Lilly Reports Q1 Adj Earnings Per Share $1.34

Lilly Reports Q1 Adj Earnings Per Share $1.34

Lilly Reports Q1 Adj Earnings Per Share $1.34

The FINANCIAL -- Eli Lilly and Company on April 24 announced financial results for the first quarter of 2018.

"Lilly delivered strong financial results in the first quarter, fueled by revenue growth of new products and continued productivity gains that together resulted in robust earnings growth and an improved financial outlook for the year," said David A. Ricks, Lilly's chairman and CEO. "We are in the early stages of a new growth era, driven by the strong uptake of our new products, ongoing margin expansion, and the momentum we are producing in our pipeline. Lilly remains poised to deliver more innovation for patients and increased value for stakeholders."

"While we are pleased that yesterday's FDA Arthritis Advisory Committee supported the efficacy of both the 2-mg and 4-mg doses of baricitinib, and recommended overall support for 2-mg, we are disappointed that the committee did not recommend approval of the 4-mg dose," said Daniel Skovronsky, M.D., Ph.D., senior vice president for clinical and product development and incoming president of Lilly Research Labs. "We are confident in the benefit-risk profile of both baricitinib 2-mg and 4-mg for the treatment of patients living with rheumatoid arthritis, supported by the clinical data generated to-date, and by the more than 40 countries in which both doses are approved. We'll continue to work with the FDA on this important application."

Key Events Over the Last Three Months

Regulatory

The U.S. Food and Drug Administration's (FDA) Arthritis Advisory Committee recommended approval of the 2-mg dose of baricitinib, a once-daily oral medication for the treatment of moderately-to-severely active rheumatoid arthritis for adult patients who have had an inadequate response or intolerance to methotrexate. While the Advisory Committee unanimously supported the efficacy of the 4-mg dose of baricitinib, it did not recommend approval of the 4-mg dose of baricitinib for the proposed indication based on the adequacy of the safety and benefit-risk profiles.

The FDA approved, and the company launched, VerzenioTM (abemaciclib) in combination with an aromatase inhibitor as initial endocrine-based therapy for the treatment of postmenopausal women with hormone receptor-positive (HR+), human epidermal growth factor receptor 2-negative (HER2-) advanced or metastatic breast cancer, according to Eli Lilly and Company.

Clinical

The company announced additional results from a phase 3 study of Cyramza® (ramucirumab) in combination with docetaxel in patients with locally advanced or unresectable or metastatic urothelial carcinoma whose disease progressed on or after platinum-based chemotherapy. A positive trend was seen in the secondary endpoint of overall survival which did not reach statistical significance. The company previously announced that the trial met its primary endpoint of investigator-assessed progression-free survival.

The company announced top-line results from a Phase 3 study of Cyramza as a single agent in the second-line treatment of people with hepatocellular carcinoma, also known as liver cancer. The trial met its primary endpoint of overall survival as well as the secondary endpoint of progression-free survival. The company intends to initiate regulatory submissions in mid-2018.

The company announced that Taltz (ixekizumab) met the primary and all key secondary endpoints in a Phase 3 study evaluating the safety and efficacy of Taltz for the treatment of ankylosing spondylitis (AS), also known as radiographic axial spondyloarthritis (axSpA). The company plans to submit for regulatory approvals pending additional data from the ongoing Taltz development program later this year.

Business Development/Other Developments

The company announced a global collaboration with Sigilon Therapeutics to develop encapsulated cell therapies for the potential treatment of type 1 diabetes. Under the terms of the agreement, Lilly will receive an exclusive worldwide license to Sigilon's Afibromer technology for islet cell encapsulation. Sigilon will receive an upfront payment of $63 million, and Lilly will make an undisclosed equity investment in Sigilon.
First-Quarter Reported Results

In the first quarter of 2018, worldwide revenue was $5.700 billion, an increase of 9 percent compared with the first quarter of 2017. The revenue increase was driven by a 4 percent increase due to the favorable impact of foreign exchange rates, a 3 percent increase due to higher realized prices, and a 2 percent increase due to volume.

