Lilly Beats Analyst Estimates on Diabetes Drug Sales

Eli Lilly & Co. (LLY), which may introduce five new drugs next year, reported third-quarter profit that beat analysts’ estimates on cost cuts and higher sales of diabetes products.

Earnings excluding one-time items were $1.11 a share, Indianapolis-based Lilly said today in a statement. Analysts expected $1.04 a share, the average of 17 estimates compiled by Bloomberg. Sales rose 6 percent to $5.77 billion, compared with the $5.75 billion analysts projected.

Lilly’s stock has underperformed the rest of the industry, falling 3.1 percent in the last 12 months. Brand-name pharmaceutical sales are finally starting to grow again after years of patent expirations shrank revenues as blockbusters including Lilly’s schizophrenia drug Zyprexa, faced cheaper copycat versions.

“The near-term outlook for Lilly from a pure financial perspective is improving because the impact from the late 2011 loss of patent protection on schizophrenia drug Zyprexa annualized by year-end 2012, allowing the company to return to growth at least in 2013,” said Timothy Anderson, an analyst with Sanford C. Bernstein & Co. in New York, in a note to clients today.

Net income fell 9 percent to $1.2 billion, or $1.11 a share, from $1.33 billion, or $1.18, a year earlier, the company said. Lilly rose less than 1 percent to $50.31 at 4 p.m. in New York trading.

Photographer: Victor J. Blue/Bloomberg

Eli Lilly & Co. increased the lower end of its forecast for next year. Close

Eli Lilly & Co. increased the lower end of its forecast for next year.

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Photographer: Victor J. Blue/Bloomberg

Eli Lilly & Co. increased the lower end of its forecast for next year.

New Drugs

Derica Rice, Lilly’s chief financial officer, said shareholders will reward the company over the long-term even as the company lagged its peers for now when it brings new drugs to market next year.

“It will be when we get those drugs across the finish line,” Rice said in a telephone interview today. “The data looks promising, but they still have to go through the regulatory process.”

The drug industry has been cutting costs and slimming down to help boost margins and compensate for those patent expirations. Lilly, in July, said it planned to freeze wages for most workers. The company reported operating costs fell 2 percent to $3.03 billion from a year earlier.

Earlier this month, the company announced it was buying back $5 billion in shares, and has promised to meet sales goals of $20 billion for next year, compared with $22.6 billion in 2012.

The company increased the lower end of its forecast for next year, narrowing the range to $4.10 to $4.15 per share, from $4.05 to $4.15 per share.

New Medicines

Lilly has four new diabetes drugs scheduled to go on sale in 2014 and 2015, assuming they’re all approved by U.S. regulators, said Tony Butler, an analyst with Barclays Plc. The company’s been positioning itself as the only one that can offer drugs for every type of diabetes therapy, and using that to appeal to insurers and doctors.

Jami Rubin, an analyst with Goldman Sachs Group Inc., said she is less optimistic about the diabetes franchise, in part because upcoming drugs from Merck & Co., Pfizer Inc. and Johnson & Johnson will increase competition.

“There’s no doubt that the payer environment has become more challenging,” said Rice. “The key to navigating those waters is clinical differentiation. While we will have competitors in all of the spaces, we will be the only pharma company that will play in all of the segments.”

The company also has experimental medicines for Alzheimer’s disease, a neurodegenerative brain disorder, and cancer. Solanezumab, the Alzheimer’s drug, if approved would be the first medicine to treat the causes of the disease rather than just the symptoms. The treatment is in late-stage testing.

Cancer Therapy

Ramucirumab, an experimental treatment for gastric cancer, was given a priority review designation by U.S. drug regulators, which could let it reach the market faster. The drug is in final-stage testing. A breast cancer study also released last month didn’t meet its goal of progression-free survival.

Cymbalta, the drugmaker’s biggest product, sold $1.38 billion, an 11 percent increase. It loses patent protection in December. Alimta, a lung cancer treatment, generated $690.5 million, an increase of 7 percent.

Sales of Lilly’s two insulins rose; Humalog increased 7 percent to $616 million, and Humilin gained 8 percent to $307 million.

The company said sales were cut 2 percent by unfavorable foreign exchange rates. More than half of Lilly’s 2012 revenue came from outside the U.S., and the company said it expected sales overseas to grow, particularly in China.

China Sales

China growth has been hurt, though, by government probes of drugmakers there. GlaxoSmithKline Plc, the London-based drugmaker, said today that sales in China fell 61 percent in the quarter. Lilly’s Chinese sales grew 11 percent, lower than the 20 percent-plus rates the industry had reported in years past.

“There’s no doubt that the market growth in China did slow in the first half of 2013,” Rice said, noting that it’s still growing faster than the U.S. and Europe. “There’s no doubt that the compliance discussions have had a negative impact.”

Glaxo faces allegations it traded in sexual favors and had spurious travel and meeting expenses amounting to 3 billion yuan. Lilly said in August it was investigating allegations that its employees paid bribes and kickbacks to Chinese doctors. Paris-based Sanofi faces an investigation over similar allegations.

To contact the reporter on this story: Drew Armstrong in New York at darmstrong17@bloomberg.net;

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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