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Lilly (LLY) Tops Q1 Earnings, Misses Sales, Shares Down

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Eli Lilly and Company (LLY - Free Report) reported first-quarter 2017 adjusted earnings per share of 98 cents, which beat the Zacks Consensus Estimate of 96 cents by 2.1%. Earnings rose 18% from the year-ago quarter backed by volume driven pharma sales growth and higher profits.

 

Including a charge related to the acquisition of CoLucid Pharmaceuticals (acquired in Mar 2017) and other special items, the company reported a loss of 10 cents against earnings of 41 cents per share in the year-ago quarter.

Revenues Miss

Quarterly revenues of $5.23 billion marginally missed the Zacks Consensus Estimate of $5.26 billion by 0.6%. However, sales grew 7% year over year. Excluding the unfavorable impact of foreign exchange (1%), worldwide revenues grew 6%.

Volumes rose 8% as higher volumes of new products like Trulicity (diabetes), Cyramza (lung cancer) and Taltz (psoriasis) and older products like Humalog (diabetes) offset lower volumes of established products like Zyprexa, Alimta and Cymbalta.

Pharmaceutical volumes rose 9% in the quarter. However, worldwide competitive pressure hurt sales somewhat in Lilly’s Animal Health segment.

Quarter in Detail

U.S. revenues grew 15% to $2.93 billion, reflecting higher volume of products like Trulicity, Taltz and Lartruvo as well as companion animal products. Higher realized prices also propelled U.S. sales.

Ex-U.S. revenues declined 1% to $2.3 billion mainly due to lower volumes and realized prices. Higher volumes of newer products like Cyramza and Trulicity were offset by lower volumes of Zyprexa, Cymbalta and Alimta due to the loss of exclusivity. Cymbalta has lost exclusivity in Europe and Canada, Zyprexa in Japan and Alimta in several countries.

Products that recorded growth during the quarter include Forteo (up 9% to $347.5 million), Humalog (up 17% to $708.4 million) and Strattera (up 4% to $196.2 million).

Alimta sales, however, declined 13% to $489.9 million, reflecting lower demand in the U.S. due to competitive pressure mainly from immuno-oncology agents. Outside the U.S., sales of Alimta were hurt by loss of exclusivity in several countries and lower realized prices.

Zyprexa sales declined 31% to $147.5 million due to loss of exclusivity.

Humulin sales decreased 12% in the quarter to $314.5 million due to lower sales in the U.S. as well as outside U.S.

Erbitux sales declined 8% to $154.4 million in the quarter.

Cialis sales declined 7% to $533.6 million hurt by lower demand in the U.S.

Among new products, Trulicity generated revenues of $372.9 million, up 160% year over year, with U.S. revenues benefiting from growth in the GLP-1 market and market share gains. Cyramza revenues were $171.2 million, up 31% year over year backed mainly by higher outside U.S. revenues. Cyramza’s ex-U.S. revenues benefited from strong volumes in Japan. However, U.S. revenues declined, being hurt by lower demand due to competitive pressure.

Jardiance sales (up 94% to $74 million) were driven by increased market share within the growing SGLT2 class. In Dec 2016, the FDA approved Jardiance for the CV indication (launched in Jan 2017) while the American Diabetes Association updated its diabetes treatment guidelines. Management believes that both these factors will drive growth of Jardiance and the SGLT-2 class.

Basaglar recorded revenues of $46.0 million compared with $39.5 million in the previous quarter. Basaglar - Lilly and partner Boehringer Ingelheim’s follow-on insulin to Sanofi’s (SNY - Free Report) blockbuster drug, Lantus - was launched in the U.S. in mid-Dec 2016 where it generated revenues of $22.0 million in the quarter.

Taltz brought in sales of $96.6 million compared with $61.3 million in the previous quarter, reflecting strong launch uptake.

Lartruvo (olaratumab) generated revenues of $42.1 million in the first quarter of 2017 compared with $11.9 million in the previous quarter. Lartruvo was launched in the U.S. and the EU for soft tissue sarcoma in the fourth quarter of 2016. U.S. revenues were $38.1 million compared with $11.4 million in the previous quarter.

Portrazza brought in sales of $3.6 million.

Meanwhile, Lilly and partner Incyte Corporation’s (INCY - Free Report) rheumatoid arthritis (RA) drug Olumiant (baricitinib) was approved in EU in Feb 2017. The drug generated sales of $1.9 million in the first quarter of 2017, reflecting initial sales in Germany.

However, in the U.S., the drug is under review. Last week, the companies announced that they have received a complete response letter (CRL) from the FDA regarding the new drug application (NDA) for baricitinib. The letter stated that the FDA is unable to approve the application in its present form. The agency has asked for additional data to determine the most appropriate doses and further characterize safety concerns across treatment arms. The investment community expects a delay in approval of the drug.

Lilly's Animal Health segment sales increased 2% to $769.4 million as higher sales of companion animal products offset the decline in food animal revenues. The inclusion of revenues from the acquisition of Boehringer Ingelheim Vetmedica's U.S. feline, canine and rabies vaccine boosted sales of companion animal products. However, global competitive pressure hurt sales of both food animal and companion animal revenues in the quarter/

Gross Margin & Operating Income Rise

Adjusted gross margin of 78.1% in the quarter increased 180 basis points primarily driven by increased volume in the U.S. and manufacturing efficiencies.

Operating income increased 28% to $1.30 billion due to higher revenues. Total operating expenses (R&D+ marketing, selling and administrative expenses) increased 3.3% in the quarter.

Full Year Outlook Reiterated

Lilly maintained its previously issued adjusted 2017 sales and earnings outlook.

Adjusted earnings per share are expected in the range of $4.05 to $4.15, representing growth rate of 15% to 18%. 

Revenues are expected in the range of $21.8–$22.3 billion. Gross margin is expected to be approximately 77%. Adjusted tax rate is expected to be approximately 22%.

Marketing, selling and administrative expenses are expected in the range of $6.4–$6.6 billion, while research and development expenses are projected to be $4.9–$5.1 billion.

Our Take

Lilly’s first-quarter 2017 results were mixed with the company beating on earnings and slightly missing sales estimates. Shares declined 1.7% in pre-market trading. So far this year, Lilly’s share price has risen 13.4% compared with an increase of 4% for the Zacks-classified Large-Cap Pharma industry.

In 2017, new products like Trulicity, Taltz, Basaglar, Cyramza, Jardiance and Lartruvo are expected to see higher revenues. Lilly also expects some established products like Trajenta, Forteo and Humalog to continue doing well. However, Alimta will continue to be impacted by competition. Other headwinds include competition from immuno-oncology agents as well as loss of exclusivity for many drugs in emerging markets.

Lilly carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

Eli Lilly and Company Price, Consensus and EPS Surprise

 

Eli Lilly and Company Price, Consensus and EPS Surprise | Eli Lilly and Company Quote

Biogen Inc. (BIIB - Free Report) , which also reported today, beat estimates for both earnings and sales in the first quarter. Shares were up almost 5% in pre-market trading.

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