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Eli Lilly Beats on Q2 Earnings & Revs, Maintains View

Arpita Dutt

Eli Lilly & Company (LLY) reported second quarter 2014 adjusted earnings per share of 68 cents, a couple of cents above the Zacks Consensus Estimate but 41% below the year-ago earnings.

Second quarter revenues fell 17% to $4.935 billion, reflecting generic competition for Cymbalta and Evista in the U.S. However, revenues surpassed the Zacks Consensus Estimate of $4.831 billion.

Reported earnings (including special items) declined 39% to 68 cents per share in the second quarter of 2014.

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Quarterly Details

Second quarter revenues declined 17% mainly due to lower volume. The impact of price changes and currency fluctuation were negligible. The lower volume was mainly due to the Dec 2013 genericization of Cymbalta in the U.S. and the Mar 2014 patent expiry of Evista in the U.S.

U.S. revenues declined 30% to $2.380 billion reflecting lower volume resulting from the loss of patent protection on Cymbalta and Evista. Ex- U.S. revenues increased 1% to $2.556 billion mainly due to higher volume that was partially offset by lower prices.

During the second quarter, Zyprexa recorded a 14% decline in revenues, which came in at $243.8 million.

Cymbalta sales fell 73% to $401.3 million. U.S. sales dropped 91% to $112.3 million due to the loss of patent exclusivity in December. Ex-U.S. sales grew 3% to $289 million.

Evista sales fell 61% to $108.3 million. U.S. sales dropped 72% to $55.0 million, due to the loss of exclusivity in Mar 2014. Ex-U.S. sales declined 33% to $53.3 million due to lower prices.

Products which recorded growth in the second quarter included Alimta (up 6% to $711.6 million), Humulin (up 8% to $352.4 million), Humalog (up 11% to $700.1 million), Cialis (up 7% to $567.8 million), Forteo (up 4% to $308.6 million) and Strattera (up 17% to $197.4 million).

Eli Lilly’s Animal Health segment contributed $601.2 million (up 11%) to revenues. Higher volume led to the increase. The Lohmann acquisition also boosted sales. Sales in the U.S. grew 3% due to higher volume for food animal products that was partially offset by volume declines for companion animal products.

Eli Lilly is looking to strengthen its Animal Health division and will be acquiring Novartis’ (NVS) animal health business – the acquisition is slated to go through in the first quarter of 2015.


Eli Lilly’s adjusted operating expenses declined 11% to $2.859 billion. Research and development (R&D) expenses decreased 10% to $1.195 billion. Marketing, selling and administrative expenses declined 11% to $1.664 billion reflecting the company’s cost control efforts.

Guidance Maintained

Eli Lilly maintained its 2014 guidance of $2.72 - $2.80 per share on revenues of $19.4 billion - $20.0 billion.

The Zacks Consensus Estimate for earnings and revenues is currently $2.79 per share and $19.7 billion, respectively.

Our Take

Eli Lilly’s second quarter results were hit by the genericization of Cymbalta and Evista. Basically, 2014 will be an extremely challenging year for Eli Lilly with both products seeing a sharp decline in sales.

However, products like Humalog, Trajenta, Cialis, Forteo and Alimta and the animal health business should help partially offset the impact of genericization. China should also see strong growth though Japan will be weaker due to currency movement.

Gross margin is expected to decline significantly in 2014 mainly due to the patent expirations.

Eli Lilly is also working on controlling costs. Marketing, selling and administrative expenses should decline to a range of $6.3 billion - $6.6 billion (from $7.1 billion in 2013). Research and development expenses are expected to decline to $4.4 billion - $4.7 billion from $5.5 billion in 2013.

Eli Lilly should return to growth from 2015.

Eli Lilly is a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the pharma sector include Allergan Inc. (AGN) and Pfizer (PFE). While Allergan is a Zacks Rank #1 (Strong Buy) stock, Pfizer carrries a Zacks Rank #2 (Buy).

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