Eli Lilly Posts Strong Performance, Raises Guidance

This morning, Eli Lilly & Co. (LLY) reported strong third quarter financials. The company’s earnings per share of $1.20 surpassed the Zacks Consensus Estimate of $1.02 and 98 cents reported in the year-ago period. Revenues recorded a 7% year on year increase to $5.56 billion, driven by an increase in both volume and prices, partially offset by unfavorable impact of foreign exchange.

Of total revenues, while product sales were $5.4 billion (an increase of 6%), collaboration and other revenues accounted for the remaining $176.5 million (an increase of 51%), primarily due to the inclusion of Erbitux revenue as a result of the ImClone acquisition.

The company’s other products recorded robust growth during the quarter compared to the year-ago period - Zyprexa (3% growth to $1.2 billion), Cymbalta (10% growth to $790.2 million), Humalog (16% growth to $500 million), Alimta (47% growth to $462 million).

The US market accounted for 58% of Eli Lilly’s total revenues during the third quarter. Revenues from the US increased 14% to $3.1 billion due to higher volume, higher prices, and the inclusion of Erbitux revenue. However, international revenues declined 1% to $2.4 billion due to the negative impact of foreign exchange rates and lower prices partially offset by increased demand.

Gross margin during the quarter increased 330 basis points to 81.1%. The primary reason for the improvement in the margin was the impact of the decline in foreign currencies compared to the US dollar on international inventories sold during the quarter, resulting in a benefit to cost of sales as compared to the year ago period.

On the operational front, total operating expenses increased 9% compared with the corresponding period last year. Both R&D expenses and general administrative expenses were higher due to the ImClone acquisition.

Apart from this, marketing, selling and administrative expenses increased 3% and R&D expenses 18% — driven by higher incentive compensation, partially offset by the movement of foreign exchange rates and a reduction in advertising expenses in the US market, and increased late-stage clinical trial costs and estimated costs related to the termination of the arzoxifene clinical trials, respectively.

Lilly took charges totaling $549.8 million in the quarter, including asset impairment and restructuring charges for the sale of a manufacturing plant and a charge related to a legal settlement. In addition to posting a strong performance, Lilly raised its earnings guidance for 2009. The company now expects earnings in the range of $4.30 - $4.40 up from the previous guidance of $4.20 - $4.30.

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