Eli Lilly Reports First-Quarter 2016 Results, Revises 2016 Financial Guidance

INDIANAPOLIS, April 26, 2016 /PRNewswire/ -- Eli Lilly and Company (NYSE: LLY) today announced financial results for the first quarter of 2016.

Certain financial information for 2016 and 2015 is 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 periods. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. The company’s 2016 financial guidance is also being provided on both a reported and a non-GAAP basis. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business.

“Revenue growth in the first quarter reflects substantial progress in launching new products, including Trulicity, Cyramza, Jardiance, Basaglar and Portrazza,” said John C. Lechleiter, Ph.D., Lilly’s chairman, president and chief executive officer. “In addition, we recently launched Taltz in the U.S., following its FDA approval last month. Several other potential products are currently under regulatory review, including olaratumab and baricitinib. Clearly, our innovation strategy is paying off, for the benefit of patients as well as shareholders.”

Key Events Over the Last Three Months

Commercial

• Following approval by the U.S. Food and Drug Administration (FDA), the company launched Taltz (ixekizumab) injection 80 mg/mL in the U.S. for the treatment of moderate-to-severe plaque psoriasis in adult patients who are candidates for systemic therapy or phototherapy.
• In Europe, the company launched Cyramza^® (ramucirumab) for locally advanced or metastatic non-small cell lung cancer (NSCLC) and for metastatic colorectal cancer (CRC).
• Also in Europe, following approval by the European Commission, the company launched Portrazza (necitumumab), in combination with gemcitabine and cisplatin, as the first biologic for the treatment of patients with locally advanced or metastatic epidermal growth factor receptor expressing squamous NSCLC who have not received prior chemotherapy for this condition.

Regulatory

• Following a positive opinion from the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP), the European Commission approved Taltz for the treatment of moderate-to-severe plaque psoriasis in adults who are candidates for systemic therapy.
• The company submitted olaratumab to both the FDA and the EMA for soft tissue sarcoma.
• Elanco Animal Health announced the FDA approval of Imrestor (pegbovigrastim injection) for the reduction in the incidence of clinical mastitis in dairy cows. Imrestor is a non-antibiotic therapy, the first product of its kind for the dairy industry.

Clinical

• The primary endpoint for the EXPEDITION3 clinical trial, a Phase 3 study of solanezumab in people with mild Alzheimer’s dementia, was changed from co-primary endpoints of cognition and function to a single primary endpoint of cognition. Functional outcomes will be evaluated as key secondary endpoints.
• In collaboration with AstraZeneca, the company announced:
  • AMARANTH, a Phase 2/3 study of AZD3293, an oral beta secretase cleaving enzyme (BACE) inhibitor currently in development as a potential treatment for early Alzheimer’s disease, will continue to Phase 3 of the Phase 2/3 seamless trial.
  • A new Phase 3 trial for AZD3293, named DAYBREAK, will study the safety and efficacy of AZD3293 in people with mild Alzheimer’s dementia. DAYBREAK will begin enrolling participants in the third quarter of 2016.
• The Boehringer Ingelheim Lilly Diabetes Alliance announced plans to conduct two outcome trials investigating the diabetes medicine Jardiance^® (empagliflozin) for the treatment of people with chronic heart failure. The trials are targeted to begin within the next 12 months and are planned to enroll people with chronic heart failure both with and without type 2 diabetes.

Business Development/Other

• The United Kingdom (UK) High Court decided the Alimta^® (pemetrexed disodium) vitamin regimen patent would not presently be infringed by Actavis marketing pemetrexed trometamol in the UK, France, Italy and Spain with instructions to dilute the product only with dextrose solution. Lilly intends to appeal this ruling.
• Elanco Animal Health licensed rights to Aratana’s Galliprant^® (grapiprant tablets), an FDA-approved therapeutic for the control of pain and inflammation associated with osteoarthritis in dogs. The agreement grants Elanco exclusive rights to develop, manufacture, market and commercialize Galliprant globally, and co-promote the product with Aratana in the U.S.
• As part of its previously announced share repurchase program, the company repurchased approximately $300 million of stock in the first quarter of 2016.

First-Quarter Reported Results

In the first quarter of 2016, worldwide revenue was $4.865 billion, an increase of 5 percent compared with the first quarter of 2015. Revenue increased 7 percent due to increased volume and 1 percent due to higher realized prices, partially offset by 3 percent due to the unfavorable impact of foreign exchange rates. The increase in worldwide volume was due to several products, including Trulicity^® and Cyramza, as well as Erbitux^® due to the transfer of commercialization rights in North America to Lilly in the fourth quarter of 2015. Revenue in the U.S. increased 16 percent to $2.556 billion, primarily driven by increased volume for several pharmaceutical products including Trulicity, Erbitux and Humalog^® and, to a lesser extent, higher realized prices primarily for Cialis^®. Revenue outside the U.S. decreased 5 percent to $2.310 billion, driven by the unfavorable impact of foreign exchange rates and, to a lesser extent, the loss of exclusivity for Cymbalta^® in Europe in 2014, partially offset by increased volume for several pharmaceutical products, primarily Cyramza.

