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Eli Lilly and Co. said Thursday its second-quarter profit soared 16 percent, boosted partially by revenue growth from key
drugs that face patent expirations in the coming years.
The performance prompted the Indianapolis company to raise its 2010 earnings guidance three months after lowering it. But
the market gave Lilly's stock a lukewarm reaction.
Company shares rose only 26 cents to $35.21 in Thursday morning trading while the Standard & Poor's 500 index climbed
more than 2 percent.
Investors are still focused on whether Lilly can continue dividend payments when patent expirations hit and whether the company's
drug development pipeline can replace lost revenue, Edward Jones analyst Linda Bannister said.
Lilly's top seller, the antipsychotic Zyprexa, loses patent protection from generic competition next year. Protection
for the antidepressant Cymbalta ends in 2013. By then, Lilly will have lost protection for drugs that brought in more than
half of its 2009 revenue.
"If they're able to execute on the pipeline, Lilly could be a very interesting stock," Bannister said.
For the second quarter, Lilly earned $1.35 billion, or $1.22 per share, in the three months that ended June 30. That's
up from $1.16 billion, or $1.06 per share, in the same period last year. Revenue rose 9 percent to $5.75 billion. Excluding
charges, profit was $1.24 per share.
Those numbers beat Wall Street expectations. Analysts polled by Thomson Reuters forecast, on average, earnings of $1.10 per
share on $5.58 billion in revenue.
Zyprexa sales rose 5 percent to $1.26 billion, but demand for the drug fell in the U.S. Cymbalta revenue climbed 17 percent
to $867.7 million due mostly to higher U.S. prices and volumes.
The company's total revenue growth helped it overcome government-imposed price cuts in Europe due to the economic downturn
and a $70 million hit from Medicaid rebates that are part of the U.S. health care reform law.
Lilly said it now has eight molecules in late-stage trials, which is the last step before a company seeks regulatory approval.
Company leaders expect that research and development to pay off, and they've emphasized this approach to growth instead
of buying another big drug company to replenish the product portfolio.
Chief Financial Officer Derica Rice told analysts Thursday the company still expects to bring in at least $20 billion in
annual revenue even as it moves through the patent expirations. The company had $21.83 billion last year.
Several analysts have expressed doubts about Lilly's strategy, but Bannister thinks the company can deliver.
"We're telling our clients you're going to have to be patient with the stock because it's going to be difficult
for (the share price) to move significantly until they're able to bring some of these drugs to market," the Edward
Jones analyst said.
Lilly now expects 2010 adjusted earnings of between $4.50 and $4.65 per share, up from previous guidance of $4.40 to $4.55
per share. Analysts expect $4.49 per share.
"Overall, a solid quarter for the company, yet for many investors, it is the longer-term financial outlook that matters
more," Bernstein analyst Tim Anderson wrote in a Thursday morning research note.
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