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Boost belies Lilly's concerns

Eli Lilly & Co has reported an impressive 84 per cent increase in first quarter earnings, although question marks remain after slowing sales.

Eli Lilly & Co has reported an impressive 84 per cent increase in first quarter earnings, although question marks remain after slowing sales of two key drugs.

The Indianapolis-based company, without any significant patent expiry in the near future, increased net income to $736.6m, or 68 cents a share from $400.4m a year earlier. First quarter sales rose 4 per cent to $3.5bn.

Despite its robust performance, Lilly cautioned that sales would decline for the full year. It also forecast that attention deficit disorder (ADHD) drug, Strattera, mainly prescribed to hyperactive children in the US, would experience slower prescription growth due to parents' worries over its safety.

Lilly recently added a warning to Strattera's label, advising patients with liver problems to stop taking the drug.

Meanwhile, sales of schizophrenia blockbuster, Zyprexa, fell 5 per cent to $1.04bn in the quarter after it encountered stiff competition from Bristol-Myers Squibb's rival treatment, Abilify. Although international sales of Zyprexa grew, analysts said the growth was less than they had predicted.

Lilly remained bullish, saying that sales of newer medicines such as antidepressant Cymbalta, cancer drug Alimta, and the male-impotence pill Cialis, compensated for the Zyprexa decline. Chief executive, Sidney Taurel, said eight of the company's newest products would generate 20 per cent of sales this year.

ìThey are heading in the right direction, but so far their execution is inconsistent,î commented Les Funtleyder, healthcare strategist at Miller Tabak & Co.

Another factor that put a dent in first quarter sales was Lilly's restructuring of its distribution contracts with wholesalers. The new contracts have caused the wholesalers to reduce inventory levels of Lilly drugs, shaving $130m off first quarter sales, said the company.

Morgan Stanley analyst, Jami Rubin, wrote in a research note that the $120m in first-quarter Strattera sales fell well short of the analyst's estimate of $170m.

ìWe believe these arrangements provide us with competitive distribution costs and reduced speculative buying by wholesalers,î said James Ward, executive director of Lilly's investor relations.

More encouraging news for Lilly in the last week has been a US District Court's ruling to uphold the 2011 patent on Zyprexa after generic firm Zenith Goldline challenged it.

30th September 2008

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