10-QPeriod: Q2 FY2011

ELI LILLY & Co Quarterly Report for Q2 Ended Jun 30, 2011

Filed July 29, 2011For Securities:LLY

Summary

Eli Lilly and Company reported revenue growth for the second quarter and first six months of 2011, primarily driven by key products like Cymbalta, Zyprexa, and animal health offerings. However, net income and earnings per share saw a decline compared to the previous year, largely due to increased selling, general, and administrative costs, lower gross margins, and significant charges related to acquired in-process research and development (IPR&D) and restructuring initiatives. The company also highlighted the ongoing impact of U.S. healthcare reform, including a mandatory pharmaceutical manufacturers' fee. Looking ahead, Eli Lilly faces significant patent expirations for key products such as Zyprexa (expected in late 2011), which will likely lead to a rapid and severe decline in revenue for these drugs. The company is strategically focusing on growing its patent-protected products, expanding in emerging markets and Japan, and strengthening its animal health business to mitigate these upcoming challenges. Despite these headwinds, Eli Lilly reiterated its 2011 earnings per share guidance and expects sufficient cash flow from operations to fund its operational needs.

Financial Highlights

46 data points
Beta

Revenue

$6.25B

80.4% Gross Margin

Net Income

$1.20B

19.1% Net Margin

EPS (Diluted)

$1.07

Total Assets

$32.78B

Cash & Equivalents

$6.11B

Free Cash Flow

$2.04B

Financial Statements
Beta
Revenue$6.25B
Cost of Revenue$1.23B
Gross Profit$5.02B
R&D Expenses$1.26B
SG&A Expenses$2.04B
Interest Expense$45.10M
Net Income$1.20B
EPS (Basic)$1.07

Key Highlights

  • 1Total revenue increased by 9% for the second quarter and 8% for the first six months of 2011, reaching $6.25 billion and $12.09 billion respectively, driven by strong performance in key therapeutic areas and animal health.
  • 2Net income decreased by 11% to $1.20 billion for the second quarter and 13% to $2.25 billion for the first six months of 2011, compared to the prior year, impacted by higher operating expenses and significant charges.
  • 3Earnings per share (EPS) declined by 12% to $1.07 for the quarter and 14% to $2.02 for the six-month period, reflecting the decrease in net income.
  • 4The company incurred significant charges including $132.3 million for restructuring in Q2 2011 and $388.0 million for acquired IPR&D related to a diabetes collaboration with Boehringer Ingelheim.
  • 5Eli Lilly anticipates significant revenue erosion for key products like Zyprexa and Gemzar due to upcoming patent expirations and generic competition.
  • 6The company updated its full-year 2011 EPS guidance to a range of $3.85 to $3.95, while projecting mid-single digit revenue growth.
  • 7Cash and cash equivalents, along with short-term investments, totaled $6.33 billion as of June 30, 2011, providing a solid liquidity position.

Frequently Asked Questions

Revenue growth was primarily driven by the collective increase in sales from Cymbalta, Zyprexa, animal health products, Alimta, Humalog, and Cialis. Favorable foreign exchange rates also contributed to the growth, particularly in international markets.

The decline in net income and EPS was due to several factors, including increased marketing, selling, and administrative expenses, a lower gross margin percentage, significant charges for acquired in-process research and development (IPR&D) related to the Boehringer Ingelheim diabetes collaboration, and restructuring charges stemming from operational reorganizations.

Eli Lilly anticipates a significant and rapid decline in revenue for key products like Zyprexa (facing U.S. and European patent expirations in late 2011) and Gemzar (already experiencing generic competition) due to loss of market exclusivity and subsequent generic competition. The company is focusing on mitigating this impact through growth in its patent-protected products, expansion in emerging markets and Japan, and its animal health business.

Eli Lilly updated its 2011 earnings per share guidance to $3.85-$3.95, expecting mid-single digit revenue growth. This outlook anticipates continued strong volume growth, favorable foreign exchange rates, and the impact of new product approvals, while also factoring in the anticipated erosion of sales for Zyprexa and Gemzar. The company expects to continue funding operations, capital expenditures, and dividends from its operational cash flow.