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Lilly's profit up on cost cuts

Lilly has reported third quarter profit of $1.3bn, an increase of 38 per cent over the same period last year, as a result of lower expenses

Lilly has reported third quarter profit of $1.3bn, an increase of 38 per cent over the same period last year, as a result of lower expenses.  Costs in the quarter were $987.6m, down six per cent year-over-year, due largely to the fact that the company laid off four per cent of its worldwide workforce under a restructuring plan announced in 2009.

Revenue for the quarter was up by just 1.7 per cent to $5.65bn, falling short of analysts' estimates.

However, Lilly raised its full-year adjusted earnings per share estimate to $4.65-$4.75 from an estimate the company made in August of $4.50-$4.65. Earnings should continue to be positively affected by cost-containment efforts, as well as by growth in areas including the animal health business, according to the company.

Lilly noted, though, that the drug rebates to hospitals that are part of the US healthcare reform effort will likely reduce its revenues by $225m to $275m this year. In addition, the company will be challenged going forward by the expiration of key patents on some of its blockbuster medicines, including the antipsychotic Zyprexa (olanzapine).

Lilly chairman and CEO John C Lechleiter maintained during a conference call with investors that the company's pipeline of development-stage drugs would help make up for the difficulties ahead, noting that Lilly has 68 therapies in human clinical trials.

"Obviously, the strong financial performance is the fuel for our innovation strategy and because we know the setbacks are part of our business, we've been working hard to increase our shots on goal," he said.

"A major part of our recent restructuring was aimed at accelerating our pipeline flow, and I am encouraged by what I am seeing…We are going to continue to focus on speeding innovation to patients and we remain on track to have at least 10 molecules in phase III by the end of 2011, with more coming behind."

"We are prudently reducing our headcount and managing our expenses to enable us to invest in the pipeline and provide a robust return of cash to shareholders," Lechleiter added.

22nd October 2010

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