By Peter Loftus
Drug maker Eli Lilly & Co. reported an 18% decline in
second-quarter profit, weighed down by acquisition costs, but its
purchase of an animal-drug business helped Lilly squeeze out its
first quarterly revenue increase in 18 months.
The revenue growth, up 1% in the quarter, suggests Lilly may be
digging its way out of a sales slump in recent years caused by the
expiration of patents for one-time blockbuster drugs including the
antidepressant Cymbalta and antipsychotic Zyprexa, which triggered
competition from low-cost generics. To cope, the company has cut
some costs, but it has maintained a relatively high level of
research-and-development spending in an effort to generate new
drugs.
The Indianapolis company's second-quarter results were better
than analysts' expectations, and Lilly raised its forecast of 2015
earnings excluding certain costs. Lilly shares, which have surged
nearly 25% year-to-date, were off 0.4% at $86.01 Thursday
midday.
"We're doing better on the revenue line," Chief Executive John
Lechleiter said in an interview. "Our operating expense came in
less than had been forecast. It's all cylinders firing."
Lilly has recently won regulatory approval for several new drugs
including cancer treatment Cyramza and diabetes drug Trulicity. But
a big reason for the recent gains in Lilly's stock price has been
rising investor expectations for certain experimental drugs in the
company's research labs, including solanezumab, a potential
treatment for Alzheimer's disease; and evacetrapib, a potential new
heart drug.
Leerink Partners analyst Seamus Fernandez said that Lilly
"remains a pipeline story with several high-probability shots on
goal."
On Wednesday, Lilly released clinical-trial data for solanezumab
suggesting it helped Alzheimer's patients, but a separate ongoing
study due to be completed next year will provide a more definitive
answer about whether it works. The effort is still considered risky
because the drug failed to provide a benefit in two prior trials,
and similar drugs developed by other companies have failed in
trials.
Dr. Lechleiter said the solanezumab data were encouraging. He
said the drug's mechanism, targeting a substance in the brain known
as amyloid, is currently the "best bet" on fighting
Alzheimer's.
"While we haven't proven that hypothesis, we're putting together
more pieces of the puzzle," he said.
For the second quarter, Lilly said net income fell to $600.8
million, or 56 cents a share, from $733.5 million, or 68 cents a
share, a year earlier. The latest quarter included costs related to
Lilly's purchase of the animal-health business of Novartis AG.
Excluding these and other items, earnings would have been 90 cents
a share, well above the 74-cent-per-share mean estimate of analysts
surveyed by Thomson Reuters.
Second-quarter sales rose 1% to $4.98 billion from $4.94 billion
a year earlier. Lilly said increased product volume and higher
prices were mostly offset by an unfavorable impact from a stronger
U.S. dollar versus other currencies.
Sales rose for osteoporosis drug Forteo but declined for several
other top Lilly drugs including diabetes treatments and the cancer
drug Alimta. Sales of animal-health products, which include
vaccines for livestock, surged 40% thanks to the acquisition of the
Novartis business.
Lilly increased its forecast of 2015 earnings, excluding various
costs, by 10 cents a share to a range of $3.20 to $3.30. The
company raised the lower end of its revenue forecast range to $19.7
billion from $19.5 billion, and reiterated the upper end of $20
billion.
Lilly also said Thursday it plans to expand a research site in
San Diego that will accommodate up to 130 new jobs.
Chelsey Dulaney contributed to this article
Write to Peter Loftus at peter.loftus@wsj.com
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