On July 26, 2016 Eli Lilly and Company (NYSE: LLY) reported financial results for the second quarter of 2016 (Press release, Eli Lilly, JUL 26, 2016, View Source [SID:1234514028]).

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$ in millions, except per share data
Second Quarter
%

2016
2015
Change
Revenue – Reported
$
5,404.8
$
4,978.7
9
%
Net Income – Reported
747.7
600.8
24
%
EPS – Reported
0.71
0.56
27
%

Net Income – non-GAAP
908.8
954.8
(5)
%
EPS – non-GAAP
0.86
0.90
(4)
%

Certain financial information for 2016 and 2015 is presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the periods. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. The company’s 2016 financial guidance is also being provided on both a reported and a non-GAAP basis. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business.

"Lilly is in the midst of one of the most productive periods of new product launches in our company’s history, with new medicines making a substantial contribution to our revenue growth for the first half of the year," said John C. Lechleiter, Ph.D., Lilly’s chairman, president and chief executive officer.

Lechleiter continued, "We’ve made great progress building an R&D engine that has the potential to launch 20 new products in 10 years beginning in 2014 and extending through 2023. Because of our confidence in our future growth prospects, we are providing updated financial expectations through the balance of the decade, including at least 5 percent average annual revenue growth driven by volume and an increase in gross margin as a percent of revenue. We are also returning to annual dividend increases for shareholders and reaffirming our commitment to achieve an OPEX-to-revenue ratio of 50 percent or less in 2018."

Key Events Over the Last Three Months

Commercial

The company is launching Taltz in Europe for the treatment of moderate-to-severe plaque psoriasis in adults who are candidates for systemic therapy.
Elanco Animal Health launched InteprityTM, a first-in-class, animal-use only, in-feed antibiotic approved for the prevention of necrotic enteritis, an intestinal disease in poultry.
Regulatory

The U.S. Food and Drug Administration (FDA) approved once-daily Jentadueto XR (linagliptin and metformin hydrochloride extended-release) tablets as an adjunct to diet and exercise for the treatment of type 2 diabetes in adults. Jentadueto XR is part of the company’s alliance with Boehringer Ingelheim.

The company received approval of Cyramza in Japan for the treatment of:
unresectable, advanced or recurrent colorectal cancer; and
unresectable, advanced or recurrent non-small cell lung cancer for patients who have received prior platinum therapy.

The company received approval of Taltz in Japan for the treatment of patients with plaque psoriasis, psoriatic arthritis, pustular psoriasis and erythrodermic psoriasis after insufficient response to existing treatments.

The FDA granted Priority Review for olaratumab in combination with doxorubicin, for the potential treatment of people with advanced soft tissue sarcoma not amenable to curative treatment with radiotherapy or surgery.

An FDA Advisory Committee voted 12-11 that substantial evidence exists to establish that Jardiance (empagliflozin) reduces cardiovascular (CV) death in adults with type 2 diabetes and established CV disease. Jardiance is marketed by Boehringer Ingelheim and Lilly.

The FDA determined that the company met the requirements for pediatric exclusivity for Effient. Based on this decision by the FDA, Lilly has gained an additional six months of U.S. market exclusivity for Effient.
Clinical

The company announced results from the Phase 2 study of abemaciclib, a cyclin-dependent kinase CDK 4 and CDK 6 inhibitor, in patients with hormone-receptor-positive, human epidermal growth factor receptor 2-negative metastatic breast cancer. The data showed single-agent activity in metastatic breast cancer patients for whom endocrine therapy was no longer a suitable treatment option.

The company and Incyte Corporation announced data from a pivotal long-term extension study, which demonstrated baricitinib was superior to placebo at inhibiting progressive radiographic joint damage in patients with rheumatoid arthritis.

The company and Boehringer Ingelheim announced clinical results on two jointly marketed medicines:
Results from a clinical trial demonstrated that Trajenta (linagliptin) reduced blood sugar in adults with type 2 diabetes who are at risk for kidney impairment, with a renal safety profile similar to that seen in other trials.

New data showed Jardiance reduced the risk for new-onset or worsening kidney disease by 39 percent versus placebo when added to standard of care in adults with type 2 diabetes with established cardiovascular disease.
Business Development/Other

The German Federal Supreme Court granted the appeal by the company in the case of Lilly v. Actavis, vacating the prior decision denying infringement. The German Supreme Court returned the case to the Court of Appeal (Dusseldorf) to reconsider infringement based on its judgment. The case concerns whether Lilly’s vitamin regimen patent for Alimta (pemetrexed disodium) would be infringed by a generic competitor that had stated an intention to market a dipotassium salt form of pemetrexed in Germany.

Elanco Animal Health and EnBiotix, Inc. announced a collaboration to explore the application of EnBiotix’s engineered phage technology in specific animal health targets, which could result in alternatives for traditional antibiotics in animals.
Second-Quarter Reported Results

In the second quarter of 2016, worldwide revenue was $5.405 billion, an increase of 9 percent compared with the second quarter of 2015. The increase in revenue was driven by an 8 percent increase in volume, as realized prices and the impact of foreign exchange rates remained relatively flat, compared with the second quarter of 2015. The increase in worldwide volume was driven by new pharmaceutical products, including Trulicity and Cyramza, as well as Humalog. Revenue in the U.S. increased 14 percent to $2.890 billion, primarily driven by increased volume for several pharmaceutical products, including Trulicity and Humalog, and to a lesser extent, higher realized prices, primarily for Cialis and Forteo , partially offset by lower realized prices for Humalog. Revenue outside the U.S. increased 3 percent to $2.515 billion, driven by increased volume for several pharmaceutical products, primarily Cyramza, Trulicity and Humalog, partially offset by the loss of exclusivity for Cymbalta in Europe in 2014.

Gross margin increased 5 percent to $3.940 billion in the second quarter of 2016 compared with the second quarter of 2015. Gross margin as a percent of revenue was 72.9 percent, a decrease of 2.6 percentage points compared with the second quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold and, to a lesser extent, the transfer of Erbitux commercialization rights in North America, partially offset by 2015 inventory step-up costs related to the acquisition of Novartis Animal Health.

Operating expenses in the second quarter of 2016, defined as the sum of research and development and marketing, selling and administrative expenses, were $2.959 billion, an increase of 5 percent compared with the second quarter of 2015. Research and development expenses increased 14 percent to $1.336 billion, driven primarily by higher late-stage clinical development costs, including a $100.0 million charge related to a development milestone for AZD3293, an oral beta secretase cleaving enzyme (BACE) inhibitor currently in development with AstraZeneca as a potential treatment for early Alzheimer’s disease. Marketing, selling and administrative expenses decreased 1 percent to $1.623 billion, primarily due to lower litigation expenses and reduced spending on late-life-cycle products, partially offset by expenses related to new products.

There were no acquired in-process research and development charges in the second quarter of 2016. In the second quarter of 2015, the company recognized acquired in-process research and development charges totaling $80.0 million. These charges included a $50.0 million payment to Hanmi Pharmaceutical Co., Ltd. (Hanmi), related to an exclusive license and collaboration agreement for Hanmi’s oral Bruton’s tyrosine kinase (BTK) inhibitor for the treatment of autoimmune and other diseases, and a $30.0 million payment to BioNTech AG related to a research collaboration to discover novel cancer immunotherapies.

The company recognized asset impairment, restructuring and other special charges of $58.0 million and $72.4 million in the second quarters of 2016 and 2015, respectively, related to integration costs for Novartis Animal Health, severance costs and asset impairments.

Operating income in the second quarter of 2016 was $923.3 million, an increase of 15 percent compared with the second quarter of 2015, driven by higher gross margin and lower acquired in-process research and development charges, partially offset by higher operating expenses.

Other income (expense) was income of $21.2 million in the second quarter of 2016, compared with expense of $123.3 million in the second quarter of 2015. Other expense during the second quarter of 2015 was driven by a net charge of $152.7 million related to the repurchase of $1.65 billion of debt.

The effective tax rate was 20.8 percent in the second quarter of 2016, compared with 11.6 percent in the second quarter of 2015. The increase in the effective tax rate for the second quarter of 2016 as compared with the second quarter of 2015 is primarily due to the tax impact of 2015 charges, including a net charge related to the repurchase of debt; asset impairment, restructuring and other special charges; and acquired in-process research and development charges.

In the second quarter of 2016, net income increased 24 percent to $747.7 million, and earnings per share increased 27 percent to $0.71, compared with $600.8 million and $0.56, respectively, in the second quarter of 2015. The increases in net income and earnings per share were driven by 2015 charges related to the repurchase of debt, as well as higher operating income, partially offset by higher income taxes. Earnings per share also benefited from a lower number of shares outstanding in the second quarter of 2016 compared with the second quarter of 2015.

Second-Quarter 2016 Non-GAAP Measures
On a non-GAAP basis, second-quarter 2016 gross margin increased 4 percent to $4.106 billion. Gross margin as a percent of revenue was 76.0 percent, a decline of 3.2 percentage points compared with the second quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold.

Operating income decreased $25.8 million, or 2 percent, to $1.150 billion in the second quarter of 2016, driven by higher operating expenses, largely offset by higher gross margin.

Other income (expense) was income of $21.2 million in the second quarter of 2016, compared with income of $29.4 million in the second quarter of 2015.

The effective tax rate was 22.4 percent in the second quarter of 2016, compared with 20.8 percent in the second quarter of 2015. The second-quarter 2016 effective tax rate reflects the benefit of certain U.S. tax provisions, including the R&D tax credit, reinstated for 2016, largely offset by the tax impact of an increased percentage of earnings in higher-tax jurisdictions. The second-quarter 2015 effective tax rate includes a net discrete tax benefit of approximately $24 million and does not include the benefit of certain then-expired U.S. tax provisions, including the R&D tax credit.

Net income decreased 5 percent to $908.8 million, and earnings per share decreased 4 percent to $0.86 in the second quarter of 2016, compared with $954.8 million and $0.90, respectively, in the second quarter of 2015. The declines in net income and earnings per share were driven by lower operating income and a higher effective tax rate. Earnings per share benefited from a lower number of shares outstanding in the second quarter of 2016 compared with the second quarter of 2015.

For further detail of non-GAAP measures, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.

Second Quarter

2016
2015
% Change
Earnings per share (reported)
$
0.71
$
0.56
27%
Amortization of intangible assets
.11
.10

Asset impairment, restructuring and other special charges
.04
.05

Acquired in-process research and development
—
.05

Net charge related to repurchase of debt
—
.09

Novartis Animal Health inventory step-up
—
.05

Earnings per share (non-GAAP)
$
0.86
$
0.90
(4)%

Numbers may not add due to rounding.

Year-to-Date Results
For the first six months of 2016, worldwide revenue increased 7 percent to $10.270 billion compared with $9.623 billion in the same period in 2015. Reported net income and earnings per share were $1.188 billion and $1.12, respectively. Net income and earnings per share, on a non-GAAP basis, were $1.791 billion and $1.69, respectively.

For further detail, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this release.

Year-to-Date

2016
2015
% Change
Earnings per share (reported)
$
1.12
$
1.06
6%
Amortization of intangible assets
.22
.20

Asset impairment, restructuring and other special charges
.16
.12

Acquired in-process research and development
—
.20

Venezuela charge
.19
—

Net charge related to repurchase of debt
—
.09

Novartis Animal Health inventory step-up
—
.09

Earnings per share (non-GAAP)
$
1.69
$
1.76
(4)%

Numbers may not add due to rounding.

