[ELI LILLY AND COMPANY LETTERHEAD]
WWW.LILLY.COM
DATE: April 22, 2003
FOR RELEASE: on April 22, 2003 at 7:00 am New York Time
REFER TO: (317) 276-5795 - Terra L. Fox
ROBUST SALES GROWTH DRIVES LILLY'S FIRST-QUARTER PERFORMANCE
Zyprexa and Other Key Products Deliver Strong Double-Digit Sales Growth
and Recent New Product Launches Are Encouraging
Eli Lilly and Company (NYSE: LLY) announced financial results for the first
quarter of 2003.
First-Quarter Highlights
o Sales increased 13 percent, to $2.889 billion, driven primarily by robust
double-digit growth of Zyprexa(R), Humalog(R), Actos(R), Gemzar(R) and
Evista(R) as well as initial sales from the three recent new product
launches.
o Reported net income and diluted earnings per share decreased 35 percent and
34 percent, to $407.0 million and $.38, respectively, due to unusual
charges.
o Excluding unusual charges in the first quarter of 2003 related to asset
impairments, restructuring and other special charges, normalized net income
and diluted earnings per share both increased 5 percent, to $661.3 million
and $.61, respectively.
Reconciliation of Reported to Normalized First-Quarter
- ------------------------------------------------------
Earnings per Share First-Quarter % Over/(Under)
- ------------------ ------------- --------------
2003 2002 2002
---- ---- ----
E.P.S. (AS REPORTED, DILUTED) $.38 $.58 (34%)
Add back unusual charges:
Asset impairments, restructuring and
other special charges (a) .23 -
--------- ---------
E.P.S. (NORMALIZED AND DILUTED) $.61 $.58 5%
========= =========
(a) Refer to separate section in press release for a description of these
unusual charges.
Pharmaceutical Product Sales Highlights
% Change
(Dollars in millions) First Quarter Over/(Under)
--------------- ------------
2003 2002 2002
---- ---- ----
Zyprexa $958.3 $819.4 17%
Diabetes Care Products 633.4 502.9 26%
Gemzar 233.9 197.5 18%
Evista 214.0 177.9 20%
Significant Events Over the Last Three Months
o Strattera(TM) was launched in the U.S. for the treatment of
attention-deficit hyperactivity disorder (ADHD) in children, adolescents
and adults.
o The first U.S. prescriptions for Forteo(R) were written following its
December 2002 launch and one-month sampling. Forteo is approved by the U.S.
Food and Drug Administration (FDA) for the treatment of osteoporosis in
postmenopausal women at high risk for a fracture and to increase bone mass
in men with primary or hypogonadal osteoporosis who are at high risk for a
fracture.
o Cialis(TM) was launched in the European Union as well as Australia and New
Zealand for the treatment of erectile dysfunction in these countries.
o The FDA informed Lilly of a six-month review time following the company's
recent submission of its full response to the Cymbalta(TM) approvable
letter. Cymbalta's final approval is also subject to successful completion
of a manufacturing inspection. Therefore, at this point in time, the
company believes a realistic timeline to complete the regulatory approval
process for Cymbalta is the fourth quarter of 2003.
o Lilly filed its European submission for duloxetine for the treatment of
stress urinary incontinence.
"Robust sales growth across our key products drove Lilly's first-quarter
results," said Sidney Taurel, Lilly chairman, president and chief executive
officer. "Zyprexa, which is faced with new competition, as well as Humalog,
Actos, Gemzar and Evista, all generated strong double-digit sales growth. In
addition, thanks to effective market planning and sales implementation for our
three recent new-product launches, we are seeing encouraging initial results. In
fact, Strattera had
- 2 -
more total prescriptions in its first three months following launch than any
other new neuroscience product in history. Our first-quarter performance will
enable us during the remainder of this year to make even greater investments to
optimize the recent product launches and prepare for the launches of up to four
other new products by the end of 2004."
Pedro P. Granadillo, senior vice president for Lilly, commented on Lilly's
manufacturing situation, "We have been in ongoing dialogue with the FDA while
developing and implementing our Good Manufacturing Practices improvement plan
since it was submitted to the agency last October. Our discussions with the FDA
continue to be very constructive and collaborative and confirm that we are on
the right track with our ongoing improvement efforts. The FDA recently
formalized its feedback in a letter, which summarizes the agency's general
expectations for bringing our Indianapolis facilities into compliance. The next
major milestone in the process will be the reinspections of the dry products
facility, where Cymbalta is manufactured, and the sterile injectable facility,
where Zyprexa IntraMuscular is manufactured."
