Eli Lilly’s Net Income Misses Forecasts on Pricing Pressure

Worldwide revenues grew 5% to $5.19 billion, driven by a 4% increase in volumes

e1Global pharma major Eli Lilly and Co. (NYSE: LLY) announced its Q3 FY16 financial results on October 25th, 2016.

The Indianapolis, Indiana-based company discovers, develops, manufactures, and markets pharmaceutical products worldwide. It operates through two segments: Human Pharmaceutical Products and Animal Health Products. The Company offers endocrinology products to treat diabetes, as well as treatments for osteoporosis, depressive disorders, diabetic peripheral neuropathic pain, anxiety disorders, and fibromyalgia.

In addition, the Company offers medicines for the treatment of non-small cell lung, colorectal, head and neck, pancreatic, metastatic breast, ovarian, and metastatic gastric cancers. Further, it provides animal health products, feed additives; and antibiotics. Read more about Eli Lilly’s financial results below.

Q3 FY16 financial highlights

During Q3 FY16, Eli Lilly’s worldwide revenues grew by 5% Y-o-Y to $5.19 billion, driven by a 4% increase in volumes and 1% favorable impact of foreign exchange rates, partially offset by 1% due to lower realized prices. The increase in volumes was driven by new pharmaceutical products, including Trulicity, Cyramza, Taltz and Jardiance, as well as Humalog and Erbitux, partially offset by lower volumes for Zyprexa, animal health products, Alimta, and Cialis.

Source: Eli Lilly
Source: Eli Lilly

During Q3 FY16, Eli Lilly’s revenue in the U.S. jumped 12% to $2.83 billion, driven by higher volumes for several pharmaceutical products, including Trulicity, Humalog, Taltz and Jardiance, partially offset by lower volumes for animal health products, Zyprexa and Cialis. Higher realized prices in the U.S., primarily for Cialis and Forteo, were largely offset by lower realized prices for Humalog. As a result of lower-than-expected return volumes, a reduction of approximately $145 million in the Cymbalta return reserve propped up U.S. revenue, favorably impacting both volume and price.

During Q3 FY16, Eli Lilly’s revenue outside the U.S. fell 3% to $2.35 billion due to lower realized prices and volume from the losses of exclusivity for Cymbalta in Europe and Canada, Zyprexa in Japan and Alimta in several countries. These negatives more than offset higher volumes for recently launched pharmaceutical products, including Trulicity and Cyramza, and the favorable impact of foreign exchange rates.

Gross margin grew 2% to $3.79 billion during the reporting quarter, while gross margin as a percentage of revenue was 73%, a decline of 2.1% compared with the year-ago period. Operating expenses grew 3% to $2.80 billion, of which R&D costs jumped 8% to $1.23 billion, driven primarily by higher late-stage clinical development costs. As a result, operating income fell 2% to $943.5 million versus the year-ago period.

Eli Lilly’s Q3 FY16 net income fell 3% to $778.0 million, or $0.73 per share, compared to $799.7 million, or $0.75 per share, in the year-ago period. Despite revenue growth, Eli Lilly missed earnings expectations for the third time in the past four quarters after sales of its best-selling drugs Humalog’s sales fell 9% Y-o-Y and Zyprexa’s sales fell 37% Y-o-Y, mainly due to pricing pressure.e3

Established drugs revenues

During Q3 FY16, Humalog revenues fell 9% Y-o-Y to $640.8 million, Alimta sales declined 9% Y-o-Y to $570.4 million, while Humulin revenues grew 2% Y-o-Y to $322 million, Forteo sales jumped 12% Y-o-Y to $391.2 million, and Cialis revenues grew 4% Y-o-Y to $588.2 million.

New drugs revenues

With regard to new drugs that Eli Lilly recently launched, Trulicity generated revenues of $243.6 million, Cyramza revenues were $159.0 million, Jardiance revenues were $47.5 million, and Taltz generated revenues of $32.5 million during the reporting quarter.

Source: Eli Lilly
Source: Eli Lilly

Animal health revenues

During Q3 FY16, Eli Lilly’s animal health revenues fell 9% Y-o-Y to $706.2 million. U.S. animal health revenues fell 14% to $338.6 million, due to wholesaler buying patterns for companion animal products and lower revenues for food animal products. Animal health revenues outside the U.S. fell 5% to $367.6 million, negatively impacted by food animal products, primarily due to macroeconomic conditions in Latin America.

Source: Eli Lilly
Source: Eli Lilly

Drug approvals

During Q3 FY16, the FDA approved Lartruvo (olaratumab), in combination with doxorubicin, for the treatment of adults with soft tissue sarcoma with a histologic subtype for which an anthracycline containing regimen is appropriate and which is not amenable to curative treatment with radiotherapy or surgery. Lartruvo’s indication was approved under the Accelerated Approval process and is based on data from a Phase 2 trial. Continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory trial.

Product and pipeline updates

Eli Lilly and AstraZeneca PLC (NYSE: AZN) received FDA Fast Track designation for the development program in Alzheimer’s disease for AZD3293, an oral beta secretase cleaving enzyme (BACE) inhibitor currently in Phase 3 clinical trials. The FDA’s Fast Track program is designed to expedite the development and review of new therapies to treat serious conditions and address key unmet medical needs.

Other highlights

Eli Lilly announced an agreement to acquire Boehringer Ingelheim Vetmedica Inc.’s U.S. feline, canine and rabies vaccines portfolio, as well as a fully integrated manufacturing and R&D site, for approximately $885 million, including the estimated cost of acquired inventory. The acquisition is expected to close by early 2017, subject to regulatory approvals and the closing of a previously announced asset swap transaction between Boehringer Ingelheim and Sanofi SA (NYSE: SNY).

Source: Eli Lilly
Source: Eli Lilly

Eli Lilly announced that CEO Dr. John C. Lechleiter will retire at the end of 2016, after nearly four decades at the Company and an eight-year tenure as its CEO. David A. Ricks, the head of Eli Lilly’s biomedicines division, will take over as the next CEO. After stepping down as CEO, Dr. Lechleiter, who is also the Chairman, will serve as non-executive chairman until the end of May 2017. Mr. Ricks will become Chairman at the start of 2017.

Guidance for full year FY16

Eli Lilly revised downwards certain elements of its FY16 financial guidance. Full-year FY16 EPS is now expected to be in the range of $2.66 to $2.76 on a reported basis. On a non-GAAP basis, full-year FY16 EPS are still expected to be in the range of $3.50 to $3.60. The company now expects FY16 revenue of between $20.8 billion and $21.2 billion.

Excluding the impact of foreign exchange rates, the company expects revenue growth from a number of established products including Trajenta, Cialis, Forteo, Strattera, Erbitux, and animal health products, as well as higher revenues from new products including Cyramza, Jardiance, Trulicity, Portrazza, Basaglar and Taltz. The company expects this revenue growth to be partially offset by lower revenue from Alimta as a result of increased competitive pressures.

Marketing, selling, and administrative expenses are now expected to be in the range of $6.2 billion to $6.4 billion. R&D expenses are still expected to be in the range of $4.9 billion to $5.1 billion.

Stock Performance

e7Eli Lilly’s stock stood at $78.34, slipping 0.06%, at the close on Thursday, November 10th, 2016, having vacillated between an intraday high of $79.70 and a low of $78.00 during the session. The stock’s trading volume was at 6,903,642 for the day. The Company’s market cap was at $87.13 billion as of Thursday’s close.

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