Revenue in the U.S. increased 8 percent, to $3.155 billion, due to increased volume for new pharmaceutical products, including Trulicity, Basaglar, Jardiance, Verzenio, and Taltz, as well as higher realized prices, primarily for Cialis, Humalog , Strattera, Basaglar, and companion animal products. The increase in revenue was partially offset by decreased volume due to loss of exclusivity for Strattera and Effient, as well as decreased demand for Cialis and food animal products.

Revenue outside the U.S. increased 11 percent, to $2.545 billion, largely due to the favorable impact of foreign exchange rates and increased volume for new pharmaceutical products, including Trulicity, Olumiant®, Taltz, Jardiance, and LartruvoTM. The increase in revenue was partially offset by lower realized prices for several pharmaceutical products, as well as decreased volume for Cialis.

Gross margin increased 6 percent, to $4.129 billion, in the first quarter of 2018 compared with the first quarter of 2017. Gross margin as a percent of revenue was 72.4 percent, a decrease of 1.8 percentage points compared with the first quarter of 2017. The decrease in gross margin percent was primarily due to the effect of foreign exchange rates on international inventories sold and, to a lesser extent, product mix, partially offset by higher realized prices and manufacturing efficiencies.

Operating expenses in the first quarter of 2018, defined as the sum of research and development and marketing, selling, and administrative expenses, decreased 5 percent to $2.677 billion. Research and development expenses decreased 6 percent, to $1.177 billion, or 20.6 percent of revenue. This decrease was driven primarily by a $50.0 million charge in the first quarter of 2017 related to a collaboration with DEKA Research & Development Corp. Marketing, selling, and administrative expenses decreased 4 percent, to $1.500 billion, due to decreased expenses related to late life-cycle products, partially offset by increased expenses related to new pharmaceutical products.

There were no acquired in-process research and development charges in the first quarter of 2018. 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.

In the first quarter of 2018, the company recognized asset impairment, restructuring, and other special charges of $78.3 million. The charges are primarily associated with asset impairment and restructuring charges related to the decision to end Posilac® (rbST) production at the Augusta, Georgia manufacturing site. The company is continuing to explore options related to exiting the site. The company also incurred expenses associated with the ongoing review of strategic alternatives for the Elanco animal health business. 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.

Operating income in the first quarter of 2018 was $1.374 billion, compared to a loss of $17.1 million in the first quarter of 2017 that was primarily driven by the in-process research and development charge associated with the acquisition of CoLucid Pharmaceuticals. Higher operating income in the first quarter of 2018 was also driven by higher gross margin, lower operating expenses, and lower asset impairment, restructuring and other special charges.

Other income (expense) was income of $67.5 million in the first quarter of 2018, compared with income of $78.3 million in the first quarter of 2017.

The effective tax rate was 15.5 percent in the first quarter of 2018. 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.

In the first quarter of 2018, net income (loss) and earnings (loss) per share were $1.217 billion and $1.16, respectively, compared with $(110.8) million and $(0.10), respectively, in the first quarter of 2017. The increases in net income (loss) and earnings (loss) per share were primarily driven by higher operating income.

First-Quarter Non-GAAP Measures

On a non-GAAP basis, first-quarter 2018 gross margin increased 5 percent, to $4.280 billion. Gross margin as a percent of revenue was 75.1 percent, a decrease of 2.7 percentage points compared with the first quarter of 2017. The decrease in gross margin percent was primarily due to the effect of foreign exchange rates on international inventories sold and, to a lesser extent, product mix, partially offset by higher realized prices and manufacturing efficiencies.

Reflecting the company's continued effort to reduce its cost structure, operating expenses were 46.9 percent of revenue in the first quarter of 2018, a reduction of 7.1 percentage points compared with the first quarter of 2017.

Operating income increased $363.3 million, or 29 percent, to $1.604 billion in the first quarter of 2018, due to higher gross margin and lower operating expenses.

The effective tax rate was 15.9 percent in the first quarter of 2018, compared with 21.2 percent in the first quarter of 2017. The lower effective tax rate for the first quarter of 2018 was primarily due to U.S. tax reform enacted in December 2017, and, to a lesser extent, a net discrete tax benefit of approximately $23.0 million in the first quarter of 2018.

