Drug maker Eli Lilly & Co. (LLY) on Thursday reported a profit for the fourth quarter compared to a loss in the same period last year, helped by higher sales of its anti psychotic drug Zyprexa and anti-depressant Cymbalta. Results also benefitted from fewer charges compared to last year, when earnings were weighed down by the acquisition of cancer drug maker ImClone Systems Inc.
On an adjusted basis, earnings per share for the quarter declined 11% from last year. Looking ahead, the company reiterated its earnings outlook for fiscal year 2010.
Lilly and rival Bristol-Myers Squibb disclosed they have resolved a dispute over rights to lung cancer drug necitumumab, which Lilly acquired with its purchase of ImClone. The companies will together market and develop the drug in the US, Canada and Japan.
Lilly retains exclusive rights in all other markets.
The company reported net income for the fourth quarter of $915.4 million or $0.83 per share compared to net loss of $3.63 billion or $3.31 per share in the year-ago quarter.
Lilly recognized charges of $37.9 million in the latest quarter for asset impairments, restructuring and other special charges primarily related to severance costs from previously announced strategic actions that the company had taken to reduce its cost structure and global workforce. In addition, the company recognized a charge of $90.0 million related to acquired in-process research and development associated with the in-licensing agreement with Incyte Corp.
The year-ago quarter's results include charges of $80.0 million for asset impairments, restructuring and other special charges. In addition, the company recognized pre-tax charges totaling $4.73 billion, or $4.46 per share after tax, related to the acquisition of ImClone Systems. This amount includes a charge of $4.69 billion for in-process research and development, as well as ImClone operating results subsequent to the acquisition, incremental interest costs, and amortization of the intangible asset associated with Erbitux.
On a non-GAAP basis, pro forma net income for the latest quarter declined to $999.4 million or $0.91 per share from $1.12 billion or $1.02 per share in the previous-year quarter. On average, eighteen analysts polled by Thomson Reuters expected the company to report earnings of $0.92 per share. Analysts' estimates typically exclude special items.
Total revenue for the quarter increased 14% to $5.93 billion from $5.20 billion a year ago, driven by higher volume. On a pro forma basis, net revenues for the quarter were $5.93 billion, up 13% from $5.26 billion in the year-ago period. Analysts had a consensus revenue estimate for the quarter of $5.68 billion.
John Lechleiter, Lilly's chairman and chief executive officer said, "Lilly's financial results in the fourth quarter completed a year of strong operational performance, highlighted by volume-based revenue gains, improved gross margins and quality earnings growth. In 2009, we delivered solid financial results even as we continued to implement a series of actions aimed at speeding innovation to patients and delivering greater value to our customers."
Revenue growth in the latest quarter comprised of a 7% increase due to higher volume, a 3% increase due to higher prices and another 3% increase due to the impact of foreign exchange rates. Total revenue in the U.S. increased 11% from last year to $3.26 billion due to higher prices and wholesaler buying patterns. Total revenue outside the U.S. climbed 18% to $2.67 billion due to increased demand and the positive impact of foreign exchange rates, partially offset by lower prices.
The company noted that eight products each exceeded $1 billion in annual sales. However, in 2013 and 2014, Lilly will lose protection for four drugs that each generated more than $1 billion in annual sales last year, including Cymbalta and the cancer drug Gemzar.
Gross margin for the fourth quarter, as a percent of total revenue, decreased by 6.6 percentage points to 75.9%, primarily on account of a weaker dollar.
Cost of sales for the latest quarter surged 57% from a year ago to $1.43 billion. Research and development expenses grew 15% to $1.22 billion in the latest quarter, due primarily to the ImClone acquisition, increased compensation and increased late-stage clinical trial costs.
Operating income for the quarter was $1.21 billion, compared to operating loss of $3.26 billion in the year-ago period due to the in-process research and development charges associated with the acquisition of ImClone Systems.
Sales of anti-psychotic Zyprexa during the quarter were $1.37 billion, up 19% from the same period last year. U.S. sales of Zyprexa, which faces generic competition in 2011, grew 10% to $644.6 million, driven by higher prices and wholesaler buying patterns, offset in part by lower demand. Zyprexa sales in international markets increased 28% to $721.9 million, driven by the higher demand and the favorable impact of foreign exchange rates.
Sales of anti-depressant Cymbalta climbed 15% to $830.8 million. Lung cancer drug Alimta generated sales of $523.6 million, up 64% from last year, reflecting higher demand in the U.S. and outside. Insulin drug Humalog's revenues rose 16% during the quarter to $530.8 million.
Meanwhile, sales of cancer drug Gemzar dropped 25% from last year to $310.5 million primarily due to a 47% drop in sales outside the U.S., reflecting lower demand and a decrease in prices due to generic competition. The recently launched blood thinner Effient recorded sales of $3.8 million in the latest period.
Lilly recognizes net royalties received from its Erbitux collaboration partners and revenue from manufactured product sold to these partners. For the fourth quarter, Lilly recognized total revenue of $95.0 million for cancer treatment Erbitux.
Worldwide sales of animal health products in the fourth quarter were $353.1 million, up 8% from last year. U.S. sales grew 1% to $187.7 million, primarily due to higher prices and increased sales of Comfortis, partially offset by lower demand of other animal health products. Sales outside the U.S. increased 17% to $165.5 million, driven primarily by increased demand and, to a lesser extent, the favorable impact of foreign exchange rates.
For fiscal year 2009, Eli Lilly's net income was $4.33 billion or $3.94 per share compared to net loss of $2.07 billion or $1.89 per share in the previous year. The results were in line with the company's forecast for full-year earnings in a range of $3.90-$4.00 per share on a reported basis.
On a pro forma non-GAAP basis, net income for the year rose 16% to $4.85 billion or $4.42 per share from $4.18 billion or $3.82 per share in the prior year. Earlier, the company had forecast earnings for the year in a range of $4.30-$4.40 per share on a pro forma non-GAAP basis. Analysts expected the company to report earnings of $4.42 per share for the year,.
Revenue for the year rose 7% to $21.84 billion from $20.37 billion last year. On a pro forma basis, net revenues for the year were $21.84 billion, up 5% from $20.73 billion in the prior year. Wall Street analysts had a consensus revenue estimate for the year of $21.59 billion.
For fiscal year 2010, excluding the potential impact of health care reform in the U.S., Lilly still anticipates earnings per share of $4.65-$4.85 on both a reported and a non-GAAP basis. Analysts expect the company to report earnings of $4.73 per share for the year.
The company expects volume-driven revenue growth in the high-single digits, driven primarily by Alimta, Cymbalta, Humalog, Cialis, Effient and the exenatide franchise. The company also anticipates that gross margin for the year as a percent of revenue will be flat to declining.
Among other drug makers, Pfizer Inc. (PFE) is slated to report its financial results for the fourth quarter on February 3, 2010. Analysts expect the company to report earnings of $0.50 per share on revenues of $15.97 billion for the quarter.
LLY closed Wednesday's regular trading session at $36.39, up $0.23 on a volume of 7.01 million shares. In Thursday's pre-market trading, the stock is up $0.61 or 1.68% to $37.00. In the past 52 weeks, the stock has been trading in a range of $27.21-$39.25.
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