Eli Lilly’s Q1 Net Sales Grow Strongly, But One-Off Charges Hit Profits

U.S. drug-maker Eli Lilly & Co reported financial data for the first quarter of 2007 on 16 April. The results confirm earlier expectations of above-industry performance, with sales rising by an impressive 14% to US$4.23 billion. However, one-off restructuring charges—in particular relating to the US$2.3 billion acquisition of ICOS and the reconfiguration of Lilly’s manufacturing operations—affected profitability in the period. In the first quarter net income was US$508.7 million; 39% lower than the US$834.8 million reported a year earlier.

Manufacturing Costs Hit Bottom Line

Aside from the acquisition of ICOS, the largest single impact on net income came from Lilly’s ongoing efforts to restructure its manufacturing operations. In the period, the firm mothballed a planned insulin products facility in Virginia (U.S.), and closed a plant in Basingstoke in the United Kingdom. However, there is some evidence that the ongoing restructuring of production capacity is reaping dividends. Lilly notes that manufacturing expenses grew less rapidly than overall sales in the three-month period. In overall terms, the rise in sales at least kept pace with rising costs; investment in research and development (R&D) in the quarter was stable at 20% of net sales, while a jump in marketing and administrative costs was linked to the ICOS acquisition.

Success of Innovative Products Touted

The results highlight Lilly’s enthusiasm for its innovative product portfolio. The company draws attention to its newer products—meaning those launched in this decade—which now account for 30% of net sales, compared to 22% the year before. In this regard, the company’s mental health franchise has been a glittering success. Lilly’s two star performers in the first quarter were, as expected, the heavily-promoted depression therapy Cymbalta (duloxetine), which boosted sales by a stellar 89% year-on-year (y/y) to US$441.8 million, and workhorse schizophrenia drug Zyprexa (olanzapine), which grew sales by a solid 10% to US$1.11 billion. The company notes that a decline in volume, mainly attributed to litigation-related publicity over the latter drug, was partly offset by price increases. There are further good prospects for the firm’s attempts to broaden its presence in mental health, with combination product Symbyax—which combines the active ingredients of Zyprexa with former blockbuster Prozac (fluoxetine)—was recently the subject of an approvable letter from the U.S. FDA regarding treatment-resistant depression. Meanwhile, both the recent indication of Cymbalta for generalised anxiety disorder (GAD) and the acquisition of sleep disorder firm Hypnion are also expected to add more traction to central nervous system drug sales in the longer term. Moreover, the concerns of health professionals over Zyprexa could eventually fade, as the drug is the acknowledged leader in its therapeutic class.

Although widely anticipated, the major blot on the central nervous system (CNS) landscape came from the attention deficit-hyperactivity disorder (ADHD) therapy Strattera, which saw revenues decline by 8% to US$139.9 million, due to reduced U.S. demand. This is partly attributable to class effects, with the most recent addition to the ADHD market being Shire/New River’s Vyvanse (lisdexamphetamine dimesylate).

Other Franchises Hum Along

In diabetes—traditionally the company’s bastion—Lilly faced the phasing out of U.S. marketing rights for Actos (pioglitazone), the leading TZD from Japanese firm Takeda. However, despite the decision to abandon the insulin products plant in Virginia, Lilly has announced a renewed push in diabetes care products, especially with regard to the insulin brand Humalog, which recorded an 11% boost in sales to US$339.5 million. Meanwhile, injectable product Byetta (exenatide) recorded steady but unspectacular quarter-on-quarter sales growth of 7% (to US$146.5 million). For now, Lilly is confident that its Humapen product—which contains a microchip to help manage injection regimes—will be a key revenue grower in diabetes.

In oncology, leading cancer drug Gemzar (gemcitabine) recorded sales of US$376.9 million for the quarter, marking a solid 11% y/y increase. The more recently-launched Alimta (pemextred) saw sales leap 44% to US$187.8 million. Lilly is cheered by the results of a recent head-to-head study of Alimta with Gemzar (in combination with cisplatin), which met its primary endpoint of non-inferiority in non-small cell lung cancer (NSCLC). A submission in Europe for this setting is expected later in the year. Moreover, the European Medicines Agency (EMEA) has also made encouraging noises over the firm’s experimental compound enzastaurin, awarding it orphan drug status for diffuse large B-cell lymphoma.

Outlook and Implications

In general, the results are fairly positive for Lilly. The trend for accelerated sales growth in markets outside the United States is especially encouraging. A further plus point is that the company’s statements excluded more news on forthcoming products that are acknowledged to be Lilly’s key R&D opportunities: the anticoagulant prasugrel and the AIR inhalable insulin formulation.

That said, the quarter has not been without its challenges. The withdrawal of the European license application for diabetic retinopathy drug Arxxant was a major setback, and enzastaurin did not achieve its goal of an indication for glioblastoma. An experimental PPAR alpha agonist, L518674, also failed to achieve the desired results in clinical trials, with Lilly’s fortunes in HDL-raising drugs—so far at least—echoing the disappointments of other leading research-based firms. Predictions for 2007 are therefore still hazardous, but with costs coming under a tight rein, observers’ attention is once again likely to focus on the pipeline.

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