Lilly Reports Third-Quarter 2010 Results

INDIANAPOLIS, Oct. 21 /PRNewswire-FirstCall/ --

  • Total revenue growth of 2 percent driven by higher demand in international markets
  • Animal Health revenue increased 12 percent
  • Q3 earnings per share grew to $1.18 (reported), or $ 1.21 (non-GAAP)
  • Cost reduction initiatives continued to advance across business areas
  • 2010 earnings per share guidance range raised to $4.55 - $4.65 (reported), or $4.65 - $4.75 (non-GAAP)


 

Eli Lilly and Company (NYSE: LLY) today announced financial results for the third quarter of 2010.

$ in millions, except per share data

Third Quarter


 
 

 

2010


 

2009

% Growth

 

Total Revenue – Reported

$5,654.8


 

$5,562.0

2%

 

Net Income – Reported

1,302.9


 

941.8

38%

 

EPS – Reported


 

1.18


 

.86

37%

 

Net Income – non-GAAP

1,341.4


 

1,311.8

2%

 

EPS – non-GAAP

1.21


 

1.20

1%

 
           


 

Financial results for 2010 and 2009 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. The non-GAAP results are presented in order to provide additional insights into the underlying trends in the company's business. The company's 2010 financial guidance is also being provided on both a reported and a non-GAAP basis.

"Lilly delivered solid financial results in the third quarter, highlighted by international revenue growth and the impact of ongoing cost containment initiatives," said John C. Lechleiter Ph.D., Lilly's chairman and chief executive officer. "Japan performed particularly well in the quarter, growing revenue by 27 percent, driven by recent product launches. Strong performance was also seen in key emerging market countries, including China. Based upon our strong worldwide year-to-date results and lower estimates of the impact of U.S. health care reform, we have once again raised our earnings guidance for the year."

Lechleiter continued, "Although we are disappointed by recent pipeline setbacks, we remain committed to our strategy of accelerating the flow of innovative new medicines that provide improved outcomes for individual patients. We believe that this strategy, while not without risk, will provide the greatest value to our shareholders and the patients we serve."

Key Events Over the Last Three Months

  • The U.S. Food and Drug Administration (FDA) issued a complete response letter regarding the New Drug Application (NDA) for Bydureon™. In the complete response letter, the FDA requested a thorough QT (tQT) study with exposures of exenatide higher than typical therapeutic levels of Bydureon. Additionally, the FDA has now requested the results of the DURATION-5 study to evaluate the efficacy, and the labeling of the safety and effectiveness, of the commercial formulation of Bydureon. The company, along with its partners Amylin Pharmaceuticals, Inc. and Alkermes, Inc., have set a goal to submit their reply to the complete response letter by the end of 2011, pending discussions with the FDA. Based on the requirements for additional data, this will likely be considered a Class 2 resubmission requiring a six-month review.
  • The company and its partner, MacroGenics, Inc., announced that an independent Data Monitoring Committee (DMC) completed a planned analysis of one-year safety and efficacy data of the Protege Phase 3 clinical trial of teplizumab, an investigational biologic under development for the treatment of individuals with recent-onset type 1 diabetes. The DMC concluded that the primary efficacy endpoint of the study, a composite of a patient's total daily insulin usage and HbA1c level at 12 months, was not met. The DMC, noting that all administration of the experimental drug had been completed, commented that appropriate safety monitoring is warranted. No unanticipated safety issues were identified in the DMC's review. The companies have decided to suspend further enrollment and dosing of patients in two other ongoing clinical trials of teplizumab in type 1 diabetes and are currently evaluating the next steps for teplizumab.
  • The U.S. Court of Appeals for the Federal Circuit upheld a prior ruling by the U.S. District Court for the Eastern District of Michigan that the method-of-use patent for Gemzar® is invalid. The company has asked for reconsideration of this decision by the Federal Circuit court. The court's decision did not allow for the immediate entry of generic gemcitabine in the U.S. market. Supported by the compound patent, the company expects to maintain U.S. market exclusivity for Gemzar until November 15, 2010.
  • The U.S. District Court for the District of New Jersey ruled that the method-of-use patent for Strattera® is invalid. The patent had been set to expire in May of 2017. The company is currently appealing this decision to the U.S. Court of Appeals for the Federal Circuit, with a hearing scheduled on December 9, 2010. The Appeals Court has granted an injunction that prevents the launch of generic atomoxetine until a ruling is rendered.
  • The company halted development of semagacestat, a gamma secretase inhibitor being studied as a potential treatment for Alzheimer's disease, because preliminary results from two ongoing long-term Phase III studies showed the compound did not slow disease progression and was associated with worsening of clinical measures of cognition and the ability to perform activities of daily living.
  • The FDA Anesthetic and Life Support Drugs Advisory Committee voted 8-6 in favor of expanding the pain indications for Cymbalta® to a broader population that will be further defined by the FDA, if approved.
  • The U.S. Court of Appeals for the Federal Circuit affirmed a prior ruling by the U.S. District Court for the Southern District of Indiana that the company's method-of-use patents for Evista® are valid. These patents provide protection for Evista in the U.S. through March of 2014.
  • The U.S. Court of Appeals for the Second Circuit agreed with the company's position that a class should not have been certified in a pending third-party payor suit, in which unions and insurers who act as third-party payors alleged that they overpaid for Zyprexa® prescriptions. The court also agreed with the company that plaintiffs' overpricing claims should not go forward.


