Lilly Reports Fourth-Quarter and Full-Year 2012 Results, Revises 2013 EPS Guidance

 

INDIANAPOLIS, Jan. 29, 2013 /PRNewswire/ --

  • Fourth quarter revenue declined 1 percent driven by Zyprexa patent expiration, largely offset by growth in other products.
  • Fourth quarter earnings per share were $0.74 (reported), or $0.85 (non-GAAP).
  • Full-year 2012 revenue declined 7 percent to $22.6 billion.
  • Full-year 2012 earnings per share totaled $3.66 (reported), or $3.39 (non-GAAP).
  • 2013 guidance increased by $0.07 per share to reflect the estimated benefit from the delayed enactment of the American Taxpayer Relief Act of 2012.
  • 2013 earnings per share now expected to be in the range of $4.10 to $4.25 (reported), or $3.82 to $3.97 (non-GAAP).

Eli Lilly and Company (NYSE: LLY) today announced financial results for the fourth quarter and full year of 2012.

$ in millions, except per share data

Fourth Quarter

%

Full Year

%


 

2012


 

2011

Growth

2012

2011

Growth

Total Revenue — Reported

$5,957.3


 

$6,046.6

(1)%

$22,603.4

$24,286.5

(7)%

Net Income — Reported

827.2


 

858.2

(4)%

4,088.6

4,347.7

(6)%

EPS — Reported

0.74


 

0.77

(4)%

3.66

3.90

(6)%

Net Income — non-GAAP

945.2


 

968.9

(2)%

3,784.0

4,913.5

(23)%

EPS — non-GAAP

0.85


 

0.87

(2)%

3.39

4.41

(23)%

Financial results for 2012 and 2011 are presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the period. Non-GAAP results exclude the items described in the reconciliation tables later in the release. The non-GAAP results are presented in order to provide additional insights into the underlying trends in the company's business. The company's 2013 financial guidance is also being provided on both a reported and a non-GAAP basis.

"Lilly delivered solid financial results in the fourth quarter of 2012, as we successfully offset a large part of the revenue decline from the Zyprexa patent expiration with growth in other products such as Cymbalta, Forteo, Alimta, Effient and our animal health portfolio," said John C. Lechleiter, Ph.D., Lilly's chairman, president and chief executive officer. "At the same time, we continued to control costs while investing in R&D in order to replenish and advance our pipeline. Today, Lilly has 13 potential new medicines in Phase III testing. We are well-positioned to deliver on our innovation-based strategy and create long-term value for all of our stakeholders."

Key Events Over the Last Three Months

  • The company's board of directors authorized a new $1.5 billion share repurchase program, which the company anticipates completing in 2013. The company repurchased $400 million of shares in 2012 under this program and also completed a previously authorized share repurchase program.
  • The company announced plans to conduct an additional Phase III study of solanezumab in patients with mild Alzheimer's disease. Enrollment is expected to begin no later than the third quarter of 2013.
  • The company and its partner, Boehringer Ingelheim, announced top-line results for four completed Phase III clinical trials for empagliflozin, an investigational sodium glucose co-transporter-2 (SGLT-2) inhibitor being studied for treatment of patients with type 2 diabetes.  In all four studies, the primary efficacy endpoint, defined as significant change in HbA1c from baseline compared to placebo, was met with empagliflozin (10 and 25 mg) taken once daily.
  • The company and its partner, Boehringer Ingelheim, adjusted the scope of their diabetes alliance, with Lilly reassuming sole worldwide development and commercialization rights for LY2605541, Lilly's investigational novel basal insulin analog which is currently in Phase III clinical testing.
  • The company stopped one of three Phase III rheumatoid arthritis (RA) registration studies of tabalumab, an anti-BAFF monoclonal antibody, due to insufficient efficacy. The decision was not based on safety concerns, and patients currently enrolled in other tabalumab RA studies will continue treatment.
  • The European Commission approved Cialis® 5 mg for once daily use for the treatment of the signs and symptoms of benign prostatic hyperplasia (BPH).
  • Amyvid received marketing authorization from the European Commission as a diagnostic radiopharmaceutical indicated for Positron Emission Tomography (PET) imaging of beta-amyloid neuritic plaque density in the brains of adult patients with cognitive impairment who are being evaluated for Alzheimer's disease and other causes of cognitive impairment.
  • The company received notification from its partner, Bristol-Myers Squibb, to terminate the collaboration for necitumumab in North America and Japan, which will result in Lilly assuming sole worldwide development and commercialization rights. Necitumumab is currently in Phase III testing as a potential treatment for squamous non-small cell lung cancer.
  • The company reached an agreement with the U.S. Securities and Exchange Commission (SEC) to settle the SEC's investigation into the company's compliance with the U.S. Foreign Corrupt Practices Act (FCPA). Without admitting or denying the allegations, Lilly paid a civil settlement amount of $29.4 million and agreed to have an independent compliance consultant conduct a 60-day review of the company's internal controls and compliance program related to the FCPA.

