Lilly’s 2012 Earnings Forecast Misses Analysts’ Estimates Dropping Shares
Eli Lilly & Co., (LLY) maker of the antipsychotic Zyprexa, provided 2012 forecasts that missed analyst estimates and said sales of the patent-losing drug are falling faster than expected.
Full-year profit will be $3.10 to $3.20 a share, less than the average estimate of $3.67 by 19 analysts (LLY) surveyed by Bloomberg. Annual revenue may be between $21.8 billion and $22.8 billion, the Indianapolis-based company said today in a statement. Analysts had expected $22.8 billion.
Earnings excluding some items for 2011 met or exceeded the company’s forecast of $4.30 to $4.35 a share, Lilly said. The drugmaker is investing in research, seeking to overcome the loss of patents on its best-selling medication Zyprexa, with revenue of $5.03 billion in 2010, and other medicines, without a major merger. Zyprexa sales are expected to decline by more than $3 billion this year, Lilly said.
“The guidance came in well below expectations,” said Seamus Fernandez, an analyst for Leerink Swann & Co., in a telephone interview. “The patent loss of Zyprexa means revenue is coming down faster than people expected.”
Lilly declined 1 percent to $40.30 at the close of New York trading.
The forecasts came in lower than analysts expected because Zyprexa international sales are declining rapidly, Lilly Chief Financial Officer Derica Rice said on a conference call today.
European Sales
“We are seeing faster sales erosion in Europe” for Zyprexa than for similar antipsychotic drugs that lost patent protection in the past, Rice said. The company’s internal estimates for Zyprexa 2012 sales were $500 million lower than analyst estimates, he said.
Analysts had estimated $2.07 billion in Zyprexa sales this year, according to a survey by Bloomberg. The analysts expected Zyprexa to generate $4.54 billion in 2011.
Lilly will keep operating expenses almost unchanged this year, Rice said on the call. Analysts had expected a reduction of $250 million to $300 million.
“The shortfall is primarily due to Lilly’s plan to maintain SG&A spending at current levels, rather than cut, as their peers have done in the face of patent expiries,” said Barbara Ryan of Deutsche Bank in New York, in a research note. “This will likely be viewed as a disappointment to most.”
Research Costs
Unlike other pharmaceutical companies, Lilly is continuing to spend heavily on research and development, Fernandez said. That strategy will reveal itself over the next few years as results from drugs in development come in, he said. The only way to know if the plan works is to wait for data, Fernandez said.
Research and development expenses this year will be $5 billion to $5.3 billion, Lilly said today.
“2012 is an important year for Lilly, having entered the period when we face patent expirations on some of our largest products, most notably Zyprexa late last year and Cymbalta in the U.S. at the end of 2013,” said Chief Executive Officer John Lechleiter in the statement. “We’ve been preparing to meet these challenges for many years, and have the plans in place to enable us to bridge this period and return to sustainable growth after 2014.”
Cymbalta, approved for the treatment of depression, anxiety disorder and fibromyalgia, generated sales of $3.5 billion in 2010, according to data compiled by Bloomberg.
The drugmaker has treatments for Alzheimer’s, diabetes and cancer in final-stage trials. As Lilly awaits these results, the company is focusing effort on growth areas such as emerging markets and animal health, Lechleiter said.
Research Costs
“This may be Lilly saying, ‘We’ve cut as much as we’re going to cut, and we’re going to maintain research and development at a fairly healthy level,” said Anthony Butler, an analyst for Barclays Capital in New York, in a telephone interview.
Lilly doesn’t plan any large deals, Lechleiter reiterated on call.
“We are going to continue on the path we’ve been on in terms of what you might expect in deal making smaller deals, certainly nothing approaching that larger size,” he said.
To contact the reporter on this story: Elizabeth Lopatto in New York at elopatto@bloomberg.net; Robert Langreth in New York at rlangreth@bloomberg.net
To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.
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