Eli Lilly & Co., Q4 2008 Earnings Call, Jan-29-2009 - NYSE:LLY

NYSE:LLY

Ronika Pletcher provided updates and details on the sales performance of key products for Eli Lilly and Company during the Q4 2008 Earnings Call. Here’s a detailed summary of her remarks:

1. Zyprexa Sales Performance:

   • Worldwide Zyprexa sales decreased 10% in Q4 to $1.147 billion.
   • US sales decreased 4% to $584 million due to lower demand caused partly by variations in wholesaler buying patterns, partially offset by increased net effective selling prices.
   • International sales were down 15% to $563 million due to decreased demand, the unfavorable impact of foreign exchange rates, and to a lesser extent, lower prices.
   • Demand outside the US was unfavorably impacted by generic competition in Canada and Germany, offset by solid growth in Japan.
   • Mentioned the positive outcome of the Federal Supreme Court in Germany re-establishing the company's Zyprexa patent.

2. Cymbalta Sales Performance:

   • Cymbalta sales in the third quarter were $721 million, up 15% compared to the fourth quarter of 2007.
   • US sales increased 10% to $603 million driven primarily by higher demand and to a lesser extent increased prices.
   • International sales totaled $118 million, an increase of 46% driven primarily by higher demand, partially offset by the unfavorable impact of foreign exchange rates.

3. Humalog Sales Growth:

   • Humalog sales grew 11% to $458 million.
   • US sales increased 11% to $275 million driven by increased net effective selling prices and to a lesser extent increased demand.
   • Sales outside the US increased 10% to $183 million driven by demand, partially offset by the unfavorable impact of foreign exchange rates.

4. Cialis Sales Growth:

   • Cialis sales were up 7% in the quarter reaching $369 million.
   • Sales in the US were up 11% to $148 million, driven by higher prices.
   • Sales outside the US increased 4% to $221 million, driven primarily by higher demand, partially offset by the unfavorable impact of foreign exchange rates.

5. Alimta Sales Performance:

   • Alimta sales in the fourth quarter were strong, coming in at $390 million, an increase of 31% over Q4 2007.
   • US sales increased 28% to $161 million due primarily to increased demand.
   • Sales outside the US were up 33% to $157 million due primarily to increased demand, partially offset by the unfavorable impact of foreign exchange rates and lower prices.

6. Humulin Sales:

   • Humulin sales for the fourth quarter were down 4% to $262 million.
   • US sales were flat at $101 million due to higher net effective selling prices offset by lower demand.
   • International sales decreased 6% to $161 million, driven by the unfavorable impact of foreign exchange rates.

7. Forteo Sales:

   • Quarterly Forteo sales were $194 million, down 2% over Q4 last year.
   • US sales declined 10% to $125 million driven by decreased demand and lower net effective selling prices, partially offset by wholesaler buying patterns.
   • International sales of Forteo were up 15% to $69 million due to higher demand, partially offset by the unfavorable impact of foreign exchange rates.

8. Byetta Sales:

   • Worldwide Byetta sales for the quarter were $187 million, a 2% increase.
   • US Byetta sales decreased 8% to $163 million.
   • OUS Byetta sales were $24 million compared to $7 million in Q4 2007.
   • Total Byetta revenue recognized in Lilly's income statement was $103 million, a 12% increase.

These updates provide a comprehensive overview of the sales performance of key products for Eli Lilly and Company during the fourth quarter of 2008.

Phil Johnson, Vice President of Investor Relations at Eli Lilly and Company, made several remarks during the 2008 fourth-quarter earnings call:

1. Opening Remarks:

   • Greeted attendees and introduced the executives present, including Chairman and CEO John Lechleiter, CFO Derica Rice, and others.
   • Noted that the call would be webcast live and that a replay and podcast would be available on the company’s website until February 27, 2009.
   • Mentioned that the call would include forward-looking statements and outlined various factors that could affect the company’s results.

2. Forward-Looking Statements:

   • Emphasized that actual results could differ materially from projections due to competitive developments, new product launches, regulatory and legal matters, patent disputes, government investigations, pricing and importation issues, tax law changes, acquisitions, financial market conditions, currency exchange rates, and global economic conditions.

3. Risk Factors:

   • Directed listeners to review Lilly’s and ImClone’s Forms 10-K and 10-Q for additional information about relevant risk factors.

