Lilly Reports First-Quarter 2015 Results

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The FINANCIAL — Eli Lilly and Company on April 23 announced financial results for the first quarter of 2015.

Certain financial information for 2015 and 2014 is presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the period. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. Non-GAAP measures in 2014 include the results of Novartis Animal Health as if the acquisition and the financing for the acquisition had occurred as of January 1, 2014. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business. The company’s 2015 financial guidance is also being provided on both a reported and a non-GAAP basis. Non-GAAP financial measures for all periods presented also exclude amortization of intangibles primarily associated with costs of marketed products acquired or licensed from third parties, according to Eli Lilly and Company.

“While our first-quarter revenue reflects the impact of foreign exchange headwinds and the lingering effects of U.S. patent expirations for Cymbalta and Evista, Lilly remains on track to return to growth in 2015 driven by excellent progress in our innovation-based strategy,” said John C. Lechleiter, Ph.D., Lilly’s chairman, president and chief executive officer. “Recent new product launches, the growing success of our late-stage pipeline, and the recent acquisition of Novartis Animal Health reinforce our confidence in our future. Results in the first quarter also reflect ongoing cost-containment efforts, even as we continue to make the appropriate investments in both internal and external innovation necessary to sustain our pipeline for the future.”

Key Events Over the Last Three Months

Cyramza (ramucirumab) achieved a number of development and commercialization milestones:

Launched in the U.S. for second-line metastatic non-small cell lung cancer
Launched in the EU for advanced second-line gastric cancer
Approved in Japan for patients with unresectable, advanced or recurrent gastric cancer. The company expects to launch in mid-2015.
Submitted in the U.S. and the EU for second-line metastatic colorectal cancer
Submitted in the EU for second-line metastatic non-small cell lung cancer.

The U.S. Food and Drug Administration (FDA) approved Glyxambi (empagliflozin/linagliptin) tablets as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes when both empagliflozin and linagliptin are appropriate treatments. Glyxambi is part of the company’s diabetes collaboration with Boehringer Ingelheim. Glyxambi has now been launched in the U.S.

The company and Boehringer Ingelheim announced that Boehringer Ingelheim has received a positive opinion from the Committee for Medicinal Products for Human Use of the European Medicines Agency (EMA), recommending approval for a single-pill combination therapy with empagliflozin/metformin hydrochloride for the treatment of adults with type 2 diabetes. If approved, the new therapy will be marketed under the name Synjardy in Europe.

The company will delay the submission of basal insulin peglispro (BIL), a potential once-daily treatment for type 1 and type 2 diabetes, to regulatory agencies until after 2016. The delay includes filings with the FDA and the EMA in order to generate additional clinical data to further understand and characterize the potential effects, if any, of changes in liver fat observed with BIL treatment in the Phase III trials.

The company submitted ixekizumab to the FDA for the treatment of moderate-to-severe plaque psoriasis.

The company announced that the investigational medicine ixekizumab was statistically superior to placebo in the treatment of patients with active psoriatic arthritis, as demonstrated by the proportion of patients achieving an ACR 20 response in a Phase III trial.

The company and Incyte Corporation announced that the investigational medicine baricitinib demonstrated a statistically significant improvement compared to placebo in a second consecutive Phase III trial in rheumatoid arthritis. The study included patients with moderately to severely active rheumatoid arthritis who had an inadequate response to, or were intolerant of, at least one conventional disease-modifying antirheumatic drug.

The company and Pfizer Inc. announced that the Phase III clinical program for tanezumab, a potential treatment for chronic pain, will resume. As a result, Lilly paid $200 million to Pfizer in accordance with the collaboration agreement. This announcement follows a decision by the FDA to lift the partial clinical hold on the tanezumab development program after a review of a robust body of nonclinical data characterizing the sympathetic nervous system’s response to tanezumab.

Enrollment in the Phase III clinical study for the investigational medicine solanezumab is now complete. Solanezumab is the company’s monoclonal antibody being studied as a potential therapy for patients with mild Alzheimer’s disease. The company now expects the last patient visit to occur in October 2016.

The company and Innovent Biologics Inc. (Innovent) announced one of the largest biotech drug development collaborations in China to date between a multinational and domestic company. Lilly and Innovent will collaborate to support the development and potential commercialization of at least three cancer treatments over the next decade.

