10-QPeriod: Q3 FY2012

ELI LILLY & Co Quarterly Report for Q3 Ended Sep 30, 2012

Filed October 26, 2012For Securities:LLY

Summary

Eli Lilly and Company reported mixed financial results for the quarter and nine months ended September 30, 2012. Total revenue saw a significant decline year-over-year, primarily due to the loss of patent exclusivity for Zyprexa. However, net income for the third quarter increased year-over-year, largely driven by a substantial one-time income recognized from the early payment of the Amylin revenue-sharing obligation. Despite the revenue headwinds from patent expirations, the company continues to invest in research and development for its future pipeline, with several promising candidates in late-stage clinical trials. While the loss of Zyprexa exclusivity presents a significant challenge, other key products like Cymbalta, Alimta, and Effient demonstrated growth, and the animal health business also showed positive performance. Investors should closely monitor the company's progress in its late-stage pipeline and its strategy to mitigate the impact of patent expiries on future revenue. The company also faces ongoing patent and product liability litigation, which could materially impact future results, although management believes it will not have a material adverse effect on the company's consolidated financial position or liquidity.

Financial Highlights

49 data points
Beta

Revenue

$5.44B

77.9% Gross Margin

Net Income

$1.33B

24.4% Net Margin

EPS (Diluted)

$1.18

Total Assets

$34.32B

Cash & Equivalents

$5.32B

Free Cash Flow

$1.54B

Financial Statements
Beta
Revenue$5.44B
Cost of Revenue$1.20B
Gross Profit$4.24B
R&D Expenses$1.34B
SG&A Expenses$1.76B
Operating Expenses$3.10B
Interest Expense$47.00M
Net Income$1.33B
EPS (Basic)$1.18
EPS (Diluted)$1.18

Key Highlights

  • 1Total revenue decreased by 11% and 9% for the third quarter and nine months ended September 30, 2012, respectively, largely due to the loss of patent exclusivity for Zyprexa.
  • 2Net income for the third quarter increased by 7% to $1.33 billion, primarily driven by a significant $787.8 million pretax income recognized from the early payment of the Amylin revenue-sharing obligation.
  • 3Research and development expenses increased by 5% and 4% for the third quarter and nine months of 2012, respectively, reflecting continued investment in the company's pipeline.
  • 4Several key products showed positive revenue growth, including Cymbalta, Alimta, Forteo, and Effient, alongside growth in the animal health portfolio.
  • 5The company is actively managing its capital structure, with total debt decreasing by $1.47 billion during the nine-month period.
  • 6Eli Lilly is facing significant patent litigation concerning Alimta, with an unfavorable outcome potentially having a material adverse impact on future results.
  • 7The company expects to complete its $3.00 billion share repurchase program during the remainder of 2012.

Frequently Asked Questions

The primary driver of the revenue decline is the loss of patent exclusivity for Zyprexa in most major markets outside of Japan, which began to significantly impact sales in late 2011 and continued through 2012.

Net income in the third quarter of 2012 was significantly boosted by a one-time income of $787.8 million (pretax) recognized from the early payment of the Amylin Pharmaceuticals' revenue-sharing obligation, following Amylin's acquisition by Bristol-Myers Squibb.

Eli Lilly is involved in U.S. patent litigation regarding Alimta. While the company has received favorable judgments in district and appellate courts concerning the compound patent, the defendants have petitioned for en banc review. The company also faces litigation over its concomitant nutritional supplement use patent. An unfavorable outcome in this litigation could have a material adverse impact on future consolidated results of operations, liquidity, and financial position, potentially leading to a rapid and severe decline in Alimta revenues.

Eli Lilly aims to mitigate the effect of patent expirations on products like Cymbalta and Evista through growth in its patent-protected products, expansion in emerging markets and Japan, and continued growth in its animal health business. The company is also focused on its pipeline of new molecular entities in late-stage clinical trials.