4. Pipeline Information:

   • Clarified that the information provided about the company’s pipeline was intended for the investment community and not for prescribing decisions.

5. Turned Call Over to John Lechleiter:

   • Passed the call over to John Lechleiter, Chairman and CEO, to provide an overview of the company’s performance and achievements in 2008.

6. Question and Answer Session:

   • Facilitated the question-and-answer session by directing the operator to call on the first participant.

7. Prasugrel Trials and Submissions:

   • Addressed questions about the prasugrel TRILOGY study, stating that enrollment of centers into the study was going well and that no data from TRILOGY would be submitted to support the FDA's review of the product.
   • Regarding the mGlu2/3 program, he indicated that data release timing was still being determined but that the company would release data from the Phase 2 dose-ranging study. He also mentioned that preclinical toxicology findings might not be disclosed publicly.

8. Gemzar Patent Litigation:

   • Explained the status of the patent litigation for Gemzar, noting that Teva had not given notice of its intent to launch a generic version despite the expiration of the 30-month stay. He also mentioned that a trial was scheduled to begin on July 13, 2009, if necessary.

9. Non-Small Cell Lung Cancer Application:

   • Addressed questions about the non-small cell lung cancer application, explaining that the company needed to show equivalence between clinical trial material and commercial product due to differences in manufacturing sites. He noted that the company would submit additional data to address the FDA's concerns and that the specific resubmission timeline was still being finalized.

10. Cymbalta Trends and Competition:

    • Addressed questions about the slowdown in Cymbalta growth rates, attributing it partly to the increased penetration of generics in the market. He highlighted the company's access win with a tier 2 status for Cymbalta, adding about 20 million covered lives.
    • Mentioned the approval of a competitor (milnacipran) for fibromyalgia and discussed the comparative advantages of Cymbalta, particularly in treating co-morbid depression and fibromyalgia.
    • Noted that the company planned to re-file its FDA application for Cymbalta for use in chronic pain in the first half of 2009.

11. Evista Patent Case:

    • Provided context about the Evista patent case, explaining that the composition of matter patent had expired and that the current dispute centered on method-of-use patents. He acknowledged that method-of-use patents are generally easier to circumvent but expressed confidence in the company's position due to the narrowness and specificity of the patents.

12. Prasugrel Market Share and Launch Plans:

    • Addressed questions about the potential market share of prasugrel, estimating that the ACS PCI indication represents 15-25% of current Plavix prescriptions.
    • Explained the status of the 30-month stay expiration for Evista, noting that the judge had granted an extension to the start of the trial date (March 9, 2009).

13. Closing the Q&A Session:

    • Announced the end of the Q&A session and turned the call back to John Lechleiter to close the meeting.

14. Closing Remarks:

    • Briefly summarized the achievements and progress made by Eli Lilly and Company in 2008 and looked forward to an eventful 2009 with significant milestones and decisions.

John Lechleiter provided an overview of Eli Lilly and Company's performance and progress in 2008. Here’s a detailed summary of his remarks:

• Overall Performance:

  • Eli Lilly and Company accomplished a lot in 2008, making significant progress on their priorities, building a robust pipeline, and transforming their business to excel in a challenging healthcare environment and prepare for patent expirations.
  • The company generated strong operating and non-GAAP financial results for the full year, including 9% sales growth driven primarily by volume leverage, increasing gross margin percentage, and strong operating cash flow.

• Financial Highlights:

  • Pro forma non-GAAP sales growth of 9% was driven primarily by a 4% increase in volume, surpassing $20 billion in revenue.
  • Eight products and the Elanco Animal Health business exceeded $1 billion in annual sales.
  • Pro forma non-GAAP EPS grew 14% to $4.20, at the top of the guidance range.
  • Over $7 billion of operating cash flow enabled investments in the pipeline, increasing the dividend by 4%, and business development, notably acquiring ImClone.

• Fourth Quarter Results:

  • Fourth quarter pro forma non-GAAP sales were essentially flat, with foreign exchange rates negatively impacting sales growth by 3%.
  • Price and volume contributed 2% and 1% respectively.
  • There was a slowdown in sales volume growth, driven by moderation in US demand and variation in customer buying patterns, particularly affecting US Zyprexa and Elanco.
  • Despite an $80 million decrease in other income, fourth-quarter pro forma non-GAAP EPS grew 19% to $1.07 due to increasing gross margin and a year-on-year decline in marketing, selling, and administrative expenses.

