10-QPeriod: Q2 FY2014

ELI LILLY & Co Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 28, 2014For Securities:LLY

Summary

Eli Lilly and Company reported a significant revenue decline of 17% for both the second quarter and the first six months of 2014, primarily due to the loss of U.S. patent exclusivity for key drugs like Cymbalta and Evista. This revenue drop directly impacted net income, which fell by 39% in the quarter and 47% year-to-date. Despite these challenges, the company is actively managing its costs, with decreases noted in R&D and marketing, selling, and administrative expenses. Looking ahead, Lilly is pursuing strategic growth through its late-stage pipeline, which includes promising candidates in diabetes, oncology, and autoimmune diseases. The company also announced a major acquisition of Novartis Animal Health, signaling a commitment to expanding its animal health segment. While patent expirations are a near-term headwind, Lilly's diversified portfolio and ongoing pipeline development offer potential for future recovery and growth.

Financial Highlights

51 data points
Beta

Revenue

$4.94B

75.9% Gross Margin

Net Income

$733.50M

14.9% Net Margin

EPS (Diluted)

$0.68

Total Assets

$35.02B

Cash & Equivalents

$3.77B

Free Cash Flow

$1.05B

Financial Statements
Beta
Revenue$4.94B
Cost of Revenue$1.19B
Gross Profit$3.75B
R&D Expenses$1.20B
SG&A Expenses$1.66B
Operating Expenses$2.86B
Interest Expense$35.50M
Net Income$733.50M
EPS (Basic)$0.68
EPS (Diluted)$0.68
Shares Outstanding (Basic)1.07B
Shares Outstanding (Diluted)1.08B

Key Highlights

  • 1Worldwide revenue decreased by 17% for both the second quarter and the first six months of 2014, largely due to patent expirations of Cymbalta and Evista.
  • 2Net income saw a significant decline: down 39% for the quarter and 47% year-to-date, reflecting the impact of reduced revenue.
  • 3Operating expenses were managed effectively, with R&D and marketing, selling, and administrative expenses decreasing year-over-year.
  • 4The company announced an agreement to acquire Novartis Animal Health for approximately $5.4 billion, aiming to expand its presence in the animal health market.
  • 5Several key pipeline products like dulaglutide, empagliflozin, and ramucirumab are advancing through regulatory review or clinical trials, indicating future growth potential.
  • 6Legal proceedings, particularly concerning Alimta patent litigation and Actos product liability, continue to be a significant factor, with potential material impacts on future results.
  • 7The company revised its full-year 2014 EPS guidance to $2.67-$2.75, reflecting various factors including an acquired IPR&D charge.

Frequently Asked Questions

The primary reason for the significant decline in revenue and net income is the loss of U.S. patent exclusivity for key products, particularly Cymbalta and Evista, which led to the introduction of generic competition and a sharp decrease in sales for these drugs.

Lilly's future growth is expected to be driven by its robust late-stage pipeline, which includes promising new molecular entities (NMEs) in areas such as diabetes, oncology, and autoimmune diseases. Additionally, strategic acquisitions, like the announced purchase of Novartis Animal Health, are expected to contribute to future revenue and market expansion.

Eli Lilly is engaged in several patent litigations and administrative proceedings related to Alimta, with generic manufacturers challenging the validity of its vitamin dosage regimen patents. While the company believes its patents are valid and enforceable, an unfavorable outcome could have a material adverse impact on its future results. The company's vitamin dosage patent was found valid by a U.S. district court in March 2014, but defendants have appealed this decision, and infringement issues are still to be fully resolved.

Lilly is actively managing its expenses. Research and development expenses decreased due to lower late-stage clinical development costs, and marketing, selling, and administrative expenses were reduced, primarily due to decreased U.S. sales and marketing activities for Cymbalta and Evista, alongside ongoing cost containment efforts.