Fourth-Quarter Reported Results
In the fourth quarter of 2012, worldwide total revenue was $5.957 billion, a decrease of 1 percent compared with the fourth quarter of 2011. This 1 percent revenue decline was comprised of a decrease of 3 percent due to lower volume and 1 percent due to the unfavorable effect of foreign exchange rates, partially offset by an increase of 2 percent due to price. (Numbers do not add due to rounding) The decrease in volume was driven primarily by the loss of patent exclusivity for Zyprexa® in most major markets, partially offset by volume gains for certain other products. Total revenue in the U.S. decreased 2 percent to $3.230 billion due primarily to the loss of patent exclusivity for Zyprexa, largely offset by increased prices for pharmaceutical products, as well as higher demand for animal health products. Total revenue outside the U.S. decreased by 1 percent to $2.728 billion, driven by the loss of patent exclusivity for Zyprexa in markets outside of Japan, the unfavorable effect of foreign exchange rates, and decreased prices, partially offset by increased volume in certain other products.  

Gross margin decreased 0.3 percent to $4.709 billion in the fourth quarter of 2012, as the loss of patent exclusivity for Zyprexa was largely offset by growth in other products. Gross margin as a percent of total revenue was 79.0 percent, an increase of 0.9 percentage points compared with the fourth quarter of 2011. The increase in gross margin percent was primarily due to the impact of foreign exchange rates on international inventories sold which decreased cost of sales in the fourth quarter of 2012 and increased cost of sales in the fourth quarter of 2011, partially offset by lower sales of Zyprexa.

Total operating expense, defined as the sum of research and development, marketing, selling and administrative expenses, decreased 1 percent compared with the fourth quarter of 2011 to $3.441 billion. Marketing, selling and administrative expenses decreased 7 percent to $1.978 billion, driven primarily by lower marketing and selling expenses resulting from the company's cost containment efforts. Research and development expenses increased 8 percent to $1.463 billion, or 25 percent of total revenue, driven by expenses related to late-stage clinical trials, including a $50.0 million milestone payment to Incyte Corporation based on the formal initiation of the rheumatoid arthritis (RA) Phase III program for baricitinib.

In the fourth quarter of 2012, the company recognized a $204.0 million charge for asset impairments, restructuring and other special charges, comprised primarily of $122.6 million related to an intangible asset impairment for liprotamase and $64.7 million related to restructuring to reduce the company's cost structure and global workforce. In the fourth quarter of 2011, the company recognized a charge of $167.6 million for asset impairments, restructuring and other special charges, including a special charge of $85.0 million related to the withdrawal of Xigris® and $82.6 million related to restructuring to reduce the company's cost structure and global workforce.

Operating income in the fourth quarter of 2012 was $1.064 billion, which was essentially flat compared to the fourth quarter of 2011, as higher charges (as described in the previous paragraph) and slightly lower gross margin were offset by lower total operating expenses.

Other income (expense) was a net expense of $52.0 million, compared with net expense of $26.8 million in the fourth quarter of 2011.

The effective tax rate was 18.3 percent in the fourth quarter of 2012, compared with an effective tax rate of 17.6 percent in the fourth quarter of 2011. The increase in the fourth quarter 2012 effective tax rate reflects the expiration of the R&D tax credit in the U.S. at the end of 2011, partially offset by the tax benefit related to the intangible asset impairment for liprotamase.

Although operating income was essentially flat, higher other expense caused net income and earnings per share to decrease 4 percent to $827.2 million and $0.74, respectively, compared with fourth-quarter 2011 net income of $858.2 million and earnings per share of $0.77.

Fourth-Quarter 2012 non-GAAP Results
On a non-GAAP basis, fourth quarter 2012 operating income increased 3 percent to $1.268 billion, as lower gross margin due to the loss of patent exclusivity for Zyprexa, along with higher research and development expenses, were more than offset by growth in other products and lower marketing, selling and administrative expenses. The effective tax rate was 22.3 percent, compared with 19.9 percent in the fourth quarter of 2011 principally due to the expiration of the R&D tax credit in the U.S. at the end of 2011. Net income and earnings per share both decreased 2 percent to $945.2 million and $0.85, respectively. These decreases were driven by higher operating income that was more than offset by higher other expense and a higher tax rate.

Non-GAAP results exclude items totaling $0.11 and $0.10 per share of expense in the fourth quarters of 2012 and 2011, respectively. For further detail, see the reconciliation below as well as the footnotes to the non-GAAP income statement later in this press release.

