Eli Lilly posts 3Q earnings miss

Earnings HQ: FBN's Lori Rothman breaks down Eli Lilly's third-quarter earnings report.

Lilly Profit Plunges as Cheaper Generics Take Toll

Earnings Reuters

Eli Lilly and Co (LLY)  said its quarterly earnings plunged 58 percent, hurt by special charges and generic competition for its Cymbalta depression drug, but it affirmed its earlier full-year profit forecast.

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The U.S. drugmaker on Thursday said it had earned $501 million, or 47 cents per share, in the third quarter. That compared with $1.20 billion, or $1.11 per share, a year earlier.

Excluding special items such as charges of $95 million from research collaborations, Lilly earned 66 cents per share. Analysts on average expected 67 cents, according to Thomson Reuters I/B/E/S.

Jefferies analyst Jeffrey Holford said earnings slightly disappointed, held back by higher than expected costs for research and development and for sales, general and administrative expenses. But no major surprises were seen in the earnings report.

Sales fell 16 percent to $4.88 billion, but topped Wall Street's expectations of $4.83 billion.

Lilly's earnings have suffered since late 2011, when its top-selling Zyprexa schizophrenia drug began facing cheaper generics in the United States.

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The pain worsened last December, when Cymbalta, then its biggest drug, went generic. And its osteoporosis treatment Evista began facing generics in March.

Cymbalta sales fell 73 percent in the third quarter to $368 million, while Evista's tumbled 65 percent to $90 million.

Indiapolis-based Lilly, which has steadfastly resisted mergers with other big drugmakers in order to focus on its own experimental drugs, expects earnings to rebound next year, thanks to new medicines.

U.S. regulators recently approved its drugs Jardiance (empagliflozin) and Trulicity (dulaglutide) for type 2 diabetes, and granted tentative approval for a generic form of Sanofi's top-selling Lantus (insulin glargine) insulin. But Lilly will not be able to introduce its biosimilar form of Lantus, called Basaglar, until patent disputes with Sanofi are resolved.

"The number of Lilly products reaching the market over the next year should set the company up for a return to growth and profit margin improvement next year," said Morningstar analyst Damien Conover. "So we're now at an inflection point."

Conover said Lilly's earnings next year should exceed the approximate 5 percent growth he expects for the drug group. But he noted that Lilly shares are trading at at 21 times the company's expected per-share 2015 earnings, a significant premium to most of its rivals. "So some of Lilly's return to growth is already priced in."

Many of Lilly's biggest products grew strongly in the quarter, helping offset Cymbalta's swoon. Sales of impotence treatment Cialis rose 8 percent to $568 million, while its Humalog insulin rose 15 percent to $706 million.

The company's Elanco animal health unit bolstered results, with sales jumping 10 percent to $585 million.

Lilly said it continues to expect 2014 earnings of $2.72 to $2.80 per share, excluding special items. That would represent a decline of as much as 35 percent from last year.

(Reporting by Ransdell Pierson; Editing by Lisa Von Ahn and Chizu Nomiyama)