First-Quarter Results
Worldwide sales for the quarter were $2.889 billion, an increase of 13 percent
compared with the first quarter of 2002. This increase was driven by the strong
performance of Zyprexa, Humalog, Actos, Gemzar and Evista as well as sales from
the launch of Strattera during the quarter. Worldwide sales volume increased 7
percent, while selling prices and exchange rates increased sales by 2 and 4
percent, respectively.
Gross margins as a percent of sales decreased by 0.8 percentage points, to 78.5
percent. This decrease was due to costs associated with quality improvements as
well as growth in capacity in the company's manufacturing operations, offset
partially by a favorable sales mix of higher margin products.
Overall, marketing and administrative expenses increased 18 percent, to $914.5
million, which was attributable to marketing expenses in support of the new
product launches, increased incentive compensation and costs associated with
certain pending litigation. Research and development expenses were $529.6
million, or 18 percent of sales. Compared with the first quarter of 2002,
research and development expenses increased 5 percent primarily due to increased
incentive compensation.
- 3 -
Operating income decreased 37 percent, to $470.1 million, due to the unusual
charges related to asset impairments, restructuring and other special charges
noted below. Excluding unusual charges, operating income increased 10 percent
over the first quarter of 2002, driven by increased sales. Net other income
declined primarily due to less income from outlicensing of development-stage
products and less miscellaneous license fee income in the first quarter of 2003,
offset partially by increased income from partnered products in development. Net
income and diluted earnings per share for the first quarter decreased 35 percent
and 34 percent, to $407.0 million and $.38, respectively, due to the unusual
charges noted below. Excluding the unusual charges, net income and earnings per
share both increased 5 percent for the first quarter, driven by increased sales,
offset partially by decreased gross margins as a percent of sales and lower net
other income.
Unusual Charges
As previously disclosed, in December 2002, the company initiated a plan of
eliminating approximately 700 positions worldwide in order to streamline its
infrastructure. While a substantial majority of affected employees were
successfully placed into other positions in the company, severance expenses were
incurred in the first quarter for those employees who elected the company's
voluntary severance package. The restructuring and other special charges, which
are primarily voluntary severance expenses, were $52.5 million (pretax), or $.03
per share (after-tax) in the first quarter.
In addition, as part of the company's previously disclosed ongoing strategic
review, the company made decisions during the first quarter of 2003 that
resulted in the impairment of certain assets, primarily manufacturing assets in
the U.S. This review did not result in any closure of facilities, but certain
assets located at various manufacturing sites were affected. These asset
impairment charges incurred in the first quarter were $114.6 million (pretax),
or $.07 per share (after-tax).
In August 2001, Lilly licensed from Isis Pharmaceuticals, Inc., Affinitak(TM), a
non-small-cell lung cancer drug candidate, and entered into a research
collaboration to discover antisense drugs. In conjunction with this agreement,
Lilly made an equity investment in Isis and committed to a loan to fund the
four-year research collaboration. In addition, Lilly made a loan to Isis to fund
the building of a manufacturing suite for Affinitak. Recently, disappointing
results were reported
- 4 -
from Affinitak's first Phase III trial, which will delay any potential future
submission. In light of this first-quarter development and in view of the
current market climate as it relates to Isis's stock price, in accordance with
Generally Accepted Accounting Principles, Lilly has recorded certain charges
primarily related to the impairment of Isis-related assets on Lilly's balance
sheet and has written these assets down to current fair market value. The assets
include the equity investment and collaboration loan, which are tied to Isis's
stock price, as well as the construction loan. The Isis-related charges incurred
in the first quarter were $186.8 million (pretax), or $.13 per share
(after-tax). Lilly is continuing to follow patients currently enrolled in the
second Phase III study but has suspended further enrollment in this and other
studies of Affinitak, pending a review upon completion of the second Phase III
trial. Lilly and Isis are continuing their research collaboration to discover
antisense drugs in the areas of oncology and inflammatory and metabolic
diseases.
In summary, total asset impairments, restructuring and other special charges
incurred in the first quarter of 2003 were $353.9 million (pretax), or $.23 per
share (after-tax).
