UPDATE: Lilly stock jumps on news of strong profit

July 24, 2007

Investors embraced Eli Lilly and Co. stock this morning after the company's second-quarter profit beat analysts' expectations.

Shares of the Indianapolis-based drugmaker jumped as much as $1.50, or 2.6 percent. Lilly's stock price has risen about 13 percent this year.

Lilly enjoyed strong growth by its antidepressant Cymbalta and its Cialis impotence treatment. Also, two drugs whose sales have slipped in recent years-the antipsychotic Zyprexa and Humalog insulin-both posted gains this quarter.

Lilly's overall profit actually dropped 19 percent in the quarter ended June 30 due to research and development charges from two companies Lilly acquired.

Excluding those expenses, Lilly earned 90 cents per share, compared with the 82 cents expected by Wall Street, according to a survey of analysts by Thomson Financial. Lilly earned 76 cents per share in the same quarter last year.

To figure its results, Lilly excluded expenses it incurred in buying Hypnion Inc. and Ivy Animal Health Inc. earlier this year. For comparison's sake, the company also assumed it fully owned its joint-venture partner, Icos Corp., throughout 2006, even though Lilly didn't acquire the company until January 2007.

Without those adjustments, Lilly earned 61 cents per share, or $664 million.

Lilly's sales in its most recent quarter jumped 20 percent to $4.6 billion. Some of its strongest growth came from its nine newest products, such as Alimta, Byetta, Cymbalta and Forteo. Collectively, sales of those nine drugs rose 61 percent and accounted for a third of Lilly's total sales.

Lilly raised its 2007 profit forecast by 11 cents per share. It now expects full-year adjusted earnings per share in the range of $3.40 to $3.50. Excluding any special adjustments, Lilly expects to earn from $2.75 to $2.85 per share.

Even with the boost, Lilly is forecasting slower profit growth than it achieved in the first six months of 2007. Lilly officials said they expect a slowing due to some shutdowns of its manufacturing plants for preventive maintenance and because Zyprexa now faces generic competition in Canada and Germany. Sales of Zyprexa total $430 million in those two countries, about 10 percent of Zyprexa's total sales.

Lilly had to spend 14 percent more on selling and administrative expenses to drive sales growth for Cymbalta and Humalog.

Lilly President John Lechleiter said, "We're investing in the business to drive future growth. We have increasing cash flow and a strong balance sheet, which gives us the flexibility to execute on our strategy."

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