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Eli Lilly and Company (LLY) Reports Second-Quarter 2014 Results


7/24/2014 9:51:36 AM

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INDIANAPOLIS, July 24, 2014 /PRNewswire/ --

  • Second-quarter 2014 revenue declined 17 percent driven by the impact of U.S. patent expirations for Cymbalta and Evista, partially offset by volume growth in several other products.
  • Expense management initiatives resulted in 11 percent OPEX reduction, partially offsetting revenue declines.
  • Second-quarter 2014 earnings per share were $0.68 on both a reported and non-GAAP basis.
  • New oncology research collaboration with Immunocore in third quarter causes 2014 reported EPS guidance range to be revised to $2.67 to $2.75; non-GAAP EPS guidance range confirmed at $2.72 to $2.80.

Eli Lilly and Company (NYSE: LLY) today announced financial results for the second quarter of 2014.

$ in millions, except per share data

Second Quarter

%


2014



2013


Change

Total Revenue Reported

$

4,935.6



$

5,929.7


(17)%

Net Income Reported

733.5



1,206.2


(39)%

EPS Reported

 

0.68



1.11


(39)%








Net Income non-GAAP

733.5



1,254.9


(42)%

EPS non-GAAP

0.68



1.16


(41)%










Certain financial information for 2014 and 2013 are presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the period. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. The non-GAAP measures are presented in order to provide additional insights into the underlying trends in the company's business. The company's 2014 financial guidance is also being provided on both a reported and a non-GAAP basis.

"Lilly's second-quarter results reflect a substantial decline in revenue and earnings resulting from recent patent expirations. At the same time, new product approvals and impending launches give us great confidence that Lilly is poised for growth in the years ahead," said John C. Lechleiter, Ph.D., Lilly's chairman, president and chief executive officer. "We have stayed the course with our innovation-based strategy, replenishing and advancing our pipeline. We remain firm in our commitment to sustain and accelerate a flow of important new medicines that make life better for people around the world."

Key Events Over the Last Three Months

  • The company launched CyramzaTM in the U.S. as a single-agent treatment for patients with advanced or metastatic gastric cancer or gastroesophageal junction (GEJ) adenocarcinoma with disease progression on or after prior fluoropyrimidine- or platinum-containing chemotherapy.
  • The company and its partner, Boehringer Ingelheim, announced that the European Commission granted marketing authorization for Jardiance® (empagliflozin) tablets for the treatment of type 2 diabetes mellitus to improve glycemic control in adults. The companies anticipate launch of the product in European countries to begin in the third quarter of 2014.
  • The company and its partner, Boehringer Ingelheim, announced the Class 1 resubmission (two month review period) of a New Drug Application for empagliflozin for the treatment of adults with type 2 diabetes to the U.S. Food and Drug Administration (FDA).
  • The Committee for Medicinal Products for Human Use (CHMP) issued a positive opinion recommending approval for the investigational compound LY2963016, a new insulin glargine product from the company and its partner, Boehringer Ingelheim, for the treatment of type 1 and type 2 diabetes.
  • The company announced positive top-line results of three completed Phase III clinical trials in patients with type 2 diabetes for basal insulin peglispro (BIL), which is being studied as a once-daily treatment for both type 1 and type 2 diabetes.
  • The company announced that the Phase III REACH trial of Cyramza in patients with hepatocellular carcinoma, also known as liver cancer, did not meet its primary endpoint; overall survival favored the Cyramza arm but was not statistically significant. Encouraging single-agent Cyramza activity was observed, with meaningful improvements in key secondary endpoints of progression-free survival, overall response rate and time to progression.
  • The company submitted a Supplemental Biologics License Application to the FDA based upon the Cyramza RAINBOW results for use of Cyramza in combination with paclitaxel in second-line gastric cancer. In the European Union, the RAINBOW data was incorporated into the already-filed Cyramza regulatory submission that was initially based upon the results of REGARD, the monotherapy second-line gastric cancer trial.
  • The company completed the acquisition of Lohmann Animal Health effective April 30, 2014. In addition, the company reached an agreement, subject to certain closing conditions, to sell Lohmann's feed additives business to a Lohmann management-led group. This feed additives business is considered to be non-strategic to Lilly's Elanco animal health unit.
  • The English High Court determined that the vitamin dosage regimen patents for Alimta® (pemetrexed) in the U.K., France, Italy and Spain would not be infringed by a generic competitor that has stated an intent to market certain alternative salt forms of pemetrexed in those countries upon expiry of the Alimta compound patents in 2015. Lilly has appealed the ruling to the Court of Appeal.
  • A labor court in Sao Paulo, Brazil, ruled against the company's local subsidiary, Eli Lilly do Brasil, in a case alleging some employees were exposed to hazardous materials in a manufacturing facility formerly operated by the company. However, the alleged contaminants - benzene and heavy metals - were never used in the facility. The judge estimated the financial impact of the court's order to be approximately $450 million plus interest. The company strongly disagrees with the court's ruling, believes the decision is entirely without merit and has appealed the decision.
  • In July, the company announced a co-discovery and co-development collaboration with Immunocore Limited to research and potentially develop novel T cell-based cancer therapies. As a result of this transaction, the company expects to incur an in-process research and development charge of $45.0 million (pre-tax), or approximately $0.03 per share (after-tax) in the third quarter of 2014.

