Bloomberg News

Eli Lilly Profit Drops as Expenses Outpace Sales Gains

October 20, 2011

(Updates with closing share price in seventh graph.)

Oct. 20 (Bloomberg) -- Eli Lilly & Co., whose top-selling schizophrenia drug Zyprexa loses U.S. patent protection this month, said third-quarter profit dropped 5 percent on higher marketing expenses.

Net income fell to $1.24 billion, or $1.11 a share, from $1.3 billion, or $1.18, a year earlier, the Indianapolis-based company said today in a statement. Earnings excluding one-time items were $1.13 a share, beating the $1.12 average estimate of 14 analysts surveyed by Bloomberg.

Lilly is aiming to overcome the loss of patents on Zyprexa, on Oct. 23, and other medicines without a major merger by investing in research. The drugmaker has treatments for Alzheimer’s, diabetes and cancer in final-stage trials. As Lilly awaits these results, the company is focusing effort on growth areas such as emerging markets and animal health.

“It looks all in all like a pretty clean quarter, with no big surprises,” said Damien Conover, an analyst at Morningstar Inc. in Chicago, in a phone interview. “It is going to be tough going forward,” because of the Zyprexa patent expiration.

Revenue increased 9 percent to $6.15 billion, higher than the $6.05 billion estimated by analysts. Sales of Humalog for diabetes rose 20 percent to $593.2 million, while sales of Cymbalta rose 29 percent to $1.07 billion.

Full-Year Forecast

Lilly raised the lower end its forecast for full-year adjusted earnings to $4.30 a share from $4.25 a share. The company also narrowed its guidance for full-year earnings to $3.89 to $3.94 a share from $3.85 to $3.95 a share.

Lilly shares dropped less than 1 percent to $38.61 at the close of trading in New York. They have gained 10 percent this year.

The drugmaker said it expects “rapid and severe erosion” of Zyprexa sales when the patent expires later this month. It still projects 2011 revenue growth in the mid-single digits. The impact of the U.S. health-care overhaul will lower 2011 revenue by $400 million to $500 million, the company said, matching previous estimates.

“The real key is about the pipeline and much of Lilly’s pipeline is yet to come,” said Tony Butler, an analyst at Barclays Capital in New York, in a telephone interview before the earnings. Final-stage trial results for Lilly’s Alzheimer’s drug solanezumab are expected next year.

--Editors: Chris Staiti, Bruce Rule

To contact the reporter on this story: Robert Langreth in New York at rlangreth@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at Rgale4@bloomberg.net.


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