The company and Hanmi Pharmaceutical Co., Ltd. (Hanmi) announced an exclusive license and collaboration agreement for the development and commercialization of Hanmi’s oral Bruton’s tyrosine kinase (BTK) inhibitor for the treatment of autoimmune and other diseases. This small molecule is ready to enter Phase II trials.

The company has restructured its agreement with Bristol-Myers Squibb Company to transfer rights of Erbitux (cetuximab) in North America, including the U.S., Canada, and Puerto Rico, from Bristol-Myers Squibb to Lilly. Rights include, but are not limited to, full commercialization and manufacturing operational responsibilities. The transition is expected to be completed in the fourth quarter of 2015.

The German Court of Appeal has ruled that the company’s vitamin regimen patent for Alimta (pemetrexed disodium) would not be infringed by a generic competitor that intends to market a dipotassium salt form of pemetrexed in Germany once the compound patent expires in December 2015. The company has asked for permission to appeal this ruling to the German Supreme Court.

First-Quarter Reported Results

In the first quarter of 2015, worldwide revenue was $4.645 billion, a decline of 1 percent compared with the first quarter of 2014. The change in revenue included a 6 percent decline due to the unfavorable impact of foreign exchange rates, largely offset by increases of 3 percent due to higher prices and 3 percent due to increased volume. The 3 percent increase in worldwide volume was primarily due to the inclusion of revenue from Novartis Animal Health, U.S. wholesaler buying patterns, and increased volumes for several other products including Cyramza and Humalog. These worldwide volume increases were partially offset by lower demand for Cymbalta and Evista, largely due to U.S. patent expirations in December 2013 and March 2014, respectively. Revenue in the U.S. increased 6 percent to $2.197 billion, driven primarily by higher prices, wholesaler buying patterns, increased volumes for Cyramza, and the inclusion of revenue from Novartis Animal Health, partially offset by lower demand for Cymbalta and Evista following patent expirations. Revenue outside the U.S. decreased 6 percent to $2.447 billion, driven by the unfavorable impact of foreign exchange rates, partially offset by the inclusion of revenue from Novartis Animal Health.

Gross margin remained relatively flat at $3.452 billion in the first quarter of 2015, as lower revenues were offset by lower cost of sales. The decline in cost of sales was driven by the favorable impact of foreign exchange rates on international inventories sold and lower volumes of Cymbalta and Evista, partially offset by the inclusion of Novartis Animal Health and inventory step-up costs. Gross margin as a percent of revenue was 74.3 percent, an increase of 0.4 percentage points compared with the first quarter of 2014. The increase in gross margin percent was primarily due to the favorable impact of foreign exchange rates, partially offset by the inclusion of Novartis Animal Health and inventory step-up costs.

Operating expenses in the first quarter of 2015, defined as the sum of research and development, and marketing, selling, and administrative expenses, were $2.563 billion, a decline of 1 percent compared with the first quarter of 2014. Research and development expenses decreased 6 percent to $1.039 billion, or 22.4 percent of revenue, driven primarily by lower late-stage clinical development costs and, to a lesser extent, the favorable impact of foreign exchange rates, partially offset by expenses of Novartis Animal Health. Marketing, selling, and administrative expenses increased 3 percent to $1.523 billion, due primarily to expenses of Novartis Animal Health and marketing and selling expenses related to the launches of TrulicityTM and Jardiance®, partially offset by the favorable impact of foreign exchange rates and ongoing cost-containment measures.

In the first quarter of 2015, the company recognized acquired in-process research and development charges of $256.0 million. These charges included a $200.0 million payment to Pfizer following an FDA decision allowing the resumption of Phase III clinical trials for tanezumab and a $56.0 million payment to Innovent associated with a collaboration to develop potential oncology therapies. There were no acquired in-process research and development charges in the first quarter of 2014.

In the first quarter of 2015, the company recognized asset impairment, restructuring, and other special charges of $108.0 million. The 2015 charges primarily relate to integration, severance costs, and intangible asset impairments due to product rationalization resulting from the acquisition of Novartis Animal Health. In the first quarter of 2014, the company recognized asset impairment, restructuring, and other special charges of $31.4 million. The 2014 charges were primarily related to severance costs for actions taken to reduce the company’s cost structure.

Operating income in the first quarter of 2015 was $525.2 million, a decline of 37 percent compared with the first quarter of 2014, primarily driven by higher acquired in-process research and development charges and asset impairment, restructuring, and other special charges.

