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Eli Lilly Beats on Earnings & Revs; Earnings View Up

Zacks Equity Research

Eli Lilly & Company (LLY) reported second quarter 2013 adjusted earnings per share of $1.16, well above the Zacks Consensus Estimate of $1.02 and 40% above the year-ago earnings of 83 cents. The year-over-year growth was attributable to the strong performance of several key products, cost control and a lower tax rate.

Second quarter revenues increased 6% to $5.93 billion, beating the Zacks Consensus Estimate of $5.84 billion. Revenues increased despite the impact of the Zyprexa patent expiry due to the strong performance of key products. Sales of Zyprexa, which went off patent in the EU and the U.S. in late 2011, fell 25% in the second quarter of 2013.

Reported earnings (including special items) increased 34% to $1.11 per share in the second quarter of 2013.

Quarterly Details

Second quarter revenues increased 6% reflecting price increases (6%) and higher volume (2%) that were partially offset by unfavorable currency fluctuation (2%). The higher volume was mainly due to the strong performance of several products that was partially offset by the loss of exclusivity for Zyprexa, which is facing competition from several generic players as well as the transfer of exenatide commercial rights outside the U.S. to Bristol-Myers Squibb (BMY).

U.S. revenues grew 13% to $3.4 billion mainly due to price increases. Ex- U.S. revenues declined 2% to $2.5 billion, mainly due to the loss of exclusivity for Zyprexa, unfavorable currency fluctuation and lower prices.

During the second quarter, Zyprexa recorded a 25% decline in revenues, which came in at $283.2 million. U.S. revenues fell 35% due to lower prices. International revenues decreased 25%, mainly due to the loss of market exclusivity in major markets apart from Japan. Zyprexa sales in Japan were affected by the weakening yen.

Products which performed well in the second quarter included Cymbalta (22% growth to $1.5 billion), Cialis (up 13% to $529.4 million), Forteo (up 7% to $296.9 million) and Humulin (8% growth to $327.5 million) among others.

Eli Lilly’s Animal Health segment contributed $543.5 million (up 6%) to revenues. Sales improved on a sequential basis. Eli Lilly reported higher demand for Trifexis and companion animal products.

Effient revenues increased 24% to $137.4 million. While U.S. revenues grew 28% to $103.8 million, due to higher prices, ex- U.S. revenues increased 12% to $33.6 million driven by higher volume.


Eli Lilly’s adjusted operating expenses declined 1.7% to $3.2 billion. Research and development (R&D) expenses increased 1% to $1.3 billion. Marketing, selling and administrative expenses declined 3% to $1.9 billion reflecting the company’s cost control efforts.

EPS Guidance Up

Eli Lilly raised its earnings guidance to $4.05 - $4.15 per share on total revenues of $22.6 billion - $23.4 billion in 2013. The company was earlier expecting earnings of $3.82 - $3.97 per share on total revenues of $22.6 billion - $23.4 billion. The Zacks Consensus Estimate for earnings and revenues is currently $3.92 per share and $22.8 billion, respectively.

Eli Lilly now expects marketing, selling and administrative expenses of $7.0 - $7.2 billion (old guidance: 7.1 - $7.4 billion). R&D expenses are now expected in the range of $5.3 - $5.5 billion (old guidance: $5.3 - $5.6 billion).

Our Take

Eli Lilly’s second quarter results were better than expected with products like Cymbalta, Cialis and Humulin and the animal health segment managing to offset the negative impact of the genericization of Zyprexa.

Eli Lilly expects revenues to remain flat or increase by about 3.5% in 2013 despite the expected loss of U.S. exclusivity for Cymbalta later this year. Eli Lilly, which is currently going through a patent cliff with the loss of exclusivity on Zyprexa, will be losing U.S. exclusivity on Cymbalta in December.

While revenues will be impacted by the loss of Cymbalta exclusivity and the loss of the 15% royalty on exenatide sales, products like Humalog, Humulin, Cialis, Strattera, Forteo, Alimta, Cymbalta (outside the U.S.), Effient, Tradjenta and Axiron, and the animal health segment should contribute to sales. Emerging markets, especially China, should also drive sales. However, revenue growth in Japan could be adversely affected by the weak yen.

Eli Lilly is also working on controlling costs. Last quarter, Eli Lilly had announced a restructuring initiative to help lessen the impact of the upcoming loss of patent exclusivity for Cymbalta and Evista, the changing consumer needs and the change in the U.S. healthcare environment. The company is cutting down its U.S. Bio-Medicines sales force with the main focus being on the primary care sales force. The restructuring also reflects the termination of the company’s U.S. promotion agreement with Kowa Pharmaceuticals for Livalo and a minor expansion in its diabetes sales force. The company said that it will close its packaging and distribution site in Giessen, Germany during 2014.

Eli Lilly currently carries a Zacks Rank #3 (Hold). At present, companies like Johnson & Johnson (JNJ) and Jazz Pharmaceuticals (JAZZ) look more attractive. While Jazz is a Zacks Rank #1 (Strong Buy) stock, Johnson & Johnson is a Zacks Rank #2 (Buy) stock.

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