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UPDATE: Lilly profit up despite rising expenses

January 29, 2008
Eli Lilly and Co. closed out 2007 with a strong increase in sales and profit. But it had to spend a lot to do it.

Even as the Indianapolis-based drugmaker's sales rose 16 percent in its fourth quarter, its selling, marketing and administrative expenses grew even faster: 23 percent, according to an earnings report issued this morning. For all of 2007, Lilly's sales grew 14 percent, but selling, marketing and administrative expenses grew 16 percent.

Still, Lilly reported 90 cents per share in earnings excluding certain one-time expenses, topping the 89 cents predicted by analysts, according to a survey by Thomson Financial.

Lilly shares rose 1.6 percent this morning to trade near $52.22.

Lilly said it invested most heavily to promote three drugs: the antidepressant Cymbalta, the diabetes drug Byetta and Humalog insulin.

And those investments paid off: Cymbalta sales grew 60 percent last year to top $2.1 billion, making it Lilly's No. 2 drug. Lilly made a concerted effort to reinvigorate its Humalog sales last year, boosting sales 13 percent to nearly $1.5 billion.

And Byetta sales rose 51 percent, to $650 million. Lilly shares revenue from Byetta with its development partner, San Diego-based Amylin Pharmaceuticals.

"Previously, we have indicated that, while we intend to grow sales faster than costs and expenses, there may be quarters in which this does not occur because of investments we choose to make," Lilly President John C. Lechleiter said this morning in a conference call with Wall Street analysts.

Lechleiter said that Lilly has increased spending in direct-to-consumer, or DTC, advertising. "In the fourth quarter we made significant investments in our DTC program for Cymbalta, substantial U.S. and (international) investments in our insulin business, and a pilot DTC program for Byetta."

Lechleiter also stressed that the 12-percent increase in 2007 operating expenses, including manufacturing and research costs, grew slower than the 14-percent increase in sales. It was the fourth straight year that Lilly's growth in sales outpaced growth in operating expenses.

Lilly saved money by trimming its workforce by more than 900 people. It now employs 40,600 people worldwide.

In the fourth quarter, Lilly's profit grew on the strength of sales for its newer products. Sales of those drugs, including Cymbalta, Cialis, Alimta, Byetta and Forteo-all launched this decade, grew 30 percent in the quarter.

For the year, Lilly's sales rose 14 percent, to $18.7 billion. Profit and earnings per share both grew 17 percent, to $3.86 billion and $3.54, respectively.

Lilly's results exclude certain extraordinary items, such as a 2006 settlement of lawsuits over the antipsychotic Zyprexa, Lilly's No. 1 drug. The results also assume that Lilly owned its subsidiary Icos Corp. for all of 2006 and 2007. Lilly acquired the inventor of Cialis, an impotence drug, in January 2007.

Excluding special items and adjustments, Lilly earned $854.4 million, or 78 cents per share, in the quarter. That compares with net income of $132.3 million, or 12 cents per share, in the same quarter a year ago.

On that same basis, Lilly's 2007 net income and earnings per share both grew 11 percent, to $2.95 billion and $2.71, respectively.

Zyprexa closed the year with nearly $4.8 billion in sales, a 9-percent rise over the previous year.
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