Select Revenue Highlights

(Dollars in millions)

Second Quarter

Year-to-Date

Established
Pharmaceutical
Products
2016

2015

% Change

2016

2015

% Change


Humalog
$
701.9

$
654.3

7%

$
1,308.2

$
1,338.2

(2)%


Cialis
630.5

567.9

11%

1,207.2

1,106.2

9%


Alimta
607.1

664.3

(9)%

1,171.3

1,237.4

(5)%


Humulin
332.3

316.4

5%

688.7

632.1

9%


Forteo
367.6

328.4

12%

686.3

621.4

10%


Cymbalta
236.5

274.1

(14)%

435.2

561.1

(22)%


Zyprexa
210.7

253.7

(17)%

423.4

473.2

(11)%


Strattera
224.6

191.8

17%

412.7

365.5

13%


Erbitux
180.6

134.6

34%

348.6

222.8

56%


Effient
135.1

128.8

5%

266.6

250.6

6%


New
Pharmaceutical
Products


Trulicity
201.3

44.3

NM

344.9

62.6

NM


Cyramza
147.0

87.7

68%

278.0

155.2

79%


Jardiance(a)
40.1

11.1

NM

78.3

30.3

NM


Basaglar
16.3

—

NM

27.2

—

NM


Taltz
19.3

—

NM

19.3

—

NM


Portrazza
4.0

—

NM

5.7

—

NM


Animal Health
859.8

840.8

2%

1,614.4

1,590.5

1%


Total Revenue
5,404.8

4,978.7

9%

10,269.9

9,623.4

7%

(a) Jardiance includes Glyxambi and Synjardy
NM – not meaningful

Certain Established Pharmaceutical Products

Humalog
For the second quarter of 2016, worldwide Humalog revenues increased 7 percent compared with the second quarter of 2015 to $701.9 million. Revenues in the U.S. increased 5 percent to $420.0 million, driven by increased demand, partially offset by lower realized prices. Revenues outside the U.S. increased 11 percent to $281.9 million, primarily driven by increased volume, partially offset by the unfavorable impact of foreign exchange rates.

Cialis
Cialis revenues for the second quarter of 2016 increased 11 percent compared with the second quarter of 2015 to $630.5 million. U.S. revenues of Cialis were $383.2 million, a 24 percent increase compared with the second quarter of 2015, driven primarily by higher realized prices and, to a lesser extent, increased volume. Revenues of Cialis outside the U.S. decreased 4 percent to $247.3 million, driven by the unfavorable impact of foreign exchange rates and decreased volume.

Alimta
For the second quarter of 2016, Alimta generated revenues of $607.1 million, a decline of 9 percent compared with the second quarter of 2015. U.S. revenues of Alimta decreased 12 percent to $291.0 million, driven primarily by decreased demand due to competitive pressure. Revenues outside the U.S. decreased 5 percent to $316.1 million, driven by decreased volume and lower realized prices, partially offset by the favorable impact of foreign exchange rates.

Humulin
Worldwide Humulin revenues for the second quarter of 2016 increased 5 percent compared with the second quarter of 2015 to $332.3 million. U.S. revenues increased 9 percent to $204.3 million, driven by increased volume. Revenues outside the U.S. remained relatively flat at $128.0 million.

Forteo
Second-quarter 2016 revenues of Forteo were $367.6 million, a 12 percent increase compared with the second quarter of 2015. U.S. revenues of Forteo increased 29 percent to $186.4 million, driven by higher realized prices. Revenues outside the U.S. decreased 1 percent to $181.2 million, driven by lower realized prices, largely offset by increased volume and the favorable impact of foreign exchange rates.

New Pharmaceutical Products
Trulicity
Second-quarter 2016 revenues of Trulicity were $201.3 million. U.S. revenues of Trulicity were $161.4 million, driven by growth in the GLP-1 market and increased share of market for Trulicity. Revenues of Trulicity outside the U.S. were $39.9 million.

Cyramza
For the second quarter of 2016, Cyramza revenues were $147.0 million. U.S. revenues were $67.9 million, a decrease of 4 percent compared with the second quarter of 2015, due to competitive pressure in the non-small cell lung cancer indication. Revenues outside the U.S. were $79.1 million, primarily due to strong uptake for the gastric cancer indication in Japan.

Jardiance
The company’s revenues for Jardiance during the second quarter of 2016 were $40.1 million. U.S. revenues were $26.0 million, driven by growth in the SGLT2 class and increased share of market for Jardiance. Revenues outside the U.S. were $14.1 million. Jardiance is part of the company’s alliance with Boehringer Ingelheim, and Lilly reports as revenue a portion of Jardiance’s gross margin.

Basaglar
Second-quarter 2016 revenues of Basaglar, which has launched in multiple countries outside the U.S., were $16.3 million, driven by early uptake in Japan and various European countries.

Taltz
For the second quarter of 2016, Taltz revenues were $19.3 million. Taltz launched in the U.S. in April 2016.

Portrazza
For the second quarter of 2016, Portrazza revenues were $4.0 million. Portrazza launched in the U.S. in December 2015 and began launching in Europe in April 2016.

Animal Health
In the second quarter of 2016, worldwide animal health revenues totaled $859.8 million, an increase of 2 percent compared with the second quarter of 2015. U.S. animal health revenues increased 8 percent to $444.5 million, due to wholesaler buying patterns and uptake of new companion animal products, partially offset by decreased revenues for food animal products. Animal health revenues outside the U.S. decreased 3 percent to $415.3 million, primarily due to the unfavorable impact of foreign exchange rates. Excluding the unfavorable impact of foreign exchange rates, worldwide animal health revenues increased 4 percent.

2016 Financial Guidance

The company confirmed its 2016 financial guidance on a reported basis and on a non-GAAP basis, consistent with the explanations provided in the company’s first-quarter 2016 earnings press release.

Full-year 2016 earnings per share are still expected to be in the range of $2.68 to $2.78 on a reported basis. On a non-GAAP basis, full-year 2016 earnings per share are still expected to be in the range of $3.50 to $3.60.


2016
Expectations

Earnings per share (reported)
$2.68 to $2.78

Amortization of intangible assets
.42

Asset impairment, restructuring and other special charges, including
Novartis Animal Health integration costs and closure of an animal
health manufacturing facility in Ireland
.21

Venezuela charge
.19

Earnings per share (non-GAAP)
$3.50 to $3.60

Numbers may not add due to rounding.

The following table summarizes the company’s 2016 financial guidance:

2016 Guidance

Revenue
$20.6 to $21.1 billion


Gross Margin % of Revenue (reported)
Approx. 73%
Gross Margin % of Revenue (non-GAAP)
Approx. 76%


Marketing, Selling & Administrative
$6.1 to $6.3 billion


Research & Development
$4.9 to $5.1 billion


Other Income/(Expense) (reported)
$(200 million) to $(125 million)
Other Income/(Expense) (non-GAAP)
$0 to $75 million


Tax Rate
Approx. 21.0%


Earnings per share (reported)
$2.68 to $2.78
Earnings per share (non-GAAP)
$3.50 to $3.60


Capital Expenditures
Approx. $1.1 billion


Non-GAAP adjustments are consistent with the earnings per share table above.

On July 26, 2016 Eli Lilly and Company (NYSE: LLY) reported financial results for the second quarter of 2016 (Press release, Eli Lilly, JUL 26, 2016, View Source [SID:1234514028]).

Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:

Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing

                  Schedule Your 30 min Free Demo!

$ in millions, except per share data
Second Quarter
%

2016
2015
Change
Revenue – Reported
$
5,404.8
$
4,978.7
9
%
Net Income – Reported
747.7
600.8
24
%
EPS – Reported
0.71
0.56
27
%

Net Income – non-GAAP
908.8
954.8
(5)
%
EPS – non-GAAP
0.86
0.90
(4)
%

Certain financial information for 2016 and 2015 is presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the periods. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. The company’s 2016 financial guidance is also being provided on both a reported and a non-GAAP basis. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business.

“Lilly is in the midst of one of the most productive periods of new product launches in our company’s history, with new medicines making a substantial contribution to our revenue growth for the first half of the year,” said John C. Lechleiter, Ph.D., Lilly’s chairman, president and chief executive officer.

Lechleiter continued, “We’ve made great progress building an R&D engine that has the potential to launch 20 new products in 10 years beginning in 2014 and extending through 2023. Because of our confidence in our future growth prospects, we are providing updated financial expectations through the balance of the decade, including at least 5 percent average annual revenue growth driven by volume and an increase in gross margin as a percent of revenue. We are also returning to annual dividend increases for shareholders and reaffirming our commitment to achieve an OPEX-to-revenue ratio of 50 percent or less in 2018.”

Key Events Over the Last Three Months

Commercial

The company is launching Taltz in Europe for the treatment of moderate-to-severe plaque psoriasis in adults who are candidates for systemic therapy.
Elanco Animal Health launched InteprityTM, a first-in-class, animal-use only, in-feed antibiotic approved for the prevention of necrotic enteritis, an intestinal disease in poultry.
Regulatory

The U.S. Food and Drug Administration (FDA) approved once-daily Jentadueto XR (linagliptin and metformin hydrochloride extended-release) tablets as an adjunct to diet and exercise for the treatment of type 2 diabetes in adults. Jentadueto XR is part of the company’s alliance with Boehringer Ingelheim.

The company received approval of Cyramza in Japan for the treatment of:
unresectable, advanced or recurrent colorectal cancer; and
unresectable, advanced or recurrent non-small cell lung cancer for patients who have received prior platinum therapy.

The company received approval of Taltz in Japan for the treatment of patients with plaque psoriasis, psoriatic arthritis, pustular psoriasis and erythrodermic psoriasis after insufficient response to existing treatments.

The FDA granted Priority Review for olaratumab in combination with doxorubicin, for the potential treatment of people with advanced soft tissue sarcoma not amenable to curative treatment with radiotherapy or surgery.

An FDA Advisory Committee voted 12-11 that substantial evidence exists to establish that Jardiance (empagliflozin) reduces cardiovascular (CV) death in adults with type 2 diabetes and established CV disease. Jardiance is marketed by Boehringer Ingelheim and Lilly.

The FDA determined that the company met the requirements for pediatric exclusivity for Effient. Based on this decision by the FDA, Lilly has gained an additional six months of U.S. market exclusivity for Effient.
Clinical

The company announced results from the Phase 2 study of abemaciclib, a cyclin-dependent kinase CDK 4 and CDK 6 inhibitor, in patients with hormone-receptor-positive, human epidermal growth factor receptor 2-negative metastatic breast cancer. The data showed single-agent activity in metastatic breast cancer patients for whom endocrine therapy was no longer a suitable treatment option.

The company and Incyte Corporation announced data from a pivotal long-term extension study, which demonstrated baricitinib was superior to placebo at inhibiting progressive radiographic joint damage in patients with rheumatoid arthritis.

The company and Boehringer Ingelheim announced clinical results on two jointly marketed medicines:
Results from a clinical trial demonstrated that Trajenta (linagliptin) reduced blood sugar in adults with type 2 diabetes who are at risk for kidney impairment, with a renal safety profile similar to that seen in other trials.

New data showed Jardiance reduced the risk for new-onset or worsening kidney disease by 39 percent versus placebo when added to standard of care in adults with type 2 diabetes with established cardiovascular disease.
Business Development/Other

The German Federal Supreme Court granted the appeal by the company in the case of Lilly v. Actavis, vacating the prior decision denying infringement. The German Supreme Court returned the case to the Court of Appeal (Dusseldorf) to reconsider infringement based on its judgment. The case concerns whether Lilly’s vitamin regimen patent for Alimta (pemetrexed disodium) would be infringed by a generic competitor that had stated an intention to market a dipotassium salt form of pemetrexed in Germany.

