International
Eli Lilly Q1 profit jumps 84%
By Finfacts Team
Apr 18, 2005, 14:23

Pharmaceutical giant Eli Lilly reported today that its first quarter profit jumped 84% as expenses fell.

Newer Products Contribute More Than $500 Million, or 14 Percent of Total Sales

First-Quarter Highlights

* Sales increased 4 percent, to $3.497 billion.

* Sales would have increased an estimated 7 percent if not for approximately $130 million of reductions in wholesaler inventory levels during the first quarter as a result of Lilly recently restructuring arrangements with its U.S. wholesalers.

* Newer products -- Alimta^®, Cialis^® (non-joint-venture sales), Cymbalta^®, Forteo^®, Strattera^®, Symbyax^®, Xigris^® and Yentreve^® -- contributed $503.2 million to first-quarter sales and accounted for 14 percent of total sales, compared with 9 percent of total sales in the first quarter of 2004.

* Net income and earnings per share increased 84 percent, to $736.6 million and $.68, respectively, compared with reported first-quarter 2004 net income of $400.4 million and $.37 per share. This first-quarter year-to-year comparison is affected by two factors: (1) a non-tax-deductible charge in the first quarter of 2004 for acquired in-process research and development (IPR&D) related to the acquisition of Applied Molecular Evolution, Inc. (AME) and (2) the adoption of stock option expensing effective January 1, 2005.

* Eliminating the first-quarter 2004 acquisition-related charge for AME and assuming stock option expensing in the first quarter of 2004, net income and earnings per share would have increased 10 percent in the first quarter of 2005. This increase compares first-quarter 2005 earnings to the recalculated first-quarter 2004 net income of $671.4 million and $.62 per share.

* During the quarter, Cymbalta began to be launched in the European Union for the treatment of major depressive episodes. Specifically, the product was launched during the quarter in two major European markets -- the U.K. and Germany.

* The Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMEA) issued a positive opinion recommending approval of Cymbalta for the treatment of diabetic peripheral neuropathic pain (DPNP) in adults. The CHMP has recommended that the European Commission authorize the drug to be marketed for this indication, which is expected to occur this summer.

Eli Lilly and Company's bulk pharmaceutical manufacturing plant in Dunderrow, Kinsale, County Cor, Ireland, began manufacturing in 1981. The facility originally cost approximately £26 million, but after further development and improvements over the years it is currently valued at over €600 million. The plant employs over 450 people fulltime.

* Phase I clinical data for prasugrel, an investigational platelet inhibitor, were presented at the American College of Cardiology (ACC). This data demonstrated significantly higher and more consistent inhibition of platelet aggregation compared to both placebo and the current standard of care, clopidogrel (Plavix^®). Lilly and its partner, Sankyo Company, Ltd., are developing prasugrel, which is currently in Phase III clinical trials, as a potential treatment for patients who have suffered a heart attack or unstable angina (heart-related chest pain).

* As previously disclosed, Lilly restructured its arrangements with its U.S. wholesalers. The new structure is expected to provide Lilly competitive distribution costs, reduce the speculative wholesaler buying seen in the past, and provide improved data on inventory levels at the company's U.S. wholesalers. These restructured arrangements resulted in a reduction in wholesaler inventories during the first quarter, which reduced sales to these U.S. wholesalers. During the second quarter it is expected that further inventory reductions will occur as wholesalers adjust to these new arrangements.

"We are pleased with our financial performance in the first quarter," said Sidney Taurel, Lilly chairman, president and chief executive officer. "Furthermore, we expect acceleration of sales and earnings growth in the second half of this year driven by our newer products. Notably, we are encouraged by Cymbalta's steady market share gains despite a challenging antidepressant category and by Alimta's rapid uptake in the treatment of second line non-small cell lung cancer."

Taurel added, "We're also enthusiastic about our next major pipeline milestones. First, exenatide, a potential treatment for type 2 diabetes, has its FDA action date at the end of this month. In addition, if our registration studies are successful, Lilly anticipates making a U.S. submission in the second half of this year for Arxxant^?, formerly known as ruboxistaurin, for symptoms related to nerve damage caused by diabetes."

First-Quarter Results

Worldwide sales for the quarter were $3.497 billion, an increase of 4 percent compared with the first quarter of 2004. Sales would have increased an estimated 7 percent if not for approximately $130 million of reductions in wholesaler inventory levels during the first quarter of 2005 as a result of Lilly recently restructuring arrangements with its U.S. wholesalers. Worldwide sales volume decreased 1 percent, while selling prices and exchange rates both increased sales by 2 percent. (Numbers do not add due to rounding.)

Gross margins as a percent of sales decreased by 2.3 percentage points, to 75.4 percent. This decrease was primarily due to the impact of foreign exchange rates, continued investment in the company's manufacturing capacity, and other cost increases, partially offset by improved productivity.

Overall, marketing and administrative expenses increased 2 percent, to $1.090 billion. This increase was primarily due to the adoption of stock option expensing effective January 1, 2005 and the impact of foreign exchange rates, offset partially by ongoing marketing cost-containment measures. Research and development expenses were $702.2 million, or 20 percent of sales. Compared with the first quarter of 2004, research and development expenses increased 9 percent. This increase was primarily due to increased clinical trial and development expenses and the adoption of stock option expensing effective January 1, 2005.

Operating income increased 53 percent, to $845.8 million, due to increased sales and the first-quarter 2004 charge related to the AME acquisition, offset partially by increased cost of sales and research and development expenses including the cost of stock option expensing. Net other income increased primarily due to income from the restructuring of royalty arrangements during the quarter and decreased loss from the Lilly ICOS LLC joint venture.

Net income and diluted earnings per share for the first quarter increased 84 percent, to $736.6 million and $.68, respectively, due to increased operating income, lower tax rate due to nondeductibility of the first-quarter 2004 charge related to the AME acquisition and increased net other income.

Eliminating the first-quarter 2004 acquisition-related charge for AME and assuming stock option expensing in the first quarter of 2004, net income and earnings per share would have increased 10 percent in the first quarter of 2005.