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Lilly Reports Second-Quarter 2012 Results, Raises 2012 EPS Guidance

INDIANAPOLIS, July 25, 2012 /PRNewswire/ --

  • Worldwide revenue declined 10 percent to $5.6 billion, driven by Zyprexa patent expirations, partially offset by significant growth in other products.
  • Cymbalta revenue increased 22 percent due to continued strong growth in both the U.S. and international markets.
  • China and Japan delivered pharma revenue growth of 28 percent and 15 percent, respectively, providing counter-cyclical growth.
  • Elanco Animal Health continued its strong performance with revenue growth of 32 percent.
  • Second quarter earnings per share were $.83 (reported and non-GAAP).
  • 2012 earnings per share guidance range raised to $3.29 - $3.39 (reported), or $3.30 - $3.40 (non-GAAP).

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

 

$ in millions, except per share data

Second Quarter

%


 

2012


 

2011

Change

Total Revenue – Reported

$5,600.7


 

$6,252.8

(10)%

Net Income – Reported

923.6


 

1,197.3

(23)%

EPS – Reported

 

0.83


 

1.07

(22)%

Net Income – non-GAAP

923.6


 

1,315.9

(30)%

EPS – non-GAAP

0.83


 

1.18

(30)%

Financial results for 2012 and 2011 are presented on both a reported and a non-GAAP basis. 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 2012 financial guidance is also being provided on both a reported and a non-GAAP basis.

"Lilly's second-quarter financial results reflect the company's strategy of focusing on the areas of our business with the greatest growth potential," said John C. Lechleiter, Ph.D., Lilly's chairman, president and chief executive officer. "Despite the continued decline in Zyprexa sales following patent expiration late last year in most major markets outside Japan, we achieved strong growth for other products such as Cymbalta, Alimta, Forteo, Effient and our animal health portfolio. In addition, outside the U.S., we drove solid growth in both China and Japan."

Lechleiter continued, "Our strong underlying sales performance, combined with the favorable impact from a stronger dollar on our cost of goods sold, supports our decision to raise our 2012 EPS guidance. Even as we focus on growth opportunities, we also remain committed to reducing our expense base through productivity gains and cost cutting initiatives, and to advancing our pipeline of potential new medicines in development."

Derica Rice, Lilly executive vice president, global services and chief financial officer, commented on the company's longer-term financial performance expectations. "We remain on track to meet or exceed our mid-term financial minimum performance goals of at least $20 billion of revenue, $3 billion of net income and $4 billion of operating cash flow annually through 2014. After 2014, we anticipate a return to revenue and income growth, fueled in large part by our pipeline. This growth, combined with our continued focus on expense management, should lead to expanding margins. After 2014, we will look to return our research and development expense as a percent of revenue to levels more consistent with our historical averages, in the 18 percent to 20 percent range. For SG&A, it's reasonable to expect that within a few years post-2014, we will move more in line with industry averages in the range of 28 percent to 30 percent of revenue."

Key Events Over the Last Three Months

  • The U.S. Supreme Court ruled to uphold most aspects of the Affordable Care Act.
  • The United States Food and Drug Administration (FDA) determined that the company had met the requirements for pediatric exclusivity for Cymbalta®. Based on this decision by the FDA, Lilly has gained an additional six months of U.S. market exclusivity for Cymbalta, which now will expire in December 2013.
  • The company announced negative clinical trial results from study H8Y-MC-HBBM (HBBM) investigating pomaglumetad methionil, also known as mGlu2/3, for the treatment of patients suffering an acute exacerbation of schizophrenia. Data from two other ongoing studies are expected later this year and will help inform decisions on the future development of this molecule.
  • The FDA approved Erbitux® (cetuximab) in combination with the chemotherapy regimen FOLFIRI (irinotecan, 5-fluorouracil, leucovorin) for the first-line treatment of patients with KRAS mutation-negative (commonly known as KRAS wild-type), epidermal growth factor receptor (EGFR)-expressing metastatic colorectal cancer (mCRC) as determined by FDA-approved tests for this use. 
  • The FDA Safety and Improvement Act (FDASIA) was signed into law. The law includes the reauthorization of the Prescription Drug User Fee Act (PDUFA), which the company believes should add more predictability and transparency to the FDA's regulatory review process.
  • The company's board of directors authorized the resumption of a share repurchase program that was started in 2000. The company expects to complete this program by purchasing the remaining $420 million in shares by the end of 2012.
  • The European Commission approved Jentadueto® for use alongside diet and exercise to improve glycemic control in adults with type 2 diabetes who are inadequately controlled on their maximally tolerated dose of metformin alone, metformin and a sulfonylurea, or those already being treated with the combination of linagliptin and metformin. It may be used with a sulfonylurea, as well.
  • The company expanded its collaboration in China with Novast Laboratories, LTD. Lilly expects the expanded collaboration to enhance its efforts to build a portfolio of Lilly branded generic medicines in China. The collaboration may also ultimately result in Novast providing local and regional manufacturing capabilities for Lilly's own pipeline of potential new medicines in development.