 

Third-Quarter Reported Results

In the third quarter of 2010, worldwide total revenue was $5.655 billion, an increase of 2 percent compared with the third quarter of 2009. This 2 percent revenue growth was comprised of an increase of 3 percent due to higher prices, offset by a 1 percent decrease due to the impact of foreign exchange rates, while volume was essentially flat. Total revenue in the U.S. was essentially flat at $3.150 billion, due to higher prices, offset by decreased volume due primarily to wholesaler buying patterns. Total revenue outside the U.S. increased 4 percent to $2.504 billion due to increased demand, partially offset by the negative impact of foreign exchange rates and, to a lesser extent, lower prices. Third-quarter 2010 total revenue would have been reduced by approximately $65 million due to the impact of U.S. health care reform, but was only reduced by approximately $25 million, due primarily to the issuance of guidelines that clarified the implementation of certain aspects of health care reform legislation, resulting in a reduction of a prior accrual.

Gross margin increased 3 percent in the third quarter of 2010. Gross margin as a percent of total revenue was 82.5 percent, reflecting an increase of 1.4 percentage points compared with the third quarter of 2009, driven primarily by manufacturing productivity improvements and increased prices.

Marketing, selling and administrative expenses were essentially flat at $1.695 billion. Higher marketing and selling expenses outside the U.S. were offset by lower administrative expenses and company-wide cost containment efforts. Research and development expenses were $1.220 billion, or 22 percent of total revenue. Compared with the third quarter of 2009, research and development expenses grew 9 percent due primarily to a charge of approximately $80 million related to the termination of the development of semagacestat, and increased costs of late-stage clinical trials. Total operating expense, defined as the sum of research and development, marketing, selling and administrative expenses, increased 3 percent compared with the third quarter of 2009.

In the third quarter of 2010, the company recognized a charge of $59.5 million for restructuring primarily related to severance and other related costs from previously announced strategic actions that the company is taking to reduce its cost structure and global workforce. In the third quarter of 2009, the company recognized asset impairments, restructuring and other special charges of $549.8 million, primarily related to the sale of the Tippecanoe manufacturing site to Evonik Industries, and a special pretax charge related to Zyprexa litigation.

Operating income in the third quarter of 2010 increased 49 percent to $1.693 billion, compared to the third quarter of 2009, due primarily to lower asset impairments, restructuring and other special charges.

Other income (expense) improved $45.2 million, to a net expense of $21.7 million, primarily due to an insurance recovery in the third quarter of 2010 associated with the theft of product at the company's Enfield distribution center in March 2010, as well as lower net interest expense.

