Eli Lilly and Co.'s net income tumbled 27 percent in the last quarter of 2011 as the drugmaker faced another revenue-sapping patent expiration for a key product.
Sales for the Indianapolis company's all-time best-selling drug, the antipsychotic Zyprexa, fell 44 percent in the fourth quarter to $749.6 million after the drug lost U.S. patent protection in October.
A 62 percent drop in revenue from the cancer treatment Gemzar, which lost patent protection in 2010, also hurt the drugmaker. But sales for its antidepressant Cymbalta and top-selling insulin Humalog made up for some of these losses, and the drugmaker's results beat Wall Street expectations.
Lilly earned $858.2 million, or 77 cents per share, in the three months that ended Dec. 31. That's down from $1.17 billion, or $1.05 per share, in the final quarter of 2010.
Revenue fell 2 percent to $6.05 billion.
Adjusted earnings, which exclude some one-time charges, were 87 cents per share.
Analyst surveyed by FactSet expected, on average, adjusted earnings of 81 cents per share on $5.89 billion in revenue.
The drugmaker is entering a stretch where it faces patent expirations that will expose several drugs to cheaper generic competition. It loses protection for Cymbalta and Humalog next year. Sales for those drugs climbed 20 percent to $1.18 billion and 21 percent to $662 million, respectively, in the fourth quarter.
Lilly still has patent protection for Zyprexa in Japan, but it expects revenue from that drug to plunge by more than $3 billion this year.
The company has spent years preparing for these patent losses, and analysts have already factored them into their expectations. The drugmaker has cut more than $1 billion in costs and trimmed its workforce since 2009.
It will depend on its pipeline of drugs under development, its animal health business, and sales in Japan. Like other drugmakers, it also is looking to emerging markets like China for more revenue.
Lilly has a dozen potential drugs in late-stage clinical testing, the last and most expensive phase of development before a company seeks regulatory approval. That includes potential treatments for Alzheimer's disease, cancer and the immune system disorders lupus and psoriasis.
Lilly Chief Financial Officer Derica Rice told analysts Tuesday the company has the most robust mid- to late-stage pipeline it has ever had in its history. He said they believe these drugs, if approved, will drive revenue growth after Lilly's wave of patent expirations.
The company also said it saw 7 percent revenue growth in emerging markets in the fourth quarter, although it did not offer a specific dollar amount. It said strong growth in China was balanced by hits from patent expirations in Brazil and Mexico.
Some analysts doubt Lilly's ability to recover from the patent expirations without the aid of a major acquisition, and they wonder about the future of Lilly's dividend, which stands at a quarterly rate of 49 cents per share. Company officials have said repeatedly they expect to at least maintain their dividend and they plan no major deals.
For the full year, Lilly earned $4.35 billion, or $3.90 per share, on $24.29 billion in revenue, as seven drugs topped $1 billion in sales. Adjusted earnings for 2011 were $4.41 per share.
Lilly said Jan. 5 it expects to earn between $3.10 and $3.20 per share in 2012 on revenue ranging from $21.8 billion to $22.8 billion, and the company reiterated that forecast Tuesday. That would represent an earnings drop of between 27 percent and 30 percent.
Analysts started 2012 expecting Lilly earnings of $3.60 per share. They now expect earnings of $3.21 per share on $22.37 billion in revenue.
Lilly has said it should record annual earnings of at least $3 billion on revenue of at least $20 billion through 2014.
Company shares climbed 52 cents to $39.77 in midday trading, while broader indexes fell slightly. The stock is down about 4 percent in the year to date versus a gain of 4.1 percent in the benchmark S&P 500.