Eli Lilly and Company (NYSE: LLY) today announced financial results for the fourth quarter and full year of 2009.
Due to significant strategic actions taken by the company, financial results for 2009 and 2008 are presented on both a reported and a pro forma 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. Pro forma non-GAAP results exclude significant items described in the reconciliation tables and also assume the ImClone acquisition was completed January 1, 2008. The pro forma 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's financial results in the fourth quarter completed a year of strong operational performance, highlighted by volume-based revenue gains, improved gross margins and quality earnings growth," said John C. Lechleiter Ph.D., Lilly's chairman and chief executive officer. "In 2009, we delivered solid financial results even as we continued to implement a series of actions aimed at speeding innovation to patients and delivering greater value to our customers. In 2010, we are well-positioned, through our new operating structure and development center of excellence, to maximize the value of our portfolio of products worldwide and advance the promising medicines currently in our clinical pipeline."
Significant Events Over the Last Three Months
- The company restructured the collaboration agreement executed by Bristol-Myers Squibb and ImClone in 2001 to allow for the co-development and co-commercialization of the late-stage oncology molecule necitumumab (IMC-11F8), which is currently in Phase III clinical testing for non-small cell lung cancer. Under the restructured agreement, both companies will share in the cost of developing and potentially commercializing necitumumab in the U.S., Canada and Japan. Lilly maintains exclusive rights to necitumumab in all other markets.
- The company signed a co-promotion agreement with Kowa Pharmaceutical America to commercialize Livalo® (pitavastatin) in the United States. Lilly and Kowa Company, Limited have also entered into a licensing agreement related to Livalo in Latin America. Livalo is a statin approved by the U.S. Food and Drug Administration (FDA) in August 2009 for the treatment of primary hyperlipidemia and mixed dyslipidemia.
- The company entered into an exclusive worldwide license and collaboration agreement with Incyte Corporation for the development and commercialization of Incyte's oral JAK1/JAK2 inhibitor, INCB28050, and certain follow on compounds, for inflammatory and autoimmune diseases.
- The FDA approved Zyprexa® Relprevv For Extended Release Injectable Suspension for the treatment of schizophrenia in adults.
- The FDA approved an expanded indication for Byetta® as a stand-alone medication (monotherapy) along with diet and exercise to improve glycemic control in adults with type 2 diabetes.
- On January 1, 2010, the company completed the sale of its Tippecanoe manufacturing facility in Lafayette, Indiana to Evonik Industries.
Fourth-Quarter Reported Results
In the fourth quarter of 2009, worldwide total revenue was $5.934 billion, an increase of 14 percent compared with the fourth quarter of 2008. This 14 percent revenue growth was comprised of an increase of 7 percent due to higher volume, 3 percent due to higher prices, and 3 percent due to the impact of foreign exchange rates (numbers do not add due to rounding). Total revenue in the U.S. increased 11 percent to $3.261 billion due to higher prices and wholesaler buying patterns. Total revenue outside the U.S. increased 18 percent to $2.673 billion due to increased demand and the positive impact of foreign exchange rates, partially offset by lower prices.
Gross margin as a percent of total revenue decreased by 6.6 percentage points, to 75.9 percent. Cost of sales increased by 57 percent in the fourth quarter of 2009 compared to the fourth quarter of 2008. The decrease in gross margin was due to the impact of changes in foreign currencies compared to the U.S. dollar on international inventories sold during the quarter, which substantially increased cost of sales in the fourth quarter of 2009, but substantially decreased cost of sales in the fourth quarter of 2008.
Marketing, selling and administrative expenses increased 13 percent compared with the fourth quarter of 2008, to $1.953 billion. The increase was driven by higher marketing and selling expenses outside the U.S. and the impact of foreign exchange rates. Research and development expenses were $1.217 billion, or 21 percent of total revenue. Compared with the fourth quarter of 2008, research and development expenses grew 15 percent due primarily to the ImClone acquisition, increased incentive compensation and increased late-stage clinical trial costs. Total operating expenses, defined as the sum of research and development, marketing, selling and administrative expenses, increased 14 percent compared with the fourth quarter of 2008.
