Lilly Moves From Patent Expirations To New Product Growth
By Ed Miseta, Chief Editor, Clinical Leader
Eli Lilly and Company has announced its 2015 financial guidance and outlined growth plans for the remainder of the decade. The company’s refined strategy places an emphasis on growing revenue and expanding margins by providing a greater focus on research and commercial activities, while maintaining a sustainable flow of innovative medicines.
"We are successfully moving from a challenging period of patent expirations to a period of resumed growth, led by diabetes, oncology and animal health," says John C. Lechleiter, Ph.D., Lilly's chairman, president, and CEO. "We are launching new products and competing more effectively. We also retain one of the strongest pipelines in our history. Our refined strategic direction gives us a blueprint that will provide greater focus for our research and commercial activities and help Lilly respond to an ever more challenging environment. In these ways and more, we'll continue to create value for all our stakeholders while improving the lives of patients."
The company expects to grow revenue with product launches in the areas of diabetes, oncology, and immunology. A second wave of potential launches in cardiovascular disease, Alzheimer's disease, pain, and oncology are expected to continue that revenue growth. The refined strategy also places a focus on growth in select geographic markets, including the U.S., Japan, China, and other areas.
Internal research and development will continue to be focused on the core areas of diabetes, oncology, neurodegeneration, immunology, and pain. With the time it now takes to develop a new medicine and bring it to market, Lilly is also progressing on an ambitious effort to significantly reduce that development time, thereby speeding medicines to patients.
In order to turn these opportunities for revenue growth into better profitability numbers, the company is also looking to further control costs and better leverage existing infrastructure. The company believes that by driving productivity improvements across the value chain, it can reduce total operating expenses as a percent of revenue to 50% or less by the end of 2018. Lilly also expects to increase gross margin as a percent of revenue through greater utilization of existing capacity in areas including insulin and biotech portfolio, as well as ongoing productivity efforts.
Derica Rice, Lilly's executive vice president for global services and chief financial officer, notes the company will balance opportunities and risks to meet near, medium and long term objectives. "Our objectives through the remainder of this decade are to grow revenue, expand margins and maintain the flow of innovative medicines through our pipeline,” he says. “We also aim to deploy capital to create shareholder value including returning cash to shareholders via both the dividend and share repurchases."
In December, the company announced a two percent increase in its quarterly dividend, taking the quarterly payment to $0.50 per share of outstanding common stock ($2.00 per share for the annual rate). At the time, Lechleiter also attributed that increase to the company moving from a period of patent expirations to one of growth resulting from a new wave of medicine launches. "The increase in our dividend signals continued confidence in Lilly's future and confirms our commitment to return additional cash to shareholders," he said.
Lilly also said 2014 earnings per share are now expected to be in the range of $2.15 - $2.23 on a reported basis. Prior reported expectations were $2.36 to $2.44. This revision is due to fourth-quarter global restructuring charges in an effort to reduce the company's cost structure and acquired in-process research and development charges associated with the Adocia collaboration. Expected 2014 Non-GAAP earnings per share have been confirmed at $2.72 - $2.80. Fourth quarter and full-year 2014 financial results will be announced on January 30, 2015.