• Operating Expense Management:

  • Sales growth outpaced operating expense growth for the fifth consecutive year.
  • Gross margin as a percent of sales saw a significant expansion.
  • Efforts to maintain growth in the total expense base (sum of manufacturing, R&D, and SG&A) at a rate lower than sales growth, thus generating operating leverage.
  • Transformation of the cost structure towards external spend versus internal spend and more variable expenditures versus fixed expenditures to build flexibility for the upcoming patent expirations.

• Headcount Management:

  • Since mid-2004, Eli Lilly reduced headcount by nearly 5,400 or 12%, from nearly 46,000 to 40,450 in December 2008.
  • Including acquisitions, the net reduction is nearly 8,000 or 16%.
  • Intention to continue managing headcount diligently and transforming the expense base moving forward.

• Pipeline Progress:

  • The pipeline is the lifeblood of the organization, and the company's future success depends on discovering and developing innovative new drugs valued by patients, physicians, and payers.
  • Significant achievements in 2008, including 17 new molecular entities entering clinical testing, doubling the clinical-stage NME portfolio compared to the end of 2006.
  • Biotech molecules represent almost half of the late-stage Phase 2 and Phase 3 assets and 40% of the overall clinical portfolio.

• Regulatory and Legal Matters:

  • Reiterated the company's regret for past actions covered by the misdemeanor plea regarding the EDPA investigation into past US marketing and promotional practices for Zyprexa.
  • Emphasized the company's commitment to ensuring full compliance with the obligations in the corporate integrity agreement.

• Business Development:

  • Completed several licensing deals, including agreements with BioMS, TransPharma, Transition Therapeutics, and Deciphera Pharmaceuticals, and the out-licensing of US rights for the PAH indication for tadalafil to United Therapeutics.
  • Acquired Elanco subsidiary rights to the dairy cow supplement Posilac from Monsanto, SGX Pharmaceuticals to enhance drug discovery efforts, and ImClone Systems, the largest acquisition in the company's history.
  • Noted positive early returns from ImClone, including approvals, submissions, and filings.

• Anticipated Milestones:

  • Expected milestones for 2009 include European approval of prasugrel, FDA action on Byetta monotherapy and the Byetta label update, FDA advisory committee for prasugrel, submission of exenatide once weekly, submission of arzoxifene, resubmission of Cymbalta for chronic pain, reporting Phase 3 results for dirucotide, and initiating Phase 3 trials for various compounds.

• Closing Remarks:

  • Solid year in 2008 with clear progress on priorities, strong financial results, improved productivity, reduced headcount, and a more flexible expense base.

  • Transformative moves such as collaborations with Covance, Quintiles, i3, and Jubilant to leverage expertise and speed the flow of new medicines.

  • Accelerated the shift of the pipeline towards biotechnology and oncology through the acquisition of ImClone.

  • Staked the future on innovation, doubling the clinical pipeline in the last 24 months, with molecules focused on meeting significant unmet medical needs.

  • Excitement about 2009, anticipating significant milestones and decisions.

During the Eli Lilly and Company Q4 2008 Earnings Call, Nick Lumon, presumably a member of the executive team, provided a detailed breakdown of the income statement for the quarter and the full year 2008. Here is a summary of his remarks:

1. Quarterly Results:

   • Sales were essentially flat at $5.2 billion.
   • Gross margin as a percent of sales was 82.6%, an increase of 7.1 percentage points compared to Q4 2007. The increase was primarily due to the rapid decline of the euro against the US dollar.
   • Marketing, selling, and administrative expenses decreased by 2% to $1.7 billion. The decrease was attributed to the impact of foreign exchange rates and decreased advertising costs, partially offset by increased prasugrel pre-launch activities and funding for the Lilly Foundation.
   • Research and development expenses were $1 billion or 20% of sales. Compared to the fourth quarter of 2007, R&D expenses grew 9% due to increased late-stage clinical trial and discovery research costs.
   • Operating income increased robustly by 26% due to the expansion of the gross margin percent.
   • Net income and fully diluted earnings per share showed growth of 19%, below the operating income growth rate due to other income.

2. Other Income and Deductions:

   • Other income and deductions decreased by $80 million to $48 million of net expense, primarily due to other expenses totaling $55 million from the write-off of securities of certain banks affected by the financial crisis and the write-down of various equity investments.