In the fourth quarters of 2009 and 2008, the company recognized charges of $37.9 million and $80.0 million, respectively for asset impairments, restructuring and other special charges primarily related to severance costs from previously announced strategic actions that the company is taking to reduce its cost structure and global workforce. In addition, in the fourth quarter of 2009 the company recognized a charge of $90.0 million related to acquired in-process research and development associated with the in-licensing agreement with Incyte Corporation.
Additionally, in the fourth quarter of 2008, the company recognized pre-tax charges totaling $4.730 billion, or $4.46 per share after tax, related to the acquisition of ImClone Systems. This amount includes a charge of $4.685 billion for in-process research and development, as well as ImClone operating results subsequent to the acquisition, incremental interest costs, and amortization of the intangible asset associated with Erbitux®.
Operating income in the fourth quarter of 2009 rose to $1.205 billion. In the fourth quarter of 2008, the company had reported an operating loss of $3.256 billion, due to the in-process research and development charges associated with the acquisition of ImClone Systems.
Other income (expense) improved $13.4 million, to a net expense of $67.8 million, primarily due to the net loss on investment securities in the fourth quarter of 2008, partially offset by lower net interest income.
The effective tax rate was 19.5 percent in the fourth quarter of 2009. In the fourth quarter of 2008, the company recognized income tax expense of $292.0 million despite having a loss before income taxes of $3.337 billion because the in-process research and development charge related to the ImClone acquisition was not tax deductible. Also in the fourth quarter of 2008, the company recognized a tax benefit of $136.9 million, or $.13 per share, based upon the determination at final resolution of the agreement that a portion of the Zyprexa Eastern District of Pennsylvania settlement charge, taken in the third quarter of 2008, was tax deductible.
Net income and earnings per share increased to $915.4 million and $.83, respectively, compared with fourth-quarter 2008 net loss of $3.629 billion and loss per share of $3.31.
Fourth-Quarter Pro Forma non-GAAP Results
Worldwide pro forma total revenue for the fourth quarter of 2009 was $5.934 billion, an increase of 13 percent compared with the fourth quarter of 2008. This 13 percent revenue growth was comprised of a 6 percent increase due to higher volume, a 3 percent increase due to higher prices, and a 3 percent increase due to the impact of foreign exchange rates (numbers do not add due to rounding). Gross margin as a percent of total revenue decreased by 6.4 percentage points to 75.9 percent. Excluding the impact of the movement of foreign currencies compared to the U.S. dollar on international inventories sold during the quarters, the gross margin as a percent of total revenue for the fourth quarters of 2009 and 2008 was 79.2 percent and 77.7 percent, respectively. Marketing, selling and administrative expenses increased 12 percent, while research and development expenses increased 10 percent. Total operating expenses, defined as the sum of research and development, marketing, selling and administrative expenses, grew 12 percent compared with the fourth quarter of 2008. Operating income decreased 10 percent to $1.333 billion, due to lower gross margins. Excluding the impact of changes in foreign exchange rates, operating income would have increased approximately 15 percent. Other income (expense) improved $41.5 million to a net expense of $67.8 million. The effective tax rate was 21 percent, up from 19.1 percent in the fourth quarter of 2008. Net income and earnings per share decreased 10 percent and 11 percent respectively. Excluding the impact of changes in foreign exchange rates, earnings per share would have increased approximately 16 percent.
Fourth-Quarter Significant Items Affecting Reported Net Income
The reported results for the fourth quarters of 2009 and 2008 were affected by significant items totaling $.08 per share and $4.38 per share, respectively. To reflect the impact of the ImClone acquisition as if the acquisition occurred on January 1, 2008, fourth quarter 2008 pro forma earnings per share have been reduced by $.05 per share. For further detail, see the reconciliation below as well as the footnotes to the pro forma non-GAAP income statement later in this press release.
