10-QPeriod: Q1 FY2014

ELI LILLY & Co Quarterly Report for Q1 Ended Mar 31, 2014

Filed April 28, 2014For Securities:LLY

Summary

Eli Lilly and Company reported a significant decrease in revenue and net income for the first quarter of 2014 compared to the same period in 2013. This decline was primarily attributed to the loss of U.S. patent exclusivity for key products like Cymbalta and Evista, leading to the introduction of generic competition. Despite the revenue drop, the company saw some growth in international markets and from its animal health division. Management highlighted ongoing efforts to manage costs and a robust late-stage pipeline with several promising drug candidates in development. The company also announced a significant agreement to acquire Novartis Animal Health for approximately $5.4 billion, signaling a strategic expansion into the animal health sector. Financial expectations for the full year 2014 were updated to reflect these developments, with an expected EPS range of $2.70 to $2.78.

Financial Highlights

52 data points
Beta

Revenue

$4.68B

73.9% Gross Margin

Net Income

$727.90M

15.5% Net Margin

EPS (Diluted)

$0.68

Total Assets

$34.76B

Cash & Equivalents

$3.89B

Free Cash Flow

$272.30M

Financial Statements
Beta
Revenue$4.68B
Cost of Revenue$1.22B
Gross Profit$3.46B
R&D Expenses$1.11B
SG&A Expenses$1.48B
Operating Expenses$2.59B
Interest Expense$37.80M
Net Income$727.90M
EPS (Basic)$0.68
EPS (Diluted)$0.68
Shares Outstanding (Basic)1.07B
Shares Outstanding (Diluted)1.08B

Key Highlights

  • 1Total revenue for Q1 2014 decreased by 16% to $4.68 billion, largely due to patent expirations for Cymbalta and Evista in the U.S.
  • 2Net income saw a substantial decrease of 53% to $727.9 million, with diluted EPS falling to $0.68 from $1.42 in Q1 2013.
  • 3The company announced an agreement to acquire Novartis Animal Health for approximately $5.4 billion, aiming to strengthen its Elanco division.
  • 4Research and development expenses decreased by 18% to $1.11 billion, partly due to lower milestone payments compared to the prior year.
  • 5Collaboration and other revenue increased by 18% to $181.2 million, driven by products like Trajenta and Erbitux.
  • 6The company updated its 2014 financial guidance, expecting EPS in the range of $2.70 to $2.78 and total revenue between $19.4 billion and $20.0 billion.
  • 7Significant legal proceedings are ongoing, including Alimta patent litigation and Actos product liability litigation, though the company believes most matters will not have a material adverse effect on its financial position.

Frequently Asked Questions

The primary reason for the substantial decrease in revenue and net income was the loss of U.S. patent exclusivity for key products such as Cymbalta and Evista, which led to the entry of generic competitors. This resulted in a rapid and severe decline in sales for these products in the U.S. market.

Eli Lilly is focusing on its late-stage pipeline with numerous drug candidates in various stages of clinical trials. Additionally, the company is strategically expanding its Animal Health division (Elanco) through the announced acquisition of Novartis Animal Health for approximately $5.4 billion, which is expected to enhance its product portfolio and global presence in this segment.

Eli Lilly is actively managing its cost structure. Marketing, selling, and administrative expenses decreased by 10% year-over-year, partly due to reduced sales and marketing activities for products facing generic competition. Research and development expenses also decreased, influenced by lower milestone payments compared to the previous year.

The company has revised its full-year 2014 guidance. It now expects earnings per share (EPS) to be in the range of $2.70 to $2.78 and total revenue to be between $19.4 billion and $20.0 billion. These expectations account for the impact of patent expirations, expected growth from other products, and the anticipated animal health acquisition (though the guidance assumes the acquisition does not close in 2014).