Other income (expense) was income of $92.7 million in the first quarter of 2015, compared with income of $56.0 million in the first quarter of 2014.  Other income in 2015 reflects a favorable legal judgment and net gains on investments.

The effective tax rate was 14.3 percent in the first quarter of 2015, compared with 18.3 percent in the first quarter of 2014. The decrease in the effective tax rate for the first quarter of 2015 is primarily due to the tax impact of acquired in-process research and development charges and asset impairment, restructuring, and other special charges. The effective tax rate for the first quarter of 2014 includes a discrete tax benefit of approximately $30 million.  Neither period includes the benefit of certain expired U.S. tax provisions, including the R&D tax credit.

In the first quarter of 2015, net income decreased 27 percent to $529.5 million, and earnings per share decreased 26 percent to $0.50, compared with the first quarter of 2014 when net income was $727.9 million and earnings per share were $0.68. The declines in net income and earnings per share were driven by lower operating income, partially offset by a lower effective tax rate in 2015 and increased other income. Earnings per share benefited slightly from a lower number of shares outstanding in the first quarter of 2015 compared with the first quarter of 2014.

First-Quarter 2015 Non-GAAP Measures

On a non-GAAP basis, worldwide revenue was $4.645 billion in the first quarter of 2015, a decline of 6 percent compared with the first quarter of 2014. The revenue decline was driven by the unfavorable impact of foreign exchange rates and lower demand for Cymbalta and Evista following U.S. patent expirations, partially offset by higher prices and wholesaler buying patterns, as well as increased volumes for several other products including Cyramza and Humalog. U.S. revenue increased 2 percent to $2.197 billion, driven primarily by higher prices, wholesaler buying patterns, and increased volume for Cyramza, partially offset by lower demand for Cymbalta and Evista following patent expirations. Revenue outside the U.S. decreased 12 percent to $2.447 billion, driven by the unfavorable impact of foreign exchange rates. Excluding the unfavorable impact of foreign exchange rates, worldwide revenue was essentially unchanged.

Gross margin declined 1 percent to $3.632 billion in the first quarter of 2015, as lower revenues were largely offset by lower cost of sales. The decline in cost of sales was driven by the favorable impact of foreign exchange rates on international inventories sold and lower volumes of Cymbalta and Evista. Gross margin as a percent of revenue was 78.2 percent, an increase of 3.6 percentage points compared with the first quarter of 2014. The increase in gross margin percent was due to the impact of foreign exchange rates.

Operating expenses in the first quarter of 2015 were $2.527 billion, a decline of 7 percent compared with the first quarter of 2014. Research and development expenses decreased 9 percent to $1.039 billion, or 22.4 percent of revenue, driven primarily by lower late-stage clinical development costs and, to a lesser extent, the favorable impact of foreign exchange rates. Marketing, selling, and administrative expenses decreased 6 percent to $1.488 billion, due primarily to the favorable impact of foreign exchange rates and ongoing cost containment measures, partially offset by marketing and selling expenses related to the launches of Trulicity and Jardiance.

Other income (expense) was income of $92.7 million in the first quarter of 2015, compared with income of $35.8 million in the first quarter of 2014. Other income in 2015 reflects a favorable legal judgment and net gains on investments. Other income in 2014 reflects interest expense for Novartis Animal Health as if the financing for the acquisition had occurred as of January 1, 2014.

The effective tax rate increased to 22.9 percent, compared with 19.9 percent in the first quarter of 2014 due to a discrete tax benefit of approximately $30 million in 2014.

Net income increased 16 percent to $923.7 million, and earnings per share increased 18 percent to $0.87, compared with $797.7 million and $0.74, respectively, during the first quarter of 2014. The increases were driven by higher operating income and other income, partially offset by a higher effective tax rate. Earnings per share benefited slightly from a lower number of shares outstanding in the first quarter of 2015 compared with the first quarter of 2014.

Humalog

For the first quarter of 2015, worldwide Humalog sales increased 5 percent to $684.0 million. Sales in the U.S. increased 12 percent to $420.6 million, driven by wholesaler buying patterns and higher prices. Sales outside the U.S. decreased 4 percent to $263.4 million, driven by the unfavorable impact of foreign exchange rates, partially offset by increased volume.

Alimta

For the first quarter of 2015, Alimta generated sales of $573.0 million, a decline of 9 percent compared with the first quarter of 2014. U.S. sales of Alimta increased 3 percent to $252.7 million, driven by higher net effective selling prices. Sales outside the U.S. decreased 17 percent to $320.3 million, driven by the unfavorable impact of foreign exchange rates and lower prices.

