July 22, 2009 / 10:52 AM / 10 years ago

UPDATE 2-Lilly profit beats forecasts, raises '09 outlook

* Q2 EPS, $1.12/shr, vs forecast of $1.02/shr

* Raises 2009 EPS view to $4.20 to $4.30/shr

* Shares rise 0.6 pct in pre-market trade (Recasts, adds product sales, analyst comment, byline)

By Ransdell Pierson

NEW YORK, July 22 (Reuters) - Eli Lilly and Co (LLY.N) reported better-than-expected quarterly earnings Wednesday on overseas inventory adjustments and price increases that boosted sales of its medicines, and raised its 2009 profit forecast

Lilly’s net income rose 21 percent to $1.16 billion, or $1.06 per share, in the second quarter. That compared with $959 million, or 88 cents per share, in the year-earlier period, when Lilly had a favorable tax rate.

Excluding special items, Lilly earned $1.12 per share. Analysts on average expected $1.02 per share, according to Reuters Estimates.

Quarterly revenue rose 3 percent to $5.29 billion, matching the Reuters Estimates forecast. Sales would have risen 10 percent if not for the strong dollar, which lowers the value of sales in overseas markets.

Even so, Lilly said the stronger dollar helped boost its gross profit margin by 5.4 percentage points, by lowering the value of overseas inventories and thereby improving the cost of goods sold.

JPMorgan analyst Chris Schott said the gross margin benefit seen in the first half of 2009 is not sustainable, but called the earnings results “solid,” in view of the weak economy. Even so, Schott said he was wary of Lilly’s long-term prospects because of a dearth of promising experimental medicines in late-stage trials.

Lilly expects full-year 2009 earnings, excluding special items, of $4.20 to $4.30 per share. It had previously projected a profit of $4 to $4.25 per share.

The company said U.S. sales gains for many of its medicines were driven by price increases.

Morningstar analyst Damien Conover said price increases have “been a factor for a lot of companies. Some pharmaceutical companies are thinking, ‘Let’s get these price increases in before any sort of major drug reform,’ “ Conover said.

He was referring to legislation being considered by Congress that would extend healthcare to many uninsured Americans, but the cost of reforms could be a major stumbling block.

Some investors have expressed concern that reforms could undermine drug company profits, perhaps by eventually leading to cost controls.

Global sales of Lilly’s flagship product, schizophrenia treatment Zyprexa, fell 3 percent in the second quarter to $1.2 billion despite price increases amid continuing concerns about its tendency to cause weight gains that might increase the risk of diabetes.

Sales of depression drug Cymbalta rose 14 percent to $744 million, fueled by price increases. But that reflects a slowdown from growth seen in prior quarters.

Sales of Alimta, a treatment for lung cancer, vaulted 40 percent higher to $385 million, helped by expanded use of the brand as maintenance therapy for cancer than has spread.

Sales of Lilly’s Humalog insulin rose 9 percent to $478 million, partially offset by a decline for its Humulin brand of insulin.

Osteoporosis drugs Evista and Forteo posted sales declines, while Strattera — a treatment for attention deficit disorder — rose 6 percent to $143 million.

Lilly said its share of revenue from Byetta, a diabetes drug sold in partnership with Amylin Pharmaceuticals AMLN.O, rose 13 percent to $115 million.

Shares of Lilly rose 0.6 percent to $34.65, from their closing price of $34.45 Wednesday on the New York Stock Exchange. (Reporting by Ransdell Pierson and Lewis Krauskopf; Editing by Derek Caney)

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