Eli Lilly Reports Second-Quarter 2016 Results, Provides Financial Expectations Through The Remainder Of The Decade

INDIANAPOLIS, July 26, 2016 /PRNewswire/ -- Eli Lilly and Company (NYSE: LLY) today announced financial results for the second 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.

“Lilly is in the midst of one of the most productive periods of new product launches in our company’s history, with new medicines making a substantial contribution to our revenue growth for the first half of the year,” said John C. Lechleiter, Ph.D., Lilly’s chairman, president and chief executive officer.

Lechleiter continued, “We’ve made great progress building an R&D engine that has the potential to launch 20 new products in 10 years beginning in 2014 and extending through 2023. Because of our confidence in our future growth prospects, we are providing updated financial expectations through the balance of the decade, including at least 5 percent average annual revenue growth driven by volume and an increase in gross margin as a percent of revenue. We are also returning to annual dividend increases for shareholders and reaffirming our commitment to achieve an OPEX-to-revenue ratio of 50 percent or less in 2018.”

Key Events Over the Last Three Months

Commercial

• The company is launching Taltz^® in Europe for the treatment of moderate-to-severe plaque psoriasis in adults who are candidates for systemic therapy.
• Elanco Animal Health launched Inteprity^TM, a first-in-class, animal-use only, in-feed antibiotic approved for the prevention of necrotic enteritis, an intestinal disease in poultry.

Regulatory

• The U.S. Food and Drug Administration (FDA) approved once-daily Jentadueto^® XR (linagliptin and metformin hydrochloride extended-release) tablets as an adjunct to diet and exercise for the treatment of type 2 diabetes in adults. Jentadueto XR is part of the company’s alliance with Boehringer Ingelheim.
• The company received approval of Cyramza^® in Japan for the treatment of:
  • unresectable, advanced or recurrent colorectal cancer; and
  • unresectable, advanced or recurrent non-small cell lung cancer for patients who have received prior platinum therapy.
• The company received approval of Taltz in Japan for the treatment of patients with plaque psoriasis, psoriatic arthritis, pustular psoriasis and erythrodermic psoriasis after insufficient response to existing treatments.
• The FDA granted Priority Review for olaratumab in combination with doxorubicin, for the potential treatment of people with advanced soft tissue sarcoma not amenable to curative treatment with radiotherapy or surgery.
• An FDA Advisory Committee voted 12-11 that substantial evidence exists to establish that Jardiance^® (empagliflozin) reduces cardiovascular (CV) death in adults with type 2 diabetes and established CV disease. Jardiance is marketed by Boehringer Ingelheim and Lilly.
• The FDA determined that the company met the requirements for pediatric exclusivity for Effient^®. Based on this decision by the FDA, Lilly has gained an additional six months of U.S. market exclusivity for Effient.

Clinical

• The company announced results from the Phase 2 study of abemaciclib, a cyclin-dependent kinase CDK 4 and CDK 6 inhibitor, in patients with hormone-receptor-positive, human epidermal growth factor receptor 2-negative metastatic breast cancer. The data showed single-agent activity in metastatic breast cancer patients for whom endocrine therapy was no longer a suitable treatment option.
• The company and Incyte Corporation announced data from a pivotal long-term extension study, which demonstrated baricitinib was superior to placebo at inhibiting progressive radiographic joint damage in patients with rheumatoid arthritis.
• The company and Boehringer Ingelheim announced clinical results on two jointly marketed medicines:
  • Results from a clinical trial demonstrated that Trajenta^® (linagliptin) reduced blood sugar in adults with type 2 diabetes who are at risk for kidney impairment, with a renal safety profile similar to that seen in other trials.
  • New data showed Jardiance reduced the risk for new-onset or worsening kidney disease by 39 percent versus placebo when added to standard of care in adults with type 2 diabetes with established cardiovascular disease.

