Zyprexa Pulls Down Lilly's 4Q Sales - Analyst Blog

By Zacks Equity Research,

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Eli Lilly & Company ( LLY ) reported fourth quarter 2011 adjusted earnings per share of 87 cents, 7 cents above the Zacks Consensus Estimate but 24 cents below the year-ago earnings of $1.11. The year-over-year decline was attributable to lower revenues and higher operating expenses in the final quarter of 2011.

Reported earnings (including special items), declined 27% to $0.77 per share. Reported earnings included special charges to the tune of $167.6 million.

Fourth quarter revenues declined 2% to $6.05 billion, above the Zacks Consensus Estimate of $5.9 billion. Revenues were hurt by reduced sales of Eli Lilly's lead product Zyprexa (a treatment for schizophrenia and bipolar disorder). Sales of Zyprexa, which went off patent in the EU and the US in late 2011, plummeted 44% in the final quarter of 2011. Exchange rates favorably impacted revenues during the quarter.

Quarterly Details

Fourth quarter revenues declined mainly due to an 11% price decrease. Volume growth (8%) and foreign exchange fluctuation (1%) partially mitigated the effect of price decrease. The US healthcare reform impacted revenues by $80 million.

US revenues decreased 4% to approximately $3.3 billion mainly due to the loss of market exclusivity of Zyprexa in the US. The genericization of Gemzar (pancreatic cancer) in late 2010 also hurt US revenues. Ex-US revenues came in flat at approximately $2.8 billion. Reduced prices mitigated the volume growth and favorable foreign exchange fluctuations.

During the fourth quarter, Zyprexa recorded a 44% decline in revenues, which came in at $749.6 million. US revenues plummeted 56% due to lower prices. International revenues decreased 32%, mainly due to the loss of market exclusivity in major ex-US markets apart from Japan.

Products which performed well in the fourth quarter included Cymbalta (20% growth to $1.2 billion), Humalog (21% growth to $662.0 million), Forteo (16% growth to $262.5 million), Strattera (10% growth to $170.6 million), Alimta (12% growth to $638.1 million) and Cialis (6% growth to $494.2 million).

Eli Lilly's Animal Health segment contributed $468.2 million (up 10%) to revenues. Higher demand 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 segment.

Meanwhile, Gemzar revenues continued to decline with fourth quarter sales falling 62% to $92.6 million. Sales were impacted by the entry of generics in the US in 2010.

The product is also facing generic competition in major international markets. Effient posted revenues of $90.9 million with US revenues coming in at $66.9 million. Worldwide exenatide (Byetta and Bydureon) sales increased 5% to $110.3 million.


On the operational front, adjusted expenses increased 3% during the quarter, mainly due to Eli Lilly's deal with Boehringer Ingelheim Pharmaceuticals, Inc. and other pharmaceutical expenses.

Research and development (R&D) expenses came in 6% lower at $1.35 billion. Termination of certain clinical trials contributed to the decline. Marketing, selling and administrative expenses increased 7% to $2.13 billion mainly due to the costs associated with the agreement with Boehringer Ingelheim.

The companies received some good news recently when the US Food and Drug Administration (FDA) cleared their type II diabetes drug Jentadueto. The approval comes close on the heels of the US approval of another type II diabetes treatment Bydureon, co-developed by Amylin Pharmaceuticals, Inc. ( AMLN ) and Alkermes plc ( ALKS ). We remind investors that in November 2011, Amylin and Eli Lilly terminated their exenatide agreement.

Annual Results

Eli Lilly earned $4.41 per share (on an adjusted basis) in 2011, down 7% from the year-ago period, but 5 cents above the Zacks Consensus Estimate. Higher revenues aided 2011 earnings. Revenues climbed 5% to approximately $24.3 billion. Revenues were  just above the Zacks Consensus Estimate of approximately $24.2 billion.

2012 Projection Backed

Apart from announcing financial results, Eli Lilly backed the guidance provided by it on January 5, 2012. The company expects to earn in the range of $3.10 - $3.20 on revenues of $21.8 - $22.8 billion in 2012. The Zacks Consensus Estimate hints at earnings of $3.17 per share on revenues of $22.5 billion. (Read our detailed coverage of the 2012 projection at: Eli Lilly's 2012 Outlook Disappoints ).

Neutral on Eli Lilly

We currently have a Neutral recommendation on Eli Lilly, which carries a Zacks #3 Rank (short-term Hold rating). Eli Lilly has entered a tough period with the loss of exclusivity on Zyprexa. The biggest near-term challenge for Eli Lilly will be to replace the revenues that will be lost to generic competition due to the loss of exclusivity of Zyprexa. The generic threat will continue to pose challenges for Eli Lilly with Cymbalta slated to loose patent protection in 2013 and Evista in 2014.

On the flip side, strong performance of the diabetes business, the ramp of Effient and upside from the ImClone deal should offer some downside support. We are also pleased to see Eli Lilly pursuing small acquisitions and in-licensing deals to boost its pipeline to minimize the impact of genericization of key drugs.

ALKERMES INC ( ALKS ): Free Stock Analysis Report
AMYLIN PHARMA ( AMLN ): Free Stock Analysis Report
JOHNSON & JOHNS ( JNJ ): Free Stock Analysis Report
LILLY ELI & CO ( LLY ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: ALKS , AMLN , JNJ , LLY

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