On April 26, 2016 Eli Lilly and Company (NYSE: LLY) reported financial results for the first quarter of 2016 (Press release, Eli Lilly, APR 26, 2016, View Source [SID:1234511408]).

Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:

Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing

                  Schedule Your 30 min Free Demo!

$ in millions, except per share data
First Quarter
%

2016

2015
Change
Revenue – Reported
$
4,865.1

$
4,644.7

5%
Net Income – Reported
440.1

529.5

(17)%
EPS – Reported
0.41

0.50

(18)%

Net Income – non-GAAP
882.3

923.7

(4)%
EPS – non-GAAP
0.83

0.87

(5)%

Certain financial information for 2016 and 2015 is presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the periods. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. The company’s 2016 financial guidance is also being provided on both a reported and a non-GAAP basis. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business.

"Revenue growth in the first quarter reflects substantial progress in launching new products, including Trulicity, Cyramza, Jardiance, Basaglar and Portrazza," said John C. Lechleiter, Ph.D., Lilly’s chairman, president and chief executive officer. "In addition, we recently launched Taltz in the U.S., following its FDA approval last month. Several other potential products are currently under regulatory review, including olaratumab and baricitinib. Clearly, our innovation strategy is paying off, for the benefit of patients as well as shareholders."

Key Events Over the Last Three Months

Commercial

Following approval by the U.S. Food and Drug Administration (FDA), the company launched Taltz (ixekizumab) injection 80 mg/mL in the U.S. for the treatment of moderate-to-severe plaque psoriasis in adult patients who are candidates for systemic therapy or phototherapy.

In Europe, the company launched Cyramza (ramucirumab) for locally advanced or metastatic non-small cell lung cancer (NSCLC) and for metastatic colorectal cancer (CRC).

Also in Europe, following approval by the European Commission, the company launched Portrazza (necitumumab), in combination with gemcitabine and cisplatin, as the first biologic for the treatment of patients with locally advanced or metastatic epidermal growth factor receptor expressing squamous NSCLC who have not received prior chemotherapy for this condition.
Regulatory

Following a positive opinion from the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP), the European Commission approved Taltz for the treatment of moderate-to-severe plaque psoriasis in adults who are candidates for systemic therapy.

The company submitted olaratumab to both the FDA and the EMA for soft tissue sarcoma.

Elanco Animal Health announced the FDA approval of Imrestor (pegbovigrastim injection) for the reduction in the incidence of clinical mastitis in dairy cows. Imrestor is a non-antibiotic therapy, the first product of its kind for the dairy industry.
Clinical

The primary endpoint for the EXPEDITION3 clinical trial, a Phase 3 study of solanezumab in people with mild Alzheimer’s dementia, was changed from co-primary endpoints of cognition and function to a single primary endpoint of cognition. Functional outcomes will be evaluated as key secondary endpoints.

In collaboration with AstraZeneca, the company announced:
AMARANTH, a Phase 2/3 study of AZD3293, an oral beta secretase cleaving enzyme (BACE) inhibitor currently in development as a potential treatment for early Alzheimer’s disease, will continue to Phase 3 of the Phase 2/3 seamless trial.

A new Phase 3 trial for AZD3293, named DAYBREAK, will study the safety and efficacy of AZD3293 in people with mild Alzheimer’s dementia. DAYBREAK will begin enrolling participants in the third quarter of 2016.

The Boehringer Ingelheim Lilly Diabetes Alliance announced plans to conduct two outcome trials investigating the diabetes medicine Jardiance (empagliflozin) for the treatment of people with chronic heart failure. The trials are targeted to begin within the next 12 months and are planned to enroll people with chronic heart failure both with and without type 2 diabetes.
Business Development/Other

The United Kingdom (UK) High Court decided the Alimta (pemetrexed disodium) vitamin regimen patent would not presently be infringed by Actavis marketing pemetrexed trometamol in the UK, France, Italy and Spain with instructions to dilute the product only with dextrose solution. Lilly intends to appeal this ruling.

