Eli Lilly and Company Reports Strong Second-Quarter 2010 Results

INDIANAPOLIS, July 22 /PRNewswire-FirstCall/ --

• Nine percent revenue growth driven by higher volume continues strong trend for the year.
• 21 percent of Q2 revenue invested in R&D to advance pipeline of nearly 70 potential new medicines in clinical development.
• Ongoing cost-containment efforts support double-digit growth in operating income.
• Q2 earnings per share grow to $1.22 (reported), or $1.24 (non-GAAP).
• 2010 earnings per share guidance range raised to $4.44 to $4.59 (reported), or $4.50 to $4.65 (non-GAAP), following strong first-half results.

Eli Lilly and Company (NYSE: LLY) today announced financial results for the second quarter of 2010.

Financial results for 2010 and 2009 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 2010 financial guidance is also being provided on both a reported and a non-GAAP basis.

“Lilly continued to deliver solid financial results in the second quarter, driven by volume-based revenue gains and ongoing cost-containment efforts that resulted in double-digit earnings growth,” said John C. Lechleiter Ph.D., Lilly’s chairman and chief executive officer. “We’re pleased with these results and the opportunities they create. This strong financial performance enables us to fund our R&D pipeline of nearly 70 clinical stage assets and make strategic acquisitions in order to deliver an increased number of innovative medicines to patients in the future.”

Key Events Over the Last Three Months

• The company signed a definitive merger agreement to acquire Alnara Pharmaceuticals, Inc., a privately-held company developing protein therapeutics for the treatment of metabolic diseases. Alnara’s lead product in development is liprotamase, a non-porcine pancreatic enzyme replacement therapy (PERT). Liprotamase is under review by the U.S. Food and Drug Administration for the treatment of exocrine pancreatic insufficiency (EPI).
• The company signed a development and exclusive license agreement with Marcadia Biotech, Inc. for Marcadia’s short-acting glucagon program, covering glucagon analogs that may provide greater convenience and ease-of-use for the treatment of severe hypoglycemia. The program includes MAR531, a glucagon analog that is in preclinical development.
• The company, along with its partners Amylin Pharmaceuticals, Inc. and Alkermes, Inc., announced that the U.S. Food and Drug Administration (FDA) classified the Bydureon complete response as a Class 2 resubmission and assigned a new Prescription Drug User Fee Act (PDUFA) action date of October 22, 2010.
• The company, along with its partner, Kowa Pharmaceuticals America Inc., announced the launch of Livalo® in the United States. Livalo is indicated for adults as an adjunctive therapy to diet for the treatment of primary hyperlipidemia or mixed dyslipidemia.
• The company announced a new partnership with Walmart to provide a co-branded insulin product for people with diabetes. Beginning in mid-September, Lilly’s Humulin® brand of biosynthetic human insulin will be available in Walmart pharmacies across the U.S. under the dual-branded name Humulin® ReliOn®.

Second-Quarter Reported Results

In the second quarter of 2010, worldwide total revenue was $5.749 billion, an increase of 9 percent compared with the second quarter of 2009. This 9 percent revenue growth was comprised of an increase of 5 percent due to higher volume, 2 percent due to higher prices and 1 percent due to the impact of foreign exchange rates (numbers do not add due to rounding). Total revenue in the U.S. increased 8 percent to $3.262 billion due to higher prices and, to a lesser extent, increased volume. Total revenue outside the U.S. increased 9 percent to $2.487 billion due to increased demand and, to a lesser extent, the favorable impact of foreign exchange rates outside the Euro zone, partially offset by lower prices. Second-quarter 2010 total revenue was reduced by approximately $70 million due to the impact of U.S. health care reform.

Gross margin increased 9 percent, in-line with total revenue growth. Gross margin as a percent of total revenue was 82.2 percent, which was essentially flat compared to the second quarter of 2009.

Marketing, selling and administrative expenses increased 3 percent compared with the second quarter of 2009, to $1.755 billion. The increase was driven by higher marketing and selling expenses outside the U.S., partially offset by lower administrative expenses and company-wide cost containment efforts. Research and development expenses were $1.187 billion, or 21 percent of total revenue. Compared with the second quarter of 2009, research and development expenses grew 14 percent due primarily to increased costs of late-stage clinical trials and associated development milestones. Total operating expense, defined as the sum of research and development, marketing, selling and administrative expenses, increased 7 percent compared with the second quarter of 2009.

In the second quarter of 2010, the company recognized a charge of $27.3 million for restructuring primarily related to severance and other related costs from previously announced strategic actions that the company is taking to reduce its cost structure and global workforce. In the second quarter of 2009, the company incurred a special pretax charge of $105.0 million in connection with the settlement of several states’ litigation claims involving Zyprexa.

Operating income in the second quarter of 2010 increased 18 percent to $1.755 billion, compared to the second quarter of 2009 due to revenue growing at a faster rate than cost of sales and operating expense, as well as lower asset impairments, restructuring and other special charges.

Other income (expense) improved $5.7 million, to a net expense of $18.4 million, primarily due to lower net interest expense.

The effective tax rate was 22.3 percent in the second quarter of 2010, compared with an effective tax rate of 21.1 percent in the second quarter of 2009, due to the expiration of the R&D tax credit in the U.S. at the end of 2009.

Net income and earnings per share increased to $1.349 billion and $1.22, respectively, compared with second-quarter 2009 net income of $1.159 billion and earnings per share of $1.06.

Second-Quarter non-GAAP Results

Operating income increased 12 percent to $1.782 billion, due to revenue growing at a higher rate than operating expenses. The effective tax rate was 22.5 percent, up from 22.0 percent in the second quarter of 2009. Net income and earnings per share both increased 11 percent to $1.367 billion and $1.24, respectively. Excluding the impact of changes in foreign exchange rates, operating income and earnings per share would have increased approximately 9 percent and 8 percent, respectively.

For purposes of non-GAAP reporting, items totaling $.02 and $.06 per share for the second quarters of 2010 and 2009, 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.

Year-to-Date Results

For the first six months of 2010, worldwide total revenue increased 9 percent to $11.234 billion, compared with the same period in 2009. Reported net income and earnings per share were $2.597 billion and $2.35, respectively. Net income and earnings per share, on a non-GAAP basis, were $2.664 billion and $2.41, respectively.

For purposes of non-GAAP reporting, items totaling $.06 per share for the first six months of both 2010 and 2009 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.