Zyprexa
In the first quarter of 2003, Zyprexa sales totaled $958.3 million, a 17 percent
increase over the first quarter of 2002. U.S. sales of Zyprexa increased 9
percent, to $604.0 million, despite a new market entrant and ongoing budget
pressures with state Medicaid programs. Sales outside the United States
increased 34 percent, to $354.3 million.
Diabetes Care Products
Diabetes care revenue, composed primarily of Humulin(R), Humalog, and Actos(R),
increased 26 percent, to $633.4 million, compared with the first quarter of
2002. Diabetes care revenue increased 29 percent in the U.S., to $412.2 million,
and increased 21 percent in international markets, to $221.2 million.
In the first quarter of 2003, worldwide Humulin sales increased 3 percent, to
$241.0 million, compared with the first quarter of 2002. Worldwide Humalog sales
for the first quarter were $248.8 million, an increase of 40 percent compared
with a year ago. Actos generated $133.2 million of revenue for Lilly in the
first quarter, which represents an increase of 80 percent. The increase in Actos
revenue realized by Lilly is due to strong growth in underlying product sales
- 5 -
and to the contract terms with Takeda Chemical Industries, Ltd., which resulted
in a favorable comparison relative to the first quarter of the prior year. As
previously disclosed, since Lilly's share of revenue from the agreement with
Takeda will vary quarter to quarter based on contract terms, Actos revenue will
not necessarily track with product sales. As a result, it is difficult to make
quarterly comparisons for Actos revenue.
Gemzar
Gemzar had sales totaling $233.9 million for the quarter, an increase of 18
percent from the first quarter of 2002. Gemzar sales increased 15 percent in the
U.S. and 23 percent outside the U.S., to $125.4 million and $108.5 million,
respectively. The U.S. Gemzar sales growth rate benefited considerably due to
lower sales in the first quarter of the prior year due to an inventory work off
by wholesalers.
Evista
Evista sales were $214.0 million, a 20 percent increase compared with the first
quarter of 2002. U.S. sales of Evista increased 9 percent, to $152.5 million,
while sales outside the United States increased 60 percent, to $61.5 million.
Xigris
Sales of Xigris(R) were $35.9 million, an increase of 63 percent compared with
$22.0 million in the first quarter of 2002. During the quarter, U.S. sales of
Xigris increased 22 percent, to $26.7 million, and sales outside the United
States were $9.2 million.
Recent New Product Launches
Launched in the U.S. in January 2003, Strattera generated $55.0 million of sales
during the first quarter, which included approximately $18 million of initial
stocking. The company is encouraged by these early results, which were above its
expectations.
Sales of Forteo during the first quarter were $4.1 million following its
December 2002 U.S. launch and one-month sampling. At this early stage of the
launch, the sales uptake for Forteo is in line with the company's expectations.
- 6 -
During February and March 2003, Cialis was launched in the European Union, as
well as Australia and New Zealand. Lilly is encouraged by the early results and
feedback indicating that Cialis is being favorably received not only with
patients but also with physicians. Cialis sales that are reported in Lilly's
revenue were $4.9 million, which includes initial stocking in Australia, New
Zealand and Saudi Arabia, the Lilly-only territories. Cialis sales in the
European Union, a Lilly ICOS LLC joint venture territory, will be announced on
April 30, 2003, the day of ICOS's quarterly financial conference call. These
Lilly ICOS LLC joint venture sales are not reported in Lilly's revenue but
rather are part of the joint venture's income statement along with related
expenses. Lilly reports its 50 percent share of the joint venture operating
results in Lilly's net other income. The joint venture operating results will
also be announced on April 30, 2003, the day of ICOS's quarterly financial
conference call.
Animal Health
Worldwide sales of animal health products in the first quarter were $172.8
million, an increase of 3 percent compared with the first quarter of 2002.
Excluding the effect of exchange rates, sales increased by 1 percent for the
quarter.
Financial Expectations for Second Quarter and Full Year 2003
The company expects earnings per share to be in the range of $.59 to $.61 for
the second quarter of 2003 and reconfirmed earnings-per-share expectations of
$2.50 to $2.60 for the full year 2003. The full-year earnings guidance excludes
the asset impairments, restructuring and other special charges that were
incurred during the first quarter of 2003. In response to the recently issued
SEC Regulation G, the company notes that, if the first-quarter unusual items
were not excluded, then the reported earnings-per-share guidance for 2003 would
be $2.27 to $2.37. In addition, the company's earnings guidance for the second
quarter and full year excludes future unusual items. The company is not aware at
this time of any material unusual items that will occur in the remainder of
2003.
