Zyprexa Charge Hits Lilly's Bottom Line

The drug company's forecast is basically in line with estimates.
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Updated from 9:56 a.m. EDT

Drug company

Eli Lilly

(LLY) - Get Report

offered earnings guidance on Thursday that agrees with analysts' predictions, after reporting second-quarter sales and profits that matched Wall Street's expectations.

By midday, Lilly's stock had slipped 70 cents, or 1.2%, to $56.56.

Excluding items, and there was a big one, Lilly said it earned $728 million, or 67 cents a share, on revenue of $3.67 billion for the three months ended June 30. Analysts polled by Thomson First Call had forecast a profit of $727 million, or 67 cents a share, on revenue of $3.69 billion.

But the quarter featured a $1.07 billion pretax product liability charge, worth 90 cents a share after tax,

relating to a legal agreement involving the antipsychotic drug Zyprexa. Lilly said it would settle many of the lawsuits that alleged the company failed to adequately tell patients and doctors about Zyprexa's potential side effects.

The Zyprexa charge included $690 million that was previously announced for the settlement of lawsuits, plus additional amounts as a reserve for "product liability exposure and defense costs" for lawsuits not covered by the settlement.

If all charges for the second quarters of 2005 and 2004 are included, Lilly lost $252 million, or 23 cents a share, for the just-completed quarter vs. a profit of $656.9 million, or 61 cents a share, for the same period last year.

Second-quarter sales in 2004 were $3.56 billion, so the latest quarter's revenue represents a 3% gain.

Excluding special items, Lilly forecast third-quarter EPS in the range of 70 cents to 72 cents. Analysts are predicting an average of 71 cents. For the full year, Lilly said the EPS, excluding one-time items, would be in the range of $2.80 to $2.86. The Wall Street consensus is $2.82.

Among Lilly's major products, Zyprexa's worldwide revenue declined 10% to $1.1 billion in the second quarter vs. the same period last year, while U.S. sales fell 21% due to competition. Zyprexa accounted for 30% of corporate revenue.

Lilly said first-half sales of Zyprexa were better than expected, adding that there will be a "slight decline" in worldwide sales for the full year. The second half of 2005 vs. the second half of 2004 "should improve assuming a continuation of current prescription volume trends," the company said.

The antidepressant Cymbalta, which was launched in the U.S. 11 months ago, posted second-quarter sales of $161.4 million. Cymbalta also is approved for nerve pain associated with diabetes.

Sales of diabetes products slipped 1% to $669.4 million, as U.S. sales declined 5% while foreign sales gained 5%.

Strattera, the medication for attention deficit hyperactivity disorder, suffered a 31% drop in sales to $123.5 million. Lilly blames declining demand, reductions in wholesaler inventories and a restructuring of its relationships with wholesalers.

Sales of the osteoporosis drug Evista fell 5% to $261.5 million. Another osteoporosis drug, Forteo, posted a 56% gain to $101.9 million.

Worldwide sales of the impotence drug Cialis gained 39% to $190.9 million. Lilly comarkets the drug with

Icos

(ICOS)

.

Gemzar, a treatment for advanced cancer of the lung, breast and pancreas, recorded a 17% sales gain to $343 million. The lung cancer drug Alimta, launched in the first quarter of 2004, had sales of $111.2 million.