In the first quarter of 2018, net income increased 35 percent, to $1.406 billion, and earnings per share increased 37 percent, to $1.34, compared with $1.040 billion and $0.98, respectively, in the first quarter of 2017. The increases in net income and earnings per share were primarily driven by higher operating income.

Selected Established Pharma Products

Humalog

For the first quarter of 2018, worldwide Humalog revenue increased 12 percent compared with the first quarter of 2017, to $791.7 million. Revenue in the U.S. increased 12 percent, to $504.1 million driven by higher realized prices due to changes in estimates to rebates and discounts and changes in payer segment mix, and, to a lesser extent, increased volume. Revenue outside the U.S. increased 11 percent, to $287.6 million, driven by the favorable impact of foreign exchange rates and, to a lesser extent, increased volume.

Alimta

For the first quarter of 2018, Alimta generated worldwide revenue of $499.6 million, which increased 2 percent compared with the first quarter of 2017. U.S. Alimta revenue increased 8 percent, to $245.3 million, driven by increased volume and, to a lesser extent, higher realized prices. Alimta revenue outside the U.S. decreased 3 percent, to $254.3 million, driven by competitive pressure and loss of exclusivity in several countries, partially offset by the favorable impact of foreign exchange rates.

Cialis

For the first quarter of 2018, worldwide Cialis revenue decreased 7 percent to $495.4 million. U.S. Cialis revenue was $313.4 million in the first quarter, a 6 percent increase compared with the first quarter of 2017, driven by higher realized prices, largely offset by decreased demand due to the entry of generic sildenafil. Cialis revenue outside the U.S. decreased 23 percent to $182.0 million, driven by the loss of exclusivity in Europe, partially offset by the favorable impact of foreign exchange rates.

Humulin

For the first quarter of 2018, worldwide Humulin revenue increased 4 percent compared with the first quarter of 2017, to $325.9 million. U.S. revenue increased 8 percent, to $221.6 million, driven by increased demand, partially offset by lower realized prices. Revenue outside the U.S. decreased 4 percent, to $104.3 million, driven by decreased volume, primarily due to buying patterns in China and, to a lesser extent, lower realized prices, partially offset by the favorable impact of foreign exchange rates.

Forteo

For the first quarter of 2018, worldwide revenue for Forteo was $313.2 million, a 10 percent decrease compared with the first quarter of 2017. U.S. revenue decreased 31 percent, to $122.1 million, primarily due to decreased volume from wholesale and retail buying patterns, and, to a lesser extent, lower realized prices. Revenue outside the U.S. increased 13 percent, to $191.1 million, driven by the favorable impact of foreign exchange rates and, to a lesser extent, increased volume.

Selected Products Launched Since 2014

Trulicity

First-quarter 2018 worldwide Trulicity revenue was $678.3 million, an increase of 82 percent compared with the first quarter of 2017. U.S. revenue increased 78 percent, to $528.2 million, primarily driven by higher demand as a result of growth in the GLP-1 class and increased share of market for Trulicity. Revenue outside the U.S. was $150.1 million, an increase of 96 percent, primarily driven by increased volume and, to a lesser extent, the favorable impact of foreign exchange rates.

Cyramza

For the first quarter of 2018, worldwide Cyramza revenue was $183.6 million, an increase of 7 percent compared with the first quarter of 2017. U.S. revenue was $68.3 million, an increase of 3 percent, driven by increased volume and higher realized prices. Revenue outside the U.S. was $115.3 million, an increase of 10 percent, driven by the favorable impact of foreign exchange rates and increased volume, partially offset by lower realized prices.

Basaglar

For the first quarter of 2018, Basaglar generated worldwide revenue of $166.0 million. U.S. revenue was $126.7 million, an increase of $12.3 million compared with the fourth quarter of 2017, driven by increased demand due to Medicare Part D formulary access, partially offset by lower realized prices due to changes in estimates of rebates and discounts. Revenue outside the U.S. was $39.3 million, which was essentially flat compared with the fourth quarter of 2017. Basaglar is part of the company's alliance with Boehringer Ingelheim, and Lilly reports total sales as revenue, with payments made to Boehringer Ingelheim for its portion of the gross margin reported as cost of sales.

