Eli Lilly and Company Reports Solid Start to the Year With First-Quarter 2012 Results, Raises EPS Guidance

INDIANAPOLIS, April 25, 2012 /PRNewswire/ --

• Worldwide revenue declined 4 percent in the first quarter of 2012, driven by Zyprexa patent expirations, partially offset by significant growth in other products and key regions.
• Cymbalta revenue increased 23 percent due to strong growth in both the U.S. and international markets, while Effient revenue more than doubled.
• Elanco Animal Health revenue grew 33 percent, driven by gains in both the food animal and companion animal portfolios.
• China remained Lilly's fastest-growing market, with revenue growth of 41 percent.
• Continued investment in research and development supported robust Phase III pipeline of 12 potential new medicines.
• First quarter earnings per share were $.91 (reported), or $.92 (non-GAAP).
• 2012 earnings per share guidance range raised to $3.14 - $3.29 (reported), or $3.15 - $3.30 (non-GAAP)

Eli Lilly and Company (NYSE: LLY) today announced financial results for the first quarter of 2012.

Financial results for 2012 and 2011 are presented on both a reported and a non-GAAP basis. Reported results were prepared in accordance with generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the period. Non-GAAP results exclude the items described in the reconciliation tables. The non-GAAP results are presented in order to provide additional insights into the underlying trends in the company's business. The company's 2012 financial guidance is also being provided on both a reported and a non-GAAP basis.

"Lilly's financial results in the first quarter represent a solid start to the year and support our decision to increase our 2012 EPS guidance. Notwithstanding the negative effect of the expiration of the Zyprexa patent in the U.S. and many international markets, Lilly demonstrated strong underlying growth in other products and key regions; specifically, Cymbalta, Forteo, Effient, diabetes care and our animal health portfolio, as well as our fast-growing affiliate in China," said John C. Lechleiter, Ph.D., Lilly's chairman, president and chief executive officer. "We continue to invest appropriately in our pipeline, with 12 potential new medicines now in Phase III clinical trials. We strongly believe that our innovation-based strategy will enable Lilly to return to steady growth following a period of multiple patent expirations."

Key Events Over the Last Three Months

• The U.S. Food and Drug Administration (FDA) approved Amyvid, a radioactive diagnostic agent indicated for brain imaging of beta-amyloid plaques in patients with cognitive impairment who are being evaluated for Alzheimer's Disease and other causes of cognitive decline.
• Japan's Ministry of Health, Labor and Welfare approved Zyprexa® for treatment of depression in bipolar disorder and Cymbalta® for treatment of diabetic peripheral neuropathic pain.
• The FDA issued a Complete Response Letter for the Erbitux® filing in first-line non-small cell lung cancer, which was based on the pivotal FLEX study. Lilly and its partner, Bristol-Myers Squibb, do not plan to resubmit the FLEX filing, but will continue to market Erbitux in the U.S. for certain types of head and neck cancer and colorectal cancer.
• The European Commission granted marketing authorization to Byetta®(exenatide twice-daily) as an adjunctive therapy to basal insulin, with or without metformin and/or Actos® (pioglitazone), for the treatment of type 2 diabetes in adults who have not achieved adequate glycemic control with these agents.

First-Quarter Reported Results

In the first quarter of 2012, worldwide total revenue was $5.602 billion, a decrease of 4 percent compared with the first quarter of 2011. This 4 percent revenue decline was comprised of a decrease of 7 percent due to lower volume, partially offset by an increase of 4 percent in prices. Foreign exchange rates had a negligible impact. (Numbers do not add due to rounding). The decrease in volume was driven by the loss of patent exclusivity for Zyprexa in most major markets, partially offset by volume gains for other products. Total revenue in the U.S. remained relatively flat at $3.085 billion due to the loss of patent exclusivity for Zyprexa,offset by increased prices and, to a lesser extent, increased volume in other products. Total revenue outside the U.S. decreased by 9 percent to $2.517 billion, driven by the loss of patent exclusivity for Zyprexa, partially offset by increased volume in other products including Cymbalta, Forteo®, Humalog®, Efient® and the animal health portfolio, as well as a 41 percent revenue increase in China.

Gross margin decreased 5.5 percent to $4.404 billion in the first quarter of 2012. Gross margin as a percent of total revenue was 78.6 percent, reflecting a decrease of 1.2 percentage points compared with the first quarter of 2011. The decrease in gross margin percent was primarily due to lower sales of Zyprexa following its patent expiration in most major markets, partially offset by the impact of foreign exchange rates on international inventories sold.

Total operating expense, defined as the sum of research and development, marketing, selling and administrative expenses, increased 3 percent compared with the first quarter of 2011. Marketing, selling and administrative expenses increased 3 percent to $1.848 billion, driven by the diabetes collaboration with Boehringer Ingelheim and increased expense for newer pharmaceutical and animal health products, partially offset by lower administrative expenses. Research and development expenses increased 2 percent to $1.151 billion, or 20.6 percent of total revenue, driven by expenses related to the diabetes collaboration with Boehringer Ingelheim and other late-stage clinical trial costs.

In the first quarter of 2012, the company recognized an asset impairment, restructuring and other special charge of $23.8 million primarily related to the withdrawal of Xigris®. In the first quarter of 2011, the company recognized a charge of $76.3 million for restructuring related to severance costs from previously announced strategic actions that the company is taking to reduce its cost structure, as well as a $388.0 million inprocess research and development (IPR&D) charge associated with the diabetes collaboration with Boehringer Ingelheim.

Operating income in the first quarter of 2012 was $1.381 billion, an increase of 7 percent compared to the first quarter of 2011, due primarily to the prior year IPR&D charge mentioned previously, partially offset by decreased revenue as a result of the loss of Zyprexa patent exclusivity.

Other income (expense) was a net expense of $46.0 million, compared with net expense of $11.2 million in the first quarter of 2011. The increase in other expense was driven by the recognition in the first quarter of 2011 of a gain on an equity investment and an insurance recovery, partially offset by increased interest income in the first quarter of 2012.

The effective tax rate was 24.3 percent in the first quarter of 2012, compared with an effective tax rate of 17.1 percent in the first quarter of 2011. The increase in the effective tax rate was driven primarily by the tax benefit in 2011 of the IPR&D charge described above, as well as the expiration of the R&D tax credit in the U.S. at the end of 2011.

Net income and earnings per share decreased to $1.011 billion and $0.91, respectively, compared with first-quarter 2011 net income of $1.056 billion and earnings per share of $0.95. The decreases in net income and earnings per share were primarily due to lower gross margin and the increase in the effective tax rate, partially offset by the IPR&D charge in the first quarter of 2011.

First-Quarter 2012 non-GAAP Results

On a non-GAAP basis, first quarter 2012 operating income decreased 20 percent to $1.405 billion, due to lower gross margin resulting from the loss of patent exclusivity for Zyprexa in most major markets and, to a lesser extent, increased operating expenses. The effective tax rate was 24.4 percent, compared with 20.9 percent in the first quarter of 2011, primarily due to the expiration of the R&D tax credit at the end of 2011, as well as the inclusion of a discrete item in the first quarter of 2012 due to changes in estimates concerning certain prior-year tax items. Net income and earnings per share decreased 25 and 26 percent, to $1.027 billion and $0.92, respectively. These decreases were driven primarily by lower operating income.

For purposes of non-GAAP reporting, items totaling $.01 and $.29 per share in the first quarters of 2012 and 2011, respectively, have been excluded. For further detail, see the reconciliation below as well as the footnotes to the non-GAAP income statement later in this press release.