Eli Lilly swings to a loss on higher sales, cuts 2017 EPS view

Lilly Reports First-Quarter 2017 Results

– First-quarter 2017 revenue increased 7 percent, driven by 9 percent pharmaceutical volume growth from Trulicity, Taltz and other new products.
– First-quarter 2017 earnings per share (EPS) were a loss of $0.10 on a reported basis, resulting from the acquisition of CoLucid Pharmaceuticals. First-quarter 2017 EPS were $0.98 on a non-GAAP basis.
– The company has revised 2017 EPS to be in the range of $2.60 to $2.70 on a reported basis. On a non-GAAP basis, the company has reaffirmed 2017 EPS to be in the range of $4.05 to $4.15.
– Pipeline events included European Commission approval of Olumiant, positive Phase 3 data from abemaciclib and Taltz, and a complete response letter from the FDA for baricitinib.

BUZ INVESTORS PRESS RELEASE  Eli Lilly swings to a loss  Eli Lilly and Company (NYSE: LLY) today announced financial results for the first quarter of 2017.

 

BUZ INVESTORS PRESS RELEASE  Eli Lilly swings to a loss  Eli Lilly and Company (NYSE: LLY) today announced financial results for the first quarter of 2017.

 

$ in millions, except per share data

First Quarter

%

2017

2016

Change

Revenue

$

5,228.3

$

4,865.1

7

%

Net Income (Loss) – Reported

(110.8)

440.1

NM

Earnings (Loss) Per Share – Reported

(0.10)

0.41

NM

Net Income – Non-GAAP

1,039.6

882.3

18

%

EPS – Non-GAAP

0.98

0.83

18

%

 

Certain financial information for 2017 and 2016 is presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the periods. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. The company’s 2017 financial guidance is also being provided on both a reported and a non-GAAP basis. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business.




 Eli Lilly swings to a loss 

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“Lilly’s new product launches, including Trulicity and Taltz, led the company to a strong quarter of volume-driven revenue growth. We achieved this growth while maintaining our commitment to expand margins and improve productivity,” said David A. Ricks, Lilly’s president and CEO. “The progress we made in the first quarter continues the positive momentum we’ve built over the past few years. We remain on track to sustain a steady flow of innovation that has the potential to improve patients’ lives and create value for shareholders.”

Key Events Over the Last Three Months

Commercial

  • The company and Boehringer Ingelheim launched Synjardy® XR (empagliflozin and metformin hydrochloride extended-release) tablets in the U.S. for adults with type 2 diabetes. Synjardy is part of the company’s alliance with Boehringer Ingelheim.

Regulatory

  • With respect to Olumiant® (baricitinib) on which we collaborate with Incyte:
    • The European Commission granted marketing authorization for 4 mg and 2 mg film-coated tablets in the European Union for the treatment of moderate-to-severe active rheumatoid arthritis in adult patients who have responded inadequately to, or who are intolerant to, one or more disease-modifying antirheumatic drugs. Olumiant has been launched in select European countries.
    • The U.S. Food and Drug Administration (FDA) issued a complete response letter for the New Drug Application (NDA) of baricitinib, an investigational medication for the treatment of moderate-to-severe rheumatoid arthritis, indicating that the FDA is unable to approve the application in its current form. The FDA specifically stated that additional clinical data are needed to determine the most appropriate doses and to further characterize safety concerns across treatment arms.
  • The European Commission approved an update to the Synjardy label to include a change to the indication statement and inclusion of data on the reduction of risk of cardiovascular death in patients with type 2 diabetes and established cardiovascular disease when treated with empagliflozin.
  • The FDA approved updates to the label for Trulicity® (dulaglutide) to include use in combination with basal insulin for adults with type 2 diabetes.

Clinical

  • With respect to Phase 3 trials of abemaciclib, a cyclin-dependent kinase (CDK)4 and CDK6 inhibitor, being tested in women with hormone-receptor-positive (HR+), human epidermal growth factor receptor 2-negative (HER2-) advanced breast cancer:
    • The company announced that abemaciclib, in combination with fulvestrant, in women who have relapsed or progressed after endocrine therapy was superior to fulvestrant plus placebo on progression-free survival. Lilly intends to initiate global submissions of these results, as well as for single-agent abemaciclib based on a previous Phase 2 study, beginning in the second quarter of 2017.
    • The company announced results of a preplanned interim analysis, evaluating abemaciclib, in combination with an aromatase inhibitor (letrozole or anastrozole), compared to treatment with an aromatase inhibitor plus placebo. The trial met its primary endpoint of demonstrating statistically significant improvement in progression-free survival. In addition, improvement was shown in a key secondary endpoint of objective response rate. Lilly intends to begin global submissions of these results in the third quarter of 2017.
  • The company announced that patients with moderate-to-severe plaque psoriasis treated with Taltz® (ixekizumab) demonstrated superior efficacy at 24 weeks compared to patients treated with Stelara® (ustekinumab).

Business Development/Other

  • The company completed its acquisition of CoLucid Pharmaceuticals. As a result of this acquisition, lasmiditan, in development for the acute treatment of migraine, has been added to Lilly’s Phase 3 pipeline.
  • The Japan IP High Court confirmed the decisions of the Japan Patent Office and ruled in Lilly’s favor in the invalidation trials initiated by Sawai regarding Lilly’s vitamin regimen patents for Alimta® (pemetrexed disodium).
  • The company announced plans to invest $850 million in its U.S. operations in 2017. The company’s investments span facilities across its U.S. enterprise, including research laboratories, manufacturing sites, and general and administrative areas. The investments are being driven by demand for Lilly products, as well as the company’s robust pipeline of potential medicines in development targeting cancer, pain, diabetes and other unmet medical needs.

