Eli Lilly and Company (NYSE: LLY) today announced financial results for the first quarter of 2011.
Financial results for 2011 and 2010 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 2011 financial guidance is also being provided on both a reported and a non-GAAP basis.
"Lilly started the year by delivering solid financial results as we continue to advance the next wave of potential new medicines in our pipeline," said John C. Lechleiter, Ph.D., Lilly's chairman, president and chief executive officer. "Growth in international markets and the strong performance of Cymbalta, Alimta and our animal health business drove volume-based revenue growth of six percent, despite a significant decline in Gemzar sales due to generic competition. This revenue growth allowed us to make necessary investments in research and development to address the challenges of upcoming patent expirations. We are on track to deliver on our 2011 headcount and expense reduction targets, as well as our goal of having at least ten potential new medicines in Phase 3 clinical development by the end of this year."
Key Events Over the Last Three Months
- The Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) issued a positive opinion recommending approval of exenatide 2 mg powder and solvent for prolonged release suspension for injection (proposed trade name Bydureon™) in the European Union for the treatment of type 2 diabetes in combination with certain oral therapies. The CHMP's positive opinion is now referred for final action by the European Commission, which has the authority to approve medicines for the European Union. The Commission usually makes a decision on CHMP recommendations within two to three months.
- Late last week, the company received a complete response letter from the U.S. Food and Drug Administration (FDA) for its New Drug Application (NDA) for liprotamase, a non-porcine pancreatic enzyme replacement therapy (PERT), under investigation for the treatment of exocrine pancreatic insufficiency (EPI). The complete response letter communicated the need for Lilly to conduct an additional clinical trial prior to a re-submission. The company will be working diligently to address the agency's questions.
- The company announced that Axiron® (testosterone) topical solution is available in pharmacies throughout the U.S.
- The company received a complete response letter from the FDA for the NDA for Amyvid™ (florbetapir F 18 injection), a Positron Emission Tomography (PET) imaging agent under investigation for the detection of beta-amyloid plaque in the brains of living patients. The company is working to address the FDA's questions.
- The company made an irrevocable, unconditional offer to acquire the animal health business of Janssen Pharmaceutica NV, a Johnson & Johnson Company. The two companies have notified the appropriate European works councils of their intentions. Upon deal closing, Lilly's animal health division, Elanco, would obtain a portfolio of about 50 marketed animal health products.
First-Quarter Reported Results
In the first quarter of 2011, worldwide total revenue was $5.839 billion, an increase of 6 percent compared with the first quarter of 2010. This 6 percent revenue growth was comprised of an increase of 5 percent in volume and 1 percent due to the impact of foreign exchange rates. Pricing changes had a negligible impact on revenue growth. Total revenue in the U.S. increased 1 percent to $3.076 billion primarily due to higher prices, partially offset by lower volume. Total revenue outside the U.S. increased 13 percent to $2.763 billion due to increased volume and, to a lesser extent, the positive impact of foreign exchange rates, partially offset by lower prices. First-quarter 2011 total revenue was reduced by approximately $90 million due to the impact of U.S. health care reform.
Gross margin increased 7 percent in the first quarter of 2011. Gross margin as a percent of total revenue was 79.8 percent, reflecting an increase of 0.3 percentage points compared with the first quarter of 2010.
Total operating expense, defined as the sum of research and development, marketing, selling and administrative expenses, increased 10 percent compared with the first quarter of 2010 and included additional expenses related to the diabetes collaboration with Boehringer Ingelheim. Marketing, selling and administrative expenses increased 11 percent to $1.786 billion, driven by increased administrative expenses in the U.S., as well as higher marketing and selling expenses outside the U.S. Higher administrative expenses in the U.S. included approximately $45 million related to the mandatory pharmaceutical manufacturers fee associated with U.S. health care reform, as well as higher litigation expenses. Research and development expenses were $1.124 billion, or 19.2 percent of total revenue. Compared with the first quarter of 2010, research and development expenses grew 8 percent due primarily to increased late-stage clinical trial costs.
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 and global workforce, as well as a $388.0 million in-process research and development charge associated with the diabetes collaboration with Boehringer Ingelheim. In the first quarter of 2010, the company recognized asset impairments, restructuring and other special charges of $26.2 million, primarily related to the previously announced strategic actions, as well as a $50.0 million in–process research and development charge associated with the in-licensing of Axiron from Acrux Ltd.
Operating income in the first quarter of 2011 decreased 21 percent to $1.285 billion, compared to the first quarter of 2010, due primarily to higher in-process research and development charges, as well as higher restructuring charges and increased administrative expenses.