Elanco Animal Health and EnBiotix, Inc. announced a collaboration to explore the application of EnBiotix’s engineered phage technology in specific animal health targets, which could result in alternatives for traditional antibiotics in animals.
Second-Quarter Reported Results

In the second quarter of 2016, worldwide revenue was $5.405 billion, an increase of 9 percent compared with the second quarter of 2015. The increase in revenue was driven by an 8 percent increase in volume, as realized prices and the impact of foreign exchange rates remained relatively flat, compared with the second quarter of 2015. The increase in worldwide volume was driven by new pharmaceutical products, including Trulicity and Cyramza, as well as Humalog. Revenue in the U.S. increased 14 percent to $2.890 billion, primarily driven by increased volume for several pharmaceutical products, including Trulicity and Humalog, and to a lesser extent, higher realized prices, primarily for Cialis and Forteo , partially offset by lower realized prices for Humalog. Revenue outside the U.S. increased 3 percent to $2.515 billion, driven by increased volume for several pharmaceutical products, primarily Cyramza, Trulicity and Humalog, partially offset by the loss of exclusivity for Cymbalta in Europe in 2014.

Gross margin increased 5 percent to $3.940 billion in the second quarter of 2016 compared with the second quarter of 2015. Gross margin as a percent of revenue was 72.9 percent, a decrease of 2.6 percentage points compared with the second quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold and, to a lesser extent, the transfer of Erbitux commercialization rights in North America, partially offset by 2015 inventory step-up costs related to the acquisition of Novartis Animal Health.

Operating expenses in the second quarter of 2016, defined as the sum of research and development and marketing, selling and administrative expenses, were $2.959 billion, an increase of 5 percent compared with the second quarter of 2015. Research and development expenses increased 14 percent to $1.336 billion, driven primarily by higher late-stage clinical development costs, including a $100.0 million charge related to a development milestone for AZD3293, an oral beta secretase cleaving enzyme (BACE) inhibitor currently in development with AstraZeneca as a potential treatment for early Alzheimer’s disease. Marketing, selling and administrative expenses decreased 1 percent to $1.623 billion, primarily due to lower litigation expenses and reduced spending on late-life-cycle products, partially offset by expenses related to new products.

There were no acquired in-process research and development charges in the second quarter of 2016. In the second quarter of 2015, the company recognized acquired in-process research and development charges totaling $80.0 million. These charges included a $50.0 million payment to Hanmi Pharmaceutical Co., Ltd. (Hanmi), related to an exclusive license and collaboration agreement for Hanmi’s oral Bruton’s tyrosine kinase (BTK) inhibitor for the treatment of autoimmune and other diseases, and a $30.0 million payment to BioNTech AG related to a research collaboration to discover novel cancer immunotherapies.

The company recognized asset impairment, restructuring and other special charges of $58.0 million and $72.4 million in the second quarters of 2016 and 2015, respectively, related to integration costs for Novartis Animal Health, severance costs and asset impairments.

Operating income in the second quarter of 2016 was $923.3 million, an increase of 15 percent compared with the second quarter of 2015, driven by higher gross margin and lower acquired in-process research and development charges, partially offset by higher operating expenses.

Other income (expense) was income of $21.2 million in the second quarter of 2016, compared with expense of $123.3 million in the second quarter of 2015. Other expense during the second quarter of 2015 was driven by a net charge of $152.7 million related to the repurchase of $1.65 billion of debt.

The effective tax rate was 20.8 percent in the second quarter of 2016, compared with 11.6 percent in the second quarter of 2015. The increase in the effective tax rate for the second quarter of 2016 as compared with the second quarter of 2015 is primarily due to the tax impact of 2015 charges, including a net charge related to the repurchase of debt; asset impairment, restructuring and other special charges; and acquired in-process research and development charges.

In the second quarter of 2016, net income increased 24 percent to $747.7 million, and earnings per share increased 27 percent to $0.71, compared with $600.8 million and $0.56, respectively, in the second quarter of 2015. The increases in net income and earnings per share were driven by 2015 charges related to the repurchase of debt, as well as higher operating income, partially offset by higher income taxes. Earnings per share also benefited from a lower number of shares outstanding in the second quarter of 2016 compared with the second quarter of 2015.

Second-Quarter 2016 Non-GAAP Measures
On a non-GAAP basis, second-quarter 2016 gross margin increased 4 percent to $4.106 billion. Gross margin as a percent of revenue was 76.0 percent, a decline of 3.2 percentage points compared with the second quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold.

Operating income decreased $25.8 million, or 2 percent, to $1.150 billion in the second quarter of 2016, driven by higher operating expenses, largely offset by higher gross margin.

Other income (expense) was income of $21.2 million in the second quarter of 2016, compared with income of $29.4 million in the second quarter of 2015.

The effective tax rate was 22.4 percent in the second quarter of 2016, compared with 20.8 percent in the second quarter of 2015. The second-quarter 2016 effective tax rate reflects the benefit of certain U.S. tax provisions, including the R&D tax credit, reinstated for 2016, largely offset by the tax impact of an increased percentage of earnings in higher-tax jurisdictions. The second-quarter 2015 effective tax rate includes a net discrete tax benefit of approximately $24 million and does not include the benefit of certain then-expired U.S. tax provisions, including the R&D tax credit.

Net income decreased 5 percent to $908.8 million, and earnings per share decreased 4 percent to $0.86 in the second quarter of 2016, compared with $954.8 million and $0.90, respectively, in the second quarter of 2015. The declines in net income and earnings per share were driven by lower operating income and a higher effective tax rate. Earnings per share benefited from a lower number of shares outstanding in the second quarter of 2016 compared with the second quarter of 2015.

For further detail of non-GAAP measures, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.

Second Quarter

2016
2015
% Change
Earnings per share (reported)
$
0.71
$
0.56
27%
Amortization of intangible assets
.11
.10

Asset impairment, restructuring and other special charges
.04
.05

Acquired in-process research and development
—
.05

Net charge related to repurchase of debt
—
.09

Novartis Animal Health inventory step-up
—
.05

Earnings per share (non-GAAP)
$
0.86
$
0.90
(4)%

Numbers may not add due to rounding.

Year-to-Date Results
For the first six months of 2016, worldwide revenue increased 7 percent to $10.270 billion compared with $9.623 billion in the same period in 2015. Reported net income and earnings per share were $1.188 billion and $1.12, respectively. Net income and earnings per share, on a non-GAAP basis, were $1.791 billion and $1.69, respectively.

For further detail, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this release.

Year-to-Date

2016
2015
% Change
Earnings per share (reported)
$
1.12
$
1.06
6%
Amortization of intangible assets
.22
.20

Asset impairment, restructuring and other special charges
.16
.12

Acquired in-process research and development
—
.20

Venezuela charge
.19
—

Net charge related to repurchase of debt
—
.09

Novartis Animal Health inventory step-up
—
.09

Earnings per share (non-GAAP)
$
1.69
$
1.76
(4)%

Numbers may not add due to rounding.

Select Revenue Highlights

(Dollars in millions)

Second Quarter

Year-to-Date

Established
Pharmaceutical
Products
2016

2015

% Change

2016

2015

% Change

Humalog
$
701.9

$
654.3

7%

$
1,308.2

$
1,338.2

(2)%

Cialis
630.5

567.9

11%

1,207.2

1,106.2

9%

Alimta
607.1

664.3

(9)%

1,171.3

1,237.4

(5)%

Humulin
332.3

316.4

5%

688.7

632.1

9%

Forteo
367.6

328.4

12%

686.3

621.4

10%

Cymbalta
236.5

274.1

(14)%

435.2

561.1

(22)%

Zyprexa
210.7

253.7

(17)%

423.4

473.2

(11)%

Strattera
224.6

191.8

17%

412.7

365.5

13%

Erbitux
180.6

134.6

34%

348.6

222.8

56%

Effient
135.1

128.8

5%

266.6

250.6

6%

New
Pharmaceutical
Products

Trulicity
201.3

44.3

NM

344.9

62.6

NM

Cyramza
147.0

87.7

68%

278.0

155.2

79%

Jardiance(a)
40.1

11.1

NM

78.3

30.3

NM

Basaglar
16.3

—

NM

27.2

—

NM

Taltz
19.3

—

NM

19.3

—

NM

Portrazza
4.0

—

NM

5.7

—

NM

Animal Health
859.8

840.8

2%

1,614.4

1,590.5

1%

Total Revenue
5,404.8

4,978.7

9%

10,269.9

9,623.4

7%

(a) Jardiance includes Glyxambi and Synjardy
NM – not meaningful

Certain Established Pharmaceutical Products

Humalog
For the second quarter of 2016, worldwide Humalog revenues increased 7 percent compared with the second quarter of 2015 to $701.9 million. Revenues in the U.S. increased 5 percent to $420.0 million, driven by increased demand, partially offset by lower realized prices. Revenues outside the U.S. increased 11 percent to $281.9 million, primarily driven by increased volume, partially offset by the unfavorable impact of foreign exchange rates.

Cialis
Cialis revenues for the second quarter of 2016 increased 11 percent compared with the second quarter of 2015 to $630.5 million. U.S. revenues of Cialis were $383.2 million, a 24 percent increase compared with the second quarter of 2015, driven primarily by higher realized prices and, to a lesser extent, increased volume. Revenues of Cialis outside the U.S. decreased 4 percent to $247.3 million, driven by the unfavorable impact of foreign exchange rates and decreased volume.

Alimta
For the second quarter of 2016, Alimta generated revenues of $607.1 million, a decline of 9 percent compared with the second quarter of 2015. U.S. revenues of Alimta decreased 12 percent to $291.0 million, driven primarily by decreased demand due to competitive pressure. Revenues outside the U.S. decreased 5 percent to $316.1 million, driven by decreased volume and lower realized prices, partially offset by the favorable impact of foreign exchange rates.

Humulin
Worldwide Humulin revenues for the second quarter of 2016 increased 5 percent compared with the second quarter of 2015 to $332.3 million. U.S. revenues increased 9 percent to $204.3 million, driven by increased volume. Revenues outside the U.S. remained relatively flat at $128.0 million.

Forteo
Second-quarter 2016 revenues of Forteo were $367.6 million, a 12 percent increase compared with the second quarter of 2015. U.S. revenues of Forteo increased 29 percent to $186.4 million, driven by higher realized prices. Revenues outside the U.S. decreased 1 percent to $181.2 million, driven by lower realized prices, largely offset by increased volume and the favorable impact of foreign exchange rates.

New Pharmaceutical Products
Trulicity
Second-quarter 2016 revenues of Trulicity were $201.3 million. U.S. revenues of Trulicity were $161.4 million, driven by growth in the GLP-1 market and increased share of market for Trulicity. Revenues of Trulicity outside the U.S. were $39.9 million.

Cyramza
For the second quarter of 2016, Cyramza revenues were $147.0 million. U.S. revenues were $67.9 million, a decrease of 4 percent compared with the second quarter of 2015, due to competitive pressure in the non-small cell lung cancer indication. Revenues outside the U.S. were $79.1 million, primarily due to strong uptake for the gastric cancer indication in Japan.

Jardiance
The company’s revenues for Jardiance during the second quarter of 2016 were $40.1 million. U.S. revenues were $26.0 million, driven by growth in the SGLT2 class and increased share of market for Jardiance. Revenues outside the U.S. were $14.1 million. Jardiance is part of the company’s alliance with Boehringer Ingelheim, and Lilly reports as revenue a portion of Jardiance’s gross margin.

Basaglar
Second-quarter 2016 revenues of Basaglar, which has launched in multiple countries outside the U.S., were $16.3 million, driven by early uptake in Japan and various European countries.

Taltz
For the second quarter of 2016, Taltz revenues were $19.3 million. Taltz launched in the U.S. in April 2016.

Portrazza
For the second quarter of 2016, Portrazza revenues were $4.0 million. Portrazza launched in the U.S. in December 2015 and began launching in Europe in April 2016.

