Updated from 9:37 a.m. EDTEli Lilly ( LLY) Monday reported first-quarter earnings and revenue that topped Wall Street estimates by a healthy margin and offered in-line forward guidance. Excluding one-time charges, Lilly earned $762.7 million, or 70 cents a share, for the three months ended March 31. The EPS consensus of analysts polled by Thomson First Call was 66 cents. Earnings and EPS gained 15% over the same period last year. Revenue advanced 17% to $3.38 billion. The Wall Street consensus was $3.23 billion. When one-time charges are included, Lilly earned $400.4 million, a decline of 2% from the same period last year. Earnings per share were 37 cents, down 1 cent from the first quarter of 2003. The major charge in the first quarter was for $362.3 million related to the acquisition of Applied Molecular Evolution. Indianapolis-based Lilly also confirmed its full-year 2004 forecast of $2.80 to $2.85 a share and offered guidance for the second quarter of 67 cents to 69 cents a share. The Wall Street consensus estimates are 68 cents and $2.83 a share, respectively. Lilly said it continues to expect "low double-digit" sales growth for the full year. The full-year guidance excludes the charge for the Applied Molecular Evolution purchase. "First-quarter 2004 trounces skeptics," said the headline of a Monday research note from David R. Risinger, of Merrill Lynch, who maintained his buy recommendation on the stock. "Product revenue was in-line or above forecast for virtually all of the company's products," Risinger said. (He doesn't own shares; his firm is a market maker for Lilly's stock and has had an investment banking relationship in the last 12 months.) Lilly was paced by its Zyprexa-Symbyax franchise, whose sales gained 18% to $1.13 billion during the first quarter. Zyprexa, an anti-psychotic, is the company's best-selling drug. Symbyax is a combination of Zyprexa and the Lilly antidepressant Prozac for the treatment of bipolar depression.
Virtually all of the sales belonged to Zyprexa. The Food and Drug Administration approved Symbyax in late 2003, and the drug reached the U.S. market during the first quarter. The results exclude sales from an injectable form of Zyprexa, recently approved by the Food and Drug Administration. The company started selling the drug earlier this month. The company said it expects a federal district court judge in Indianapolis will issue a ruling this summer on patent challenges by three generic drugmakers against Zyprexa. A trial was held in January and February. The generic companies' arguments "have no merit," Simon Harford, Lilly's executive director of investor relations, told analysts Monday. Zyprexa accounted for 34% of company sales last year and 33% for the first quarter of 2004. Zyprexa produced strong international growth -- up 36% for the first quarter to $477.4 million compared to the same period last year. But U.S. sales growth was only 2% to $620.9 million; and analysts have expressed concern that U.S.-based revenue will remain under pressure by competing anti-psychotic drugs. Noting that it will "continue to monitor Zyprex's U.S. performance," Lilly said it believes Zyprexa-related revenue still has "growth potential" due to Symbyax and the injectable version of the drug Total worldwide sales for Cialis, the impotence drug which reached the U.S. market in late November, grew to $108.3 million compared to $94.2 million for the fourth quarter of 2003. Cialis was developed by Icos ( ICOS) and is marketed in North American and European markets by a joint venture of the two companies and in other markets by Lilly. Other first-quarter highlights included 19% sales growth of the cancer drug Gemzar to $279.9 million, one of several products that beat sales estimates by Jami Rubin of Morgan Stanley. Rubin, who maintained an equal weight rating on the stock, told clients Monday that higher-than-expected sales for Gemzar and several other products benefited from a weak U.S. dollar as well as price increases. However, Rubin noted that two drugs -- Zyprexa and the osteoporosis treatment Evista -- with better-than-expected sales suffered from U.S. prescription trends that "remain in negative territory."
Rubin is remaining neutral on the stock because the weaknesses of U.S. sales for Zyprexa, Evista and insulin in the United States are offset by the strengths of the expected FDA approval this summer of Cymbalta, an antidepressant, and her belief that Lilly will win the Zyprexa patent challenge. (She doesn't own shares; her firm has had an investment banking relationship with Lilly in the last 12 months.) Recently, the company's stock rose 87 cents, or 1.2%, to $73.32.