Nice job with the cost-cutting, Eli Lilly
Revenue was up 5% this quarter, which isn't too bad considering the state of the economy. Sales would have increased by 10% had it not been for the stronger dollar hurting year-over-year comparisons. Sales of Lilly's top seller, Zyprexa, were essentially flat. Johnson & Johnson's
The impressive part of the quarterly report was the 24% increase in earnings. Gross margins were helped by revaluing the price of international inventory thanks to currency changes. A 1% decrease in marketing, selling and administrative expenses also helped boost the bottom line. One place Lilly didn't cut back was research and development spending; drug development costs were up 8% year over year, but Lilly needs to make that investment considering the patent cliff it faces.
Lilly is trading at around eight times the middle of this year's earnings guidance, which sounds cheap, but investors have already factored in the loss of Zyprexa, Cymbalta, Humalog, and Gemzar to generic competition early next decade. Pfizer
That patent cliff was part of the reason that Lilly outbid Bristol-Myers Squibb
Cost-cutting is nice, but it doesn't slow down the drive toward the patent cliff. Lilly needs to be on the lookout for other partnerships to fill in the upcoming revenue holes. And that's where investors should be focused, as well.
Focus your eyes on this Foolishness:
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Fool contributor Brian Orelli, Ph.D., is a top-line kind of guy. He doesn't own shares of any company mentioned in this article. Pfizer is a recommendation of the Inside Value newsletter. The Fool has a disclosure policy.