Highlights and Not-So-Highlights From Lilly's Q1 Results

Eli Lilly (NYSE: LLY  ) delivered an earnings surprise before the market opened on Wednesday. The pharmaceutical company beat consensus profit expectations despite loss of revenue from antipsychotic drug Zyprexa. Shares were down 2% in early trading. Here are the highlights -- and the not-so-highlights.

Highlights
By far, the best news from Lilly's first quarter stemmed from surprisingly strong earnings. The company reported adjusted earnings of $1.14 per share, up 24% compared to the first quarter of 2012. This figure easily beat the average analyst earnings estimate of $1.05 per share.

On a GAAP basis, earnings for the quarter were $1.42 per share, a 56% increase year-over-year. However, this growth included one-time income of $495 million related to the transfer of non-U.S. commercial rights for exenatide to Amylin, which was bought by Bristol-Myers Squibb (NYSE: BMY  ) last year with financing help from AstraZeneca (NYSE: AZN  ) .

Cymbalta powered Lilly's quarterly results in large part. Sales for the antidepressant jumped 19% from the first quarter of 2012 to $1.3 billion last quarter. The lion's share of that growth stemmed from the U.S. as higher unit prices increased sales by 23%.

Cialis also experienced double-digit sales growth during the quarter. Sales for the erectile dysfunction drug increased 11% year-over-year to $515 million. Like Cymbalta, Cialis benefited from solid U.S. sales numbers driven by higher prices.

Not-so-highlights
While Lilly's bottom line looked great, that wasn't the case for the top line. The company reported revenue of $5.6 billion in the first quarter, the same as last year. Zero growth isn't exactly inspiring.

Keeping revenue from going down was still an accomplishment, though, in light of the challenges that Lilly faces with Zyprexa. Sales for the antipsychotic drug plunged 49% in the first quarter compared to last year. Zyprexa lost U.S. patent exclusivity in late 2011.

Sales for Evista fell by 6% year-over-year to $240.6 million. U.S. sales for the osteoporosis drug were flat with higher prices largely offsetting lower demand. Sales outside the U.S., though, dropped 18%.

Lilly's animal health unit reported sales of $499.1 million during the quarter. While that reflects an increase of 2% compared to the same quarter last year, the sluggish growth is disappointing. U.S. sales were up 9% largely due to demand for Trifexis parasitic protection tablets. However, sales outside of the U.S. fell by 8% on lower demand for food animal products.

Looking ahead
Even with slipping Zyprexa sales, Lilly still expects overall revenue growth for 2013. The company provided full-year revenue guidance of $22.6 billion to $23.4 billion. Analysts target around $23 billion in revenue this year.

The company also said that it expects adjusted earnings for the full year to come in between $3.82 to $3.97 per share. This range reflects growth of 13% to 17% over 2012.

There's no question that Lilly is doing a good job in controlling expenses to improve earnings while revenue growth is anemic at best. However, there are limits to how much the company can cut. More revenue will be needed, but getting it won't be easy.

Lilly loses patent protection this year for its top two products, Cymbalta and Humalog. Evista goes off patent next year.With current marketed drugs not growing strong enough to offset these looming losses, Lilly must count on newer drug candidates like empagliflozin and ramucirumab.

Empaglifozin seems likely to gain regulatory approval, but will square off against Onglyza, Byetta, and Bydureon from partners Bristol-Myers and AstraZeneca, as well as several other solid rival drugs. Cancer drug ramucirumab should also be successful. Still, though, Lilly must score with several other drugs in its pipeline to make up lost ground.

I look for Lilly's next couple of quarters to be reasonably good. However, the fourth quarter and beyond will probably prove to be very difficult. The latest financial results could be the best highlights for a while.

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