Webcast of Conference Call
As previously announced, investors and the general public can access a live
webcast of the first-quarter 2003 earnings conference call through a link on
Lilly's website at www.lilly.com. The conference call will be held today from
9:30 a.m. to 10:30 a.m. Eastern Daylight Savings Time
- 7 -
(8:30 a.m. to 9:30 a.m. Indianapolis time) and will be available for replay via
the website through May 20, 2003.
Lilly, a leading innovation-driven corporation, is developing a growing
portfolio of best-in-class pharmaceutical products by applying the latest
research from its own worldwide laboratories and from collaborations with
eminent scientific organizations. Headquartered in Indianapolis, Ind., Lilly
provides answers -- through medicines and information -- for some of the world's
most urgent medical needs. Additional information about Lilly is available at
www.lilly.com.
This press release contains forward-looking statements that are based on
management's current expectations, but actual results may differ materially due
to various factors. There are significant risks and uncertainties in
pharmaceutical research and development. There can be no guarantees with respect
to pipeline products that the products will receive the necessary clinical and
manufacturing regulatory approvals or that they will prove to be commercially
successful. In particular, there is substantial uncertainty surrounding the
ultimate impact of the company's manufacturing compliance issues on the timing
of new product launches and on the company's results. The failure to resolve
these issues to the FDA's satisfaction could result in delayed product
approvals, recalls, fines and penalties, and other sanctions. The earnings
guidance provided in this release assumes no significant financial penalties
from the FDA related to the company's manufacturing issues. The company's
results may also be affected by such factors as the continuing impact of generic
fluoxetine on Prozac(R) sales in the United States, competitive developments
affecting current growth products, rate of sales growth of recently launched
products, the timing of anticipated regulatory approvals and launches of new
products, other regulatory developments and litigation involving current and
future products and manufacturing facilities, the impact of governmental actions
regarding coverage and reimbursement for pharmaceuticals, and the impact of
exchange rates. For additional information about the factors that affect the
company's business, please see Exhibit 99 to the company's latest Form 10-K
filed March 2003. The company undertakes no duty to update forward-looking
statements.
# # #
Actos(R) (pioglitazone hydrochloride, Takeda), Takeda
Cialis(TM) (tadalafil, ICOS), Lilly ICOS LLC
Cymbalta(TM) (duloxetine hydrochloride, Lilly)
Evista(R) (raloxifene hydrochloride, Lilly)
Forteo(R) (teriparatide of recombinant DNA origin injection, Lilly)
Gemzar(R) (gemcitabine hydrochloride, Lilly)
Humalog(R) (insulin lispro injection of recombinant DNA origin, Lilly)
Humatrope(R) (somatropin of recombinant DNA origin, Lilly)
Humulin(R) (human insulin of recombinant DNA origin, Lilly)
Prozac(R) (fluoxetine hydrochloride, Dista)
Prozac(R) Weekly(TM) (fluoxetine hydrochloride, Dista)
ReoPro(R) (abciximab, Centocor), Lilly
Sarafem(R) (fluoxetine hydrochloride, Lilly)
Strattera(TM) (atomoxetine hydrochloride, Lilly)
Xigris(R) (drotrecogin alfa (activated), Lilly)
Zyprexa(R) (olanzapine, Lilly)
- 8 -
Zyprexa(R) IntraMuscular (olanzapine, Lilly)
- 9 -
Eli Lilly and Company
Operating Results (Unaudited)
(Dollars in millions, except per share data)
Three Months Ended
March 31
2003 2002
-------------- --------------
Net sales $ 2,889.4 $ 2,561.1
Cost of sales 621.3 530.1
Research and development 529.6 502.8
Marketing and administrative 914.5 777.3
Asset impairments, restructuring and
other special charges 353.9 -
-------------- --------------
Operating income 470.1 750.9
Interest expense (15.5) (9.6)
Other income -- net 39.3 65.4
-------------- --------------
Income before income taxes 493.9 806.7
Income taxes 86.9 177.5
-------------- --------------
Net income $ 407.0 $ 629.2
============== ==============
Earnings per share -- basic $ 0.38 $ 0.58
============== ==============
Earnings per share -- diluted $ 0.38 $ 0.58