Elanco Animal Health licensed rights to Aratana’s Galliprant (grapiprant tablets), an FDA-approved therapeutic for the control of pain and inflammation associated with osteoarthritis in dogs. The agreement grants Elanco exclusive rights to develop, manufacture, market and commercialize Galliprant globally, and co-promote the product with Aratana in the U.S.

As part of its previously announced share repurchase program, the company repurchased approximately $300 million of stock in the first quarter of 2016.

First-Quarter Reported Results

In the first quarter of 2016, worldwide revenue was $4.865 billion, an increase of 5 percent compared with the first quarter of 2015. Revenue increased 7 percent due to increased volume and 1 percent due to higher realized prices, partially offset by 3 percent due to the unfavorable impact of foreign exchange rates. The increase in worldwide volume was due to several products, including Trulicity and Cyramza, as well as Erbitux due to the transfer of commercialization rights in North America to Lilly in the fourth quarter of 2015. Revenue in the U.S. increased 16 percent to $2.556 billion, primarily driven by increased volume for several pharmaceutical products including Trulicity, Erbitux and Humalog and, to a lesser extent, higher realized prices primarily for Cialis. Revenue outside the U.S. decreased 5 percent to $2.310 billion, driven by the unfavorable impact of foreign exchange rates and, to a lesser extent, the loss of exclusivity for Cymbalta in Europe in 2014, partially offset by increased volume for several pharmaceutical products, primarily Cyramza.

Gross margin increased 3 percent to $3.542 billion in the first quarter of 2016 compared with the first quarter of 2015. Gross margin as a percent of revenue was 72.8 percent, a decrease of 1.5 percentage points compared with the first quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold and, to a lesser extent, the transfer of Erbitux commercialization rights in North America, partially offset by 2015 inventory step-up costs related to the acquisition of Novartis Animal Health.

Operating expenses in the first quarter of 2016, defined as the sum of research and development and marketing, selling and administrative expenses, were $2.695 billion, an increase of 5 percent compared with the first quarter of 2015. Research and development expenses increased 17 percent to $1.221 billion, or 25.1 percent of revenue, driven primarily by higher late-stage clinical development costs, including $55.0 million in milestone payments to Incyte Corporation for the regulatory submissions of baricitinib in the U.S. and Europe. Marketing, selling and administrative expenses decreased 3 percent to $1.474 billion, as the favorable impact of foreign exchange rates and lower litigation expenses were partially offset by expenses related to new products.

There were no acquired in-process research and development charges in the first quarter of 2016. In the first quarter of 2015, the company recognized acquired in-process research and development charges totaling $256.0 million. These charges included a $200.0 million payment to Pfizer Inc. (Pfizer) following an FDA decision allowing the resumption of Phase 3 clinical trials for tanezumab and a $56.0 million payment to Innovent Biologics Inc. (Innovent) associated with a collaboration to develop potential oncology therapies.

In the first quarter of 2016, the company recognized asset impairment, restructuring and other special charges of $131.4 million. The charges are associated with asset impairments related to the closure of an animal health manufacturing facility in Ireland and integration costs related to the acquisition of Novartis Animal Health. In the first quarter of 2015, the company recognized asset impairment, restructuring and other special charges of $108.0 million, primarily related to integration, severance costs, and intangible asset impairments due to product rationalization resulting from the acquisition of Novartis Animal Health.

Operating income in the first quarter of 2016 was $715.8 million, an increase of 36 percent compared with the first quarter of 2015, driven by lower acquired in-process research and development charges and higher gross margin, partially offset by higher operating expenses.

Other income (expense) was an expense of $149.0 million in the first quarter of 2016, compared with income of $92.7 million in the first quarter of 2015. Other expense during the first quarter of 2016 was driven by a $203.9 million charge related to the impact of the Venezuelan financial crisis, including the significant deterioration of the bolívar. Other income during the first quarter of 2015 reflected a favorable legal judgment and net gains on investments.