Business Development/Other

• The German Federal Supreme Court granted the appeal by the company in the case of Lilly v. Actavis, vacating the prior decision denying infringement. The German Supreme Court returned the case to the Court of Appeal (Dusseldorf) to reconsider infringement based on its judgment. The case concerns whether Lilly’s vitamin regimen patent for Alimta^® (pemetrexed disodium) would be infringed by a generic competitor that had stated an intention to market a dipotassium salt form of pemetrexed in Germany.
• Elanco Animal Health and EnBiotix, Inc. announced a collaboration to explore the application of EnBiotix’s engineered phage technology in specific animal health targets, which could result in alternatives for traditional antibiotics in animals.

Second-Quarter Reported Results
In the second quarter of 2016, worldwide revenue was $5.405 billion, an increase of 9 percent compared with the second quarter of 2015. The increase in revenue was driven by an 8 percent increase in volume, as realized prices and the impact of foreign exchange rates remained relatively flat, compared with the second quarter of 2015. The increase in worldwide volume was driven by new pharmaceutical products, including Trulicity^® and Cyramza, as well as Humalog^®. Revenue in the U.S. increased 14 percent to $2.890 billion, primarily driven by increased volume for several pharmaceutical products, including Trulicity and Humalog, and to a lesser extent, higher realized prices, primarily for Cialis^® and Forteo^®, partially offset by lower realized prices for Humalog. Revenue outside the U.S. increased 3 percent to $2.515 billion, driven by increased volume for several pharmaceutical products, primarily Cyramza, Trulicity and Humalog, partially offset by the loss of exclusivity for Cymbalta^® in Europe in 2014.

Gross margin increased 5 percent to $3.940 billion in the second quarter of 2016 compared with the second quarter of 2015. Gross margin as a percent of revenue was 72.9 percent, a decrease of 2.6 percentage points compared with the second 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 second quarter of 2016, defined as the sum of research and development and marketing, selling and administrative expenses, were $2.959 billion, an increase of 5 percent compared with the second quarter of 2015. Research and development expenses increased 14 percent to $1.336 billion, driven primarily by higher late-stage clinical development costs, including a $100.0 million charge related to a development milestone for AZD3293, an oral beta secretase cleaving enzyme (BACE) inhibitor currently in development with AstraZeneca as a potential treatment for early Alzheimer’s disease. Marketing, selling and administrative expenses decreased 1 percent to $1.623 billion, primarily due to lower litigation expenses and reduced spending on late-life-cycle products, partially offset by expenses related to new products.

There were no acquired in-process research and development charges in the second quarter of 2016. In the second quarter of 2015, the company recognized acquired in-process research and development charges totaling $80.0 million. These charges included a $50.0 million payment to Hanmi Pharmaceutical Co., Ltd. (Hanmi), related to an exclusive license and collaboration agreement for Hanmi’s oral Bruton’s tyrosine kinase (BTK) inhibitor for the treatment of autoimmune and other diseases, and a $30.0 million payment to BioNTech AG related to a research collaboration to discover novel cancer immunotherapies.

The company recognized asset impairment, restructuring and other special charges of $58.0 million and $72.4 million in the second quarters of 2016 and 2015, respectively, related to integration costs for Novartis Animal Health, severance costs and asset impairments.

Operating income in the second quarter of 2016 was $923.3 million, an increase of 15 percent compared with the second quarter of 2015, driven by higher gross margin and lower acquired in-process research and development charges, partially offset by higher operating expenses.

Other income (expense) was income of $21.2 million in the second quarter of 2016, compared with expense of $123.3 million in the second quarter of 2015. Other expense during the second quarter of 2015 was driven by a net charge of $152.7 million related to the repurchase of $1.65 billion of debt.

The effective tax rate was 20.8 percent in the second quarter of 2016, compared with 11.6 percent in the second quarter of 2015. The increase in the effective tax rate for the second quarter of 2016 as compared with the second quarter of 2015 is primarily due to the tax impact of 2015 charges, including a net charge related to the repurchase of debt; asset impairment, restructuring and other special charges; and acquired in-process research and development charges.

In the second quarter of 2016, net income increased 24 percent to $747.7 million, and earnings per share increased 27 percent to $0.71, compared with $600.8 million and $0.56, respectively, in the second quarter of 2015. The increases in net income and earnings per share were driven by 2015 charges related to the repurchase of debt, as well as higher operating income, partially offset by higher income taxes.

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