Eli Lilly & Company ( LLY )
reported second quarter 2012 adjusted earnings per share of 83
cents, 6 cents above the Zacks Consensus Estimate but 29.7% below
the year-ago earnings of $1.18. The year-over-year decline was
attributable to lower revenues in the second quarter of 2012.
Second quarter revenues declined 10% to $5.60 billion. However,
revenues narrowly surpassed the Zacks Consensus Estimate of $5.56
billion. Second quarter 2012 revenues were hurt by reduced sales of
Zyprexa. Sales of Zyprexa, which went off patent in the EU and the
US in late 2011, plummeted 73% in the second quarter of 2012.
Currency fluctuation impacted revenues negatively by 2%.
Reported earnings (including special items) declined 22% to 83
cents per share.
Second quarter revenues declined mainly due to a 9% decrease in
volume. A 1% price increase partially mitigated the effect of lower
volume. The lower volume was mainly due to the loss of exclusivity
US revenues fell 10% to $3.0 billion mainly due to the loss of
market exclusivity of Zyprexa. Ex-US revenues fell 11% to $2.6
billion, mainly due to the loss of exclusivity for Zyprexa.
During the second quarter, Zyprexa recorded a 73% decline in
revenues, which came in at $379.5 million. US revenues plummeted
96% due to lower prices. International revenues decreased 50%,
mainly due to the loss of market exclusivity in major markets apart
Products which performed well in the second quarter included
Cymbalta (22% growth to $1.2 billion), Alimta (8% growth to $659.5
million), and Forteo (20% growth to $276.4 million). We were
pleased to hear that Cymbalta has gained pediatric exclusivity,
which means the product will enjoy an additional six months of
exclusivity in the US.
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 $512.2 million (up
32%) to revenues. Higher demand for companion animal products,
higher prices and the impact of the acquisition of certain animal
health products from the Janssen unit of Johnson and
Johnson ( JNJ ) helped boost revenues from the
Effient posted revenues of $111.0 million, up 55%. While US
sales increased 56% to $81.0 million, driven by higher demand and
higher prices, ex-US sales increased 52% to $30.1 million driven by
higher demand in Europe.
Adjusted expenses decreased 2% during the quarter. Research and
development (R&D) expenses increased 5% to $1.3 billion.
Marketing, selling and administrative expenses declined 5% to $1.9
billion mainly due to lower marketing costs.
Earnings Guidance Up Again
Apart from announcing second quarter results, Eli Lilly upped
its earnings guidance for 2012 the second time this year. Eli Lilly
now expects earnings in the range of $3.30 - $3.40 per share on
revenues of $21.8 - $22.8 billion. Earlier, Eli Lilly had guided
towards earnings of $3.15 - $3.30 on revenues of $21.8 - $22.8
billion. The Zacks Consensus Estimate currently stands at $3.29 per
While the loss of Zyprexa exclusivity is expected to impact
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, Axiron and Tradjenta
should also contribute to revenues. The Animal Health business
should also continue performing well. 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 now expected to decline to $7.3 billion
- $7.7 billion (old guidance: $7.4 billion - $7.8 billion),
research and development expenses are expected to remain flat or
increase to $5.0 billion - $5.3 billion.
Eli Lilly expects to buy back shares worth $420 million by the
end of 2012.
Meanwhile, Eli Lilly remains on track to meet or exceed its
mid-term guidance. From now through 2014, the company expects
annual net income of at least $3 billion on revenues of at least
$20 billion. Operating cash flow is expected to be at least $4
billion every year during this time period.
Post 2014, Eli Lilly expects to return to top and bottom-line
Neutral on Eli Lilly
We currently have a Neutral recommendation on Eli Lilly, which
carries a Zacks #3 Rank (short-term 'Hold' rating). The biggest
near-term challenge for Eli Lilly will be to replace the revenues
that will be lost to generic competition now that blockbuster drug,
Zyprexa, has lost US and EU exclusivity. 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
Meanwhile, we expect investor focus to remain on Eli Lilly's
high risk-return Alzheimer's candidate, solanezumab, which is
currently in late-stage development, with results expected later
this year. The Alzheimer's disease market represents huge
commercial potential and a successfully developed product could
generate billions of dollars in sales once launched. However, the
successful development of therapies for the treatment of
Alzheimer's is challenging and we note that several companies have
failed in developing treatments for Alzheimer's. In fact,
Pfizer ( PFE )
recently presented disappointing top-line results on Alzheimer's
candidate bapineuzumab from one of four ongoing phase III
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