The effective tax rate was 22.4 percent in the first quarter of 2016, compared with 14.3 percent in the first quarter of 2015. The first-quarter 2016 effective tax rate reflects the tax effect of the non-deductible charge related to the impact of the Venezuelan financial crisis, including the significant deterioration of the bolívar, and certain asset impairment, restructuring and other special charges, as well as an increased percentage of earnings in higher-tax jurisdictions, partially offset by a net discrete tax benefit of approximately $50 million and the benefit of certain U.S. tax provisions, including the R&D tax credit, reinstated for 2016. The first-quarter 2015 effective tax rate reflects the tax impact of acquired in-process research and development charges and asset impairment, restructuring and other special charges. The first-quarter 2015 effective tax rate does not include the benefit of certain then-expired U.S. tax provisions, including the R&D tax credit.

In the first quarter of 2016, net income decreased 17 percent to $440.1 million, and earnings per share decreased 18 percent to $0.41, compared with $529.5 million and $0.50, respectively, in the first quarter of 2015. The declines in net income and earnings per share were driven by the charge related to the impact of the Venezuelan financial crisis, including the significant deterioration of the bolívar, and higher income taxes, partially offset by higher operating income.

First-Quarter 2016 Non-GAAP Measures

First-quarter 2016 gross margin increased 2 percent to $3.713 billion. Gross margin as a percent of revenue was 76.3 percent, a decline of 1.9 percentage points compared with the first quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold.

Operating income decreased $85.7 million, or 8 percent, to $1.020 billion in the first quarter of 2016, driven by higher operating expenses, partially offset by higher gross margin.

Other income (expense) was income of $54.9 million in the first quarter of 2016, compared with income of $92.7 million in the first quarter of 2015. The decline in other income was driven by lower net gains on investments.

The first-quarter 2016 effective tax rate of 17.9 percent decreased 5.0 percentage points compared with the first quarter of 2015. The first-quarter 2016 effective tax rate reflects a net discrete tax benefit of approximately $50 million and the benefit of certain U.S. tax provisions, including the R&D tax credit, reinstated for 2016, partially offset by the impact of an increased percentage of earnings in higher-tax jurisdictions. The first-quarter 2015 effective tax rate does not include the benefit of certain then-expired U.S. tax provisions, including the R&D tax credit.

Net income decreased 4 percent to $882.3 million, and earnings per share decreased 5 percent to $0.83, compared with $923.7 million and $0.87, respectively, in the first quarter of 2015. The declines in net income and earnings per share were driven by lower operating income and lower other income, partially offset by lower income taxes.

For further detail of non-GAAP measures, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.

First Quarter

2016

2015
% Change
Earnings per share (reported)
$
0.41

$
0.50
(18)%
Amortization of intangible assets
.11

.10

Asset impairment, restructuring and other special charges
.11

.07

Acquired in-process research and development
—

.15

Venezuela charge
.19

—

Novartis Animal Health inventory step-up
—

.04

Earnings per share (non-GAAP)
$
0.83

$
0.87
(5)%
Numbers may not add due to rounding.

Select Revenue Highlights

(Dollars in millions)

