Eli Lilly & Company
) reported third quarter 2012 adjusted earnings per share of 79
cents, missing the Zacks Consensus Estimate by 4 cents and 30.0%
below the year-ago earnings of $1.13. The year-over-year decline
was attributable to lower revenues in the third quarter of 2012.
Third quarter revenues declined 11% to $5.44 billion, well below
the Zacks Consensus Estimate of $5.62 billion. The Zyprexa patent
expiry continued to impact revenues. Sales of Zyprexa, which went
off patent in the EU and the US in late 2011, plummeted 68% in
the third quarter of 2012. Currency fluctuation impacted revenues
negatively by 3%.
Reported earnings (including special items) increased 6% to $1.18
Third quarter revenues declined mainly due to a 9% decrease in
volume. A 1% price increase partially mitigated the effect of
lower volume and unfavorable currency fluctuation. The lower
volume was mainly due to the loss of exclusivity for Zyprexa,
which is facing competition from generic players like
US revenues fell 9% to $2.99 billion mainly due to the loss of
market exclusivity of Zyprexa. Ex-US revenues fell 15% to $2.46
billion, mainly due to the loss of exclusivity for Zyprexa,
unfavorable currency fluctuation and lower prices.
During the third quarter, Zyprexa recorded a 68% decline in
revenues, which came in at $374.5 million. US revenues plummeted
88% due to lower prices. International revenues decreased 50%,
mainly due to the loss of market exclusivity in major markets
apart from Japan.
Products which performed well in the third quarter included
Cymbalta (16% growth to $1.2 billion), Alimta (2% growth to
$643.6 million), and Forteo (20% growth to $288.7 million).
Both Humulin and Humalog sales in the US were negatively
impacted by their removal from a large formulary in 2012.
Eli Lilly's Animal Health segment contributed $479.4 million
(up 6%) to revenues. Higher demand for companion animal products
drove sales in the US. However, outside the US, sales were
affected by unfavorable currency movement, lower prices and
economic conditions in certain markets.
Effient posted revenues of $109.7 million, up 31%. While US
sales increased 31% to $80.4 million, driven by higher demand and
higher prices, ex-US sales increased 32% to $29.3 million driven
by higher demand.
Eli Lilly's adjusted operating expenses decreased 3% during
the quarter. Research and development (R&D) expenses
increased 5% to $1.3 billion due to higher late-stage trial
costs. Marketing, selling and administrative expenses declined 8%
to $1.8 billion mainly due to lower marketing costs.
Eli Lilly maintained its guidance for 2012. Eli Lilly expects
earnings in the range of $3.30 - $3.40 per share on revenues of
$21.8 - $22.8 billion.
While the loss of Zyprexa exclusivity is expected to impact
Eli Lilly's revenues by more than $3 billion, products like
Cymbalta, Cialis, Humalog, Alimta and Forteo are expected to
continue performing well. Moreover, new products like Effient and
Axiron should also contribute to revenues. The Animal Health
business should also continue performing well and post
double-digit growth. Meanwhile, revenue growth in Japan and
emerging markets will be impacted by pricing actions in Japan and
the loss of patent protection for Zyprexa and other products in
some emerging markets.
Eli Lilly is working on controlling costs and expects
operating expenses to remain flat in 2012. While marketing,
selling and administrative expenses are expected to decline to
$7.3 billion - $7.7 billion, research and development expenses
are expected to remain flat or increase to $5.0 billion - $5.3
We currently have a Neutral recommendation on Eli Lilly, which
carries a Zacks #3 Rank (short-term 'Hold' rating). We
expect the top- and bottom-line to remain under pressure as the
contraction in Zyprexa sales more than offsets growth in
Cymbalta, diabetes and new product sales. The generic threat will
continue to pose challenges for Eli Lilly with Cymbalta slated to
lose patent protection in late 2013 and Evista in 2014. On the
flip side, the Animal Health business and the diabetes franchise
should provide some downside support. We are also pleased to see
Eli Lilly pursuing small acquisitions and in-licensing deals to
boost its pipeline.
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