1-time charges crimp Lilly's 4Q earnings

Drugmaker Eli Lilly and Co. beat Wall Street expectations with its fourth-quarter performance, but it heads into 2007 with some lingering questions about top seller Zyprexa.

On Wednesday, Indianapolis-based Lilly reported a profit of $132.3 million, or 12 cents per share, on $4.25 billion in revenue for the three months that ended Dec. 31.

The profit represented a sharp drop from the $700 million it totaled in the last quarter of 2005, due primarily to $945 million in one-time charges for the closure of several manufacturing facilities and for a legal settlement over its top-selling drug, Zyprexa.

But the company's revenue represented a 9 percent increase over 2005 totals and beat Wall Street expectations of $4.08 billion, according to a Thomson Financial survey.

Excluding those one-time items, Lilly earned $929.6 million, or 85 cents per share. That also beat Wall Street expectations of 82 cents per share.

"I think it was a strong quarter because of the solid (revenue) growth at 9 percent, but higher costs somewhat offset that strong growth," said Linda Bannister, an analyst with St. Louis-based Edward Jones.

Forteo and Cymbalta showed strong sales growth among Lilly products, said analyst Tony Butler of Lehman Brothers.

But Butler and other analysts also noted that Zyprexa benefited from higher reimbursement rates for patients who switched from Medicaid to Medicare. Price growth, not higher sales volume, accounted for 6 percent of the drugmaker's 9 percent sales increase.

"Ideally you'd like to see the volume number higher because there's always a question of whether price growth is sustainable," he said.

The company took a fourth-quarter charge of $450 million, or 31 cents per share, for closing some European sites. Earlier this month, it also announced that it would settle about 18,000 more lawsuits over Zyprexa, its anti-psychotic drug. That led to a settlement charge of $495 million, or 42 cents per share.

Company President John Lechleiter told analysts during a Wednesday conference call that more than 1,000 Zyprexa cases are still pending. The uncertainty of the remaining cases creates some additional concern on Wall Street, said Shaojing Tong, an analyst for Mehta Partners.

Zyprexa has been featured in a number of recent stories in The New York Times stating that Lilly downplayed the drug's side effects, including a heightened risk of diabetes, and marketed it for unapproved uses. The company has denied that.

Lechleiter, Lilly's chief operating officer, said physician reaction to those articles has been "very muted."

"I think physicians who prescribe Zyprexa understand it well, the benefit/risk equation, and understand clearly the patients who stand to benefit most from the product," he said.

For the year, Lilly's profit rose to $2.66 billion, or $2.45 per share, on $15.69 billion in revenue.

Five Lilly drugs crossed the billion-dollar sales mark in 2006. Zyprexa led that pack with $4.3 billion and was followed by Gemzar, Cymbalta, Humalog and Evista. Cymbalta, which treats depression and nerve pain, notched $1.3 billion in sales, a 94 percent increase over 2005.

Lilly expects 2007 first-quarter earnings per share of between 77 and 79 cents.

Lilly shares rose $1.39, or 2.6 percent, to $54.12 in late-afternoon trading on the New York Stock Exchange Wednesday.

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Associated Press Business Writer Betsy Vereckey in New York contributed to this report.