Financial Results and Eli Lilly and Co. and Health Care and Public Companies and Health Care Businesses and Health Care & Insurance and Pharmaceutical

Lilly shares trade down after fourth-quarter profits falls

January 28, 2010

Shares of Eli Lilly and Co. dipped in morning trading after the drugmaker reported a dip in fourth-quarter earnings and a steep dive in sales of its newest drug, Effient.

Indianapolis-based Lilly’s stock price fell as much as 3 percent at one point this morning to $35.27.

Profit dropped 10 percent to $999 million in the quarter ended Dec. 31, down from $1.12 billion in the same period a year earlier. Those totals exclude the impact of Lilly’s agreement to sell its Lafayette manufacturing plant in October 2009 and its purchase of ImClone Systems in November 2008.

On the same basis, Lilly’s fourth-quarter profit per share was 91 cents, down from $1.02 a year ago.

Wall Street analysts expected a profit of 92 cents per share, excluding the extraordinary items, according to a survey by Thomson Financial network.

Lilly’s stock price has been depressed for more than a year as investors and analysts have taken a show-me attitude about Lilly’s pipeline of experimental drugs, which the company is counting on to replace five blockbuster drugs that will lose sales to cheaper generics starting this year and running to 2014.

Effient, a blood thinner Lilly launched in late summer, was supposed to fill a large chunk of the multibillion-dollar gap those drugs will leave. But in the fourth quarter, the drug’s worldwide sales went from bad to worse.

Lilly and its partner, Japan-based Daichii Sankyo Co. Ltd., sold just $3.8 million of Effient in the fourth quarter, down from $22.6 million in the third quarter.

"For all the attention this product has received over the past few years, the first six months of sales are very underwhelming," Bernstein analyst Dr. Tim Anderson said in a Thursday morning research note, according to the Associated Press.

Lilly officials have pleaded for patience for Effient, saying the first step has been to get Effient on the approved formularies of U.S. health insurers and European national health programs.

“Even considering all of that, I would think you would be disappointed to the early results of the product,” Catherine Arnold, a Credit Suisse analyst, said during a conference call with Lilly executives this morning.

Goldman Sachs analyst Jami Rubin asked Lilly CEO John Lechleiter when Lilly would “reset expectations” for Effient.

But Lechleiter said Lilly remains confident the drug will turn out to be a success.

“We feel just as good about Effient today as we did when we launched the product,” Lechleiter responded. He added, “I’m very reluctant to say after six months we can say this or we can say that. We’re going to stay with it.”

In prepared remarks, Lechleiter highlighted Lilly’s performance for all of 2009, during which Lilly’s profits rose 16 percent to $4.85 billion, or $4.42 per share.

For 2010, Lilly reaffirmed its profit forecast of $4.65 to $4.85 per share.

In the fourth quarter, Lilly’s sales rose by 14 percent to $5.9 billion. The growth was driven mainly by higher prices in the United States and by higher volume in the rest of the world.

Its cancer drug Alimta continued to be the fastest-growing product, with fourth-quarter sales rising 64 percent to $523.6 million.

Excluding the impact of Lilly’s extraordinary events, the company would have earned a profit of $915.4 million, or 83 cents per share. In the fourth quarter a year ago, Lilly recorded a loss of $3.6 billion, or $3.31 per share.

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