Animal Health
In the second quarter of 2016, worldwide animal health revenues totaled $859.8 million, an increase of 2 percent compared with the second quarter of 2015. U.S. animal health revenues increased 8 percent to $444.5 million, due to wholesaler buying patterns and uptake of new companion animal products, partially offset by decreased revenues for food animal products. Animal health revenues outside the U.S. decreased 3 percent to $415.3 million, primarily due to the unfavorable impact of foreign exchange rates. Excluding the unfavorable impact of foreign exchange rates, worldwide animal health revenues increased 4 percent.

2016 Financial Guidance

The company confirmed its 2016 financial guidance on a reported basis and on a non-GAAP basis, consistent with the explanations provided in the company’s first-quarter 2016 earnings press release.

Full-year 2016 earnings per share are still expected to be in the range of $2.68 to $2.78 on a reported basis. On a non-GAAP basis, full-year 2016 earnings per share are still expected to be in the range of $3.50 to $3.60.

2016
Expectations

Earnings per share (reported)
$2.68 to $2.78

Amortization of intangible assets
.42

Asset impairment, restructuring and other special charges, including
Novartis Animal Health integration costs and closure of an animal
health manufacturing facility in Ireland
.21

Venezuela charge
.19

Earnings per share (non-GAAP)
$3.50 to $3.60

Numbers may not add due to rounding.

The following table summarizes the company’s 2016 financial guidance:

2016 Guidance

Revenue
$20.6 to $21.1 billion

Gross Margin % of Revenue (reported)
Approx. 73%
Gross Margin % of Revenue (non-GAAP)
Approx. 76%

Marketing, Selling & Administrative
$6.1 to $6.3 billion

Research & Development
$4.9 to $5.1 billion

Other Income/(Expense) (reported)
$(200 million) to $(125 million)
Other Income/(Expense) (non-GAAP)
$0 to $75 million

Tax Rate
Approx. 21.0%

Earnings per share (reported)
$2.68 to $2.78
Earnings per share (non-GAAP)
$3.50 to $3.60

Capital Expenditures
Approx. $1.1 billion

Non-GAAP adjustments are consistent with the earnings per share table above.

On July 26, 2016 Eli Lilly and Company (NYSE: LLY) reported financial results for the second quarter of 2016 (Press release, Eli Lilly, JUL 26, 2016, View Source [SID:1234514028]).

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$ in millions, except per share data
Second Quarter
%

2016
2015
Change
Revenue – Reported
$
5,404.8
$
4,978.7
9
%
Net Income – Reported
747.7
600.8
24
%
EPS – Reported
0.71
0.56
27
%

Net Income – non-GAAP
908.8
954.8
(5)
%
EPS – non-GAAP
0.86
0.90
(4)
%

Certain financial information for 2016 and 2015 is presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the periods. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. The company’s 2016 financial guidance is also being provided on both a reported and a non-GAAP basis. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business.

“Lilly is in the midst of one of the most productive periods of new product launches in our company’s history, with new medicines making a substantial contribution to our revenue growth for the first half of the year,” said John C. Lechleiter, Ph.D., Lilly’s chairman, president and chief executive officer.

Lechleiter continued, “We’ve made great progress building an R&D engine that has the potential to launch 20 new products in 10 years beginning in 2014 and extending through 2023. Because of our confidence in our future growth prospects, we are providing updated financial expectations through the balance of the decade, including at least 5 percent average annual revenue growth driven by volume and an increase in gross margin as a percent of revenue. We are also returning to annual dividend increases for shareholders and reaffirming our commitment to achieve an OPEX-to-revenue ratio of 50 percent or less in 2018.”

Key Events Over the Last Three Months

Commercial

The company is launching Taltz in Europe for the treatment of moderate-to-severe plaque psoriasis in adults who are candidates for systemic therapy.
Elanco Animal Health launched InteprityTM, a first-in-class, animal-use only, in-feed antibiotic approved for the prevention of necrotic enteritis, an intestinal disease in poultry.
Regulatory

The U.S. Food and Drug Administration (FDA) approved once-daily Jentadueto XR (linagliptin and metformin hydrochloride extended-release) tablets as an adjunct to diet and exercise for the treatment of type 2 diabetes in adults. Jentadueto XR is part of the company’s alliance with Boehringer Ingelheim.

The company received approval of Cyramza in Japan for the treatment of:
unresectable, advanced or recurrent colorectal cancer; and
unresectable, advanced or recurrent non-small cell lung cancer for patients who have received prior platinum therapy.

The company received approval of Taltz in Japan for the treatment of patients with plaque psoriasis, psoriatic arthritis, pustular psoriasis and erythrodermic psoriasis after insufficient response to existing treatments.

The FDA granted Priority Review for olaratumab in combination with doxorubicin, for the potential treatment of people with advanced soft tissue sarcoma not amenable to curative treatment with radiotherapy or surgery.

An FDA Advisory Committee voted 12-11 that substantial evidence exists to establish that Jardiance (empagliflozin) reduces cardiovascular (CV) death in adults with type 2 diabetes and established CV disease. Jardiance is marketed by Boehringer Ingelheim and Lilly.

The FDA determined that the company met the requirements for pediatric exclusivity for Effient. Based on this decision by the FDA, Lilly has gained an additional six months of U.S. market exclusivity for Effient.
Clinical

The company announced results from the Phase 2 study of abemaciclib, a cyclin-dependent kinase CDK 4 and CDK 6 inhibitor, in patients with hormone-receptor-positive, human epidermal growth factor receptor 2-negative metastatic breast cancer. The data showed single-agent activity in metastatic breast cancer patients for whom endocrine therapy was no longer a suitable treatment option.

The company and Incyte Corporation announced data from a pivotal long-term extension study, which demonstrated baricitinib was superior to placebo at inhibiting progressive radiographic joint damage in patients with rheumatoid arthritis.

The company and Boehringer Ingelheim announced clinical results on two jointly marketed medicines:
Results from a clinical trial demonstrated that Trajenta (linagliptin) reduced blood sugar in adults with type 2 diabetes who are at risk for kidney impairment, with a renal safety profile similar to that seen in other trials.

New data showed Jardiance reduced the risk for new-onset or worsening kidney disease by 39 percent versus placebo when added to standard of care in adults with type 2 diabetes with established cardiovascular disease.
Business Development/Other

The German Federal Supreme Court granted the appeal by the company in the case of Lilly v. Actavis, vacating the prior decision denying infringement. The German Supreme Court returned the case to the Court of Appeal (Dusseldorf) to reconsider infringement based on its judgment. The case concerns whether Lilly’s vitamin regimen patent for Alimta (pemetrexed disodium) would be infringed by a generic competitor that had stated an intention to market a dipotassium salt form of pemetrexed in Germany.

Elanco Animal Health and EnBiotix, Inc. announced a collaboration to explore the application of EnBiotix’s engineered phage technology in specific animal health targets, which could result in alternatives for traditional antibiotics in animals.
Second-Quarter Reported Results

In the second quarter of 2016, worldwide revenue was $5.405 billion, an increase of 9 percent compared with the second quarter of 2015. The increase in revenue was driven by an 8 percent increase in volume, as realized prices and the impact of foreign exchange rates remained relatively flat, compared with the second quarter of 2015. The increase in worldwide volume was driven by new pharmaceutical products, including Trulicity and Cyramza, as well as Humalog. Revenue in the U.S. increased 14 percent to $2.890 billion, primarily driven by increased volume for several pharmaceutical products, including Trulicity and Humalog, and to a lesser extent, higher realized prices, primarily for Cialis and Forteo , partially offset by lower realized prices for Humalog. Revenue outside the U.S. increased 3 percent to $2.515 billion, driven by increased volume for several pharmaceutical products, primarily Cyramza, Trulicity and Humalog, partially offset by the loss of exclusivity for Cymbalta in Europe in 2014.

Gross margin increased 5 percent to $3.940 billion in the second quarter of 2016 compared with the second quarter of 2015. Gross margin as a percent of revenue was 72.9 percent, a decrease of 2.6 percentage points compared with the second quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold and, to a lesser extent, the transfer of Erbitux commercialization rights in North America, partially offset by 2015 inventory step-up costs related to the acquisition of Novartis Animal Health.

Operating expenses in the second quarter of 2016, defined as the sum of research and development and marketing, selling and administrative expenses, were $2.959 billion, an increase of 5 percent compared with the second quarter of 2015. Research and development expenses increased 14 percent to $1.336 billion, driven primarily by higher late-stage clinical development costs, including a $100.0 million charge related to a development milestone for AZD3293, an oral beta secretase cleaving enzyme (BACE) inhibitor currently in development with AstraZeneca as a potential treatment for early Alzheimer’s disease. Marketing, selling and administrative expenses decreased 1 percent to $1.623 billion, primarily due to lower litigation expenses and reduced spending on late-life-cycle products, partially offset by expenses related to new products.

There were no acquired in-process research and development charges in the second quarter of 2016. In the second quarter of 2015, the company recognized acquired in-process research and development charges totaling $80.0 million. These charges included a $50.0 million payment to Hanmi Pharmaceutical Co., Ltd. (Hanmi), related to an exclusive license and collaboration agreement for Hanmi’s oral Bruton’s tyrosine kinase (BTK) inhibitor for the treatment of autoimmune and other diseases, and a $30.0 million payment to BioNTech AG related to a research collaboration to discover novel cancer immunotherapies.

The company recognized asset impairment, restructuring and other special charges of $58.0 million and $72.4 million in the second quarters of 2016 and 2015, respectively, related to integration costs for Novartis Animal Health, severance costs and asset impairments.

Operating income in the second quarter of 2016 was $923.3 million, an increase of 15 percent compared with the second quarter of 2015, driven by higher gross margin and lower acquired in-process research and development charges, partially offset by higher operating expenses.

Other income (expense) was income of $21.2 million in the second quarter of 2016, compared with expense of $123.3 million in the second quarter of 2015. Other expense during the second quarter of 2015 was driven by a net charge of $152.7 million related to the repurchase of $1.65 billion of debt.

The effective tax rate was 20.8 percent in the second quarter of 2016, compared with 11.6 percent in the second quarter of 2015. The increase in the effective tax rate for the second quarter of 2016 as compared with the second quarter of 2015 is primarily due to the tax impact of 2015 charges, including a net charge related to the repurchase of debt; asset impairment, restructuring and other special charges; and acquired in-process research and development charges.

In the second quarter of 2016, net income increased 24 percent to $747.7 million, and earnings per share increased 27 percent to $0.71, compared with $600.8 million and $0.56, respectively, in the second quarter of 2015. The increases in net income and earnings per share were driven by 2015 charges related to the repurchase of debt, as well as higher operating income, partially offset by higher income taxes. Earnings per share also benefited from a lower number of shares outstanding in the second quarter of 2016 compared with the second quarter of 2015.

Second-Quarter 2016 Non-GAAP Measures
On a non-GAAP basis, second-quarter 2016 gross margin increased 4 percent to $4.106 billion. Gross margin as a percent of revenue was 76.0 percent, a decline of 3.2 percentage points compared with the second quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold.

Operating income decreased $25.8 million, or 2 percent, to $1.150 billion in the second quarter of 2016, driven by higher operating expenses, largely offset by higher gross margin.

Other income (expense) was income of $21.2 million in the second quarter of 2016, compared with income of $29.4 million in the second quarter of 2015.

The effective tax rate was 22.4 percent in the second quarter of 2016, compared with 20.8 percent in the second quarter of 2015. The second-quarter 2016 effective tax rate reflects the benefit of certain U.S. tax provisions, including the R&D tax credit, reinstated for 2016, largely offset by the tax impact of an increased percentage of earnings in higher-tax jurisdictions. The second-quarter 2015 effective tax rate includes a net discrete tax benefit of approximately $24 million and does not include the benefit of certain then-expired U.S. tax provisions, including the R&D tax credit.

