Lilly earnings drop 25 percent in fourth quarter as Prozac sales plunge

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Posted 3:06PM on Thursday, January 24, 2002

INDIANAPOLIS - Eli Lilly and Co. on Thursday reported a 25 percent decline in earnings for the fourth quarter as the drugmaker suffered from the loss of its patent on Prozac and the emergence of a less expensive generic version of the anti-depressant pill. Net income fell to $575.4 million, or 53 cents per share, for the October-December period from $767.3 million, or 70 cents a share, a year ago. Excluding one-time charges from a research project and debt refinancing, Lilly earned $656.2 million, or 60 cents per share, in the latest quarter. That matched expectations of analysts surveyed by Thomson Financial/First Call. Fourth-quarter sales decreased 5 percent, to $2.829 billion, compared with $2.978 billion in the year-ago period. Prozac sales dropped 84 percent for the fourth quarter as doctors and health insurance plans encouraged patients to switch to a cheaper generic pill. "Our sales performance, excluding Prozac, continued to be impressive with 15 percent growth in the quarter and 17 percent for the year," said Sidney Taurel, Lilly's chairman, president and chief executive. The fourth-quarter figures were an improvement from the third quarter, when earnings dropped 27 percent after the company lost a court battle to extend patent protection for Prozac, Lilly's longtime best seller. But Prozac sales declined sharply with the introduction of a cheaper generic version in August. For the year, Lilly earned $2.78 billion, or $2.55 a share, down from $3.06 billion, or $2.79 per share, a year ago. Sales rose to $11.5 billion from $10.9 billion in 2000. Because of the Prozac setback and expensive plans to expand sales staff and new drugs, Lilly has said it likely will be limited to $2.70 to $2.80 in per-share earnings growth this year. An earnings decline is forecast for the first half of the year, with a return to growth in the second half. The Indianapolis-based company has frozen salaries for its 15,000 U.S. workers this year. Analysts said Lilly's short-term prospects were clouded by recent government inspections that found quality-control problems at some Lilly manufacturing operations. While those problems could hold up approval of new drugs this year, analysts said Lilly still might have the industry's best drug pipeline. "We believe Lilly's overall portfolio can consistently deliver top-tier earnings growth compared to its peers over the next four and maybe five years," said Tony Butler of Lehman Brothers in New York. "We think they will come out of 2002 and 2003 with the largest growth" among major pharmaceutical firms, said analyst Robert Hazlett of Robertson Stephens. But Lilly stock, which traded at $87 in June, was down $2.11 a share to $73.66 in afternoon trading Thursday on the New York Stock Exchange. The loss of Prozac revenue has been blunted by sales of Zyprexa to treat schizophrenia and other psychoses. In 2001, Zyprexa became Lilly's first product to surpass $3 billion in annual sales, with fourth-quarter sales rising 29 percent over the year-ago period. Sales for Zyprexa and Lilly's four other fastest-growing drugs -- Gemzar, Acros, Humalog and Evista -- grew 32 percent for the fourth quarter and 36 percent for the year, Taurel said. For 2003, Lilly expects high-teen earnings-per-share growth, largely due to new products such as Xigris, a blood-infection drug that won government marketing approval Nov. 21. Initial Xigris sales through Dec. 31 were $21.2 million -- in line with expectations, Taurel said. The sepsis treatment is one of nine drugs Lilly intends to bring to market over the next three years. Taurel even boasted last fall that the company is positioned to become the "pharmaceutical growth company of the decade." But last month, the company said that federal inspectors' quality-control concerns about some of its Indianapolis manufacturing operations could delay introduction of an osteoporosis drug and an injectable version of Zyprexa. "Our number one priority is to address all the manufacturing issues raised by the FDA to its satisfaction in order to bring our innovative new products to market as quickly as possible," Taruel said. The company plans to begin marketing three drugs in the second half of this year -- Cialis, a medication to treat male erectile dysfunction; duloxetine, for depression; and atomexetine, for attention-deficit disorder in children.