Eli Lilly & Company (LLY) reported third-quarter 2014 adjusted earnings per share of 66 cents, in line with the Zacks Consensus Estimate but 41% below the year-ago earnings.
Third-quarter revenues fell 16% to $4.876 billion, reflecting generic competition for Cymbalta and Evista in the U.S. However, revenues were slightly above the Zacks Consensus Estimate of $4.83 billion.
Reported earnings (including special items) declined 58% to 47 cents per share in the third quarter of 2014.
Generics Hit Revenues
Third-quarter revenues declined 16% due to lower volume. The impact of price changes and currency fluctuation were negligible. The lower volume was mainly due to the Dec 2013 genericization of Cymbalta in the U.S. and the Mar 2014 patent expiry of Evista in the U.S.
U.S. revenues declined 33% to $2.218 billion reflecting lower volume resulting from the loss of patent protection on Cymbalta and Evista. Ex- U.S. revenues increased 8% to $2.658 billion mainly due to higher volume.
During the third quarter, Zyprexa recorded an 8% decline in revenues, which came in at $257.4 million.
Cymbalta sales fell 73% to $368 million. U.S. sales plunged 94% to $69.4 million due to the loss of patent exclusivity in December. Ex-U.S. sales grew 12% to $298.6 million reflecting higher volume.
Evista sales fell 65% to $89.5 million. U.S. sales dropped 82% to $34.8 million, due to the loss of exclusivity in Mar 2014. Ex-U.S. sales declined 14% to $54.7 million due to lower prices.
Products which recorded growth in the third quarter included Alimta (up 5% to $723.4 million), Humulin (up 9% to $335.9 million), Humalog (up 15% to $706.1 million), Cialis (up 8% to $568.4 million), Forteo (up 8% to $332.2 million) and Strattera (up 11% to $191.9 million).
Eli Lilly’s Animal Health segment contributed $584.7 million (up 10%) to revenues. Higher volume led to the increase. The Lohmann acquisition also boosted sales. Sales in the U.S. grew 3% due to higher prices partially offset by lower volume for food animal and companion animal products due to competition and market dynamics.
Eli Lilly is looking to strengthen its Animal Health division and will be acquiring Novartis’ (NVS) animal health business – the acquisition is slated to go through in the first quarter of 2015.
Eli Lilly’s adjusted operating expenses declined 7.7% to $3.029 billion reflecting the company’s cost control efforts.
Earnings Guidance Maintained
Eli Lilly maintained its 2014 earnings guidance of $2.72 – $2.80 per share. However, revenues are now expected in the range of $19.4 billion and $19.8 billion (previous guidance: $19.4 billion – $20.0 billion).
The Zacks Consensus Estimate for earnings and revenues is currently $2.76 per share and $19.8 billion, respectively.
The company now expects gross margin of about 74.5% (up from prior guidance of 73%).
Marketing, selling and administrative expenses should decline from year-ago levels to a range of $6.3 billion – $6.5 billion (old guidance: $6.3 billion – $6.6 billion). Meanwhile, research and development expenses are expected to decline to $4.6 billion – $4.8 billion (old guidance: $4.4 billion – $4.7 billion).
Our Take
Eli Lilly’s third-quarter results were hit by the genericization of Cymbalta and Evista. Basically, 2014 has been an extremely challenging year for Eli Lilly with both products seeing a sharp decline in sales.
However, products like Humalog, Humulin, Trajenta, Cialis, Forteo and Alimta and the animal health business should help partially offset the impact of genericization. The company also has some new products in its portfolio which should start contributing to revenues. China should also see strong growth though Japan will be weaker due to currency movement.
Eli Lilly is also working on controlling costs. Both marketing, selling and administrative expenses and R&D expenses are expected to decline from 2013 levels.
Eli Lilly should return to growth from 2015.
Eli Lilly is a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the health care sector include Medivation Inc. (MDVN) and Allergan Inc. (AGN). While Medivation is a Zacks Rank #1 (Strong Buy) stock, Allergan carries a Zacks Rank #2 (Buy).
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