10-QPeriod: Q3 FY2011

ELI LILLY & Co Quarterly Report for Q3 Ended Sep 30, 2011

Filed October 28, 2011For Securities:LLY

Summary

Eli Lilly and Company reported a revenue increase of 9% to $6.15 billion for the third quarter of 2011 and an 8% increase to $18.24 billion for the first nine months of the year. Despite the revenue growth, driven by key products like Cymbalta, animal health products, and Alimta, net income saw a decrease of 5% to $1.24 billion for the quarter and 11% to $3.49 billion for the nine-month period. This decline in profitability was attributed to lower gross margin percentage, increased marketing, selling, and administrative costs, and significant acquired in-process research and development (IPR&D) charges related to a diabetes collaboration. The company is navigating significant patent expirations and ongoing litigation, particularly with the upcoming loss of exclusivity for Zyprexa in major markets and ongoing challenges for Alimta and Strattera. Management is focused on mitigating these impacts through the growth of patent-protected products, emerging markets, and its animal health business. Financial conditions remain solid with substantial cash and equivalents, though the company is self-insured for product liability losses.

Financial Highlights

47 data points
Beta

Revenue

$6.15B

78.2% Gross Margin

Net Income

$1.24B

20.1% Net Margin

EPS (Diluted)

$1.11

Total Assets

$33.04B

Cash & Equivalents

$6.60B

Free Cash Flow

$2.07B

Financial Statements
Beta
Revenue$6.15B
Cost of Revenue$1.34B
Gross Profit$4.81B
R&D Expenses$1.28B
SG&A Expenses$1.92B
Interest Expense$45.00M
Net Income$1.24B
EPS (Basic)$1.11

Key Highlights

  • 1Revenue increased by 9% to $6.15 billion in Q3 2011 and 8% to $18.24 billion in the first nine months of 2011, driven by strong performance in several key products and international markets.
  • 2Net income decreased by 5% to $1.24 billion in Q3 2011 and 11% to $3.49 billion in the first nine months of 2011, impacted by lower gross margins and increased operating expenses.
  • 3Significant acquired in-process R&D (IPR&D) charges of $388.0 million were recorded in Q1 2011 related to a diabetes collaboration with Boehringer Ingelheim.
  • 4The company is facing imminent loss of exclusivity for Zyprexa in major markets, which is expected to have a material adverse effect on future results.
  • 5Ongoing patent litigation for Alimta and Strattera continues, with the company expecting to prevail but acknowledging the potential for material adverse impact if unsuccessful.
  • 6The company is self-insured for product liability losses due to a restrictive insurance market, representing a potential financial risk.
  • 7Financial condition remains strong with $6.78 billion in cash, cash equivalents, and short-term investments as of September 30, 2011.

Frequently Asked Questions

Revenue growth is primarily driven by the strong performance of key products such as Cymbalta, animal health products, Humalog, Alimta, and Cialis. Growth in international markets and favorable foreign exchange rates also contributed significantly to the revenue increase.

The decline in net income is due to several factors, including a lower gross margin percentage, increased marketing, selling, and administrative expenses, higher other expenses, and significant acquired in-process research and development (IPR&D) charges related to collaborations. These factors outweighed the revenue gains.

The company faces significant risks including upcoming patent expirations and the introduction of generic competition for key products like Zyprexa, which is expected to materially impact future revenues. Ongoing patent litigation for other products like Alimta and Strattera also presents a risk. Additionally, the company is self-insured for product liability losses, posing a potential financial exposure.

Eli Lilly is actively managing its pipeline with numerous compounds in human testing. The company is also pursuing strategic collaborations, such as the diabetes collaboration with Boehringer Ingelheim, to develop and commercialize new treatments. Management aims to mitigate the impact of patent expirations by focusing on growth in its patent-protected products, emerging markets, and its animal health business.