Net income decreased 5 percent to $908.8 million, and earnings per share decreased 4 percent to $0.86 in the second quarter of 2016, compared with $954.8 million and $0.90, respectively, in the second quarter of 2015. The declines in net income and earnings per share were driven by lower operating income and a higher effective tax rate. Earnings per share benefited from a lower number of shares outstanding in the second quarter of 2016 compared with the second quarter of 2015.

For further detail of non-GAAP measures, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.

Second Quarter

2016
2015
% Change
Earnings per share (reported)
$
0.71
$
0.56
27%
Amortization of intangible assets
.11
.10

Asset impairment, restructuring and other special charges
.04
.05

Acquired in-process research and development
—
.05

Net charge related to repurchase of debt
—
.09

Novartis Animal Health inventory step-up
—
.05

Earnings per share (non-GAAP)
$
0.86
$
0.90
(4)%

Numbers may not add due to rounding.

Year-to-Date Results
For the first six months of 2016, worldwide revenue increased 7 percent to $10.270 billion compared with $9.623 billion in the same period in 2015. Reported net income and earnings per share were $1.188 billion and $1.12, respectively. Net income and earnings per share, on a non-GAAP basis, were $1.791 billion and $1.69, respectively.

For further detail, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this release.

Year-to-Date

2016
2015
% Change
Earnings per share (reported)
$
1.12
$
1.06
6%
Amortization of intangible assets
.22
.20

Asset impairment, restructuring and other special charges
.16
.12

Acquired in-process research and development
—
.20

Venezuela charge
.19
—

Net charge related to repurchase of debt
—
.09

Novartis Animal Health inventory step-up
—
.09

Earnings per share (non-GAAP)
$
1.69
$
1.76
(4)%

Numbers may not add due to rounding.

Select Revenue Highlights

(Dollars in millions)

Second Quarter

Year-to-Date

Established
Pharmaceutical
Products
2016

2015

% Change

2016

2015

% Change

Humalog
$
701.9

$
654.3

7%

$
1,308.2

$
1,338.2

(2)%

Cialis
630.5

567.9

11%

1,207.2

1,106.2

9%

Alimta
607.1

664.3

(9)%

1,171.3

1,237.4

(5)%

Humulin
332.3

316.4

5%

688.7

632.1

9%

Forteo
367.6

328.4

12%

686.3

621.4

10%

Cymbalta
236.5

274.1

(14)%

435.2

561.1

(22)%

Zyprexa
210.7

253.7

(17)%

423.4

473.2

(11)%

Strattera
224.6

191.8

17%

412.7

365.5

13%

Erbitux
180.6

134.6

34%

348.6

222.8

56%

Effient
135.1

128.8

5%

266.6

250.6

6%

New
Pharmaceutical
Products

Trulicity
201.3

44.3

NM

344.9

62.6

NM

Cyramza
147.0

87.7

68%

278.0

155.2

79%

Jardiance(a)
40.1

11.1

NM

78.3

30.3

NM

Basaglar
16.3

—

NM

27.2

—

NM

Taltz
19.3

—

NM

19.3

—

NM

Portrazza
4.0

—

NM

5.7

—

NM

Animal Health
859.8

840.8

2%

1,614.4

1,590.5

1%

Total Revenue
5,404.8

4,978.7

9%

10,269.9

9,623.4

7%

(a) Jardiance includes Glyxambi and Synjardy
NM – not meaningful

Certain Established Pharmaceutical Products

Humalog
For the second quarter of 2016, worldwide Humalog revenues increased 7 percent compared with the second quarter of 2015 to $701.9 million. Revenues in the U.S. increased 5 percent to $420.0 million, driven by increased demand, partially offset by lower realized prices. Revenues outside the U.S. increased 11 percent to $281.9 million, primarily driven by increased volume, partially offset by the unfavorable impact of foreign exchange rates.

Cialis
Cialis revenues for the second quarter of 2016 increased 11 percent compared with the second quarter of 2015 to $630.5 million. U.S. revenues of Cialis were $383.2 million, a 24 percent increase compared with the second quarter of 2015, driven primarily by higher realized prices and, to a lesser extent, increased volume. Revenues of Cialis outside the U.S. decreased 4 percent to $247.3 million, driven by the unfavorable impact of foreign exchange rates and decreased volume.

Alimta
For the second quarter of 2016, Alimta generated revenues of $607.1 million, a decline of 9 percent compared with the second quarter of 2015. U.S. revenues of Alimta decreased 12 percent to $291.0 million, driven primarily by decreased demand due to competitive pressure. Revenues outside the U.S. decreased 5 percent to $316.1 million, driven by decreased volume and lower realized prices, partially offset by the favorable impact of foreign exchange rates.

Humulin
Worldwide Humulin revenues for the second quarter of 2016 increased 5 percent compared with the second quarter of 2015 to $332.3 million. U.S. revenues increased 9 percent to $204.3 million, driven by increased volume. Revenues outside the U.S. remained relatively flat at $128.0 million.

Forteo
Second-quarter 2016 revenues of Forteo were $367.6 million, a 12 percent increase compared with the second quarter of 2015. U.S. revenues of Forteo increased 29 percent to $186.4 million, driven by higher realized prices. Revenues outside the U.S. decreased 1 percent to $181.2 million, driven by lower realized prices, largely offset by increased volume and the favorable impact of foreign exchange rates.

New Pharmaceutical Products
Trulicity
Second-quarter 2016 revenues of Trulicity were $201.3 million. U.S. revenues of Trulicity were $161.4 million, driven by growth in the GLP-1 market and increased share of market for Trulicity. Revenues of Trulicity outside the U.S. were $39.9 million.

Cyramza
For the second quarter of 2016, Cyramza revenues were $147.0 million. U.S. revenues were $67.9 million, a decrease of 4 percent compared with the second quarter of 2015, due to competitive pressure in the non-small cell lung cancer indication. Revenues outside the U.S. were $79.1 million, primarily due to strong uptake for the gastric cancer indication in Japan.

Jardiance
The company’s revenues for Jardiance during the second quarter of 2016 were $40.1 million. U.S. revenues were $26.0 million, driven by growth in the SGLT2 class and increased share of market for Jardiance. Revenues outside the U.S. were $14.1 million. Jardiance is part of the company’s alliance with Boehringer Ingelheim, and Lilly reports as revenue a portion of Jardiance’s gross margin.

Basaglar
Second-quarter 2016 revenues of Basaglar, which has launched in multiple countries outside the U.S., were $16.3 million, driven by early uptake in Japan and various European countries.

Taltz
For the second quarter of 2016, Taltz revenues were $19.3 million. Taltz launched in the U.S. in April 2016.

Portrazza
For the second quarter of 2016, Portrazza revenues were $4.0 million. Portrazza launched in the U.S. in December 2015 and began launching in Europe in April 2016.

Animal Health
In the second quarter of 2016, worldwide animal health revenues totaled $859.8 million, an increase of 2 percent compared with the second quarter of 2015. U.S. animal health revenues increased 8 percent to $444.5 million, due to wholesaler buying patterns and uptake of new companion animal products, partially offset by decreased revenues for food animal products. Animal health revenues outside the U.S. decreased 3 percent to $415.3 million, primarily due to the unfavorable impact of foreign exchange rates. Excluding the unfavorable impact of foreign exchange rates, worldwide animal health revenues increased 4 percent.

2016 Financial Guidance

The company confirmed its 2016 financial guidance on a reported basis and on a non-GAAP basis, consistent with the explanations provided in the company’s first-quarter 2016 earnings press release.

Full-year 2016 earnings per share are still expected to be in the range of $2.68 to $2.78 on a reported basis. On a non-GAAP basis, full-year 2016 earnings per share are still expected to be in the range of $3.50 to $3.60.

2016
Expectations

Earnings per share (reported)
$2.68 to $2.78

Amortization of intangible assets
.42

Asset impairment, restructuring and other special charges, including
Novartis Animal Health integration costs and closure of an animal
health manufacturing facility in Ireland
.21

Venezuela charge
.19

Earnings per share (non-GAAP)
$3.50 to $3.60

Numbers may not add due to rounding.

The following table summarizes the company’s 2016 financial guidance:

2016 Guidance

Revenue
$20.6 to $21.1 billion

Gross Margin % of Revenue (reported)
Approx. 73%
Gross Margin % of Revenue (non-GAAP)
Approx. 76%

Marketing, Selling & Administrative
$6.1 to $6.3 billion

Research & Development
$4.9 to $5.1 billion

Other Income/(Expense) (reported)
$(200 million) to $(125 million)
Other Income/(Expense) (non-GAAP)
$0 to $75 million

Tax Rate
Approx. 21.0%

Earnings per share (reported)
$2.68 to $2.78
Earnings per share (non-GAAP)
$3.50 to $3.60

Capital Expenditures
Approx. $1.1 billion

Non-GAAP adjustments are consistent with the earnings per share table above.

On July 26, 2016 Eli Lilly and Company (NYSE: LLY) reported financial results for the second quarter of 2016 (Press release, Eli Lilly, JUL 26, 2016, View Source [SID:1234514028]).

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$ in millions, except per share data
Second Quarter
%

2016
2015
Change
Revenue – Reported
$
5,404.8
$
4,978.7
9
%
Net Income – Reported
747.7
600.8
24
%
EPS – Reported
0.71
0.56
27
%

Net Income – non-GAAP
908.8
954.8
(5)
%
EPS – non-GAAP
0.86
0.90
(4)
%

Certain financial information for 2016 and 2015 is presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the periods. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. The company’s 2016 financial guidance is also being provided on both a reported and a non-GAAP basis. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business.

“Lilly is in the midst of one of the most productive periods of new product launches in our company’s history, with new medicines making a substantial contribution to our revenue growth for the first half of the year,” said John C. Lechleiter, Ph.D., Lilly’s chairman, president and chief executive officer.

Lechleiter continued, “We’ve made great progress building an R&D engine that has the potential to launch 20 new products in 10 years beginning in 2014 and extending through 2023. Because of our confidence in our future growth prospects, we are providing updated financial expectations through the balance of the decade, including at least 5 percent average annual revenue growth driven by volume and an increase in gross margin as a percent of revenue. We are also returning to annual dividend increases for shareholders and reaffirming our commitment to achieve an OPEX-to-revenue ratio of 50 percent or less in 2018.”

Key Events Over the Last Three Months

Commercial

The company is launching Taltz in Europe for the treatment of moderate-to-severe plaque psoriasis in adults who are candidates for systemic therapy.
Elanco Animal Health launched InteprityTM, a first-in-class, animal-use only, in-feed antibiotic approved for the prevention of necrotic enteritis, an intestinal disease in poultry.
Regulatory

The U.S. Food and Drug Administration (FDA) approved once-daily Jentadueto XR (linagliptin and metformin hydrochloride extended-release) tablets as an adjunct to diet and exercise for the treatment of type 2 diabetes in adults. Jentadueto XR is part of the company’s alliance with Boehringer Ingelheim.

The company received approval of Cyramza in Japan for the treatment of:
unresectable, advanced or recurrent colorectal cancer; and
unresectable, advanced or recurrent non-small cell lung cancer for patients who have received prior platinum therapy.

The company received approval of Taltz in Japan for the treatment of patients with plaque psoriasis, psoriatic arthritis, pustular psoriasis and erythrodermic psoriasis after insufficient response to existing treatments.

The FDA granted Priority Review for olaratumab in combination with doxorubicin, for the potential treatment of people with advanced soft tissue sarcoma not amenable to curative treatment with radiotherapy or surgery.