Cialis

Cialis sales for the first quarter of 2015 increased 1 percent to $538.3 million. U.S. sales of Cialis were $247.1 million, a 20 percent increase compared with the first quarter of 2014, driven by higher prices and, to a lesser extent, wholesaler buying patterns. Sales of Cialis outside the U.S. decreased 11 percent to $291.2 million, driven by the unfavorable impact of foreign exchange rates.

Humulin

Worldwide Humulin sales of $315.7 million for the first quarter of 2015 were essentially flat compared with the first quarter of 2014. U.S. sales increased 16 percent to $179.5 million, driven primarily by higher prices and wholesaler buying patterns, partially offset by lower demand. Sales outside the U.S. decreased 16 percent to $136.2 million, driven by the unfavorable impact of foreign exchange rates and decreased volume.

Forteo

First-quarter 2015 sales of Forteo were $293.0 million, a 2 percent decline compared with the first quarter of 2014. U.S. sales of Forteo increased 21 percent to $122.0 million, driven by higher prices and wholesaler buying patterns, partially offset by lower demand. Sales outside the U.S. decreased 14 percent to $171.0 million, driven by the unfavorable impact of foreign exchange rates.

Cymbalta

For the first quarter of 2015, Cymbalta generated $287.0 million in revenue, a decrease of 40 percent compared with the first quarter of 2014. U.S. sales of Cymbalta decreased 69 percent to $54.4 million, due to the loss of U.S. patent exclusivity in December 2013. Sales of Cymbalta outside the U.S. were $232.6 million, a decline of 23 percent, driven by the unfavorable impact of foreign exchange rates, as well as decreased volume and lower prices due to the entrance of generic competitors in select European markets following the loss of data package protection in 2014.

Zyprexa

In the first quarter of 2015, Zyprexa sales totaled $219.5 million, a decline of 22 percent compared with the first quarter of 2014. U.S. sales of Zyprexa decreased 2 percent to $26.6 million. Zyprexa sales outside the U.S. decreased 25 percent to $192.9 million, due to lower volume in Japan, the unfavorable impact of foreign exchange rates, and, to a lesser extent, lower prices.

Strattera

During the first quarter of 2015, Strattera generated $173.7 million of sales, an increase of 13 percent compared with the first quarter of 2014. U.S. sales increased 31 percent to $108.5 million, driven primarily by higher prices. Sales outside the U.S. decreased 9 percent to $65.2 million, driven by the unfavorable impact of foreign exchange rates, partially offset by increased volume.

Effient

Effient sales were $121.8 million in the first quarter of 2015, an increase of 2 percent compared with the first quarter of 2014. U.S. Effient sales increased 8 percent to $94.6 million, driven by higher prices, partially offset by lower demand. Sales outside the U.S. decreased 14 percent to $27.2 million, driven by the unfavorable impact of foreign exchange rates.

Evista

Evista sales for the first quarter of 2015 were $66.8 million, a decline of 55 percent compared to the first quarter of 2014. U.S. sales of Evista decreased 75 percent to $24.2 million, due to the loss of U.S. patent exclusivity in March 2014. Sales outside the U.S. decreased 18 percent to $42.6 million, driven by the unfavorable impact of foreign exchange rates and, to a lesser extent, lower volume.

Animal Health

In the first quarter of 2015, worldwide animal health sales totaled $749.8 million, an increase of 42 percent compared with the first quarter of 2014. U.S. animal health sales increased 16 percent to $356.8 million, and animal health sales outside the U.S. increased 79 percent to $393.0 million. The increases were primarily driven by the inclusion of revenue from Novartis Animal Health and, to a lesser extent, the inclusion of revenue from Lohmann Animal Health.

Including the sales of Novartis Animal Health in 2014, worldwide animal health sales decreased 4 percent, U.S. animal health sales decreased 3 percent, and animal health sales outside the U.S. decreased 4 percent. The decrease in U.S. animal health sales was primarily driven by lower volume due to increased competition for companion animal products. The decrease in animal health sales outside the U.S. was driven by the unfavorable impact of foreign exchange rates, partially offset by the inclusion of revenue from Lohmann Animal Health and higher prices for food animal products. Including the sales of Novartis Animal Health in 2014 and excluding the unfavorable impact of foreign exchange rates, worldwide animal health sales increased 2 percent.

 

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