Costs and restructuring take toll on Eli Lilly 1st-qtr 2011, as earnings slump 15%

Eli Lilly, the first of the US drug majors to report first quarter 2011 financial results, revealed that revenue grew 6% to $5.84 billion, driven by increased demand in international markets. However, the company said it earned $1.06 billion, or $0.95 per share, a decline of 15.2% and 16% respectively in the three months that ended March 31. Adjusted net income was $1.37 billion, or $1.24 a share, up from $1.3 billion, or $1.18 a year earlier. Nevertheless, the figures beat consensus analysts’ forecasts for earnings per share at $1.17 and sales of $5.71 billion.

Operating income in the quarter plunged 21% to $1.285 billion, compared to the first quarter of 2010, due primarily to higher in-process R&D charges and on costs ($430 million up front) from a diabetes agreement with Boehringer Ingelheim (The Pharma Letter  January 12) and higher restructuring charges and increased administrative expenses, the drugmaker noted.

US health care reform reduced first-quarters 2011 and 2010 earnings per share by around between $.10 and $.12 per share, respectively, on both a reported and non-GAAP basis. For the first quarter of 2011, US health care reform reduced revenue by about $90 million due to higher rebates and subsidies, and increased administrative expenses by approximately $45 million related to the mandatory pharmaceutical manufacturers fee. For the first quarter of 2010, U.S. health care reform reduced revenue by approximately $60 million due to higher rebates, and increased tax expense by $85.1 million due to the imposition of tax on the prescription drug subsidy of the company's retiree health plan.