Eli Lilly Raises 2013 Profit Forecast After Cost Cuts

Eli Lilly & Co., the maker of the antidepressant Cymbalta and diabetes treatment Humalog, raised its full-year forecast after second-quarter sales grew faster than expected and cost-cutting programs took effect.

Second-quarter earnings excluding one-time items rose to $1.16 a share, Indianapolis-based Lilly said today in a statement. Analysts expected $1.01, the average of 16 estimates compiled by Bloomberg. Lilly raised its guidance for full-year profit to $4.05 to $4.15 a share, up from $3.82 to $3.97.

“It looks like they were doing some pretty good work while I was gone,” said Chief Executive Officer John Lechleiter, who returned to work this month after having heart surgery in May.

Lilly is counting on experimental drugs for Alzheimer’s and diabetes to revive growth as it loses patent protection on some of its top products, including Cymbalta, the osteoporosis treatment Evista and Zyprexa for schizophrenia. The company has cut costs to help fund its drive for new drugs, and last week said it would freeze wages for most of its workers.

“Management appears to be showing prudent cost discipline in anticipation of the Cymbalta patent cliff,” Mark Schoenebaum, an analyst with International Strategy & Investment Group in New York said in a note to clients today. “Smart expense control should increase the Street’s confidence that Lilly is serious about dramatically improving operating margins post-2014.”

Losing Revenue

Lilly expects a 20 percent reduction in revenue in 2014 because of the expiration of the Cymbalta and Evista patents in the U.S., a company spokesman said July 17. Lilly had hoped to avoid more cost cuts in the medium term, Lechleiter said.

“We’re losing a lot of revenue when at the same time we’ve got to launch our Phase III products,” he said in a telephone interview.

“You don’t take these actions lightly. This is the second such announcement in three years,” Lechleiter said of the wage freeze.

Lilly rose 3.1 percent to $52.55 at the close in New York. The stock gained 6.6 percent this year, trailing the 26 percent gain in the Standard and Poor’s 500 Health Care Index.

Improving Prospects

In 2014, the company’s prospects look better, said Tim Anderson, an analyst with Sanford C. Bernstein & Co.

“Given the still-skeptical view of Lilly by the majority of investors, and what still seems to be under-ownership of the name, we think there is more ‘runway’ left should additional investors turn positive,” Anderson said in a July 15 note to clients. Future success “will be a function of Lilly executing on various fronts, the most important of which is its pipeline.”

Lilly is pushing ahead with an Alzheimer’s drug, called solanezumab, in an effort to gain the first medicine approved that treats the causes of the disease causes rather than just the symptoms. The drug is in late-stage testing.

Sales in the second quarter rose 6 percent to $5.93 billion. Revenue from Cymbalta rose 22 percent from a year earlier to $1.5 billion. The cancer drug Alimta, Lilly’s second-biggest product, saw sales rise 2 percent to $669 million. Humalog rose 2 percent to $629 million.

Net income rose 31 percent to $1.21 billion, or $1.11 a share, the company said.

Cymbalta, the drugmaker’s biggest product with $5 billion in revenue last year, loses patent protection in December. Zyprexa has lost more than half of its sales since peak revenue of $5.03 billion in 2010, the year before its patent protection expired.

Sales were hurt by the strong U.S. dollar. More than half of Lilly’s 2012 revenue came from outside the U.S., and the company said that foreign exchange rates cut sales by 2 percent. The U.S. dollar gained 2 percent in the second quarter, making U.S.-produced goods more expensive and reducing the value of sales made overseas.