Other income (expense) was a net expense of $11.2 million, compared to $74.5 million of other income in the first quarter of 2010. The first quarter of 2010 included damages recovered from generic pharmaceutical companies following Zyprexa® patent litigation in Germany, as well as a gain related to the disposition of investment securities acquired in the ImClone acquisition.
The effective tax rate was 17.1 percent in the first quarter of 2011, compared with an effective tax rate of 26.9 percent in the first quarter of 2010. The effective tax rate in the first quarter of 2010 was driven upward by the one-time charge of $85.1 million associated with the imposition of tax on the prescription drug subsidy of the company's retiree health plan as part of U.S. health care reform, as well as the lapse of the U.S. R&D tax credit. The effective tax rate for the first quarter of 2011 reflects the tax benefit of the in-process research and development charge associated with the diabetes collaboration with Boehringer Ingelheim as well as the extension of the R&D tax credit in the U.S.
Net income and earnings per share decreased to $1.056 billion and $0.95, respectively, compared with first-quarter 2010 net income of $1.248 billion and earnings per share of $1.13. The decreases in net income and earnings per share were primarily driven by lower operating income due to the restructuring and in-process research and development charges, partially offset by improved gross margin and a lower effective tax rate.
First-Quarter 2011 non-GAAP Results
Operating income increased 2 percent to $1.749 billion, due to increased gross margin, partially offset by increased administrative expenses and research and development expenses. Net income increased 6 percent to $1.375 billion, while earnings per share increased 5 percent to $1.24. These increases were primarily driven by increased gross margin and a lower net effective tax rate. Excluding the impact of changes in foreign exchange rates, operating income and earnings per share would have increased approximately 1 percent and 3 percent, respectively.
For purposes of non-GAAP reporting, items totaling $.29 and $.05 per share in the first quarters of 2011 and 2010, 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.
U.S. Health Care Reform Impact
U.S. health care reform reduced first-quarters 2011 and 2010 earnings per share by approximately $.10 and $.12 per share, respectively, on both a reported and non-GAAP basis. For the first quarter of 2011, U.S. health care reform reduced revenue by approximately $90 million due to higher rebates and subsidies, and increased administrative expenses by approximately $45 million related to the mandatory pharmaceutical manufacturers fee. For the first quarter of 2010, U.S. health care reform reduced revenue by approximately $60 million due to higher rebates, and increased tax expense by $85.1 million due to the imposition of tax on the prescription drug subsidy of the company's retiree health plan.
Zyprexa
In the first quarter of 2011, Zyprexa sales totaled $1.282 billion, an increase of 6 percent compared with the first quarter of 2010. U.S. sales of Zyprexa increased 2 percent to $597.1 million, driven by higher prices, partially offset by lower volume. Zyprexa sales in international markets increased 8 percent, to $684.8 million, driven primarily by higher volume, and to a lesser extent the favorable impact of foreign exchange rates.
Cymbalta
For the first quarter of 2011, Cymbalta generated $908.8 million in revenue, an increase of 13 percent compared with the first quarter of 2010. U.S. sales of Cymbalta increased 6 percent, to $691.1 million, driven by higher prices, and to a lesser extent, increased demand. Sales outside the U.S. were $217.6 million, an increase of 43 percent, driven primarily by higher demand resulting from recent launches in Japan and other international markets.
Alimta
For the first quarter of 2011, Alimta generated sales of $579.9 million, an increase of 10 percent compared with the first quarter of 2010. U.S. sales of Alimta increased 5 percent, to $233.0 million, driven by higher prices and higher demand, partially offset by wholesaler buying patterns. Sales outside the U.S. increased 14 percent, to $346.9 million, due to increased demand in Japan and other international markets.
Humalog
For the first quarter of 2011, worldwide Humalog sales increased 4 percent, to $525.4 million. Sales in the U.S. decreased 2 percent to $303.8 million, driven by lower net effective selling prices, partially offset by increased demand. Sales outside the U.S. increased 13 percent to $221.6 million, driven by higher demand.
Cialis
Cialis sales for the first quarter of 2011 increased 6 percent to $434.4 million. U.S. sales of Cialis were $157.8 million in the first quarter, a 5 percent increase compared with the first quarter of 2010, driven primarily by higher prices, partially offset by decreased volume. Sales of Cialis outside the U.S. increased 7 percent, to $276.6 million, driven by increased demand and, to a lesser extent, higher prices.
Humulin
Worldwide Humulin sales increased 12 percent in the first quarter of 2011, to $289.8 million. U.S. sales increased 13 percent to $129.4 million, driven by increased demand resulting from the partnership with Walmart for Humulin® ReliOn®. Sales outside the U.S. increased 12 percent, to $160.4 million, driven by higher demand, partially offset by lower prices.
Evista