10-QPeriod: Q3 FY2008

ELI LILLY & Co Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 3, 2008For Securities:LLY

Summary

Eli Lilly and Company (LLY) reported a net loss of $465.6 million for the third quarter of 2008, a significant shift from the same period in the prior year which saw a net income of $926.3 million. This loss was heavily influenced by a substantial $1.48 billion charge related to the resolution of investigations concerning Zyprexa marketing and promotion practices. Despite the quarterly loss, year-to-date net income stood at $1.56 billion, down from $2.10 billion in the first nine months of 2007, also impacted by significant charges and lower year-over-year performance. Top-line growth remained robust, with worldwide sales increasing by 14% in the third quarter and 13% for the first nine months, driven by key products like Cymbalta, Alimta, Cialis, Humalog, and Gemzar, along with favorable foreign exchange rates. However, investors should note the significant impact of legal settlements and restructuring charges on profitability. The company also announced a significant subsequent event: a definitive merger agreement to acquire ImClone Systems for approximately $6.5 billion, signaling a strategic move into the oncology space.

Financial Highlights

22 data points
Beta

Revenue

$5.21B

77.8% Gross Margin

Net Income

-$465.60M

-8.9% Net Margin

Cash & Equivalents

$4.35B

Free Cash Flow

$2.13B

Financial Statements
Beta
Revenue$5.21B
Cost of Revenue$1.16B
Gross Profit$4.05B
R&D Expenses$953.00M
SG&A Expenses$1.65B
Net Income-$465.60M

Key Highlights

  • 1Third-quarter net loss of $465.6 million, compared to a net income of $926.3 million in Q3 2007, primarily due to a $1.48 billion charge for Zyprexa investigations.
  • 2Year-to-date net income of $1.56 billion, down 26% from $2.10 billion in the same period last year, impacted by significant charges.
  • 3Worldwide sales increased by 14% in Q3 2008 and 13% year-to-date, driven by strong performance of key products like Cymbalta, Alimta, Cialis, Humalog, and Gemzar.
  • 4Significant charges included $1.48 billion for Zyprexa investigations, $182.4 million for restructuring and asset impairments, and $28.0 million for acquired in-process R&D.
  • 5The company announced its intent to acquire ImClone Systems for approximately $6.5 billion, a major strategic move into the oncology sector.
  • 6Cash and cash equivalents, along with short-term investments, increased to $6.12 billion as of September 30, 2008, providing financial flexibility.
  • 7Ongoing patent litigation for key products like Cymbalta, Gemzar, Alimta, Evista, and Strattera poses potential future risks, though the company expects to prevail.

Frequently Asked Questions

Eli Lilly reported a net loss of $465.6 million in the third quarter of 2008 primarily due to a substantial charge of $1.48 billion related to the resolution of investigations concerning its Zyprexa marketing and promotional practices. This significant charge, along with other restructuring and acquisition-related expenses, outweighed the company's robust sales growth.

The company demonstrated strong top-line growth, with worldwide sales increasing by 14% in the third quarter and 13% for the first nine months of 2008. This growth was driven by the collective performance of key products including Cymbalta, Alimta, Cialis, Humalog, and Gemzar. Favorable foreign exchange rates also contributed positively to sales growth.

Eli Lilly faces significant ongoing legal matters, most notably the Zyprexa investigations and product liability lawsuits, which resulted in a substantial charge in the third quarter. Additionally, the company is involved in patent litigation for several key products like Cymbalta, Gemzar, and Alimta, which could lead to generic competition if unfavorable outcomes occur. While the company expresses confidence in prevailing, these matters represent potential risks to future financial performance and liquidity.

The proposed acquisition of ImClone Systems for approximately $6.5 billion is a significant strategic move aimed at creating a leading oncology franchise. This acquisition would expand Lilly's capabilities in targeted therapies and oncolytic agents and bolster its pipeline across all stages of clinical development, signaling a strong commitment to the oncology market.