 


 

Fourth Quarter


 

 

2012


 

2011

% Change

Earnings per share (reported)

$0.74


 

$0.77

(4)%

Asset impairment, restructuring and other special charges

 

0.11


 

 

0.10


 

Earnings per share (non-GAAP) 

$0.85


 

$0.87

(2)%

 

Full-Year 2012 Reported Results
For the full-year 2012, worldwide total revenue decreased 7 percent to $22.603 billion compared with 2011, driven by the loss of patent exclusivity for Zyprexa in most major markets, partially offset by growth in other products. This 7 percent revenue decline was comprised of a 7 percent decrease due to lower volume and a 2 percent decrease due to the impact of foreign exchange rates, partially offset by a 2 percent increase due to higher prices. Total revenue in the U.S. decreased 5 percent to $12.313 billion due to the loss of patent exclusivity for Zyprexa, partially offset by higher prices and demand growth for certain other products. Total revenue outside the U.S. decreased 9 percent to $10.290 billion due to the loss of patent exclusivity for Zyprexa in markets outside of Japan, the unfavorable impact of foreign exchange rates, and lower prices, partially offset by demand growth for certain other products.

Gross margin decreased 7 percent to $17.807 billion in 2012. Gross margin as a percent of total revenue decreased by 0.3 percentage points in 2012 to 78.8 percent. This decrease was due primarily to lower sales of Zyprexa and, to a lesser extent higher miscellaneous manufacturing costs, partially offset by the effect of foreign exchange rates on international inventories sold, which decreased cost of sales in 2012 and increased cost of sales in 2011.

Total operating expense decreased 1 percent in 2012. Marketing, selling and administrative expenses decreased 5 percent to $7.514 billion driven by lower marketing expenses resulting from the company's cost containment efforts. Research and development expenses increased 5 percent to $5.278 billion, or 23 percent of total revenue, due to higher late-stage clinical trial costs. 

In 2012, the company recognized charges of $281.1 million for asset impairments, restructuring and other special charges. These charges were comprised of $122.6 million related to an intangible asset impairment for liprotamase, $74.5 million related to restructuring to reduce the company's cost structure and global workforce, $64.0 million related to the asset impairment of a product delivery device platform, and $20.0 million related to the withdrawal of Xigris.  In 2011, the company recognized asset impairment, restructuring and other special charges of $401.4 million, of which $316.4 million related primarily to severance costs from the previously announced strategic actions and $85.0 million related to the withdrawal of Xigris. In 2011, the company also recognized a charge of $388.0 million related to acquired in-process research and development associated with the Boehringer Ingelheim diabetes collaboration.

Operating income in 2012 decreased 14 percent to $4.734 billion compared to 2011, driven by lower gross margin, partially offset by lower charges in 2012 compared to 2011 (as described in the previous paragraph), as well as lower total operating expenses.

Other income (expense) in 2012 was a net income of $674.0 million, compared to net expense of $179.0 million in 2011. The increase in other income (expense) was driven by $787.8 million of income related to the early payment of the exenatide revenue-sharing obligation from Amylin Pharmaceuticals.

The effective tax rate was 24.4 percent in 2012, compared with 18.7 percent in 2011. The increase in the 2012 effective tax rate reflects the tax impact of the payment received from Amylin and the expiration of the R&D tax credit at the end of 2011, partially offset by the tax benefit related to the intangible asset impairment for liprotamase. The effective tax rate for 2011 was lower due to a tax benefit on the in-process research and development charge associated with the Boehringer Ingelheim diabetes collaboration, as well as a benefit of $85.3 million primarily from the resolution in 2011 of the IRS audits of tax years 2005-2007, along with certain matters related to 2008-2009.  

For the full-year 2012, net income and earnings per share decreased 6 percent to $4.089 billion and $3.66, respectively, compared to full-year 2011 net income of $4.348 billion and earnings per share of $3.90. The decreases in net income and earnings per share were due to lower operating income, partially offset by higher other income from the early payment of the exenatide revenue-sharing obligation. 

Full-Year 2012 non-GAAP Results
Operating income decreased 21 percent to $5.015 billion due to the loss of patent exclusivity for Zyprexa and higher research and development expenses, partially offset by growth in other products and lower marketing, selling and administrative expenses. The effective tax rate for 2012 was 22.8 percent. Net income and earnings per share each decreased 23 percent, to $3.784 billion and $3.39, respectively.

For purposes of non-GAAP reporting, items totaling $0.27 of income and $0.52 of expense for 2012 and 2011, respectively, have been excluded. For further detail, see the reconciliation below as well as the footnotes to the non-GAAP income statement later in this press release.


 

Full-Year

% Change


 

2012


 

2011


 

Earnings per share (reported)        

$3.66


 

$3.90

(6)%

In-process research and development charges associated with Boehringer Ingelheim collaboration

 

-


 

0.23


 

Asset impairment, restructuring and other special charges

0.16


 

0.29


 

Income from early payment of exenatide revenue-sharing obligation

(0.43)

-


 

Earnings per share (non-GAAP) 

$3.39


 

$4.41

(23)%

 

Numbers in the 2011 full-year column do not add due to rounding.

 

Revenue Highlights

 

(Dollars in millions)

 

Fourth Quarter

% Change

Over/(Under)

 

Full-Year


 

% Change
Over/(Under)


 

2012


 

2011

2011

2012

2011


 

2011

Cymbalta®

Posted: January 2013


View comments

Hide
(web3)