First Quarter

Established
Pharmaceutical
Products
2016

2015

% Change

Humalog
$
606.3

$
684.0

(11)%

Cialis
576.7

538.3

7%

Alimta
564.2

573.0

(2)%

Humulin
356.4

315.7

13%

Forteo
318.6

293.0

9%

Zyprexa
212.8

219.5

(3)%

Cymbalta
198.7

287.0

(31)%

Strattera
188.1

173.7

8%

Erbitux
168.1

88.2

90%

Effient
131.5

121.8

8%

New
Pharmaceutical
Products

Trulicity
143.6

18.3

NM

Cyramza
131.0

67.5

94%

Jardiance(a)
38.2

19.3

99%

Basaglar
10.9

—

NM

Portrazza
1.7

—

NM

Animal Health
754.6

749.8

1%

Total Revenue
4,865.1

4,644.7

5%

(a) Jardiance includes Glyxambi and Synjardy
NM – not meaningful

Established Pharmaceutical Products

Humalog

For the first quarter of 2016, worldwide Humalog revenues decreased 11 percent compared with the first quarter of 2015 to $606.3 million. Revenues in the U.S. decreased 14 percent to $361.6 million, driven by lower realized prices, partially offset by increased demand. The decrease in realized prices experienced during the first quarter of 2016 was related to changes in estimates for rebates and discounts resulting in the overall decrease in revenues. The company does not expect this trend to continue throughout the year. Revenues outside the U.S. decreased 7 percent to $244.7 million, driven by the unfavorable impact of foreign exchange rates.

Cialis

Cialis revenues for the first quarter of 2016 increased 7 percent compared with the first quarter of 2015 to $576.7 million. U.S. revenues of Cialis were $324.0 million, a 31 percent increase compared with the first quarter of 2015, driven primarily by higher realized prices. Revenues of Cialis outside the U.S. decreased 13 percent to $252.7 million, driven by the unfavorable impact of foreign exchange rates and decreased volume.

Alimta

For the first quarter of 2016, Alimta generated revenues of $564.2 million, a decline of 2 percent compared with the first quarter of 2015. U.S. revenues of Alimta increased 4 percent to $263.1 million, driven primarily by wholesaler buying patterns. Revenues outside the U.S. decreased 6 percent to $301.1 million, driven by the unfavorable impact of foreign exchange rates and, to a lesser extent, lower realized prices, partially offset by increased volume. This increased volume benefited from increased clinical trial demand, which may not continue.

Humulin

Worldwide Humulin revenues for the first quarter of 2016 increased 13 percent compared with the first quarter of 2015 to $356.4 million. U.S. revenues increased 34 percent to $240.1 million, driven by higher realized prices and, to a lesser extent, increased demand. The increase in realized prices resulted from a change in estimate of a government rebate. Revenues outside the U.S. decreased 15 percent to $116.3 million, driven by decreased volume, primarily due to the loss of a government contract in Brazil, and the unfavorable impact of foreign exchange rates.

Forteo

First-quarter 2016 revenues of Forteo were $318.6 million, a 9 percent increase compared with the first quarter of 2015. U.S. revenues of Forteo increased 21 percent to $148.1 million, driven by higher realized prices. Revenues outside the U.S. remained flat at $170.5 million as lower realized prices and the unfavorable impact of foreign exchange rates were essentially offset by increased volume.

New Pharmaceutical Products

Trulicity

First-quarter 2016 revenues of Trulicity were $143.6 million. U.S. revenues of Trulicity were $119.4 million, driven by the acceleration in growth of the GLP-1 market and increased share of market for Trulicity. Revenues of Trulicity outside the U.S. were $24.2 million.

Cyramza

For the first quarter of 2016, Cyramza revenues were $131.0 million. U.S. revenues of $71.6 million were negatively affected by increased competitive pressure in the NSCLC indication and positively affected by uptake in the CRC indication. Revenues outside the U.S. were $59.4 million, primarily due to strong uptake for the gastric cancer indication in Japan.

Jardiance

The company’s revenues for Jardiance for the first quarter of 2016 were $38.2 million. U.S. revenues were $29.7 million, driven by increased share of market within the growing SGLT2 class. Revenues outside the U.S. were $8.5 million. Since Jardiance is part of the Boehringer Ingelheim Lilly Diabetes Alliance, Lilly reports as revenue a portion of Jardiance’s gross margin.

Basaglar

First-quarter 2016 revenues of Basaglar, which has launched in multiple countries outside the U.S., were $10.9 million, driven by early uptake in Japan and various European countries.

