognition of the additional income.

The company also expects to recognize income of 25 cents per share in 2013 related to the transfer of exenatide commercial rights outside the US to Amylin. Amylin has also repaid a $165 million loan plus interest.

Eli Lilly, meanwhile, maintained its adjusted earnings outlook of $3.30 - $3.40 per share on revenues of $21.8 - $22.8 billion. The Zacks Consensus Estimate currently stands at $3.38 per share.

While the loss of Zyprexa exclusivity is expected to impact revenues by more than $3 billion, products like Cymbalta, Cialis, Humalog, Alimta and Forteo are expected to continue performing well. Moreover, new products like Effient, Axiron and Tradjenta should also contribute to revenues.

The Animal Health business should also continue performing well. Meanwhile, revenue growth in Japan and emerging markets will be impacted by pricing actions in Japan and the loss of patent protection for Zyprexa and other products in some emerging markets.

Eli Lilly is working on controlling costs, and expects operating expenses to remain flat in 2012. While marketing, selling and administrative expenses are expected to decline to $7.3 billion - $7.7 billion, research and development expenses are expected to remain flat or increase to $5.0 billion - $5.3 billion.

Eli Lilly remains on track to meet or exceed its mid-term guidance. From now through 2014, the company expects annual net income of at least $3 billion on revenues of at least $20 billion. Operating cash flow is expected to be at least $4 billion every year during this time period. Post 2014, Eli Lilly expects to return to top and bottom-line growth.

We currently have a Neutral recommendation on Eli Lilly. The company carries a Zacks #2 Rank (short-term Buy rating).

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