Full Year 2009 Reported Results
For the full-year 2009, worldwide total revenue increased 7 percent to $21.836 billion compared with 2008. This 7 percent revenue growth was comprised of a 7 percent increase due to higher volume and a 3 percent increase due to higher prices, partially offset by a 3 percent decrease due to the impact of foreign exchange rates. Total revenue in the U.S. increased 12 percent to $12.294 billion due to higher prices and higher demand. Total revenue outside the U.S. increased 1 percent to $9.542 billion due to increased demand, partially offset by the negative impact of foreign exchange rates and lower prices.
Gross margin as a percent of total revenue increased by 2.1 percentage points in 2009, to 80.6 percent. This increase was due to the impact of changes in foreign currencies compared to the U.S. dollar on international inventories sold during the year, which decreased cost of sales in 2009, but increased cost of sales in 2008.
Marketing, selling and administrative expenses increased 4 percent in 2009 compared with 2008, to $6.892 billion. Research and development expenses were $4.327 billion in 2009, or 20 percent of total revenue. Compared with 2008, research and development expenses grew 13 percent due primarily to the ImClone acquisition and increased late-stage clinical trial costs. Total operating expenses, defined as the sum of research and development, marketing, selling and administrative expenses, increased 7 percent in 2009, compared with 2008.
In 2009 the company recognized a charge of $90.0 million related to acquired in-process research and development associated with the in-licensing agreement with Incyte Corporation. In 2008, the company recognized charges of $4.835 billion for acquired in-process research and development associated with the ImClone and SGX acquisitions and the in-licensing agreements with BioMS and TransPharma.
In 2009 the company recognized charges of $692.7 million for asset impairments, restructuring and other special charges primarily related to severance costs from previously announced strategic actions and special charges related to Zyprexa litigation with multiple state attorneys general. In 2008, the company recognized charges totaling $1.974 billion for asset impairments, restructuring and other special charges primarily associated with Zyprexa investigations with the U.S. attorney for the Eastern District of Pennsylvania and multiple states.
Operating income in 2009 rose to $5.587 billion. In 2008, the company reported an operating loss of $1.282 billion due to the in-process research and development charges associated with the acquisition of ImClone Systems.
Other income (expense) in 2009 was a net expense of $229.5 million, compared to a net expense of $26.1 million in 2008, primarily due to lower interest income and higher interest expense resulting from the ImClone acquisition.
The effective tax rate was 19.2 percent for the full-year 2009. In 2008, the company recognized income tax expense of $764.3 million despite having a loss before income taxes of $1.308 billion. The in-process research and development charge recorded in 2008 related to the ImClone acquisition was not tax deductible.
For the full-year 2009, net income and earnings per share increased to $4.329 billion and $3.94, respectively, compared a full-year 2008 net loss of $2.072 billion and loss per share of $1.89.
Full-Year 2009 Pro Forma non-GAAP Results
Worldwide pro forma total revenue for the full-year 2009 was $21.836 billion, an increase of 5 percent compared with 2008. This growth was comprised of a 5 percent increase due to higher volume and a 3 percent increase due to higher prices, partially offset by a 3 percent decrease due to the impact of foreign exchange rates. Gross margin as a percent of total revenue increased by 2.2 percentage points to 80.6 percent. Excluding the impact of the movement in foreign currencies compared to the U.S. dollar on international inventories sold during 2009, the gross margin as a percent of total revenue for 2009 and 2008 was 79.7 percent and 79.1 percent, respectively. Marketing, selling and administrative expenses increased 2 percent, while research and development expenses increased 8 percent. Total operating expenses, defined as the sum of research and development, marketing, selling and administrative expenses, grew 5 percent compared with 2008. Operating income increased 15 percent to $6.370 billion due primarily to higher gross margins. Excluding the impact of changes in foreign exchange rates, operating income would have increased approximately 14 percent. Other income (expense) improved $38.4 million to a net expense of $229.5 million. The effective tax rate for 2009 was 21 percent, up from 20.6 percent in 2008. Net income and earnings per share increased 16 percent, to $4.851 billion and $4.42, respectively. Excluding the impact of changes in foreign exchange rates, earnings per share would have increased approximately 14 percent.