Jardiance

The company's worldwide Jardiance revenue during the first quarter of 2018 was $151.0 million, an increase of 104 percent compared with the first quarter of 2017. U.S. revenue increased 99 percent, to $95.0 million, driven by increased share of market for Jardiance and growth in the SGLT2 class. Revenue outside the U.S. was $56.0 million, an increase of 113 percent, primarily driven by increased volume and, to a lesser extent, the favorable impact of foreign exchange rates. Jardiance is part of the company's alliance with Boehringer Ingelheim, and Lilly reports as revenue a portion of Jardiance's gross margin.

Taltz

For the first quarter of 2018, Taltz generated worldwide revenue of $146.5 million. U.S. revenue was $111.2 million, a decrease of $31.3 million compared with the fourth quarter of 2017, driven by lower volume due to specialty pharmacy buying patterns, partially offset by higher demand, including an increase in new patient starts. Revenue outside the U.S. was $35.3 million, an increase of $5.3 million compared with the fourth quarter of 2017 due to continued uptake from new launches.

Lartruvo

For the first quarter of 2018, Lartruvo generated worldwide revenue of $64.4 million. U.S. revenue was $43.0 million, an increase of $1.5 million compared with the fourth quarter of 2017. Revenue outside the U.S. was $21.4 million, an increase of $3.9 million compared with the fourth quarter of 2017.

Olumiant

For the first quarter of 2018, Olumiant generated worldwide revenue of $32.2 million, an increase of $9.2 million compared with the fourth quarter of 2017, reflecting strong launch uptake in Germany.

Verzenio

For the first quarter of 2018, Verzenio, a treatment for women with HR+, HER2- advanced breast cancer, generated U.S. revenue of $29.7 million, an increase of $8.7 million compared with the fourth quarter of 2017.

Animal Health

In the first quarter of 2018, worldwide animal health revenue totaled $761.3 million, a decrease of 1 percent compared with the first quarter of 2017. Worldwide food animal revenue decreased 7 percent, to $474.3 million, primarily driven by market access pressures. Worldwide companion animal revenue increased 10 percent, to $287.0 million, primarily driven by higher realized prices for several products, and, to a lesser extent, the favorable impact of foreign exchange rates.

2018 Financial Guidance

The company has revised certain elements of its 2018 financial guidance on a reported and non-GAAP basis. Earnings per share estimates for 2018 are being increased to be in the range of $4.52 to $4.62 on a reported basis and $5.10 to $5.20 on a non-GAAP basis, to reflect company expectations of higher operating income and a lower effective tax rate.

The company now anticipates 2018 revenue between $23.7 billion and $24.2 billion. The increase from prior guidance is due to lower anticipated rebates and discounts in the U.S. as a result of lower expected Medicaid utilization and favorable payer mix for several products, as well as the impact of foreign exchange rates. Revenue growth is still expected to be driven by new products including Trulicity, Taltz, Basaglar, Jardiance, Verzenio, Cyramza, Olumiant and Lartruvo.

The company now anticipates marketing, selling and administrative expenses in 2018 to be between $6.2 billion and $6.5 billion. The increase from prior guidance is primarily due to the impact of foreign exchange rates.

The company now anticipates research and development expenses in 2018 to be between $5.2 billion and $5.4 billion. The increase from prior guidance is due to increased funding of pipeline opportunities and the impact of foreign exchange rates.

The company now anticipates other income/expense in 2018 to be income between $75 million and $200 million.

The 2018 effective tax rate is now expected to be approximately 17 percent on both a reported and a non-GAAP basis. The lower rate reflects a more favorable jurisdictional mix of earnings. The 2018 effective tax rate benefits from a lower corporate income tax rate, partially offset by the changes to certain business exclusions, deductions, credits and international tax provisions. The 2018 effective tax rate is subject to change based upon changes in the company's interpretations of the tax laws, along with subsequent regulations, interpretations, guidance, and accounting policy elections that the company continues to evaluate.

 


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