New Drugs Lift Eli Lilly

The drugmaker beats earnings estimates by a penny and guides in line for the first quarter.
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Updated from 8:15 a.m. EST

Eli Lilly

(LLY) - Get Report

Wednesday posted solidly higher fourth-quarter net income, excluding a big one-time tax charge and restructuring costs, as it edged past analysts' EPS estimates thanks to its latest generation of drugs.

Excluding items, net income rose 13% to $814.3 million, or 75 cents a share, vs. $723.3 million, or 67 cents a share, a year ago. Analysts were expecting 74 cents a share, according to Thomson First Call.

The news was good enough to send the stock up $1.95, or 3.6%, to $56.80.

Including one-time items, the Indianapolis-based drugmaker had a net loss of $2.4 million, equivalent to zero cents a share, primarily due to a $465.0 million tax expense on the expected repatriation to the U.S. of $8.0 billion of eligible overseas earnings in 2005 under the American Jobs Creation Act of 2004, as well as the charges for the previously announced restructuring initiatives. That compares with a profit of $747.2 million, or 69 cents a share, in the year-ago period.

Lilly is the latest drugmaker to take advantage of a one-year tax break for overseas profits. Under a law signed by President George W. Bush in October, the tax rate will be 5.25% instead of the customary corporate tax rate of 35%.

Schering-Plough

(SGP)

and

Johnson & Johnson

(JNJ) - Get Report

also outlined their tax plans in fourth-quarter results.

Pfizer

(PFE) - Get Report

said it is looking into the option.

Lilly's operating income decreased 48% to $450.9 million, due largely to $494.1 million in asset impairments, restructuring and other special charges. Fourth-quarter revenue increased 5% to $3.64 billion.

Last year, "Lilly launched five new products plus six new indications or formulations

of existing drugs in key markets," said Sidney Taurel, the chairman and CEO. "Notably, our recent launches of Cymbalta and Alimta are exceeding our sales expecations." Cymbalta treats depression and nerve pain associated with diabetes; Alimta is approved for certain types of lung cancer.

Taurel said sales of Alimta, Cymbalta and six other newer products doubled in 2004 and are expected to double again this year to about 20% of corporate sales.

The newer products contributed $498.7 million to fourth-quarter sales and accounted for 14% of total sales, twice the rate of a year ago. For the full year, these products contributed $1.55 billion in sales, or 11% of corporate revenue.

Looking Ahead

Taurel said new products and a strong pipeline have Lilly "well positioned to produce growth at or near the top of our peer group in a sustainable fashion," Taurel said.

For the first quarter of 2005, the company expects EPS of 65 cents to 67 cents. Excluding items, EPS is seen at 71 to 73 cents. The consensus estimate is 73 cents a share.

For fiscal 2005, Lilly expects EPS of $2.80 to $2.90. Excluding items, the company predicted an EPS of $3.05 to $3.15, which fits around the Thomson First Call consensus of $3.10.

As previously reported, Lilly will begin recording changes in the accounting of stock options immediately rather than the July 1 deadline set by the Financial Accounting Standards Board. The company expects this adjustment to represent a reduction in EPS of 25 cents for 2005. If the rule had been in effect last year, the EPS reduction would have been 23 cents.

Lilly warned that its biggest product, the antipsychotic drug Zyprexa, will continue to face challenges in 2005. The company predicted that U.S. sales will continue to decline, but it said it is taking steps "to slow the erosion sometime in 2005." Lilly expects "double-digit" sales growth in foreign markets, leading to an overall slight decline in 2005.

During the fourth quarter of 2004, total sales fell by 5% to $1.09 billion, and during the full year, sales inched up 3% to $4.42 billion. The sales slump continued in the U.S. because of brand-name and price competition. The U.S. sales hit could be much greater if Lilly loses a patent challenge, filed by three generic drug companies, to its U.S. patent for Zyprexa. The long-awaited decision should come during the first quarter.

Another high-profile product that has run into some difficulty is the impotence drug Cialis, marketed by Lilly and the drug's developer

Icos

(ICOS)

. Although Cialis still trails Viagra, made by

Pfizer

(PFE) - Get Report

, it has moved into second place in the U.S. market ahead of Levitra, from

GlaxoSmithKline

(GSK) - Get Report

and

Bayer

(BAY)

.

However, analysts say the erectile dysfunction market isn't growing as fast as the drug companies had expected, and Lilly executives said Wednesday that Cialis has encountered some overstocking among U.S. wholesalers. The wholesaler logjam should clear up during the first quarter of 2005, they said. Worldwide fourth-quarter 2004 sales of $152.7 million were down slightly from third-quarter sales of $154.1 million.

Cialis entered in the U.S. market in late-November 2003. Worldwide Cialis sales were $552.3 million last year compared to $203.3 million in 2003.