Eli Lilly launches $1.5 billion floater, to price Thursday via Merrill, Goldman, Deutsche

By Ronda Fears

Nashville, Aug. 3 - Eli Lilly & Co. launched $1.5 billion of floating-rate notes Wednesday after the close with price talk for a yield of Libor minus 300 basis points in year one, Libor minus 100 bps in year two and Libor plus 100 bps in year three.

Merrill Lynch, Goldman Sachs and Deutsche Bank Securities are joint bookrunners of the Rule 144A offering, which is slated to price Thursday.

Proceeds will be used for general corporate purpose, including litigation liabilities and to help fund the repatriation of $8 billion in overseas earnings per the American Jobs Creation Act of 2004.

In its 10-Q report filed with the Securities and Exchange Commission on Wednesday, Lilly said it anticipated issuing $2 billion of new debt by the end of 2005, and company spokesman Phil Belt said the $1.5 billion floater would be a big chunk of that.

Lilly's total debt at June 30 was $4.68 billion.

Standard & Poor's has rated the new floater at AA, and S&P credit analyst Arthur Wong said in a report Wednesday that Lilly's liquidity was strong with cash and marketable securities of more than $5.4 billion at June 30. He said the cash and investments, along with unused revolving credit facilities of $1.25 billion, provide more than adequate backup to the company's commercial paper program.

In the 10-Q, Lilly noted that it had repaid about $1.8 billion of debt in the first six months of 2005, mostly commercial paper.

Lilly also has annual free cash flow, after working capital and capital expenditures, of about $1 billion, and debt maturities are moderate over the intermediate term.

On June 9, Lilly announced a settlement with plaintiffs in a lawsuit related to its schizophrenia and bipolar drug Zyprexa that requires Lilly to establish a fund not to exceed $690 million for plaintiffs who agree to settle their claims. Most of the lawsuits claim that before September 2003, the medication label noting the risk of hyperglycemia and diabetes was not adequately displayed. In September 2003, the Food and Drug Administration required label changes for all atypical antipsychotics.

Lilly recorded $1.1 billion in charges against second-quarter results for the Zyprexa settlement and other litigation liabilities. For second quarter, the Big Pharma giant posted a net loss of $252 million, or 23 cents a share, versus net income of $657 million, or 60 cents a share, in second-quarter 2004.

For third quarter Lilly is forecasting earnings per share of 70 to 72 cents - up to 4% growth compared with third quarter 2004 earnings per share of 69 cents. For the year, Lilly is looking for earnings per share of $1.90 to $1.96, including the product liability charge.

For 2005, Lilly is projecting sales growth of 6% to 8%, with acceleration in the second half of the year. Gross margins are anticipated to decline by roughly 50 to 75 bps.

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