Earnings Preview: Eli Lilly to report 3Q earnings

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INDIANAPOLIS -Drugmaker Eli Lilly and Co. reports third-quarter earnings Wednesday before the market opens. The following is a summary of key developments related to that period.

OVERVIEW: Last month, Lilly announced a plan to cut annual costs by $1 billion and bring new drugs to market more quickly to help deal with looming patent expirations.

The company said it will reduce its work force by nearly 14 percent, to 35,000 from the current 40,500, by the end of 2011 and it will reorganize into units centered around key product areas like cancer, diabetes and established markets.

Lilly faces a wave of patent expirations starting in 2011 with its top-seller, the anti-psychotic Zyprexa. The company also will lose patent protection in 2013 for its second-best seller, the antidepressant Cymbalta, Humalog insulin and the cancer drug Gemzar. The patent for osteoporosis drug Evista expires in 2014.

The company's much-delayed blood-thinner Effient finally hit U.S. pharmacy shelves in August, about a month after regulators approved it. This was Lilly's first new drug launch since the diabetes drug Byetta in 2005.

The Food and Drug Administration approved Effient after delaying its decision several times during an 18-month review and said the drug should carry a boxed warning about the risk for serious bleeding problems in some patients.

Lilly will take a one-time charge of 23 cents in the third quarter for the sale of an Indiana manufacturing plant to chemicals maker Evonik Industries AG for an undisclosed amount.

In July, Lilly raised its full-year profit guidance to $4.20 to $4.30 per share, excluding one-time items, from $4 to $4.25 per share.

BY THE NUMBERS: Analysts polled by Thomson Reuters expect, on average, earnings per share of $1.01 for the quarter on $5.4 billion in revenue.

ANALYST TAKE: Lilly's pipeline of potential new drugs remains the focus for many analysts who are still trying to figure out how the company will replace all its lost revenue from expiring patents.

The reorganization the company announced in September was bound to happen, given the expiring patents, Credit Suisse analyst Catherine Arnold said earlier this month in a research note.

"The question remains whether this is sufficient given that we still forecast a 40 percent drop in the company's earnings from 2011 to 2014, after incorporating the cost savings into our model," she wrote, calling the launch of Effient "critical."

Leerink Swann analyst Seamus Fernandez said in a separate note Lilly appears to have the flexibility "to deliver a beat-and-raise quarter."

"But investor enthusiasm remains keyed to Effient's launch (which has been disappointing) and the pipeline," Fernandez said.

STOCK PERFORMANCE: Lilly shares fell about 6 percent during the third quarter to close at $33.03 on Sept. 30. By comparison, the Standard & Poor's 500 index rose 14 percent during the quarter.

2009-10-19 12:01:09