An FDA Advisory Committee voted 12-11 that substantial evidence exists to establish that Jardiance (empagliflozin) reduces cardiovascular (CV) death in adults with type 2 diabetes and established CV disease. Jardiance is marketed by Boehringer Ingelheim and Lilly.

The FDA determined that the company met the requirements for pediatric exclusivity for Effient. Based on this decision by the FDA, Lilly has gained an additional six months of U.S. market exclusivity for Effient.
Clinical

The company announced results from the Phase 2 study of abemaciclib, a cyclin-dependent kinase CDK 4 and CDK 6 inhibitor, in patients with hormone-receptor-positive, human epidermal growth factor receptor 2-negative metastatic breast cancer. The data showed single-agent activity in metastatic breast cancer patients for whom endocrine therapy was no longer a suitable treatment option.

The company and Incyte Corporation announced data from a pivotal long-term extension study, which demonstrated baricitinib was superior to placebo at inhibiting progressive radiographic joint damage in patients with rheumatoid arthritis.

The company and Boehringer Ingelheim announced clinical results on two jointly marketed medicines:
Results from a clinical trial demonstrated that Trajenta (linagliptin) reduced blood sugar in adults with type 2 diabetes who are at risk for kidney impairment, with a renal safety profile similar to that seen in other trials.

New data showed Jardiance reduced the risk for new-onset or worsening kidney disease by 39 percent versus placebo when added to standard of care in adults with type 2 diabetes with established cardiovascular disease.
Business Development/Other

The German Federal Supreme Court granted the appeal by the company in the case of Lilly v. Actavis, vacating the prior decision denying infringement. The German Supreme Court returned the case to the Court of Appeal (Dusseldorf) to reconsider infringement based on its judgment. The case concerns whether Lilly’s vitamin regimen patent for Alimta (pemetrexed disodium) would be infringed by a generic competitor that had stated an intention to market a dipotassium salt form of pemetrexed in Germany.

Elanco Animal Health and EnBiotix, Inc. announced a collaboration to explore the application of EnBiotix’s engineered phage technology in specific animal health targets, which could result in alternatives for traditional antibiotics in animals.
Second-Quarter Reported Results

In the second quarter of 2016, worldwide revenue was $5.405 billion, an increase of 9 percent compared with the second quarter of 2015. The increase in revenue was driven by an 8 percent increase in volume, as realized prices and the impact of foreign exchange rates remained relatively flat, compared with the second quarter of 2015. The increase in worldwide volume was driven by new pharmaceutical products, including Trulicity and Cyramza, as well as Humalog. Revenue in the U.S. increased 14 percent to $2.890 billion, primarily driven by increased volume for several pharmaceutical products, including Trulicity and Humalog, and to a lesser extent, higher realized prices, primarily for Cialis and Forteo , partially offset by lower realized prices for Humalog. Revenue outside the U.S. increased 3 percent to $2.515 billion, driven by increased volume for several pharmaceutical products, primarily Cyramza, Trulicity and Humalog, partially offset by the loss of exclusivity for Cymbalta in Europe in 2014.

Gross margin increased 5 percent to $3.940 billion in the second quarter of 2016 compared with the second quarter of 2015. Gross margin as a percent of revenue was 72.9 percent, a decrease of 2.6 percentage points compared with the second quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold and, to a lesser extent, the transfer of Erbitux commercialization rights in North America, partially offset by 2015 inventory step-up costs related to the acquisition of Novartis Animal Health.

Operating expenses in the second quarter of 2016, defined as the sum of research and development and marketing, selling and administrative expenses, were $2.959 billion, an increase of 5 percent compared with the second quarter of 2015. Research and development expenses increased 14 percent to $1.336 billion, driven primarily by higher late-stage clinical development costs, including a $100.0 million charge related to a development milestone for AZD3293, an oral beta secretase cleaving enzyme (BACE) inhibitor currently in development with AstraZeneca as a potential treatment for early Alzheimer’s disease. Marketing, selling and administrative expenses decreased 1 percent to $1.623 billion, primarily due to lower litigation expenses and reduced spending on late-life-cycle products, partially offset by expenses related to new products.

There were no acquired in-process research and development charges in the second quarter of 2016. In the second quarter of 2015, the company recognized acquired in-process research and development charges totaling $80.0 million. These charges included a $50.0 million payment to Hanmi Pharmaceutical Co., Ltd. (Hanmi), related to an exclusive license and collaboration agreement for Hanmi’s oral Bruton’s tyrosine kinase (BTK) inhibitor for the treatment of autoimmune and other diseases, and a $30.0 million payment to BioNTech AG related to a research collaboration to discover novel cancer immunotherapies.

The company recognized asset impairment, restructuring and other special charges of $58.0 million and $72.4 million in the second quarters of 2016 and 2015, respectively, related to integration costs for Novartis Animal Health, severance costs and asset impairments.

Operating income in the second quarter of 2016 was $923.3 million, an increase of 15 percent compared with the second quarter of 2015, driven by higher gross margin and lower acquired in-process research and development charges, partially offset by higher operating expenses.

Other income (expense) was income of $21.2 million in the second quarter of 2016, compared with expense of $123.3 million in the second quarter of 2015. Other expense during the second quarter of 2015 was driven by a net charge of $152.7 million related to the repurchase of $1.65 billion of debt.

The effective tax rate was 20.8 percent in the second quarter of 2016, compared with 11.6 percent in the second quarter of 2015. The increase in the effective tax rate for the second quarter of 2016 as compared with the second quarter of 2015 is primarily due to the tax impact of 2015 charges, including a net charge related to the repurchase of debt; asset impairment, restructuring and other special charges; and acquired in-process research and development charges.

In the second quarter of 2016, net income increased 24 percent to $747.7 million, and earnings per share increased 27 percent to $0.71, compared with $600.8 million and $0.56, respectively, in the second quarter of 2015. The increases in net income and earnings per share were driven by 2015 charges related to the repurchase of debt, as well as higher operating income, partially offset by higher income taxes. Earnings per share also benefited from a lower number of shares outstanding in the second quarter of 2016 compared with the second quarter of 2015.

Second-Quarter 2016 Non-GAAP Measures
On a non-GAAP basis, second-quarter 2016 gross margin increased 4 percent to $4.106 billion. Gross margin as a percent of revenue was 76.0 percent, a decline of 3.2 percentage points compared with the second quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold.

Operating income decreased $25.8 million, or 2 percent, to $1.150 billion in the second quarter of 2016, driven by higher operating expenses, largely offset by higher gross margin.

Other income (expense) was income of $21.2 million in the second quarter of 2016, compared with income of $29.4 million in the second quarter of 2015.

The effective tax rate was 22.4 percent in the second quarter of 2016, compared with 20.8 percent in the second quarter of 2015. The second-quarter 2016 effective tax rate reflects the benefit of certain U.S. tax provisions, including the R&D tax credit, reinstated for 2016, largely offset by the tax impact of an increased percentage of earnings in higher-tax jurisdictions. The second-quarter 2015 effective tax rate includes a net discrete tax benefit of approximately $24 million and does not include the benefit of certain then-expired U.S. tax provisions, including the R&D tax credit.

Net income decreased 5 percent to $908.8 million, and earnings per share decreased 4 percent to $0.86 in the second quarter of 2016, compared with $954.8 million and $0.90, respectively, in the second quarter of 2015. The declines in net income and earnings per share were driven by lower operating income and a higher effective tax rate. Earnings per share benefited from a lower number of shares outstanding in the second quarter of 2016 compared with the second quarter of 2015.

For further detail of non-GAAP measures, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.

Second Quarter

2016
2015
% Change
Earnings per share (reported)
$
0.71
$
0.56
27%
Amortization of intangible assets
.11
.10

Asset impairment, restructuring and other special charges
.04
.05

Acquired in-process research and development
—
.05

Net charge related to repurchase of debt
—
.09

Novartis Animal Health inventory step-up
—
.05

Earnings per share (non-GAAP)
$
0.86
$
0.90
(4)%

Numbers may not add due to rounding.

Year-to-Date Results
For the first six months of 2016, worldwide revenue increased 7 percent to $10.270 billion compared with $9.623 billion in the same period in 2015. Reported net income and earnings per share were $1.188 billion and $1.12, respectively. Net income and earnings per share, on a non-GAAP basis, were $1.791 billion and $1.69, respectively.

For further detail, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this release.

Year-to-Date

2016
2015
% Change
Earnings per share (reported)
$
1.12
$
1.06
6%
Amortization of intangible assets
.22
.20

Asset impairment, restructuring and other special charges
.16
.12

Acquired in-process research and development
—
.20

Venezuela charge
.19
—

Net charge related to repurchase of debt
—
.09

Novartis Animal Health inventory step-up
—
.09

Earnings per share (non-GAAP)
$
1.69
$
1.76
(4)%

Numbers may not add due to rounding.

Select Revenue Highlights

(Dollars in millions)

Second Quarter

Year-to-Date

Established
Pharmaceutical
Products
2016

2015

% Change

2016

2015

% Change

Humalog
$
701.9

$
654.3

7%

$
1,308.2

$
1,338.2

(2)%

Cialis
630.5

567.9

11%

1,207.2

1,106.2

9%

Alimta
607.1

664.3

(9)%

1,171.3

1,237.4

(5)%

Humulin
332.3

316.4

5%

688.7

632.1

9%

Forteo
367.6

328.4

12%

686.3

621.4

10%

Cymbalta
236.5

274.1

(14)%

435.2

561.1

(22)%

Zyprexa
210.7

253.7

(17)%

423.4

473.2

(11)%

Strattera
224.6

191.8

17%

412.7

365.5

13%

Erbitux
180.6

134.6

34%

348.6

222.8

56%

Effient
135.1

128.8

5%

266.6

250.6

6%

New
Pharmaceutical
Products

Trulicity
201.3

44.3

NM

344.9

62.6

NM

Cyramza
147.0

87.7

68%

278.0

155.2

79%

Jardiance(a)
40.1

11.1

NM

78.3

30.3

NM

Basaglar
16.3

—

NM

27.2

—

NM

Taltz
19.3

—

NM

19.3

—

NM

Portrazza
4.0

—

NM

5.7

—

NM

Animal Health
859.8

840.8

2%

1,614.4

1,590.5

1%

Total Revenue
5,404.8

4,978.7

9%

10,269.9

9,623.4

7%

(a) Jardiance includes Glyxambi and Synjardy
NM – not meaningful

Certain Established Pharmaceutical Products

Humalog
For the second quarter of 2016, worldwide Humalog revenues increased 7 percent compared with the second quarter of 2015 to $701.9 million. Revenues in the U.S. increased 5 percent to $420.0 million, driven by increased demand, partially offset by lower realized prices. Revenues outside the U.S. increased 11 percent to $281.9 million, primarily driven by increased volume, partially offset by the unfavorable impact of foreign exchange rates.

Cialis
Cialis revenues for the second quarter of 2016 increased 11 percent compared with the second quarter of 2015 to $630.5 million. U.S. revenues of Cialis were $383.2 million, a 24 percent increase compared with the second quarter of 2015, driven primarily by higher realized prices and, to a lesser extent, increased volume. Revenues of Cialis outside the U.S. decreased 4 percent to $247.3 million, driven by the unfavorable impact of foreign exchange rates and decreased volume.

Alimta
For the second quarter of 2016, Alimta generated revenues of $607.1 million, a decline of 9 percent compared with the second quarter of 2015. U.S. revenues of Alimta decreased 12 percent to $291.0 million, driven primarily by decreased demand due to competitive pressure. Revenues outside the U.S. decreased 5 percent to $316.1 million, driven by decreased volume and lower realized prices, partially offset by the favorable impact of foreign exchange rates.

