Eli Lilly & Company
) reported first quarter 2012 adjusted earnings per share of 92
cents, 14 cents above the Zacks Consensus Estimate but 26% below
the year-ago earnings of $1.24. The year-over-year decline was
attributable to lower revenues and higher operating expenses in the
first quarter of 2012.
Reported earnings (including special items), declined 4% to 91
cents per share. Reported earnings included special charges to the
tune of $23.8 million associated with the withdrawal of Xigris.
First quarter revenues declined 4% to $5.6 billion. However,
revenues exceeded the Zacks Consensus Estimate of $5.3 billion.
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
56% in the first quarter of 2012. Exchange rate fluctuations did
not have a material impact on revenues.
First quarter revenues declined mainly due to a 7% decrease in
volume. A 4% price increase partially mitigated the effect of lower
US revenues remained flat at $3.1 billion mainly due to the loss
of market exclusivity of Zyprexa. Ex-US revenues fell 9% to $2.5
billion, mainly due to the loss of exclusivity for Zyprexa.
During the first quarter, Zyprexa recorded a 56% decline in
revenues, which came in at $562.7 million. US revenues plummeted
66% due to lower prices. International revenues decreased 47%,
mainly due to the loss of market exclusivity in major markets apart
Products which performed well in the first quarter included
Cymbalta (23% growth to $1.1 billion), Humalog (12% growth to
$590.3 million), Forteo (26% growth to $271.3 million), and
Strattera (15% growth to $158.9 million).
Eli Lilly's Animal Health segment contributed $490.7 million (up
33%) to revenues. Higher demand, customer buying pattern and the
impact of the acquisition of certain animal health products from
the Janssen unit of
Johnson and Johnson
) helped boost revenues from the segment.
Effient posted revenues of $115.8 million with US revenues
coming in at $89.8 million.
Adjusted expenses increased 3% during the quarter, mainly due to
Eli Lilly's deal with Boehringer Ingelheim and other pharmaceutical
Research and development (R&D) expenses increased 2% to $1.2
billion. Marketing, selling and administrative expenses increased
3% to $1.8 billion mainly due to costs associated with the
agreement with Boehringer Ingelheim and higher expenses associated
with new product launches.
Earnings Guidance Up
Apart from announcing first quarter results, Eli Lilly upped its
earnings guidance for 2012. Eli Lilly now expects earnings in the
range of $3.15 - $3.30 on revenues of $21.8 - $22.8 billion. The
Zacks Consensus Estimate is currently towards the lower end of the
guidance range at $3.18 per share. The Zacks Consensus Estimate for
2012 revenue is currently $22.4 billion. Earlier, Eli Lilly had
guided towards earnings of $3.10 - $3.20 on revenues of $21.8 -
While the loss of Zyprexa exclusivity is expected to impact
revenues by more than $3 billion, products like Cymbalta, Cialis,
Humalog, Humulin and Forteo are expected to continue performing
well. Moreover, new products like Effient, Axiron and Tradjenta
should also boost 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 the country and the loss of patent
protection for Zyprexa and other products in some emerging
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 $7.4 billion -
$7.8 billion, research and development expenses are expected to
remain flat in the range of $5.0 billion - $5.3 billion.
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 Zyprexa has lost
exclusivity in the US and EU. Zyprexa sales are expected to erode
significantly in 2012, as well. The generic threat will continue to
pose challenges for Eli Lilly with Cymbalta slated to lose patent
protection in 2013 and Evista in 2014.
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. On the flip side, the
Animal Health business, Japan and emerging markets should offer
some downside support. We are also pleased to see Eli Lilly
pursuing small acquisitions and in-licensing deals to boost its
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