Drugmaker Eli Lilly and Co.'s second-quarter earnings fell 11 percent as it hiked marketing and research expenses to gear for a wave of patent expirations that will slash sales for its top-selling drugs.
The Indianapolis company said Thursday marketing, selling and administrative expenses climbed 16 percent to $2.04 billion as the company supported launches of the type 2 diabetes treatments Tradjenta and Bydureon. Research expenses also rose due to a collaboration agreement Lilly reached in January with German drugmaker Boehringer Ingelheim.
A 9 percent revenue increase buoyed by strong sales from several drugs blunted some of those expenses, and Lilly raised its 2011 earnings forecast.
The drugmaker earned $1.2 billion, or $1.07 per share, in the three months that ended June 30. That's down from the $1.35 billion, or $1.22 per share, Lilly earned in the same quarter last year. Revenue rose 9 percent to $6.25 billion.
Excluding restructuring charges, the company's profit was $1.18 per share.
Analyst surveyed by FactSet expected, on average, earnings of $1.19 per share on $6.01 billion in revenue.
Erik Gordon, an analyst and professor at the University of Michigan's Ross School of Business, called the quarterly report a "yawn." But he said that's what Lilly needs, no bad news to distract from its strategy of replenishing its pipeline of drugs under development.
Lilly said the health care overhaul reduced earnings by about 12 cents per share in the quarter. Drugmakers are paying a fee this year for the overhaul, which aims to cover millions of uninsured people. They also are funding rebates for the Medicare prescription drug program.
Sales for Lilly's best-selling drug, the antipsychotic Zyprexa, climbed 12 percent to $1.41 billion. Sales for the antidepressant Cymbalta, Lilly's second-best seller, climbed 16 percent to $1 billion in the quarter.
But sales for the cancer treatment Gemzar tumbled 62 percent to $112.4 million, including a 91 percent drop in the United States, due to the loss of patent protection.
Patent expirations will sweep over the pharmaceutical industry in the next few years and hit Lilly especially hard. The drugmaker loses U.S. patent protection of Zyprexa in October, a month after it loses protection in most of Europe. Lilly said it expects a "rapid and severe" sales decline for a product that generated $5 billion last year.
By 2014, Lilly will have lost patents protecting drugs that generated 64 percent of its U.S. product sales last year.
The company has staked future growth on its labs, which it expects to generate new drugs to fill that revenue hole. It also will rely on sales growth from other countries like Japan, its animal health business and emerging markets like China and India.
Lilly also plans to cut costs by $1 billion by the end of this year, and that push contributed to a restructuring charge of $132.2 million, or 11 cents per share, in the second quarter.
Company officials have said they expect a revenue dip over the next few years due to the patent losses followed by a rebound.
Chief Financial Officer Derica Rice said Thursday morning the company's second-quarter revenue growth shows they are getting a "great return" on their selling and marketing investments, and it allows them to invest in their drug pipeline.
A total of 5 percent of Lilly's revenue growth came from increased sales volume, a percentage Rice called "tremendous" in the current economic climate.
For 2011, Lilly now expects adjusted earnings of $4.25 to $4.35 per share, up from $4.15 to $4.30 per share. Analysts expect $4.29 per share.
The drugmaker's new range would amount to a drop of between 8 percent and 10 percent from last year's adjusted earnings of $4.74 per share.
Company shares climbed $1.15 to close at $39.32 Thursday while broader trading indexes rose slightly.