Humulin
Worldwide Humulin revenues for the second quarter of 2016 increased 5 percent compared with the second quarter of 2015 to $332.3 million. U.S. revenues increased 9 percent to $204.3 million, driven by increased volume. Revenues outside the U.S. remained relatively flat at $128.0 million.

Forteo
Second-quarter 2016 revenues of Forteo were $367.6 million, a 12 percent increase compared with the second quarter of 2015. U.S. revenues of Forteo increased 29 percent to $186.4 million, driven by higher realized prices. Revenues outside the U.S. decreased 1 percent to $181.2 million, driven by lower realized prices, largely offset by increased volume and the favorable impact of foreign exchange rates.

New Pharmaceutical Products
Trulicity
Second-quarter 2016 revenues of Trulicity were $201.3 million. U.S. revenues of Trulicity were $161.4 million, driven by growth in the GLP-1 market and increased share of market for Trulicity. Revenues of Trulicity outside the U.S. were $39.9 million.

Cyramza
For the second quarter of 2016, Cyramza revenues were $147.0 million. U.S. revenues were $67.9 million, a decrease of 4 percent compared with the second quarter of 2015, due to competitive pressure in the non-small cell lung cancer indication. Revenues outside the U.S. were $79.1 million, primarily due to strong uptake for the gastric cancer indication in Japan.

Jardiance
The company’s revenues for Jardiance during the second quarter of 2016 were $40.1 million. U.S. revenues were $26.0 million, driven by growth in the SGLT2 class and increased share of market for Jardiance. Revenues outside the U.S. were $14.1 million. Jardiance is part of the company’s alliance with Boehringer Ingelheim, and Lilly reports as revenue a portion of Jardiance’s gross margin.

Basaglar
Second-quarter 2016 revenues of Basaglar, which has launched in multiple countries outside the U.S., were $16.3 million, driven by early uptake in Japan and various European countries.

Taltz
For the second quarter of 2016, Taltz revenues were $19.3 million. Taltz launched in the U.S. in April 2016.

Portrazza
For the second quarter of 2016, Portrazza revenues were $4.0 million. Portrazza launched in the U.S. in December 2015 and began launching in Europe in April 2016.

Animal Health
In the second quarter of 2016, worldwide animal health revenues totaled $859.8 million, an increase of 2 percent compared with the second quarter of 2015. U.S. animal health revenues increased 8 percent to $444.5 million, due to wholesaler buying patterns and uptake of new companion animal products, partially offset by decreased revenues for food animal products. Animal health revenues outside the U.S. decreased 3 percent to $415.3 million, primarily due to the unfavorable impact of foreign exchange rates. Excluding the unfavorable impact of foreign exchange rates, worldwide animal health revenues increased 4 percent.

2016 Financial Guidance

The company confirmed its 2016 financial guidance on a reported basis and on a non-GAAP basis, consistent with the explanations provided in the company’s first-quarter 2016 earnings press release.

Full-year 2016 earnings per share are still expected to be in the range of $2.68 to $2.78 on a reported basis. On a non-GAAP basis, full-year 2016 earnings per share are still expected to be in the range of $3.50 to $3.60.

2016
Expectations

Earnings per share (reported)
$2.68 to $2.78

Amortization of intangible assets
.42

Asset impairment, restructuring and other special charges, including
Novartis Animal Health integration costs and closure of an animal
health manufacturing facility in Ireland
.21

Venezuela charge
.19

Earnings per share (non-GAAP)
$3.50 to $3.60

Numbers may not add due to rounding.

The following table summarizes the company’s 2016 financial guidance:

2016 Guidance

Revenue
$20.6 to $21.1 billion

Gross Margin % of Revenue (reported)
Approx. 73%
Gross Margin % of Revenue (non-GAAP)
Approx. 76%

Marketing, Selling & Administrative
$6.1 to $6.3 billion

Research & Development
$4.9 to $5.1 billion

Other Income/(Expense) (reported)
$(200 million) to $(125 million)
Other Income/(Expense) (non-GAAP)
$0 to $75 million

Tax Rate
Approx. 21.0%

Earnings per share (reported)
$2.68 to $2.78
Earnings per share (non-GAAP)
$3.50 to $3.60

Capital Expenditures
Approx. $1.1 billion

Non-GAAP adjustments are consistent with the earnings per share table above.

On July 26, 2016 Eli Lilly and Company (NYSE: LLY) reported financial results for the second quarter of 2016 (Press release, Eli Lilly, JUL 26, 2016, View Source [SID:1234514028]).

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$ in millions, except per share data
Second Quarter
%

2016
2015
Change
Revenue – Reported
$
5,404.8
$
4,978.7
9
%
Net Income – Reported
747.7
600.8
24
%
EPS – Reported
0.71
0.56
27
%

Net Income – non-GAAP
908.8
954.8
(5)
%
EPS – non-GAAP
0.86
0.90
(4)
%

Certain financial information for 2016 and 2015 is presented on both a reported and a non-GAAP basis. Some numbers in this press release may not add due to rounding. Reported results were prepared in accordance with generally accepted accounting principles (GAAP) and include all revenue and expenses recognized during the periods. Non-GAAP measures exclude the items described in the reconciliation tables later in the release. The company’s 2016 financial guidance is also being provided on both a reported and a non-GAAP basis. The non-GAAP measures are presented to provide additional insights into the underlying trends in the company’s business.

“Lilly is in the midst of one of the most productive periods of new product launches in our company’s history, with new medicines making a substantial contribution to our revenue growth for the first half of the year,” said John C. Lechleiter, Ph.D., Lilly’s chairman, president and chief executive officer.

Lechleiter continued, “We’ve made great progress building an R&D engine that has the potential to launch 20 new products in 10 years beginning in 2014 and extending through 2023. Because of our confidence in our future growth prospects, we are providing updated financial expectations through the balance of the decade, including at least 5 percent average annual revenue growth driven by volume and an increase in gross margin as a percent of revenue. We are also returning to annual dividend increases for shareholders and reaffirming our commitment to achieve an OPEX-to-revenue ratio of 50 percent or less in 2018.”

Key Events Over the Last Three Months

Commercial

The company is launching Taltz in Europe for the treatment of moderate-to-severe plaque psoriasis in adults who are candidates for systemic therapy.
Elanco Animal Health launched InteprityTM, a first-in-class, animal-use only, in-feed antibiotic approved for the prevention of necrotic enteritis, an intestinal disease in poultry.
Regulatory

The U.S. Food and Drug Administration (FDA) approved once-daily Jentadueto XR (linagliptin and metformin hydrochloride extended-release) tablets as an adjunct to diet and exercise for the treatment of type 2 diabetes in adults. Jentadueto XR is part of the company’s alliance with Boehringer Ingelheim.

The company received approval of Cyramza in Japan for the treatment of:
unresectable, advanced or recurrent colorectal cancer; and
unresectable, advanced or recurrent non-small cell lung cancer for patients who have received prior platinum therapy.

The company received approval of Taltz in Japan for the treatment of patients with plaque psoriasis, psoriatic arthritis, pustular psoriasis and erythrodermic psoriasis after insufficient response to existing treatments.

The FDA granted Priority Review for olaratumab in combination with doxorubicin, for the potential treatment of people with advanced soft tissue sarcoma not amenable to curative treatment with radiotherapy or surgery.

An FDA Advisory Committee voted 12-11 that substantial evidence exists to establish that Jardiance (empagliflozin) reduces cardiovascular (CV) death in adults with type 2 diabetes and established CV disease. Jardiance is marketed by Boehringer Ingelheim and Lilly.

The FDA determined that the company met the requirements for pediatric exclusivity for Effient. Based on this decision by the FDA, Lilly has gained an additional six months of U.S. market exclusivity for Effient.
Clinical

The company announced results from the Phase 2 study of abemaciclib, a cyclin-dependent kinase CDK 4 and CDK 6 inhibitor, in patients with hormone-receptor-positive, human epidermal growth factor receptor 2-negative metastatic breast cancer. The data showed single-agent activity in metastatic breast cancer patients for whom endocrine therapy was no longer a suitable treatment option.

The company and Incyte Corporation announced data from a pivotal long-term extension study, which demonstrated baricitinib was superior to placebo at inhibiting progressive radiographic joint damage in patients with rheumatoid arthritis.

The company and Boehringer Ingelheim announced clinical results on two jointly marketed medicines:
Results from a clinical trial demonstrated that Trajenta (linagliptin) reduced blood sugar in adults with type 2 diabetes who are at risk for kidney impairment, with a renal safety profile similar to that seen in other trials.

New data showed Jardiance reduced the risk for new-onset or worsening kidney disease by 39 percent versus placebo when added to standard of care in adults with type 2 diabetes with established cardiovascular disease.
Business Development/Other

The German Federal Supreme Court granted the appeal by the company in the case of Lilly v. Actavis, vacating the prior decision denying infringement. The German Supreme Court returned the case to the Court of Appeal (Dusseldorf) to reconsider infringement based on its judgment. The case concerns whether Lilly’s vitamin regimen patent for Alimta (pemetrexed disodium) would be infringed by a generic competitor that had stated an intention to market a dipotassium salt form of pemetrexed in Germany.

Elanco Animal Health and EnBiotix, Inc. announced a collaboration to explore the application of EnBiotix’s engineered phage technology in specific animal health targets, which could result in alternatives for traditional antibiotics in animals.
Second-Quarter Reported Results

In the second quarter of 2016, worldwide revenue was $5.405 billion, an increase of 9 percent compared with the second quarter of 2015. The increase in revenue was driven by an 8 percent increase in volume, as realized prices and the impact of foreign exchange rates remained relatively flat, compared with the second quarter of 2015. The increase in worldwide volume was driven by new pharmaceutical products, including Trulicity and Cyramza, as well as Humalog. Revenue in the U.S. increased 14 percent to $2.890 billion, primarily driven by increased volume for several pharmaceutical products, including Trulicity and Humalog, and to a lesser extent, higher realized prices, primarily for Cialis and Forteo , partially offset by lower realized prices for Humalog. Revenue outside the U.S. increased 3 percent to $2.515 billion, driven by increased volume for several pharmaceutical products, primarily Cyramza, Trulicity and Humalog, partially offset by the loss of exclusivity for Cymbalta in Europe in 2014.

Gross margin increased 5 percent to $3.940 billion in the second quarter of 2016 compared with the second quarter of 2015. Gross margin as a percent of revenue was 72.9 percent, a decrease of 2.6 percentage points compared with the second quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold and, to a lesser extent, the transfer of Erbitux commercialization rights in North America, partially offset by 2015 inventory step-up costs related to the acquisition of Novartis Animal Health.

Operating expenses in the second quarter of 2016, defined as the sum of research and development and marketing, selling and administrative expenses, were $2.959 billion, an increase of 5 percent compared with the second quarter of 2015. Research and development expenses increased 14 percent to $1.336 billion, driven primarily by higher late-stage clinical development costs, including a $100.0 million charge related to a development milestone for AZD3293, an oral beta secretase cleaving enzyme (BACE) inhibitor currently in development with AstraZeneca as a potential treatment for early Alzheimer’s disease. Marketing, selling and administrative expenses decreased 1 percent to $1.623 billion, primarily due to lower litigation expenses and reduced spending on late-life-cycle products, partially offset by expenses related to new products.

There were no acquired in-process research and development charges in the second quarter of 2016. In the second quarter of 2015, the company recognized acquired in-process research and development charges totaling $80.0 million. These charges included a $50.0 million payment to Hanmi Pharmaceutical Co., Ltd. (Hanmi), related to an exclusive license and collaboration agreement for Hanmi’s oral Bruton’s tyrosine kinase (BTK) inhibitor for the treatment of autoimmune and other diseases, and a $30.0 million payment to BioNTech AG related to a research collaboration to discover novel cancer immunotherapies.

