Analysis: Lilly delivers strong Q2

WASHINGTON, July 24 (UPI) -- Eli Lilly's second-quarter net profit dipped 20 percent, but the pharmaceutical company's earnings saw a 26-percent increase, beating Wall Street's estimates.

A.G. Edwards analyst Joseph Tooley called the performance "a very strong" quarter.

"I was encouraged by the volume, which was strong, across the board," Tooley told United Press International. "It was a good quarter."

Going forward, Tooley foresees a positive outlook for Lilly and its pipeline. Prasugrel, which is being developed as an anti-platelet agent, could be a key product for the company, but there's some uncertainty about a phase 3 trial, the results of which are due out in November.

"If they're successful in those trials, the stock will be very well positioned," Tooley said.

Overall, he likes Lilly's base business and anticipates the company will deliver double-digit earnings growth over the next few years.

"Operationally, they've been doing a pretty good job," Tooley said. "Their base business is encouraging." He added that he doesn't foresee any major hurdles for the company in the near-term.

Another indication of Lilly's solid outlook is that the company Tuesday raised its guidance for the year by $0.10 to $3.40-$3.50 and said it anticipates sales will grow in the mid-teen percent range.

Lilly has already overcome one challenge this year by delivering a solid performance of its antipsychotic medication, Zyprexa.

"It's been holding up," Tooley said, noting the drug has benefited both from pricing and a favorable foreign exchange rate overseas.

However, Zyprexa may begin to slip over the remainder of the year.

"As we get into the back half of the year, Lilly will get less benefit from the Medicare Modernization Act Part D for Zyprexa and pricing could be a little bit weaker," Tooley said.

A Food and Drug Administration advisory committee Tuesday recommended in an 8-6 vote that Lilly's Evista receive a breast cancer prevention indication in postmenopausal women with osteoporosis.

The expanded indication won't boost sales of the drug dramatically, but it will put Evista in a better competitive position next year, Tooley said.

Lilly reported Tuesday earnings per share for the quarter came in at $0.90, beating Wall Street's consensus estimate by $0.08.

Worldwide sales for the quarter increased 20 percent to $4.63 billion, while worldwide sales volume jumped 14 percent.

Both net income and earnings per share, at $663.6 million and $0.61, respectively, fell short of the performance in the year-ago period, $822 million and $0.76, respectively. Lilly said its performance this quarter was affected by charges related to the acquisitions of Ivy and Hypnion.

"Our accelerated, double-digit sales growth in this quarter was fueled by increased volume, driven by several products launched this decade, most notably Cymbalta," said Sidney Taurel, Lilly's chairman and chief executive officer.

"We are encouraged by our outlook for the remainder of the year, and we feel confident in again raising our full-year 2007 sales and earnings guidance," Taurel added.

Cymbalta sales came in at $519.5 million, a 67 percent jump over the year-ago quarter. Zyprexa sales rose 9 percent to $1.21 billion.

UBS analyst Roopesh Patel liked the second-quarter numbers but said it didn't change his concerns about the company's future.

"While today's earnings bode well for the full year outlook, our view on Lilly remains unchanged," Patel stated in a research report.

He reiterated his "neutral" rating of the stock due to uncertainty about Prasugrel and Zyprexa.

"We expect the stock to be range bound until further clarity on Prasugrel," Patel stated. "We also remain concerned about growth prospects in 2008 given the likely pressure faced by Zyprexa in both Germany and Canada, where generics are expected to launch before the end of the year."

UBS did not respond to UPI's request for comment from Patel.