10-QPeriod: Q1 FY2011

ELI LILLY & Co Quarterly Report for Q1 Ended Mar 31, 2011

Filed April 29, 2011For Securities:LLY

Summary

Eli Lilly and Company's (LLY) first quarter 2011 results show a decrease in net income and earnings per share compared to the prior year, primarily driven by increased investment in research and development, a significant charge for acquired in-process research and development related to a new diabetes collaboration, and restructuring costs. Despite a 6% increase in revenue driven by key products like Cymbalta and animal health, these factors led to a 15% drop in net income to $1.06 billion and a 16% decrease in EPS to $0.95. Investors should note the company's ongoing patent challenges and the looming loss of exclusivity for major products like Zyprexa, which is expected to significantly impact future revenues. However, Lilly continues to invest heavily in its pipeline, with over 65 potential new drugs in human testing, and is strategically pursuing collaborations to bolster its future growth. The company's financial position remains solid, with substantial cash and investments, and management is confident in its ability to fund operations and dividends.

Financial Highlights

46 data points
Beta

Revenue

$5.84B

79.8% Gross Margin

Net Income

$1.06B

18.1% Net Margin

EPS (Diluted)

$0.95

Total Assets

$31.70B

Cash & Equivalents

$6.51B

Free Cash Flow

$1.18B

Financial Statements
Beta
Revenue$5.84B
Cost of Revenue$1.18B
Gross Profit$4.66B
R&D Expenses$1.12B
SG&A Expenses$1.79B
Interest Expense$45.80M
Net Income$1.06B
EPS (Basic)$0.95

Key Highlights

  • 1Revenue increased by 6% to $5.84 billion, driven by strong performance in key areas like Cymbalta, animal health products, Zyprexa, and Alimta, though partially offset by a decline in Gemzar.
  • 2Net income decreased by 15% to $1.06 billion, and diluted EPS fell by 16% to $0.95 per share, impacted by increased R&D spending and significant one-time charges.
  • 3Acquired in-process research and development (IPR&D) charges of $388 million were incurred due to a new diabetes collaboration with Boehringer Ingelheim.
  • 4Restructuring and other special charges totaled $76.3 million, related to ongoing global operational streamlining efforts.
  • 5The company faces significant patent litigation, particularly for Strattera, with a potential for rapid revenue decline due to generic competition if appeals are unsuccessful.
  • 6Zyprexa is set to lose effective exclusivity in the U.S. in October 2011 and in major European markets throughout 2011, which is expected to materially impact future revenues.
  • 7Cash, cash equivalents, and short-term investments remained strong at $6.71 billion, providing financial flexibility.

Frequently Asked Questions

The decrease in net income and EPS was primarily driven by increased investments in research and development, a significant charge of $388 million for acquired in-process research and development related to the new diabetes collaboration with Boehringer Ingelheim, and $76.3 million in asset impairments, restructuring, and other special charges.

Eli Lilly faces significant patent challenges and upcoming loss of exclusivity for key products. Zyprexa is expected to lose effective exclusivity in the U.S. in October 2011 and in Europe throughout 2011, which is anticipated to cause a rapid and severe decline in sales. Strattera also faces patent litigation with a potential for generic competition if appeals are unsuccessful. The company is working to mitigate these impacts through growth in other patent-protected products and emerging markets.

U.S. healthcare reform had a notable impact on revenue, reducing it by $89 million in Q1 2011 due to higher rebates and subsidies. Additionally, the company incurred a $43.8 million mandatory pharmaceutical manufacturers' fee related to the reform. These impacts are expected to continue influencing financial results.

Eli Lilly maintains a robust pipeline with over 65 potential new drugs in human testing. Key developments include Phase III trials for several promising candidates in areas like oncology, neuroscience, and diabetes, and submissions for regulatory review for treatments like Florbetapir and Linagliptin. The company is actively pursuing collaborations to advance its pipeline, notably the significant diabetes collaboration with Boehringer Ingelheim.