The company recognized asset impairment, restructuring and other special charges of $58.0 million and $72.4 million in the second quarters of 2016 and 2015, respectively, related to integration costs for Novartis Animal Health, severance costs and asset impairments.

Operating income in the second quarter of 2016 was $923.3 million, an increase of 15 percent compared with the second quarter of 2015, driven by higher gross margin and lower acquired in-process research and development charges, partially offset by higher operating expenses.

Other income (expense) was income of $21.2 million in the second quarter of 2016, compared with expense of $123.3 million in the second quarter of 2015. Other expense during the second quarter of 2015 was driven by a net charge of $152.7 million related to the repurchase of $1.65 billion of debt.

The effective tax rate was 20.8 percent in the second quarter of 2016, compared with 11.6 percent in the second quarter of 2015. The increase in the effective tax rate for the second quarter of 2016 as compared with the second quarter of 2015 is primarily due to the tax impact of 2015 charges, including a net charge related to the repurchase of debt; asset impairment, restructuring and other special charges; and acquired in-process research and development charges.

In the second quarter of 2016, net income increased 24 percent to $747.7 million, and earnings per share increased 27 percent to $0.71, compared with $600.8 million and $0.56, respectively, in the second quarter of 2015. The increases in net income and earnings per share were driven by 2015 charges related to the repurchase of debt, as well as higher operating income, partially offset by higher income taxes. Earnings per share also benefited from a lower number of shares outstanding in the second quarter of 2016 compared with the second quarter of 2015.

Second-Quarter 2016 Non-GAAP Measures
On a non-GAAP basis, second-quarter 2016 gross margin increased 4 percent to $4.106 billion. Gross margin as a percent of revenue was 76.0 percent, a decline of 3.2 percentage points compared with the second quarter of 2015. The decline in gross margin percent was primarily due to a lower benefit from foreign exchange rates on international inventories sold.

Operating income decreased $25.8 million, or 2 percent, to $1.150 billion in the second quarter of 2016, driven by higher operating expenses, largely offset by higher gross margin.

Other income (expense) was income of $21.2 million in the second quarter of 2016, compared with income of $29.4 million in the second quarter of 2015.

The effective tax rate was 22.4 percent in the second quarter of 2016, compared with 20.8 percent in the second quarter of 2015. The second-quarter 2016 effective tax rate reflects the benefit of certain U.S. tax provisions, including the R&D tax credit, reinstated for 2016, largely offset by the tax impact of an increased percentage of earnings in higher-tax jurisdictions. The second-quarter 2015 effective tax rate includes a net discrete tax benefit of approximately $24 million and does not include the benefit of certain then-expired U.S. tax provisions, including the R&D tax credit.

Net income decreased 5 percent to $908.8 million, and earnings per share decreased 4 percent to $0.86 in the second quarter of 2016, compared with $954.8 million and $0.90, respectively, in the second quarter of 2015. The declines in net income and earnings per share were driven by lower operating income and a higher effective tax rate. Earnings per share benefited from a lower number of shares outstanding in the second quarter of 2016 compared with the second quarter of 2015.

For further detail of non-GAAP measures, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this press release.

Second Quarter

2016
2015
% Change
Earnings per share (reported)
$
0.71
$
0.56
27%
Amortization of intangible assets
.11
.10

Asset impairment, restructuring and other special charges
.04
.05

Acquired in-process research and development
—
.05

Net charge related to repurchase of debt
—
.09

Novartis Animal Health inventory step-up
—
.05

Earnings per share (non-GAAP)
$
0.86
$
0.90
(4)%

Numbers may not add due to rounding.

Year-to-Date Results
For the first six months of 2016, worldwide revenue increased 7 percent to $10.270 billion compared with $9.623 billion in the same period in 2015. Reported net income and earnings per share were $1.188 billion and $1.12, respectively. Net income and earnings per share, on a non-GAAP basis, were $1.791 billion and $1.69, respectively.

For further detail, see the reconciliation below as well as the Reconciliation of GAAP Reported to Selected Non-GAAP Adjusted Information table later in this release.

Year-to-Date

2016
2015
% Change
Earnings per share (reported)
$
1.12
$
1.06
6%
Amortization of intangible assets
.22
.20

Asset impairment, restructuring and other special charges
.16
.12

Acquired in-process research and development
—
.20

Venezuela charge
.19
—

Net charge related to repurchase of debt
—
.09

Novartis Animal Health inventory step-up
—
.09

Earnings per share (non-GAAP)
$
1.69
$
1.76
(4)%

Numbers may not add due to rounding.

Select Revenue Highlights

(Dollars in millions)

Second Quarter

Year-to-Date

Established
Pharmaceutical
Products
2016

2015

% Change

2016

2015

% Change

Humalog
$
701.9

$
654.3

7%

$
1,308.2

$
1,338.2

(2)%

Cialis
630.5

567.9

11%

1,207.2

1,106.2

9%

Alimta
607.1

664.3

(9)%

1,171.3

1,237.4

(5)%

Humulin
332.3

316.4

5%

688.7

632.1

9%

Forteo
367.6

328.4

12%

686.3

621.4

10%

Cymbalta
236.5

274.1

(14)%

435.2

561.1

(22)%

Zyprexa
210.7

253.7

(17)%

423.4

473.2

(11)%

Strattera
224.6

191.8

17%

412.7

365.5

13%

Erbitux
180.6

134.6

34%

348.6

222.8

56%

Effient
135.1

128.8

5%

266.6

250.6

6%

New
Pharmaceutical
Products

Trulicity
201.3

44.3

NM

344.9

62.6

NM

Cyramza
147.0

87.7

68%

278.0

155.2

79%

Jardiance(a)
40.1

11.1

NM

78.3

30.3

NM

Basaglar
16.3

—

NM

27.2

—

NM

Taltz
19.3

—

NM

19.3

—

NM

Portrazza
4.0

—

NM

5.7

—

NM

Animal Health
859.8

840.8

2%

1,614.4

1,590.5

1%

Total Revenue
5,404.8

4,978.7

9%

10,269.9

9,623.4

7%

(a) Jardiance includes Glyxambi and Synjardy
NM – not meaningful

Certain Established Pharmaceutical Products

Humalog
For the second quarter of 2016, worldwide Humalog revenues increased 7 percent compared with the second quarter of 2015 to $701.9 million. Revenues in the U.S. increased 5 percent to $420.0 million, driven by increased demand, partially offset by lower realized prices. Revenues outside the U.S. increased 11 percent to $281.9 million, primarily driven by increased volume, partially offset by the unfavorable impact of foreign exchange rates.

Cialis
Cialis revenues for the second quarter of 2016 increased 11 percent compared with the second quarter of 2015 to $630.5 million. U.S. revenues of Cialis were $383.2 million, a 24 percent increase compared with the second quarter of 2015, driven primarily by higher realized prices and, to a lesser extent, increased volume. Revenues of Cialis outside the U.S. decreased 4 percent to $247.3 million, driven by the unfavorable impact of foreign exchange rates and decreased volume.

Alimta
For the second quarter of 2016, Alimta generated revenues of $607.1 million, a decline of 9 percent compared with the second quarter of 2015. U.S. revenues of Alimta decreased 12 percent to $291.0 million, driven primarily by decreased demand due to competitive pressure. Revenues outside the U.S. decreased 5 percent to $316.1 million, driven by decreased volume and lower realized prices, partially offset by the favorable impact of foreign exchange rates.

Humulin
Worldwide Humulin revenues for the second quarter of 2016 increased 5 percent compared with the second quarter of 2015 to $332.3 million. U.S. revenues increased 9 percent to $204.3 million, driven by increased volume. Revenues outside the U.S. remained relatively flat at $128.0 million.

Forteo
Second-quarter 2016 revenues of Forteo were $367.6 million, a 12 percent increase compared with the second quarter of 2015. U.S. revenues of Forteo increased 29 percent to $186.4 million, driven by higher realized prices. Revenues outside the U.S. decreased 1 percent to $181.2 million, driven by lower realized prices, largely offset by increased volume and the favorable impact of foreign exchange rates.

New Pharmaceutical Products
Trulicity
Second-quarter 2016 revenues of Trulicity were $201.3 million. U.S. revenues of Trulicity were $161.4 million, driven by growth in the GLP-1 market and increased share of market for Trulicity. Revenues of Trulicity outside the U.S. were $39.9 million.

Cyramza
For the second quarter of 2016, Cyramza revenues were $147.0 million. U.S. revenues were $67.9 million, a decrease of 4 percent compared with the second quarter of 2015, due to competitive pressure in the non-small cell lung cancer indication. Revenues outside the U.S. were $79.1 million, primarily due to strong uptake for the gastric cancer indication in Japan.

Jardiance
The company’s revenues for Jardiance during the second quarter of 2016 were $40.1 million. U.S. revenues were $26.0 million, driven by growth in the SGLT2 class and increased share of market for Jardiance. Revenues outside the U.S. were $14.1 million. Jardiance is part of the company’s alliance with Boehringer Ingelheim, and Lilly reports as revenue a portion of Jardiance’s gross margin.

Basaglar
Second-quarter 2016 revenues of Basaglar, which has launched in multiple countries outside the U.S., were $16.3 million, driven by early uptake in Japan and various European countries.

Taltz
For the second quarter of 2016, Taltz revenues were $19.3 million. Taltz launched in the U.S. in April 2016.

Portrazza
For the second quarter of 2016, Portrazza revenues were $4.0 million. Portrazza launched in the U.S. in December 2015 and began launching in Europe in April 2016.

Animal Health
In the second quarter of 2016, worldwide animal health revenues totaled $859.8 million, an increase of 2 percent compared with the second quarter of 2015. U.S. animal health revenues increased 8 percent to $444.5 million, due to wholesaler buying patterns and uptake of new companion animal products, partially offset by decreased revenues for food animal products. Animal health revenues outside the U.S. decreased 3 percent to $415.3 million, primarily due to the unfavorable impact of foreign exchange rates. Excluding the unfavorable impact of foreign exchange rates, worldwide animal health revenues increased 4 percent.

2016 Financial Guidance

The company confirmed its 2016 financial guidance on a reported basis and on a non-GAAP basis, consistent with the explanations provided in the company’s first-quarter 2016 earnings press release.

Full-year 2016 earnings per share are still expected to be in the range of $2.68 to $2.78 on a reported basis. On a non-GAAP basis, full-year 2016 earnings per share are still expected to be in the range of $3.50 to $3.60.

2016
Expectations

Earnings per share (reported)
$2.68 to $2.78

Amortization of intangible assets
.42

Asset impairment, restructuring and other special charges, including
Novartis Animal Health integration costs and closure of an animal
health manufacturing facility in Ireland
.21

Venezuela charge
.19

Earnings per share (non-GAAP)
$3.50 to $3.60

Numbers may not add due to rounding.

The following table summarizes the company’s 2016 financial guidance:

2016 Guidance

Revenue
$20.6 to $21.1 billion

Gross Margin % of Revenue (reported)
Approx. 73%
Gross Margin % of Revenue (non-GAAP)
Approx. 76%

Marketing, Selling & Administrative
$6.1 to $6.3 billion

Research & Development
$4.9 to $5.1 billion

Other Income/(Expense) (reported)
$(200 million) to $(125 million)
Other Income/(Expense) (non-GAAP)
$0 to $75 million

Tax Rate
Approx. 21.0%

Earnings per share (reported)
$2.68 to $2.78
Earnings per share (non-GAAP)
$3.50 to $3.60

Capital Expenditures
Approx. $1.1 billion

Non-GAAP adjustments are consistent with the earnings per share table above.