First-Quarter Reported Results

In the first quarter of 2017, worldwide revenue was $5.228 billion, an increase of 7 percent compared with the first quarter of 2016. The revenue increase was driven by an 8 percent increase due to volume, partially offset by a 1 percent decrease due to the unfavorable impact of foreign exchange rates. The increase in worldwide volume was largely due to 9 percent pharmaceutical growth driven by Trulicity, Taltz and other new products including Cyramza®, LartruvoTM, Basaglar® and Jardiance®. To a lesser extent, the increase in volume was also driven by companion animal products due to the inclusion of $40.8 million in revenue from the acquisition of Boehringer Ingelheim Vetmedica’s U.S. feline, canine and rabies vaccine portfolio. These total volume increases were partially offset by decreased volumes for Zyprexa® and Alimta®.

Revenue in the U.S. increased 15 percent, to $2.934 billion, driven primarily by increased volumes for Trulicity, Taltz, Lartruvo and companion animal products due to the inclusion of revenue from the acquisition of Boehringer Ingelheim Vetmedica’s U.S. feline, canine and rabies vaccine portfolio, partially offset by decreased volume for Alimta. Realized prices increased U.S. revenue by 3 percent, primarily driven by Humalog®, which had significant unfavorable changes to rebates and discounts in the first quarter of 2016 that did not recur in the first quarter of 2017.

Revenue outside the U.S. decreased 1 percent, to $2.295 billion, due to lower realized prices and volume from the loss of exclusivity for several products including Cymbalta® in Canada and Europe, Zyprexa in Japan and Alimta in numerous countries, as well as the unfavorable impact of foreign exchange rates. These were largely offset by increased volume for several newly launched pharmaceutical products, including Trulicity and Cyramza.

Gross margin increased 10 percent, to $3.901 billion, in the first quarter of 2017 compared with the first quarter of 2016. Gross margin as a percent of revenue was 74.6 percent, an increase of 1.8 percentage points compared with the first quarter of 2016. The increase in gross margin percent was primarily due to manufacturing efficiencies.

Operating expenses in the first quarter of 2017, defined as the sum of research and development, and marketing, selling and administrative expenses, were $2.783 billion, an increase of 3 percent compared with the first quarter of 2016. Research and development expenses increased 1 percent, to $1.238 billion, or 23.7 percent of revenue. Marketing, selling and administrative expenses increased 5 percent, to $1.545 billion, due to increased expenses related to new pharmaceutical products, partially offset by decreased expenses related to late life-cycle products. Operating expenses were 53.2 percent of revenue in the first quarter of 2017, a reduction of 2.2 percentage points compared with the first quarter of 2016.

In the first quarter of 2017, the company recognized an acquired in-process research and development charge of $857.6 million associated with the acquisition of CoLucid Pharmaceuticals. There were no acquired in-process research and development charges in the first quarter of 2016.

In the first quarter of 2017, the company recognized asset impairment, restructuring and other special charges of $213.9 million, primarily related to severance costs incurred as a result of actions taken to reduce the company’s cost structure, as well as integration costs related to the acquisition of Novartis Animal Health. In the first quarter of 2016, the company recognized asset impairment, restructuring and other special charges of $131.4 million, composed of asset impairments related to the closure of an animal health manufacturing facility in Ireland and integration costs related to the acquisition of Novartis Animal Health.

Operating income in the first quarter of 2017 was $46.1 million, a decrease of $669.7 million compared with the first quarter of 2016, primarily driven by an acquired in-process research and development charge for the acquisition of CoLucid Pharmaceuticals, partially offset by revenue growth.

Other income (expense) was income of $15.1 million in the first quarter of 2017, compared with expense of $149.0 million in the first quarter of 2016. Other expense in the first quarter of 2016 was driven by a $203.9 million charge related to the impact of the Venezuelan financial crisis.

During the first quarter of 2017, the company incurred $172.0 million of income tax expense, despite earning $61.2 million of income before income taxes, as a result of the nondeductible $857.6 million acquired in-process research and development charge for the acquisition of CoLucid Pharmaceuticals.  During the first quarter of 2016, the company’s effective tax rate was 22.4 percent.

In the first quarter of 2017, net income (loss) and earnings (loss) per share were $(110.8) million and $(0.10), respectively, compared with $440.1 million and $0.41, respectively, in the first quarter of 2016. These decreases in net income (loss) and earnings (loss) per share were primarily driven by lower operating income, partially offset by higher other income.

First-Quarter Non-GAAP Measures

On a non-GAAP basis, first quarter 2017 gross margin increased 10 percent, to $4.085 billion. Gross margin as a percent of revenue was 78.1 percent, an increase of 1.8 percentage points compared with the first quarter of 2016. The increase in gross margin percent was primarily due to manufacturing efficiencies.

Operating expenses were 53.2 percent of revenue in the first quarter of 2017, a reduction of 2.2 percentage points compared with the first quarter of 2016.

Operating income increased $284.4 million, or 28 percent, to $1.304 billion in the first quarter of 2017, due to revenue growth, partially offset by higher operating costs related to new products.

The effective tax rate was 21.2 percent in the first quarter of 2017, compared with 17.9 percent in the first quarter of 2016. The higher effective tax rate for the first quarter of 2017 was primarily due to a net discrete tax benefit of approximately $50 million in 2016.

In the first quarter of 2017, net income and earnings per share increased 18 percent, to $1.040 billion, and $0.98, respectively, compared with $882.3 million, and $0.83, respectively, in the first quarter of 2016. The increases in net income and earnings per share were primarily driven by higher operating income, partially offset by a higher effective tax rate and lower other income.

For further detail of non-GAAP measures, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.

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