Eli Lilly expects 2006 earnings of up to $3.20 a share, growth that ranks at top for the industry

By E. Janene Geiss

Philadelphia, Dec. 9 - Eli Lilly and Co. said Friday in a meeting with investors that it expects 2006 earnings of $3.10 to $3.20 per share, top growth for the pharmaceutical industry.

Officials said that forecast represents 8% to 12% growth compared with expected 2005 adjusted earnings, a rate that is nearly double the average Wall Street consensus forecast for large-cap pharmaceutical companies.

Driving that growth is an expanded portfolio. The company said it had nine new product launches in four years, according to a company news release.

And Eli Lilly officials said it will only get better. There are no major patent expirations expected this decade and the company has a late-stage pipeline with five products, officials said.

"Given our products, pipeline and the fact that we expect no major patent expirations for the rest of this decade, Lilly is uniquely positioned to deliver sustained earnings growth," Sidney Taurel, chairman and chief executive officer, said in a news release.

The company said its nine new products have accounted for an increasing portion of sales, which were up 11% at the end of 2004 to 18%, and are expected to grow to about 24% of revenues next year, according to a company news release.

Eli Lilly said it continues to expand into new markets, such as the recent submissions of Byetta in Europe for type 2 diabetes, Cialis in Japan for erectile dysfunction and Cymbalta in key European markets.

In the United States, two studies of Cymbalta for generalized anxiety disorder are now complete and Food and Drug Administration submission is anticipated in 2006, officials said.

The company also said it is using tools like Six Sigma to increase productivity and lower its cost structure, which has freed up resources and allowed for acceleration of research and development. Hiring limits were maintained that have already reduced employees by 3,100, or 7%, without disruptive layoffs, officials said.

Officials also announced a plan to repurchase about $500 million of common stock within the next several weeks under the $3 billion share-repurchase program initiated in 2000.

The buyback comes in anticipation of strong cash flows, officials said, and takes advantage of the current attractive stock price.

26 compounds, 38 indications in pipeline

Eli Lilly's pipeline includes 26 new molecular entities (NMEs) and 38 new indications and line extensions in clinical development.

Select late-state pipeline developments include Prasugrel for acute coronary syndromes, Arzoxifene for osteoporosis, inhaled insulin, Enzastaurin for brain cancer and Arxxant for diabetic retinopathy.

Early- to mid-stage developments include treatments for oncology, diabetes, obesity, central nervous system and cardiovascular disorders, officials said.

"Even after our recent surge of launches, our pipeline remains robust because we have built one of the most productive R&D organizations in the industry and have worked hard to be a partner that other companies want to work with. In fact, biotech companies that took part in a respected IBM survey ranked Lilly number one in our partnering capabilities," Taurel said in the release.

Q4, 2005 seen at top of guidance

Eliminating the second quarter 2005 product liability charge and excluding any potential fourth quarter unusual items, the company said it expects its fourth quarter and full year 2005 adjusted earnings per share will be at the top of its guidance range of $0.73 to $0.79 and $2.80 to $2.86, respectively, reflecting strong operating results and the benefit of a lower than expected tax rate of 21 percent.

This 2005 adjusted earnings guidance range represents 9% to 11% growth compared with the recalculated 2004 earnings per share of $2.58, officials said.

Reported 2005 earnings per share are expected to be at the top of a range of $1.90 to $1.96, which compares with reported 2004 earnings per share of $1.66, officials said.

For 2006, the company expects sales to grow 7% to 9% and gross margins as a percent of sales to improve modestly compared with 2005.

The company said it also expects operating expenses to grow in the mid-single digits in the aggregate, with marketing and administrative expenses accelerating while research and development expense growth moderates somewhat. The company said it also expects other income to contribute approximately $175 million to $275 million; this ongoing net contribution is driven primarily by net interest income, Lilly ICOS joint venture after-tax profit and partnering and out-licensing of molecules.

It anticipates the effective tax rate to be approximately 21%. In terms of cash flow, the company said it expects capital expenditures to be about $1.4 billion in both 2005 and 2006.

Eli Lilly is an Indianapolis, Ind., pharmaceutical company.

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