Second-Quarter Reported Results
In the second quarter of 2014, worldwide total revenue was $4.936 billion, a decrease of 17 percent compared with the second quarter of 2013. The revenue decrease was due to a 17 percent decline in volume; the impact of changes in price and foreign exchange rates on worldwide revenue was negligible. The decrease in worldwide volume was driven by the loss of U.S. patent exclusivity for Cymbalta®, and to a lesser extent Evista®, partially offset by volume gains for several other products.  Total revenue in the U.S. decreased 30 percent to $2.380 billion, driven by lower demand for Cymbalta and Evista following their patent expiration. Total revenue outside the U.S. increased 1 percent to $2.556 billion, driven by higher volume, including the impact of the acquisition of Lohmann Animal Health in the second quarter of 2014, partially offset by lower prices.

Gross margin decreased 21 percent to $3.746 billion in the second quarter of 2014, driven by lower sales of Cymbalta due to the loss of U.S. patent exclusivity. Gross margin as a percent of total revenue was 75.9 percent, a decrease of 4.4 percentage points compared with the second quarter of 2013. The decrease in gross margin percent was primarily due to lower sales of Cymbalta and Evista following U.S. patent expirations.

Total operating expense in the second quarter of 2014, defined as the sum of research and development, marketing, selling and administrative expenses, was $2.859 billion, a decrease of 11 percent compared with the second quarter of 2013. Marketing, selling and administrative expenses decreased 11 percent to $1.664 billion, due primarily to the reduction in U.S. sales and marketing activities for Cymbalta and Evista as well as ongoing cost containment efforts. Research and development expenses decreased 10 percent to $1.195 billion, or 24.2 percent of total revenue, driven primarily by lower late-stage clinical development costs.

In the second quarter of 2013, the company recognized asset impairment, restructuring and other special charges of $63.5 million, primarily related to costs associated with the decision to close a packaging and distribution facility in Germany.

Operating income in the second quarter of 2014 was $886.6 million, a decrease of 41 percent compared to the second quarter of 2013, driven by lower gross margin, partially offset by lower operating expenses.

Other income (expense) was income of $53.8 million in the second quarter of 2014, compared with income of $11.9 million in the second quarter of 2013.

The effective tax rate was 22.0 percent in the second quarter of 2014, compared with 20.4 percent in the second quarter of 2013. The effective tax rate for the second quarter of 2014 includes the negative impact of the expiration of the R&D tax credit in the U.S. at the end of 2013.

In the second quarter of 2014, net income and earnings per share decreased 39 percent to $733.5 million and $0.68, respectively, compared with second-quarter 2013 net income of $1.206 billion and earnings per share of $1.11. The decreases in net income and earnings per share were driven primarily by lower operating income.

Second-Quarter 2014 non-GAAP Measures
There were no non-GAAP adjustments in the second quarter of 2014; however, comparisons are affected by non-GAAP adjustments in the second quarter of 2013. Second-quarter 2014 operating income decreased $679.9 million, or 43 percent, to $886.6 million, driven by lower gross margin, partially offset by lower operating expenses. The effective tax rate increased to 22.0 percent, compared with 20.5 percent in the second quarter of 2013.  Net income decreased 42 percent and earnings per share decreased 41 percent to $733.5 million and $0.68, respectively, compared with $1.255 billion and $1.16 during the second quarter of 2013.

Non-GAAP measures exclude items totaling $0.04 per share of expense in the second quarter of 2013.  For further detail, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.

 


Second Quarter



2014



2013


% Change

Earnings per share (reported)

$

0.68



$

1.11


(39)%

Asset impairment, restructuring and other special charges

-



.04



Earnings per share (non-GAAP)

$

0.68



$

1.16


(41)%

Numbers do not add due to rounding

Year-to-Date Results
For the first six months of 2014, worldwide total revenue was $9.619 billion, a decrease of 17 percent compared with the same period in 2013. Reported net income and earnings per share were $1.461 billion and $1.36, respectively. Net income and earnings per share, on a non-GAAP basis, were $1.483 billion and $1.38, respectively.

Non-GAAP measures exclude items totaling $0.02 per share of expense for the first six months of 2014 and $0.23 per share of income for the first six months of 2013. For further detail, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.

 


Year-to-date



2014



2013


% Change

Earnings per share (reported)

$

1.36



$

2.53


(46)%

Asset impairment, restructuring and other special charges

.02



.06



Income related to the termination of the exenatide collaboration with Amylin

-



(.29)



Earnings per share (non-GAAP)

$

1.38



$

2.30


(40)%

 



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Revenue Highlights

 

(Dollars in millions)

 

Second Quarter

% Change

Over/(Under)

 

Year-to-Date

% Change

Over/(Under)


2014


2013


2013


2014


2013


2013

Alimta

$711.6


$669.4


6%


$1,343.6


$1,286.3


4%

Humalog®

700.1


628.6


11%


1,350.1


1,261.3


7%

Cialis®

567.8


529.4


7%


1,100.2


1,044.4


5%

Cymbalta

401.3


1,497.2


(73)%


879.5


2,825.4


(69)%

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