The effective tax rate was 22 percent in the third quarter of 2010, compared with an effective tax rate of 11.9 percent in the third quarter of 2009. The effective tax rate for 2010 reflects the expiration of the R&D tax credit in the U.S. The 2009 effective tax rate benefitted primarily from the deductibility of the asset impairment and restructuring charges in the third quarter of 2009 associated with the sale of the Tippecanoe site.

Net income and earnings per share increased to $1.303 billion and $1.18, respectively, compared with third-quarter 2009 net income of $941.8 million and earnings per share of $.86.

Third-Quarter non-GAAP Results

Operating income increased 4 percent to $1.753 billion, due to increased gross margin, partially offset by increased research and development expenses. The effective tax rate was 22.5 percent, up from 19.0 percent in the third quarter of 2009. The effective tax rate for 2010 reflects the expiration of the R&D tax credit in the U.S. The effective tax rate in the third quarter of 2009 reflected a benefit for a cumulative adjustment in the forecasted effective tax rate for the year. Net income increased 2 percent to $1.341 billion, while earnings per share increased 1 percent to $1.21. Excluding the impact of changes in foreign exchange rates, operating income and earnings per share would have increased approximately 7 percent and 5 percent, respectively.

For purposes of non-GAAP reporting, items totaling $.03 and $.34 per share for the third quarters of 2010 and 2009, 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.


 
 

 

Third Quarter


 
 

 

2010


 

2009

% Growth

 

Earnings per share (reported)

$1.18


 

$.86

37%

 

Charges related to Zyprexa litigation

-


 

.07


 
 

Asset impairments and restructuring charges

.03


 

.26


 
 

Earnings per share (non-GAAP)  

$1.21


 

$1.20

1%

 

Numbers in the 2009 third quarter column do not add due to rounding

 
           


 

Year-to-Date Results

For the first nine months of 2010, worldwide total revenue increased 6 percent to $16.889 billion, compared with the same period in 2009. Reported net income and earnings per share were $3.900 billion and $3.53, respectively. Net income and earnings per share, on a non-GAAP basis, were $4.006 billion and $3.63, respectively.

For purposes of non-GAAP reporting, items totaling $.10 per share and $.40 per share for the first nine months of 2010 and 2009, 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.


 
 

 

Year-to-date

% Growth

 

 

2010


 

2009


 
 

Earnings per share (reported)

$3.53


 

$3.11

14%

 

Charges related to Zyprexa litigation

-


 

.13


 
 

In-process research and development charge associated with
  Acrux licensing agreement

.03


 

-


 
 

Asset impairment and restructuring charges

.07


 

.26


 
 

Earnings per share (non-GAAP)  

$3.63


 

$3.51

3%

 

Numbers in the 2009 third quarter column do not add due to rounding

 
           


 

 
 

Revenue Highlights

 

(Dollars in millions)


Third Quarter

% Change

Over/(Under)


Year-to-Date

% Change

Over/(Under)

 

 

2010


 

2009

2009

2010

2009

2009

 

Zyprexa

$1,212.7


 

$1,223.0


 

(1)%


 

$3,690.6


 

$3,549.2


 

4%

 

Cymbalta

825.3


 

790.2


 

4%


 

2,496.2


 

2,243.9


 

11%

 

Alimta®

560.3


 

461.9


 

21%


 

1,639.5


 

1,182.5


 

39%

 

Humalog®

494.0


 

500.2


 

(1)%


 

1,505.1


 

1,428.2


 

5%

 

Cialis®

406.5


 

397.2


 

2%


 

1,233.5


 

1,119.6


 

10%

 

Gemzar

324.6


 

331.8


 

(2)%


 

905.8


 

1,052.8


 

(14)%

 

Humulin

278.0


 

260.4


 

7%


 

801.0


 

749.1


 

7%

 

Evista

256.8


 

259.5


 

(1)%


 

757.9


 

767.7


 

(1)%

 

Forteo®

199.7


 

213.1


 

(6)%


 

603.8


 

603.9


 

(0)%

 

Strattera

127.9


 

145.5


 

(12)%


 
           

Posted: October 2010


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