Portrazza

For the first quarter of 2016, Portrazza revenues were $1.7 million. Portrazza launched in the U.S. in December 2015.

Animal Health

In the first quarter of 2016, worldwide animal health revenues totaled $754.6 million, an increase of 1 percent compared with the first quarter of 2015. U.S. animal health revenues increased 10 percent to $392.4 million, due to increased revenues of both companion animal products and food animal products. Animal health revenues outside the U.S. decreased 8 percent to $362.2 million, primarily due to the unfavorable impact of foreign exchange rates. Excluding the unfavorable impact of foreign exchange rates, worldwide animal health revenues increased 5 percent.

2016 Financial Guidance

The company has revised certain elements of its 2016 financial guidance on a reported basis and on a non-GAAP basis. Full-year 2016 earnings per share are now expected to be in the range of $2.68 to $2.78 on a reported basis. On a non-GAAP basis, full-year 2016 earnings per share are now expected to be in the range of $3.50 to $3.60.


2016
Expectations

Earnings per share (reported)
$2.68 to $2.78

Amortization of intangible assets
.42

Asset impairment, restructuring and other special charges, including
Novartis Animal Health integration costs and closure of an animal
health manufacturing facility in Ireland
.21

Venezuela charge
.19

Earnings per share (non-GAAP)
$3.50 to $3.60

Amortization associated with the transfer of Erbitux commercialization rights is
subject to final acquisition accounting adjustments.

Numbers may not add due to rounding.


The company now expects 2016 revenue of between $20.6 billion and $21.1 billion, reflecting recent movement in foreign exchange rates. Excluding the impact of foreign exchange rates, the company expects revenue growth from a number of established products including Humalog, Trajenta, Cialis, Forteo, Strattera, Erbitux, and animal health products, as well as higher revenues from new products including Cyramza, Trulicity, Jardiance, Portrazza and Basaglar. The company expects this revenue growth to be partially offset by lower revenue from Alimta as a result of increased competitive pressures.

Gross margin percentage is now expected to be approximately 73 percent on a reported basis, and 76 percent on a non-GAAP basis, reflecting recent movement in foreign exchange rates.

Marketing, selling and administrative expenses are now expected to be in the range of $6.1 billion to $6.3 billion. Research and development expenses are now expected to be in the range of $4.9 billion to $5.1 billion.

Other income (expense) is now expected to be in a range between $200 million and $125 million of expense on a reported basis, reflecting the impact of the first-quarter charge of $203.9 million due to the Venezuelan financial crisis, including the significant deterioration of the bolívar. On a non-GAAP basis, other income (expense) is still expected to be in a range between $0 and $75 million of income.

On a non-GAAP basis, the 2016 tax rate is now expected to be approximately 21 percent, reflecting the impact of a discrete tax benefit in the first quarter.

The following table summarizes the company’s 2016 financial guidance:

2016 Guidance

Prior

Revised

Revenue
$20.2 to $20.7 billion

$20.6 to $21.1 billion

Gross Margin % of Revenue (reported)
Approx. 74%

Approx. 73%

Gross Margin % of Revenue (non-GAAP)
Approx. 77%

Approx. 76%

Marketing, Selling & Administrative
$6.0 to $6.2 billion

$6.1 to $6.3 billion

Research & Development
$4.8 to $5.0 billion

$4.9 to $5.1 billion

Other Income/(Expense) (reported)
$0 to $75 million

$(200 million) to $(125 million)

Other Income/(Expense) (non-GAAP)
$0 to $75 million

Unchanged

Tax Rate (reported)
Approx. 21.0%

Unchanged

Tax Rate (non-GAAP)
Approx. 22.5%

Approx. 21.0%

Earnings per share (reported)
$2.83 to $2.93

$2.68 to $2.78

Earnings per share (non-GAAP)
$3.45 to $3.55

$3.50 to $3.60

Capital Expenditures
Approx. $1.1 billion

Unchanged