Global Insight Perspective | |
Significance | U.S.-based Eli Lilly & Co reported that it swung to a US$920.2 million profit during the second quarter of 2006, after the comparable period of 2005 was hit by a one-time liability charge. |
Implications | Despite a difficult sales environment for its top-selling product Zyprexa (olanzapine), Lilly’s management remains bullish about the company’s outlook, noting that the company has a strong product mix, consisting of a large number of new products. |
Outlook | However, the company stated its belief that year-end revenues would be at the lower end of its previously stated guidance, on account of a sluggish first-half performance from Zyprexa and its insulin products. |
Lilly Exorcises Ghost of Q2 2005
Eli Lilly & Co swung into profit during the second quarter of 2006, posting a net income of US$920.2 million, compared to a loss of US$252.0 million in the comparable year-earlier period. That loss during 2005 was the result of a US$1.1 billion pre-tax liability charge, which included US$690 million for product liability relating to Zyprexa (olanzapine), to settle lawsuits involving around 8,000 people who claimed that Eli Lilly had failed to adequately warn them of an increased risk of abnormally high blood pressure and diabetes associated with the top-selling anti-psychotic drug. The U.S. FDA requested that drug-makers update the labelling of atypical antipsychotics in September 2003, to warn of this risk.
Eli Lilly: Selected Financial Results, 2006 | ||||
Q2 | H1 | |||
US$ mil. | % Change, Y/Y | US$ mil. | % Change, Y/Y | |
Net Sales | 3,866.9 | 5 | 7,581.6 | 6 |
Cost of Sales | 860.6 | -1 | 1,667.1 | -4 |
Research and Development | 774.8 | 2 | 1,515.6 | 3 |
Marketing and Administrative | 1,237.9 | 8 | 2,380.8 | 6 |
Operating Income* | 993.6 | 12 | 2018.1 | 16 |
Net Income | 822.0 | - | 1,656.8 | 241.9 |
Source: Eli Lilly, except * Global Inisight estimate calculated as revenues minus cost of sales, R&D and Marketing and Administrative costs | ||||
Accelerating Sales of Cymbalta Drive Total Revenues
Lilly reported that total sales for the second quarter increased by a solid 5% year-on-year (y/y) to US$3.9 billion, led by strong sales of Cymbalta (duloxetine HCl), the company's treatment for major depressive disorder and diabetic neuropathic pain. This product generated US$310.4 million for Lilly during the three-month period - a 92% y/y gain. Second-quarter revenue growth was also supported by sales of severe osteoporosis treatment Forteo (teriparatide injection) and cancer drug Alimta (pemetrexed), which posted y/y growth of 43% and 38% respectively.
The strong performance of Cymbalta, which has been steadily increasing its market share in the competitive anti-depressant market since its U.S. launch in August 2004, marks a significant positive for Lilly, as does the fact that an increasingly large proportion of its revenues are now accounted for by the company's nine newer products. What Lilly refers to as its newer products accounted for 24% of the company's revenues in the second quarter, up from 17% in the second quarter of 2005.
However, relatively static sales of Zyprexa, which rose by just 2% y/y to US$1.1 billion, and slower-than-expected sales of the company's insulin products pose a significant challenge for Lilly. These issues prompted the company to state that it expects full-year revenues to come out at the lower end of its previously stated guidance figures.
Lilly ICOS Increasingly Profitable
Meanwhile, on Friday (21 July), Lilly also announced the financial results of Lilly ICOS, the joint venture (JV) it established with the U.S. biotech ICOS Corp to market their erectile dysfunction (ED) treatment Cialis (tadalafil). During the second quarter, the unit proved that it could maintain the profitability that it has shown over the last few quarters by posting a net income of US$75.8 million, compared to a net loss of US$1.7 million in the comparable period of 2005. This profit was driven by a 22% y/y rise in Cialis sales, to US$233.2 million; the company attributed this to gains in the drug's market share, as well as overall growth in the ED sector. This JV aims to maintain Cialis' growth in the future by launching a once-daily formulation of the drug; it aims to price this product competitively, so that it will represent a viable financial alternative to on-demand products for men who take PDE5 inhibitor ED drugs more frequently than average (see United States: 9 June 2006: Lilly ICOS Files Once-a-Day Cialis in Europe). Worldwide Cialis sales included US$50.2 million in Lilly territories and US$182.7 million in the JV territories (where Lilly has a 50% stake).
Eli Lilly: Key Product Sales, 2006 | ||||
Q2 | H1 | |||
Brand | US$ mil. | % Change, Y/Y | US$ mil. | % Change, Y/Y |
Zyprexa | 1,115.0 | 2 | 2,122.4 | -1 |
Diabetes Care Products | 701.7 | 5 | 1,465.1 | 5 |
Gemzar | 343.5 | 0 | 682.3 | 5 |
Cymbalta | 310.4 | 92 | 543.7 | 103 |
Evista | 275.5 | 5 | 517.0 | 1 |
Strattera | 144.1 | 17 | 296.4 | 22 |
Alimta | 153.0 | 38 | 283.2 | 38 |
Forteo | 146.1 | 43 | 273.1 | 62 |
Source: Eli Lilly | ||||
Outlook and Implications
Lilly's management remains confident about the company's future outlook, believing that its strong product mix and continued productivity efforts will drive growth into the medium term. However, uncertainty over sales of Zyprexa and the company's crucial insulin products casts some doubt over its near-term potential. In a press release, Lilly CEO Signey Taurel stated that the company is beginning to see a stabilisation of Zyprexa's U.S. prescription trends, along with continued good international growth.
However, on a positive note for the company, Lilly also announced on Friday that it has managed to sign a long-term agreement with U.S. eye care specialist Alcon to co-promote ruboxistaurin mesylate (proposed brand name Arxxant) in the United States and Puerto Rico. This is an important move for Lilly; if Arxxant receives approval from the U.S. FDA, it will give the company access to Alcon's dedicated sales force in this specialty therapeutic area.