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Eli Lilly Beats Expectations

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Eli Lilly & Company (LLY - Free Report) reported fourth quarter 2012 adjusted earnings per share of 85 cents, well above the Zacks Consensus Estimate of 78 cents but 2.0% below the year-ago earnings of 87 cents. The year-over-year decline was attributable to lower revenues in the fourth quarter of 2012.

Fourth quarter revenues declined 1% to $5.96 billion. However, revenues were above the Zacks Consensus Estimate of $5.88 billion. The Zyprexa patent expiry continued to impact revenues. Sales of Zyprexa, which went off patent in the EU and the US in late 2011, plummeted 49% in the fourth quarter of 2012. Currency fluctuation impacted revenues negatively by 1%.

Reported earnings (including special items) declined 4% to 74 cents per share in the fourth quarter of 2012.

Meanwhile, Eli Lilly reported 2012 earnings of $3.39 per share, down 23%, and within the guidance range of $3.30 - $3.40 per share. Revenues declined 7% to $22.6 billion. Both earnings and revenues exceeded the Zacks Consensus Estimate of $3.33 per share and $22.5 billion, respectively.

Quarterly Details

Fourth quarter revenues declined mainly due to a 3% decrease in volume. A 2% price increase partially mitigated the effect of lower volume and unfavorable currency fluctuation. The lower volume was mainly due to the loss of exclusivity for Zyprexa, which is facing competition from generic players like Dr. Reddy’s (RDY - Free Report) and Teva (TEVA - Free Report) .

US revenues declined 2% to $3.23 billion mainly due to the loss of market exclusivity of Zyprexa. Ex-US revenues declined 1% to $2.73 billion, mainly due to the loss of exclusivity for Zyprexa, unfavorable currency fluctuation and lower prices.

During the fourth quarter, Zyprexa recorded a 49% decline in revenues, which came in at $384.8 million. US revenues plummeted 80% due to lower prices. International revenues decreased 29%, mainly due to the loss of market exclusivity in major markets apart from Japan.

Products which performed well in the fourth quarter included Cymbalta (20% growth to $1.4 billion), Alimta (7% growth to $684.3 million), and Forteo (20% growth to $314.6 million).

Both Humulin and Humalog sales in the US continued to be affected by their removal from a large formulary in 2012.

Eli Lilly’s Animal Health segment contributed $554.1 million (up 18%) to revenues. Higher demand for companion animal products drove sales in the US.

Effient posted revenues of $120.6 million, up 33%. While US revenues increased 31% to $87.8 million, driven by higher demand and higher prices, ex-US revenues increased 37% to $32.8 million driven by higher demand.


Eli Lilly’s adjusted operating expenses decreased 1% during the quarter. Research and development (R&D) expenses increased 8% to $1.46 billion due to higher late-stage trial costs. Marketing, selling and administrative expenses declined 7% to $1.98 billion mainly due to lower marketing costs.

Guidance Adjusted to Reflect Tax Benefit

Eli Lilly, which had provided its 2013 guidance earlier this year, raised its earnings outlook by 7 cents to reflect the expected benefit from the delayed enactment of the American Taxpayer Relief Act of 2012. As a result, Eli Lilly now expects 2013 earnings of $3.82 - $3.97 per share (old guidance: $3.75 - $3.90 per share). The company will recognize the tax benefit in the first quarter. Eli Lilly expects total revenues of $22.6 billion - $23.4 billion in 2013. The Zacks Consensus Estimate for earnings and revenues currently stands at $3.84 per share and $23.0 billion, respectively.

Eli Lilly will continue working on containing costs. While the company expects marketing, selling and administrative expenses of $7.1 - $7.4 billion, R&D expenses are expected in the range of $5.2 - $5.5 billion. Eli Lilly has about 13 candidates in late-stage development.

Our Take

Eli Lilly’s fourth quarter results were better than expected with products like Cymbalta, Forteo, Alimta, Effient and the animal health portfolio managing to offset a part of the negative impact of the genericization of Zyprexa.

The company expects revenues to remain flat or increase by about 3.5% in 2013 despite the expected loss of US exclusivity for Cymbalta later this year. Eli Lilly, which is currently going through a patent cliff with the loss of exclusivity on Zyprexa, will be losing US exclusivity on Cymbalta in Dec. While revenues will be impacted by the loss of Cymbalta exclusivity and the loss of the 15% royalty on exenatide sales, products like Humalog, Humulin, Cialis, Strattera, Forteo, Alimta, Cymbalta (outside the US), Effient, Tradjenta and Axiron, and the animal health segment should contribute to sales. Japan and emerging markets, especially China, should also drive sales.

Meanwhile, share buybacks and cost control should help Eli Lilly achieve its 2013 guidance despite the presence of generic competition for key products.

Eli Lilly currently carries a Zacks Rank #2 (Buy). Other large-cap pharma stocks like Sanofi (SNY - Free Report) also carry a Zacks Rank #2.

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