Full-Year 2009 Significant Items Affecting Net Income
In addition to the fourth-quarter 2009 and 2008 significant items previously mentioned, net income for the full-year 2009 and 2008 was also affected by significant items occurring in the first nine months of 2009 and 2008. To reflect the impact of the ImClone acquisition as if the acquisition occurred on January 1, 2008, full-year 2008 pro forma earnings per share have been reduced by $.20 per share. For further detail, see the reconciliation below as well as the footnotes to the pro forma non-GAAP income statement later in this press release.
Zyprexa
In the fourth quarter of 2009, Zyprexa sales totaled $1.366 billion, an increase of 19 percent compared with the fourth quarter of 2008. U.S. sales of Zyprexa increased 10 percent to $644.6 million, driven by higher prices and, to a lesser extent, wholesaler buying patterns, offset in part by lower demand. Zyprexa sales in international markets increased 28 percent, to $721.9 million, driven by the higher demand and the favorable impact of foreign exchange rates. Demand outside the U.S. was favorably impacted by the withdrawal of generic competition in Germany in early 2009.
For the full year of 2009, worldwide Zyprexa sales increased 5 percent to $4.916 billion. U.S. Zyprexa sales for 2009 were $2.332 billion, a 6 percent increase driven by higher prices, partially offset by lower demand. Zyprexa sales outside the U.S. were $2.584 billion, a 4 percent increase driven by increased demand, partially offset by unfavorable impact of foreign exchange rates.
Cymbalta
For the fourth quarter of 2009, Cymbalta generated $830.8 million in sales, an increase of 15 percent compared with the fourth quarter of 2008. U.S. sales of Cymbalta increased 13 percent, to $680.7 million, driven by higher prices, increased demand and, to a lesser extent, wholesaler buying patterns. Sales outside the U.S. were $150.1 million, an increase of 27 percent, driven primarily by higher demand and favorable impact of foreign exchange rates, partially offset by lower prices.
For the full year of 2009, worldwide Cymbalta sales increased 14 percent to $3.075 billion. U.S. Cymbalta sales for 2009 were $2.552 billion, a 13 percent increase driven by higher prices and higher demand. Cymbalta sales outside the U.S. were $523.0 million, an 18 percent increase driven by increased demand, partially offset by unfavorable impact of foreign exchange rates and lower prices.
Humalog
For the fourth quarter of 2009, worldwide Humalog sales increased 16 percent, to $530.8 million. Sales in the U.S. increased 16 percent to $319.6 million, driven by increased demand, wholesaler buying patterns and higher prices. Sales outside the U.S. increased 16 percent to $211.2 million, driven by higher demand and the favorable impact of foreign exchange rates.
For the full year of 2009, worldwide Humalog sales increased 13 percent to $1.959 billion. U.S. Humalog sales for 2009 were $1.208 billion, a 20 percent increase driven by higher prices, higher demand and wholesaler buying patterns. Humalog sales outside the U.S. were $750.6 million, a 3 percent increase driven by increased demand, partially offset by the unfavorable impact of foreign exchange rates.
Alimta
For the fourth quarter of 2009, Alimta generated sales of $523.6 million, an increase of 64 percent compared with the fourth quarter of 2008. U.S. sales of Alimta increased 42 percent, to $228.8 million, due to increased demand. Sales outside the U.S. increased 87 percent, to $294.8 million, due to increased demand and, to a lesser extent, the favorable impact of foreign exchange rates. Demand outside the U.S. was favorably impacted by the addition in mid-2009 of the non-small cell lung cancer indication in Japan.