Gross margin increased 3 percent to $3.542 billion in the first quarter of 2016 compared with the first quarter of 2015. Gross margin as a percent of revenue was 72.8 percent, a decrease of 1.5 percentage points compared with the first quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold and, to a lesser extent, the transfer of Erbitux commercialization rights in North America, partially offset by 2015 inventory step-up costs related to the acquisition of Novartis Animal Health.

Operating expenses in the first quarter of 2016, defined as the sum of research and development and marketing, selling and administrative expenses, were $2.695 billion, an increase of 5 percent compared with the first quarter of 2015. Research and development expenses increased 17 percent to $1.221 billion, or 25.1 percent of revenue, driven primarily by higher late-stage clinical development costs, including $55.0 million in milestone payments to Incyte Corporation for the regulatory submissions of baricitinib in the U.S. and Europe. Marketing, selling and administrative expenses decreased 3 percent to $1.474 billion, as the favorable impact of foreign exchange rates and lower litigation expenses were partially offset by expenses related to new products.

There were no acquired in-process research and development charges in the first quarter of 2016. In the first quarter of 2015, the company recognized acquired in-process research and development charges totaling $256.0 million. These charges included a $200.0 million payment to Pfizer Inc. (Pfizer) following an FDA decision allowing the resumption of Phase 3 clinical trials for tanezumab and a $56.0 million payment to Innovent Biologics Inc. (Innovent) associated with a collaboration to develop potential oncology therapies.

In the first quarter of 2016, the company recognized asset impairment, restructuring and other special charges of $131.4 million. The charges are associated with asset impairments related to the closure of an animal health manufacturing facility in Ireland and integration costs related to the acquisition of Novartis Animal Health. In the first quarter of 2015, the company recognized asset impairment, restructuring and other special charges of $108.0 million, primarily related to integration, severance costs, and intangible asset impairments due to product rationalization resulting from the acquisition of Novartis Animal Health.

Operating income in the first quarter of 2016 was $715.8 million, an increase of 36 percent compared with the first quarter of 2015, driven by lower acquired in-process research and development charges and higher gross margin, partially offset by higher operating expenses.

Other income (expense) was an expense of $149.0 million in the first quarter of 2016, compared with income of $92.7 million in the first quarter of 2015. Other expense during the first quarter of 2016 was driven by a $203.9 million charge related to the impact of the Venezuelan financial crisis, including the significant deterioration of the bolívar. Other income during the first quarter of 2015 reflected a favorable legal judgment and net gains on investments.

The effective tax rate was 22.4 percent in the first quarter of 2016, compared with 14.3 percent in the first quarter of 2015. The first-quarter 2016 effective tax rate reflects the tax effect of the non-deductible charge related to the impact of the Venezuelan financial crisis, including the significant deterioration of the bolívar, and certain asset impairment, restructuring and other special charges, as well as an increased percentage of earnings in higher-tax jurisdictions, partially offset by a net discrete tax benefit of approximately $50 million and the benefit of certain U.S. tax provisions, including the R&D tax credit, reinstated for 2016. The first-quarter 2015 effective tax rate reflects the tax impact of acquired in-process research and development charges and asset impairment, restructuring and other special charges. The first-quarter 2015 effective tax rate does not include the benefit of certain then-expired U.S. tax provisions, including the R&D tax credit.

In the first quarter of 2016, net income decreased 17 percent to $440.1 million, and earnings per share decreased 18 percent to $0.41, compared with $529.5 million and $0.50, respectively, in the first quarter of 2015. The declines in net income and earnings per share were driven by the charge related to the impact of the Venezuelan financial crisis, including the significant deterioration of the bolívar, and higher income taxes, partially offset by higher operating income.

First-Quarter 2016 Non-GAAP Measures

First-quarter 2016 gross margin increased 2 percent to $3.713 billion. Gross margin as a percent of revenue was 76.3 percent, a decline of 1.9 percentage points compared with the first quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold.

Operating income decreased $85.7 million, or 8 percent, to $1.020 billion in the first quarter of 2016, driven by higher operating expenses, partially offset by higher gross margin.

Other income (expense) was income of $54.9 million in the first quarter of 2016, compared with income of $92.7 million in the first quarter of 2015. The decline in other income was driven by lower net gains on investments.

The first-quarter 2016 effective tax rate of 17.9 percent decreased 5.0 percentage points compared with the first quarter of 2015.

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