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

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.

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.

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