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Earnings Preview: Eli Lilly reports on 1Q Monday

Fri, 04/15/2011 - 10:17am
The Associated Press

Drugmaker Eli Lilly and Co. will become the first major U.S. drug company to report first-quarter earnings, when it releases results before the market opens on Monday.

WHAT TO WATCH FOR: The Indianapolis drugmaker takes a running leap off the so-called patent cliff later this year, when it loses U.S. patent protection for its top-seller, the antipsychotic Zyprexa. That drug brought in about $5 billion in sales last year, and Lilly expects a big deterioration from generic competition.

Analysts will be looking for signs of growth in other parts of the business to offset this hit. Lilly has touted sales in emerging markets and countries like Japan as well as its animal health business as keys to filling the looming revenue hole from Zyprexa and other big sellers like the antidepressant Cymbalta, which loses U.S. patent protection in 2013.

The company also will depend on its pipeline of drugs under development to help fill the void, although some analysts doubt that those products — if they make it to market — can generate enough revenue to replace what Lilly loses.

In January, Lilly said it will team with German drugmaker Boehringer Ingelheim to develop diabetes treatments. The company expects to take a charge of 23 cents per share in 2011 for this deal and will offer more insight into the first-quarter impact on Monday.

Lilly also expects to take another hit from the health care overhaul, the massive law that went into effect last year and aims to eventually cover millions of uninsured people. Lilly and other drugmakers will begin paying a fee this year and will fund rebates to patients in the Medicare prescription drug program.

WHY IT MATTERS: Several other large drugmakers are dealing with pending expirations for patents protecting key drugs. But Bernstein analyst Dr. Tim Anderson said in a note previewing the quarter Lilly faces some of the highest exposure because of the schedule of patent expirations for high-margin drugs.

For the pharmaceutical sector in general, Anderson said U.S. prescription drug volumes have improved compared to last year's first quarter, and price increases should also help sales growth. But companies also will feel the effect of government pricing cuts in Europe, some of which were implemented after last year's first quarter, which will make year-over-year comparisons challenging.

WHAT'S EXPECTED: Analysts surveyed by FactSet expect, on average, earnings of $1.16 per share on $5.71 billion in revenue.

LAST YEAR'S QUARTER: Lilly's 2010 first-quarter profit fell 5 percent to $1.25 billion, or $1.13 per share, due in part to an early impact from the overhaul. The drugmaker said it took a one-time charge of $85 million due to retiree prescription drug coverage. Revenue climbed 9 percent to $5.49 billion, as Zyprexa sales rose 8 percent.

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