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Eli Lilly Profit Falls 81%, But Tops Expectations

Eli Lilly said fourth-quarter net income fell 81%, hurt by a charge for a settlement with users of its Zyprexa schizophrenia drug, and it forecast 2007 earnings at the low end of Wall Street estimates.

But shares of the Lilly, whose profit beat forecasts on lower taxes and price hikes for its medicines, were trading higher.

The Indianapolis-based drugmaker said net income fell to $132.3 million, or 12 cents a share, from $700.6 million, or 64 cents a share, a year earlier.

Excluding special items, Lilly earned 85 cents a share, up from 80 cents last year, surpassing analysts' expectations of 82 cents a share, according to Thomson Financial. Special items included a charge of $495 million, or 42 cents a share, to cover a settlement with former users of its antipsychotic drug Zyprexa, as well as restructuring charges of 31 cents a share.

Revenue rose 9% to $4.25 billion, topping forecasts of $4.08 billion, fueled by higher sales of its Cymbalta depression treatment and higher Zyprexa sales.

"Relatively exceptional pricing gains contributed 6% of the overall 9% (revenue) growth, and we would be cautious on the sustainability of such trends," JP Morgan analyst Chris Shibutani said in a research note.

For the first quarter, Lilly expects earnings of 77 cents to 79 cents a share, excluding items. Lilly also projected 2007 profits of between $3.25 to $3.35 a share, excluding items. Thomson Financial estimates put first quarter earnings at 80 cents and 2007 earnings at $3.34 a share.

Lilly said its forecast would have been about 10 cents a share -- or 3 percentage points -- higher if not for the dilutive impact of its recent purchase of biotechnology company Icos.

Lilly on Monday completed the $2.3 billion acquisition of Icos, gaining full control of impotence treatment Cialis, whose far longer-acting formulation has allowed it to wrest market share from Pfizer's Viagra. Sales for 2007 should grow in the high single digit or low double-digit percentage range, Lilly said, helped by the inclusion of Cialis revenue.

Profit growth will be crimped by heavy spending on research, including late-stage trials of an experimental blood clot drug called prasugrel that Lilly deems potentially superior to Bristol-Myers Squibb's blockbuster Plavix.

Fourth quarter sales of Zyprexa, Lilly's biggest-selling product, rose 12% to $1.16 billion, largely due to price hikes. The company said U.S. demand for the pill remained flat. The drug's use has been crimped by concerns over weight gains that can increase risk of diabetes.

Lilly this month agreed to the $495 million Zyprexa settlement, covering more than 18,000 patient claims. An earlier $700 million Zyprexa settlement dispensed with about 8,000 claims. About 1,200 claims are not included in the settlements and will go to trial.

The New York Times in December said Lilly told its sales representatives to play down data showing 30% of patients taking Zyprexa gained 22 pounds or more after a year on the drug, with some reporting gaining 100 pounds or more.

Lilly denied Zyprexa is more likely to cause diabetes than rival drugs and said the Times had improperly obtained its internal documents and taken them out of context.

Cymbalta sales leaped 85% to $424 million, amid soaring demand in the U.S. and introductions of the drug in more overseas markets.

But Strattera, for attention deficit hyperactivity disorder, fell 7% to $156 million, as concerns about safety of the class of medicines continues to hurt U.S. sales.

Diabetes drug Actos had sales of $90 million, a 42% decline, due to Lilly' loss in September of U.S. marketing rights to the drug. Combined sales growth of company diabetes products rose 4% to $782 million.

Sales of Cialis, which had been sold in partnership with Icos, jumped 28% to $269 million.

Eli Lilly held a conference call and webcast to discuss the quarter at 8 am New York time.

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