Eli Lilly 3Q profit up 38 percent, guidance raised

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Posted: Oct 21, 2010 11:38 AM
Eli Lilly 3Q profit up 38 percent, guidance raised

Eli Lilly and Co.'s third-quarter earnings jumped 38 percent as the drugmaker cut costs while international sales climbed, but total revenue lagged and looming patent expirations remain a concern.

The Indianapolis company raised its expectations for net income for the entire year, and said Thursday it earned $1.3 billion, or $1.18 per share, in the three months that ended Sept. 30.

That's up from the $941.8 million, or 86 cents per share, in the same period last year, when Lilly recorded nearly $550 million in one-time charges tied to litigation and the sale of a manufacturing site.

Revenue for the past three months rose 2 percent to $5.65 billion, mainly due to higher prices.

Excluding charges, Lilly reported an adjusted profit of $1.21 per share for the third quarter. That topped analyst expectations.

Analysts polled by Thomson Reuters forecast, on average, a profit of $1.15 per share on greater revenue of $5.8 billion.

Lilly had a "reasonable quarter" financially, Bernstein analyst Tim Anderson said in a research note. But he added that the longer-term financial outlook matters more for many investors, and the company "still looks challenged."

The drugmaker faces expirations for patents protecting several key products over the next few years. Its top seller, the antipsychotic Zyprexa, loses patent protection next year, which exposes it to generic competition. Protection for its second-best seller, the antidepressant Cymbalta, ends in 2013.

Company leaders have touted Lilly's pipeline of drugs under development as the key to filling this revenue hole. But some drug development and patent court setbacks marred Lilly's third quarter, and analysts doubt the company's ability to produce new drugs.

Chairman and CEO John C. Lechleiter remained resolute in a Thursday morning conference call with analysts. He said Lilly expects to have 10 drug compounds in late-stage clinical development when the company loses the Zyprexa patent.

He also sees growth opportunities in the company's animal health business, emerging international markets and pipeline of biotechnology drugs.

"I think our fundamental strategy remains intact," he said. "We're not interested in large-scale combinations."

Zyprexa sales slipped 1 percent to $1.21 billion in the third quarter, while Cymbalta revenue grew 4 percent to $825.3 million. Revenue from the cancer drug Alimta rose 21 percent to $560.3 million as sales in Japan climbed.

Costs fell 6 percent to $987.6 million, Lilly said, due in part to cost containment efforts. The company trimmed its worldwide employee total by 4 percent to 38,850 compared with last year's third quarter, as part of a staff reduction plan announced in 2009.

Lilly now expects adjusted earnings of $4.65 to $4.75 per share in 2010, an increase from its previous forecast of $4.50 to $4.65 per share. Analysts forecast $4.61 per share.

Lilly said the U.S. health care reform law will reduce its revenue by $225 million to $275 million this year because of drug rebates provided to some hospitals.

Company shares fell 27 cents to $35.74 in late morning trading.

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AP Health Writer Marley Seaman contributed to this story from New York.