============== ==============
Dividends paid per share $ 0.335 $ 0.31
Weighted-average shares
outstanding (thousands) 1,076,076 1,077,130
Weighted-average shares
outstanding (thousands) -- diluted 1,083,217 1,088,200
- 10 -
Eli Lilly and Company
Operating Results (Unaudited) -- NORMALIZED
(Dollars in millions, except per share data)
Three Months Ended
March 31
2003 (a) 2002
-------------- --------------
Net sales $ 2,889.4 $ 2,561.1
Cost of sales 621.3 530.1
Research and development 529.6 502.8
Marketing and administrative 914.5 777.3
-------------- --------------
Operating income 824.0 750.9
Interest expense (15.5) (9.6)
Other income -- net 39.3 65.4
-------------- --------------
Income before income taxes 847.8 806.7
Income taxes 186.5 177.5
-------------- --------------
Net income $ 661.3 $ 629.2
============== ==============
Earnings per share -- basic $ 0.61 $ 0.58
============== ==============
Earnings per share - diluted $ 0.61 $ 0.58
============== ==============
Dividends paid per share $ 0.335 $ 0.31
Weighted-average shares
outstanding (thousands) 1,076,076 1,077,130
Weighted-average shares
outstanding (thousands) -- diluted 1,083,217 1,088,200
(a) The 2003 first-quarter amounts are adjusted to exclude significant unusual
charges of $353.9 million for asset impairments, restructuring and other special
charges. Refer to separate section in press release for a description of these
unusual charges.
- 11 -
Eli Lilly and Company
Major Pharmaceutical Product Sales and Revenues (Unaudited)
(Dollars in millions)
% Change
First Quarter Over/(Under)
2003 2002 2002
------------------ ------------
Zyprexa $958.3 $819.4 17%
Humalog 248.8 177.4 40%
Humulin 241.0 234.5 3%
Gemzar 233.9 197.5 18%
Evista 214.0 177.9 20%
Prozac family 149.9 186.1 (19%)
Actos 133.2 73.8 80%
ReoPro 93.1 91.7 2%
Humatrope 84.8 77.6 9%
Strattera 55.0 - -
- 12 -
Eli Lilly and Company
Consolidated Balance Sheets
March 31, 2003 December 31, 2002
------------------------------------
(Dollars in millions)
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................. $ 2,204.1 $ 1,945.9
Short-term investments.................... 1,342.2 1,708.8
Accounts receivable, net of allowances
for doubtful amounts of $69.5 (2003)
and $66.4 (2002)....................... 1,655.7 1,670.3
Other receivables......................... 461.6 403.9
Inventories............................... 1,584.7 1,495.4
Deferred income taxes..................... 374.6 331.7
Prepaid expenses.......................... 536.9 248.1
--------- ---------
TOTAL CURRENT ASSETS...................... 8,159.8 7,804.1
OTHER ASSETS
Prepaid pension........................... 1,550.6 1,515.4
Investments............................... 3,183.2 3,150.4
Sundry.................................... 1,294.2 1,279.1
--------- ---------
6,028.0 5,944.9
PROPERTY AND EQUIPMENT
Land, buildings, equipment, and
construction-in-progress................ 9,682.6 9,546.1
--------- ---------
Less allowances for depreciation.......... 4,228.8 4,253.1
--------- ---------
5,453.8 5,293.0
--------- ---------
$19,641.6 $19,042.0
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings..................... $ 168.1 $ 545.4
Accounts payable.......................... 602.0 676.9
Employee compensation..................... 240.5 231.7
Dividends payable......................... - 375.8
Income taxes payable...................... 1,645.4 1,761.9
Other liabilities......................... 1,920.7 1,471.8
--------- ---------
TOTAL CURRENT LIABILITIES................. 4,576.7 5,063.5
LONG-TERM DEBT............................... 4,786.7 4,358.2
OTHER NONCURRENT LIABILITIES................. 1,550.6 1,346.7
--------- ---------
6,337.3 5,704.9
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Common stock.............................. 702.4 702.1
Additional paid-in capital................ 2,610.0 2,610.0
Retained earnings......................... 8,886.8 8,500.1
- 13 -
Employee benefit trust........................ (2,635.0) (2,635.0)
Deferred costs-ESOP........................... (122.0) (123.3)
Accumulated other comprehensive loss.......... (605.9) (670.8)
--------- ---------
8,836.3 8,383.1
Less cost of common stock in treasury......... 108.7 109.5
--------- ---------
8,727.6 8,273.6
--------- ---------
$19,641.6 $19,042.0
========= =========
- 14 -