Lilly shares falter after quarterly earnings report

Eli Lilly and Co.’s first-quarter profit beat the expectations of Wall Street analysts, but its stock price slipped anyway Monday morning, along with the broader market.

The Indianapolis-based drugmaker, which announced its quarterly results Monday morning, recorded restructuring charges due to its downsizing as it tries to develop new drugs to help it shrug off its looming patent expirations.

Lilly earned $1.1 billion, or 95 cents per share, during the three months ended March 31. Those results were at least 15 percent lower than during the same quarter a year ago.

However, excluding charges related to the company’s downsizing and higher research costs from drug development partnerships, Lilly would have earned $1.24 per share.

Analysts surveyed by Thomson Reuters, who typically exclude special charges from their forecasts, were expecting $1.16 per share.

The surprise seemed to matter little to investors, as Lilly’s stock fell as much as 1.8 percent in morning trading,  to $35.37 per share. The Dow Jones industrial average fell as much as 2 percent Monday morning after a bond rating agency cut its outlook on U.S. government debt.

Also, analysts focused on Lilly’s longer-term challenges: its best-selling drug, Zyprexa, will lose patent protection in October, costing Lilly most of its $5 billion in annual sales to cheaper generic copies.

"Granted, it's always good when quarterly earnings are better than expected, but the question on investors' minds is how Lilly will fare post-Zyprexa," Miller Tabak analyst Les Funtleyder told the Reuters news agency.

Because one of Lilly’s blockbusters, the cancer drug Gemzar, already lost patent protection late last year, and because two other big products, Cymbalta and Evista, will face generic competitors in the next three years, the company stands to lose roughly $10 billion in sales.

Lilly officials have tried to focus investors on the areas of the company that are and will continue to grow. Its volume of sales in Japan rose 34 percent in the quarter. Its volume of China sales rose 23 percent. And its animal health business grew 25 percent.

And Lilly officials emphasized that they now have 69 experimental drugs in human testing, including nine in Phase 3, the final stage before submitting for market approval.

“So far, 2011 is playing out as anticipated,” said Derica Rice, Lilly’s chief financial officer. He added, “This pipeline serves as the foundation of our growth [after 2014].”

First-quarter sales at Lilly rose 6 percent, to $5.8 billion, mainly on the strength of international sales. Analysts were expecting revenue of $5.7 billion.

Lilly lowered its full-year profit forecast about 6 cents per share—to reflect its restructuring charges. It now expects to earn $3.86 to $4.01 per share.

Lilly spent $76.3 million on severance as it continued its efforts to trim 5,500 workers by year’s end. The company said it is 75 percent of the way toward that goal.

Lilly also spent another $26 million on its restructuring efforts. And two research partnerships—with Germany-based Boehringer Ingelheim and with Australia-based Acrux Ltd.—cost the company $438 million in the quarter.