Lilly Profit Falls

Posted: Updated:

Indianapolis-based Eli Lilly and Co. (NYSE: LLY) is reporting a 53 percent drop in first quarter net income. It says first quarter profit was $728 million, compared to $1.5 billion for the same period a year earlier. Chief Executive Officer John Lechleiter says the results reflect an expected decline following the patent expirations of Cymbalta and Evista. However, he adds recent pipeline announcements, regulatory actions and business deals solidify growth prospects. Lechleiter specifically points to this week's FDA approval of a stomach cancer drug and the acquisition of Novartis Animal Health.

April 24, 2014

News Release

INDIANAPOLIS, Ind. - Eli Lilly and Company (NYSE: LLY) today announced financial results for the first quarter of 2014.

Certain financial information for 2014 and 2013 are 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 period. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. The non-GAAP measures are presented in order to provide additional insights into the underlying trends in the company's business. The company's 2014 financial guidance is also being provided on both a reported and a non-GAAP basis.

"Lilly's first-quarter results reflect the substantial decline in revenue and earnings that we expected to encounter as a result of the recent U.S. patent expirations for Cymbalta and Evista," said John C. Lechleiter, Ph.D., Lilly's chairman, president and chief executive officer. "Beyond our financial performance, the initial months of 2014 have included a series of key regulatory actions, pipeline announcements and business development transactions that solidify the company's future growth prospects, highlighted by the approval of Cyramza in the U.S. and the announced acquisition of Novartis Animal Health."

Key Events Over the Last Three Months

The U.S. Food and Drug Administration (FDA) approved Cyramza (ramucirumab) as a single-agent treatment for patients with advanced or metastatic gastric cancer or gastroesophageal junction (GEJ) adenocarcinoma with disease progression on or after prior fluoropyrimidine- or platinum-containing chemotherapy.

The company announced an agreement to acquire Novartis Animal Health in an all-cash transaction that will strengthen and diversify Lilly's own animal health business, Elanco. Under the terms of the agreement, Lilly will acquire all assets of Novartis Animal Health for a total purchase price of approximately $5.4 billion, including anticipated tax benefits. The transaction is expected to close by the end of the first quarter of 2015, subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act, similar requirements outside the U.S., and other customary closing conditions.

The company and its alliance partner, Boehringer Ingelheim, announced that the FDA accepted the filing of the New Drug Application (NDA) for the investigational combination tablet of empagliflozin and linagliptin for the treatment of adults with type 2 diabetes.

The company announced positive top-line results for the REVEL trial, a global Phase III study of ramucirumab in combination with chemotherapy in patients with second-line non-small cell lung cancer. The trial results showed a statistically significant improvement in the primary endpoint of overall survival in the ramucirumab-plus-docetaxel arm compared to the control arm of placebo plus docetaxel. REVEL also showed a statistically significant improvement in progression-free survival in the ramucirumab arm compared to the control arm.

The company announced positive top-line results of the sixth AWARD trial for once-weekly dulaglutide, an investigational, long-acting glucagon-like peptide 1 (GLP-1) receptor agonist being studied as a treatment for type 2 diabetes. In the AWARD-6 study, once-weekly dulaglutide 1.5 mg achieved the primary endpoint of non-inferiority to once-daily liraglutide 1.8 mg, as measured by the reduction of hemoglobin A1c (HbA1c) from baseline at 26 weeks.

The Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency issued a positive opinion recommending approval of empagliflozin, an investigational sodium glucose co-transporter 2 (SGLT2) inhibitor, as an adjunct to diet and exercise to improve glycemic control, or blood glucose levels, in adults with type 2 diabetes.

The FDA issued a complete response letter for the NDA of empagliflozin. The company and its partner, Boehringer Ingelheim, continue to expect FDA action in 2014.

U.S. patent exclusivity for Evista® ended in March, 2014, resulting in the entry of generic competition. The company reached a short-term agreement with Prasco Laboratories to supply an authorized version of raloxifene (Evista).

The company's animal health division, Elanco, announced an agreement to acquire Lohmann SE (Lohmann Animal Health) for a purchase price of approximately 440 million euros. Lohmann Animal Health, a privately-held company headquartered in Cuxhaven, Germany, is a global leader in poultry vaccines and also markets a range of feed additives. The transaction is expected to close in the second quarter of 2014, contingent upon clearance from regulatory authorities and other customary closing conditions.

The U.S. District Court for the Southern District of Indiana ruled in the company's favor on the issues of validity and infringement regarding the vitamin dosage regimen patent for Alimta. The patent provides intellectual property protection for Alimta in the U.S. until 2022. In addition, the Regional Court of D?sseldorf in Germany ruled in Lilly's favor on the issue of infringement of the vitamin dosage regimen patent for Alimta. The patent provides intellectual property protection for Alimta in Germany until 2021.

In the Actos product liability case of Terrence Allen, et al. v. Takeda Pharmaceuticals North America, Inc. et al., a jury found in favor of the plaintiffs and awarded $1.475 million in compensatory damages. The allocation of liability was 75 percent Takeda and 25 percent Lilly. The jury also awarded $6 billion in punitive damages from Takeda and $3 billion from Lilly. Lilly disagrees with the verdict and intends to vigorously challenge this outcome through all available legal means. The agreement between Lilly and Takeda calls for Takeda to defend and indemnify Lilly for losses and expenses with respect to the U.S. litigation in accordance with the terms of the agreement. After the verdict was entered in Allen, Takeda notified Lilly that it was reserving its right to challenge its obligations to defend and indemnify Lilly with respect to the Allen case only. Lilly believes it is entitled to full defense and indemnification of its losses and expenses related to Allen and in all other U.S. cases.

A lawsuit was filed against the company by Sanofi-Aventis in the U.S. District Court for the District of Delaware alleging patent infringement with respect to LY2963016, a new insulin glargine product for which Lilly is currently seeking approval from the FDA. Lilly respects the intellectual property of others and does not believe the application for approval of its new insulin glargine product infringes any valid claim of the asserted patents.

First-Quarter Reported Results

In the first quarter of 2014, worldwide total revenue was $4.683 billion, a decrease of 16 percent compared with the first quarter of 2013. The revenue decline was comprised of 8 percent due to lower volume, 6 percent due to lower prices, and 2 percent due to the unfavorable impact of foreign exchange rates. The 8 percent decrease in worldwide volume was driven by the loss of U.S. patent exclusivity for Cymbalta® in December 2013, partially offset by v