Lilly Details Growth Plans

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Indianapolis-based Eli Lilly and Co. (NYSE: LLY) has unveiled a "refined strategy" to increase revenue over the next several years. It focuses on diabetes, oncology and animal health. During a conference call this morning, Chief Executive Officer John Lechleiter said the plan will allow the company to move to "a period of resumed growth." He says a replenished pipeline validates the drugmaker's decision to "sustain a robust investment" in research and development, even during a period of patent expirations. Lilly issued its 2015 financial guidance today as well, projecting revenue between $20.3 billion and $20.8 billion.

January 7, 2015

News Release

Indianapolis, Ind. -- Eli Lilly and Company (NYSE: LLY) today announced its 2015 financial guidance and outlined plans to grow revenue and expand margins through the balance of the decade. The company's refined strategy will provide greater focus for research and commercial activities and help maintain a sustainable flow of innovative medicines.

"We are successfully moving from a challenging period of patent expirations to a period of resumed growth, led by diabetes, oncology and animal health," said John C. Lechleiter, Ph.D., Lilly's chairman, president and chief executive officer. "We are launching new products and competing more effectively. We also retain one of the strongest pipelines in our history. Our refined strategic direction gives us a blueprint that will provide greater focus for our research and commercial activities and help Lilly respond to an ever more challenging environment. In these ways and more, we'll continue to create value for all our stakeholders while improving the lives of patients."

The company expects to grow revenue with a first wave of product launches in diabetes, oncology and immunology followed by a second wave of potential launches in cardiovascular disease, Alzheimer's disease, pain and oncology. The company will focus on key geographies including the U.S., Japan, China and other select markets.

Lilly will focus its internal research and development on the core areas of diabetes, oncology, neurodegeneration, immunology and pain. Lilly is also progressing with an ambitious effort to reduce significantly the development time required to bring new medicines to patients.

The company aims to turn revenue growth into even greater earnings growth by controlling costs and leveraging existing infrastructure. By driving productivity improvements across the value chain, Lilly expects to reduce total operating expenses as a percent of revenue to 50% or less by the end of 2018. Total operating costs are defined as the sum of marketing, selling and administrative expenses and research and development expenses. Lilly also expects to increase gross margin as a percent of revenue through greater utilization of existing capacity in areas including insulin and its biotech portfolio as well as ongoing productivity efforts.

"We will balance opportunities and risks for our near, medium and long term objectives," said Derica Rice, Lilly's executive vice president for global services and chief financial officer. "Our objectives through the remainder of this decade are to grow revenue, expand margins and maintain the flow of innovative medicines through our pipeline. We also aim to deploy capital to create shareholder value including returning cash to shareholders via both the dividend and share repurchases."

Lilly also said 2014 earnings per share are now expected to be in the range of $2.15 - $2.23 on a reported basis. Prior reported expectations were $2.36 to $2.44. This revision is due to fourth-quarter global restructuring charges in an effort to reduce the company's cost structure and acquired in-process research and development charges associated with the Adocia collaboration. Expected 2014 Non-GAAP earnings per share have been confirmed at $2.72 - $2.80. Fourth quarter and full-year 2014 financial results will be announced on January 30, 2015.

2015 Financial Guidance

Earnings per share for 2015 are expected to be in the range of $2.40 to $2.50 on a reported basis and $3.10 to $3.20 on a non-GAAP basis. Non-GAAP figures for 2015 exclude costs associated with the Novartis Animal Health and Lohmann Animal Health acquisitions and amortization of intangibles.

Amortization and inventory step-up costs associated with the Novartis Animal Health acquisition are subject to final acquisition accounting adjustments. Numbers do not add due to rounding.

The company anticipates 2015 revenue between $20.3 billion and $20.8 billion. Despite multiple headwinds, including foreign exchange, the company expects revenue growth from multiple products including Humalog, Trajenta, Cialis, Forteo, Strattera, Effient, and OUS animal health products as well as higher revenues of new products including Cyramza, Trulicity and Jardiance.

On a reported basis, marketing, selling and administrative expenses are expected to be in the range of $6.7 billion to $7.0 billion. On a non-GAAP basis, marketing, selling and administrative expenses are expected to be in the range of $6.5 billion to $6.8 billion, reflecting the exclusion of amortization of intangibles. Research and development expenses are expected to be in the range of $4.8 billion to $5.0 billion reflecting an expected increase in Phase III trial expenses and the inclusion of Novartis Animal Health.

The 2015 tax rate is expected to be approximately 18.5 percent on a reported basis and 21.5 percent on a non-GAAP basis, assuming a full-year 2015 benefit of the R&D tax credit and other tax provisions up for extension. If these items are not extended, the 2015 tax rate would be approximately 1.5 percentage points higher. The 2015 expected reported tax rate includes the tax impact of costs associated with the Novartis Animal Health and Lohmann Animal Health acquisitions and amortization of intangibles.

The company's 2015 financial guidance does not include a potential charge related to the collaboration with Pfizer to develop and commercialize tanezumab, a NGF monoclonal antibody being studied for the treatment of pain. As previously communicated, if the partial clinical hold for the molecule is removed and Lilly and Pfizer move forward with development, Lilly will pay a $200 million upfront fee to Pfizer. This charge would cause Lilly's reported tax rate to be roughly 1 percentage point lower and would reduce reported EPS by approximately $0.12.

Webcast of Conference Call and Investor Materials

As previously announced, investors and the general public can access a live webcast of the 2015 financial guidance conference call and investor materials through a link on Lilly's website at www.investor.lilly.com. The conference call will be held today beginning at 9:00 a.m. Eastern Standard Time (EST) and will be available for replay via the website.

Lilly is a global healthcare leader that unites caring with discovery to make life better for people around the world. We were founded more than a century ago by a man committed to creating high-quality medicines that meet real needs, and today we remain true to that mission in all our work. Across the globe, Lilly employees work to discover and bring life-changing medicines to those who need them, improve the understanding and management of disease, and give back to communities through philanthropy and voluntarism. To learn more about Lilly, please visit us at www.lilly.com and http://newsroom.lilly.com/social-channels.

Source: Eli Lilly and Co.