New Drugs Spur Eli Lilly’s Q2 Revenue

Pharma major’s newly launched drugs Trulicity, Cyramza, and Humalog boost revenues

Source: Eli Lilly
Source: Eli Lilly

Global pharma major Eli Lilly and Co. (NYSE: LLY) announced its Q2 FY16 financial results on July 26th, 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.

Q2 FY16 financial highlights

Eli Lilly reported better-than-expected Q2 FY16 sales, boosted by robust growth of newly launched drugs including Trulicity, Cyramza, and Humalog. Revenue rose 9% to $5.4 billion in Q2 FY16, beating estimates of $5.15 billion, also owing to strong sales of some older brands such as Cialis impotence treatment and Forteo osteoporosis drug, both of which benefited from higher prices. Moreover, revenue growth was driven by an 8% increase in volume, as realized prices and the impact of foreign exchange rates remained relatively flat in Q2 FY16 as compared to Q2 FY15.

Source: Company's Presentation
Source: Company’s Presentation

During Q2 FY16, U.S. revenue grew 14% to $2.89 billion, driven by higher volume of Trulicity and Humalog, and to a lesser extent, higher realized prices for Cialis and Forteo. Revenue outside the U.S. rose 3% to $2.51 billion, driven by higher volume of Cyramza, Trulicity, and Humalog, partially offset by the loss of exclusivity for Cymbalta in Europe in 2014.

During Q2 FY16, animal health revenues grew 2% to $859.8 million as compared to the year-ago period. U.S. animal health revenues jumped 8% to $444.5 million, due to wholesaler buying patterns and uptake of new companion animal products, partially offset by lower revenues for food animal products. Animal health revenues outside the U.S. decreased 3% to $415.3 million, due to the negative impact of foreign exchange rates. Excluding the negative impact of foreign exchange rates, animal health revenues increased 4% during the reporting quarter.

Eli Lilly’s Q2 FY16 gross margins expanded 5% to $3.94 billion as compared to Q2 FY15. Gross margins as a percentage of revenue declined by 2.6% to 72.9%, due to lower foreign exchange rates on international inventories sold and transfer of Erbitux commercialization rights in North America.

Eli Lilly’s Q2 FY16 operating expenses grew 5% to $2.959 billion, on the back of a 14% increase in R&D costs to $1.33 billion, higher expenses related to new products, partially offset by a 1% lower marketing, selling and administrative expenses to $1.62 billion. The Company recognized asset impairment, restructuring and other special charges of $58.0 million and $72.4 million in Q2 FY16 and Q2 FY15, respectively, related to integration costs for Novartis Animal Health, severance costs and asset impairments.

Despite the higher expenses, operating income increased 15% to $923.3 million during Q2 FY16, driven by higher gross margin and lower acquired in-process R&D charges, partially offset by higher operating expenses.

As a result, Eli Lilly’s Q2 FY16 net income jumped 24% to $747.7 million, and EPS grew 27% to $0.71, compared with $600.8 million, or $0.56 per share, in Q2 FY15. Excluding special items, including restructuring charges, Eli Lilly earned $0.86 per share in Q2 FY16 as compared to $0.90 in the year-ago quarter.

Established drugs revenues

During Q2 FY16, worldwide Humalog revenues grew 7% Y-o-Y to $701.9 million, Cialis revenues jumped 11% Y-o-Y to $630.5 million, Humulin’s revenues rose 5% Y-o-Y to $332.3 million, and Forteo revenues increased 12% Y-o-Y to $367.6 million. On the other hand, Alimta’s revenues declined 9% to $607.1 million as compared to the year-ago quarter.

Source: Company's Presentation
Source: Company’s Presentation

New drugs revenues

With regard to new drugs that Eli Lilly recently launched, Trulicity, an injectable diabetes treatment that competes with Novo Nordisk’s (NYSE: NVO) blockbuster Victoza, posted sales of $201 million, while sales of Cyramza for stomach and lung cancer vaulted 68% to $147 million during the reporting quarter.

Jardiance, an SGLT-2 inhibitor that competes with Johnson & Johnson’s (NYSE: JNJ) Invokana and AstraZeneca PLC’s (NYSE: AZN) Farxiga, posted $40.1 million in quarterly sales. However, Jardiance has the potential to turn into a blockbuster product after it became the first diabetes therapy to show robust ability to reduce cardiovascular death. Jardiance now accounts for 25% of new U.S. patients taking SGLT2 inhibitors, up from a 15% share in August 2015.

Drug approvals

During Q2 FY16, the FDA approved once-daily Jentadueto XR tablets as an adjunct to diet and exercise for the treatment of type 2 diabetes in adults. Jentadueto XR was developed in association with German company Boehringer Ingelheim. Eli Lilly also received approval for Cyramza in Japan for the treatment of advanced or recurrent colorectal cancer and non-small cell lung cancer.

Product and pipeline updates

Eli Lilly made significant pipeline progress with the regulatory approval of Taltz in Japan, priority review granted for olaratumab in the U.S., a positive FDA Advisory Committee vote on Jardiance, and an encouraging Phase 2 data read-out for abemaciclib.

Other highlights

Eli Lilly plans to unveil data on solanezumab, its experimental treatment for Alzheimer’s disease, and could seek U.S. approval within months for a breast cancer drug that could compete with Pfizer Inc.’s (NYSE: PFE) Ibrance.

Source: Eli Lilly
Source: Eli Lilly

In a recent development, 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, as reported by The Wall Street Journal on July 27th, 2016. 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, at which time he will leave the board. Mr. Ricks will become Chairman at the start of 2017.

Guidance for full year FY16

Eli Lilly expects full-year FY16 earnings of $3.50 to $3.60 per share, excluding special items. The Company also updated financial expectations through the remainder of the decade, including at least 5% average annual revenue growth driven by volume and an increase in gross margin as a percentage of revenue, both on a constant-currency basis. The company also plans to give higher annual dividends for shareholders and achieve an OPEX-to-revenue ratio of 50% or less in FY18.

Stock Performance

E5Eli Lilly’s stock stood at $83.32, gaining 0.17%, at the close on Tuesday, August 2nd, 2016, having vacillated between an intraday high of $83.70 and a low of $82.57 during the session. The stock’s trading volume was at 3,339,698 for the day. The Company’s market cap was at $92.07 billion as of Tuesday’s close.

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