3. Significant Items Affecting Net Income and Earnings Per Share:

   • Pre-tax charges and net expenses totaling $4.73 billion or $4.46 per share after tax related to the acquisition of ImClone Systems. This amount includes a charge of $4.685 billion for in-process research and development, as well as ImClone operating results subsequent to the acquisition, incremental interest costs, and amortization of the intangible assets associated with Erbitux.
   • A charge of $80 million or $0.05 per share for asset impairments, restructuring, and other special charges.
   • Tax benefits of $136.9 million or $0.13 per share based on the determination that a portion of the $1.415 billion third-quarter charges related to federal and state investigations into past U.S. marketing and promotional practices for Zyprexa is tax deductible.

4. Reported Earnings Statement:

   • Details about the reported earnings are available in the earnings press release dated January 29, 2009.

5. Q&A Session:

   • During the Q&A session, Nick Lumon addressed a question about the breakup of Cymbalta sales between the depression indication and the fibromyalgia indication. He mentioned that the company no longer splits the two and measures both the fibromyalgia market and depression together. As of the last measure, the company was about 6% of the market, up from a 5.7% initiation. He also commented on the prescription trends for Cymbalta compared to Lyrica and noted that Cymbalta prescriptions continue to grow at a faster rate than Lyrica.

Derica Rice provided several updates and details during the earnings call:

1. Financial Guidance for 2009:

   • Reconfirmed the 2009 earnings per share guidance range of $4 to $4.25, including the estimated dilution of $0.30 to $0.35 from the ImClone acquisition.
   • Excluding the estimated ImClone dilution, 2009 earnings per share for Lilly's base operations are expected to be in the range of $4.35 to $4.55.

2. Financial Results Presentation:

   • Moving forward, financial results will include the impact of the ImClone acquisition.
   • 2009 non-GAAP results and guidance will be compared to 2008 pro forma non-GAAP results restated as if Lilly had completed the ImClone acquisition on January 1, 2008.

3. Line Item Guidance:

   • Volume growth in sales is expected in 2009, driven by Cymbalta, Alimta, Cialis, Humalog, and the anticipated launch of prasugrel, as well as by the Elanco Animal Health Division.
   • Low single-digit sales growth is expected on a pro forma non-GAAP basis and mid-single-digit sales growth on a recorded basis.
   • Gross margin as a percent of sales is expected to increase, driven by the strengthening dollar.
   • Marketing, selling, and administrative expenses are projected to show flat to low single-digit growth.
   • Research and development expenses are projected to grow in the high single digits on a pro forma non-GAAP basis and in the low double digits on a reported basis.
   • Other income for 2009 is expected to be a net loss of between $200 million to $250 million.
   • The effective tax rate is expected to be approximately 22%.
   • Capital expenditures are expected to be approximately $1.1 billion.
   • Continued strong operating cash flow is expected.

4. Response to Questions:

   • Addressed the impact of generic Risperdal and Zyprexa in 2009, stating that the impact of generic Risperdal has not been demonstrable so far and that the effect of generic Zyprexa is still too early to determine.
   • Discussed the de-stocking in the US, noting that there was a significant stocking in Q4 2007 due to the holiday buy-in, which was not repeated in Q4 2008.
   • Commented on the relationship with Quintiles regarding the promotion of Cymbalta, mentioning that the current arrangement ends in August 2009 and that Lilly does not anticipate reducing its voice-share and promotion behind Cymbalta.
   • Provided details on Zyprexa in Germany, explaining the impact of the Federal court ruling that re-established the company's Zyprexa patent and the withdrawal of generic products from the market. She noted the erosion that had been achieved by generics, with a share of around 72% to 73% at the end of December, and that the generics were selling at prices about 30% of the original branded price.
   • Mentioned the new reimbursement price for Zyprexa in Germany, which is set at about 15% below the original branded price.
   • Clarified that the 2009 guidance does not factor in any additional settlement payments related to Zyprexa beyond what has already been provisioned for.
   • Explained that the guidance for other income and deductions takes into account the incremental cost of debt to finance the ImClone acquisition, using an average blended rate of around 6%.
   • Provided details on the issuance of commercial paper and the current average rate and duration of outstanding commercial paper.

These statements cover Derica Rice's contributions to the earnings call, providing insights into the financial guidance, line item guidance, and responses to specific questions.