Second-Quarter Reported Results

In the second quarter of 2012, worldwide total revenue was $5.601 billion, a decrease of 10 percent compared with the second quarter of 2011. This 10 percent revenue decline was comprised of a decrease of 9 percent due to lower volume and 2 percent due to the unfavorable effect of foreign exchange rates, partially offset by an increase of 1 percent due to price. The decrease in volume was driven by the loss of patent exclusivity for Zyprexa® in most major markets, partially offset by volume gains for other products. Total revenue in the U.S. decreased 10 percent to $3.012 billion due to the loss of patent exclusivity for Zyprexa, offset by increased prices and, to a lesser extent, increased volume in other products. Total revenue outside the U.S. decreased by 11 percent to $2.588 billion, driven by the loss of patent exclusivity for Zyprexa in markets outside of Japan, partially offset by increased volume in other products.  

Gross margin decreased 11 percent to $4.454 billion in the second quarter of 2012. Gross margin as a percent of total revenue was 79.5 percent, reflecting a decrease of 0.9 percentage points compared with the second quarter of 2011. The decrease in gross margin percent was primarily due to lower sales of Zyprexa, largely offset by the impact of foreign exchange rates on international inventories sold which decreased cost of sales in the second quarter of 2012 and increased cost of sales in the second quarter of 2011.

Total operating expense, defined as the sum of research and development, marketing, selling and administrative expenses, decreased 2 percent compared with the second quarter of 2011. Marketing, selling and administrative expenses decreased 5 percent to $1.931 billion, driven primarily by lower marketing expense. Research and development expenses increased 5 percent to $1.321 billion, or 23.6 percent of total revenue, driven by expenses related to late-stage clinical trial costs.

In the second quarter of 2011, the company recognized a charge of $132.3 million for restructuring related to severance costs from previously announced strategic actions to reduce the company's cost structure.

Operating income in the second quarter of 2012 was $1.202 billion, a decrease of 24 percent compared to the second quarter of 2011, due primarily to lower gross margin resulting from the loss of patent exclusivity for Zyprexa, partially offset by the second quarter 2011 restructuring charge referred to above.

Other income (expense) was a net expense of $16.5 million, compared with net expense of $57.6 million in the second quarter of 2011. The decrease in other expense was driven by the second quarter 2011 partial impairment of the acquired in-process research and development asset related to liprotamase, partially offset by gains on the disposition of investment securities.

The effective tax rate was 22.1 percent in the second quarter of 2012, compared with an effective tax rate of 21.8 percent in the second quarter of 2011. The second quarter 2012 effective tax rate reflects the expiration of the R&D tax credit in the U.S. at the end of 2011, while the second quarter 2011 tax rate was negatively impacted by a lower tax benefit on restructuring charges.

Net income and earnings per share decreased to $923.6 million and $0.83, respectively, compared with second-quarter 2011 net income of $1.197 billion and earnings per share of $1.07. The decreases in net income and earnings per share were primarily driven by lower operating income.

 

Second-Quarter 2012 non-GAAP Results

On a non-GAAP basis, second quarter 2012 operating income decreased 30 percent to $1.202 billion, due primarily to lower gross margin resulting from the loss of patent exclusivity for Zyprexa. The effective tax rate was 22.1 percent, compared with 20.9 percent in the second quarter of 2011, primarily due to the expiration of the R&D tax credit at the end of 2011. Net income and earnings per share both decreased 30 percent, to $923.6 million and $0.83, respectively. These decreases were driven primarily by lower operating income.

 

For purposes of non-GAAP reporting, items totaling $.11 per share in the second quarter of 2011 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.


 

 


 

Second Quarter


 

 

2012


 

2011

% Change

Earnings per share (reported)

$.83


 

$1.07

(22)%


 

 

 

 

 

Asset impairment, restructuring and other

   special charges

 

-


 

 

.11


 

Earnings per share (non-GAAP) 

$.83


 

$1.18

(30)%

 

 

Year-to-Date Results

For the first six months of 2012, worldwide total revenue was $11.203 billion, a decrease of 7 percent compared with the same period in 2011. Reported net income and earnings per share were $1.935 billion and $1.73, respectively. Net income and earnings per share, on a non-GAAP basis, were $1.950 billion and $1.74, respectively.

 

For purposes of non-GAAP reporting, items totaling $.01 per share for the first six months of 2012 and $.40 per share for the first six months of 2011 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.


 

Year-to-date

% Change


 

2012


 

2011


 

Earnings per share (reported)        

$1.73


 

$2.02

(14)%

In-process research and development charges

   associated with Boehringer Ingelheim

   collaboration (2011)

 

 

-


 

 

 

.23


 

Asset impairment, restructuring and other

special charges

.01


 

.17


 

Earnings per share (non-GAAP) 

$1.74


 

$2.42

(28)%


 

 

Revenue Highlights

 

(Dollars in millions)

 

Second Quarter


 

% Change

Over/(Under)


 

 

Year-to-Date


 

% Change

Over/(Under)


 

2012


 

2011


 

2011


 

2012


 

2011


 

2011

Cymbalta

$1,223.1


 

$1,003.4


 

22%


 

$2,338.0


 

$1,912.1


 

22%

Alimta®

659.5


 

613.4


 

8%


 

1,266.3


 

1,193.3


 

6%

Humalog®

613.4


 

586.9


 

4%


 

1,203.6


 

1,112.3


 

8%

Cialis®

469.5


 

477.2


 

(2)%


 

931.3


 

911.6

 

Posted: July 2012


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