Eli Lilly and Company announced financial results for the second quarter of 2017.
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Worldwide revenue was $5.824 billion, an increase of 8 percent compared with the second quarter of 2016.
The revenue increase was driven by a 5 percent increase due to volume and a 4 percent increase due to realized prices, partially offset by a 1 percent decrease due to the unfavorable impact of foreign exchange rates.
The increase in worldwide volume was largely due to 8 percent pharmaceutical growth driven by Trulicity and other new products, including Taltz, Basaglar, Jardiance, Lartruvo and Cyramza.
These volume increases were partially offset by decreased volumes for Cialis, Zyprexa, Alimta and Strattera. The increase in realized prices was primarily driven by Cialis and Forteo.
Revenue decreased for animal health products, despite the inclusion of $78.3 million in revenue from the acquisition of Boehringer Ingelheim Vetmedica's U.S. feline, canine and rabies vaccine portfolio.
Revenue in the U.S. increased 15 percent, to $3.324 billion, due to higher realized prices for several pharmaceutical products, primarily driven by Cialis and Forteo, and increased volume for new pharmaceutical products, driven by Trulicity, Taltz, Basaglar, Jardiance and Lartruvo.
The increase in revenue was partially offset by decreased volume for several established pharmaceutical products, including Cialis and Strattera, as well as decreased revenue for animal health products.
Revenue outside the U.S. decreased 1 percent, to $2.500 billion, due to the loss of exclusivity of Zyprexa in Japan and Cymbalta in Canada and Europe, as well as increased competition, lower realized prices and loss of exclusivity for Alimta in several countries.
The unfavorable impact of foreign exchange rates and decreases for food and companion animal products also contributed to lower revenue.
These declines were largely offset by increased volume for several new pharmaceutical products, including Trulicity and Cyramza.
Gross margin increased 8 percent, to $4.273 billion, in the second quarter of 2017 compared with the second quarter of 2016. Gross margin as a percent of revenue was 73.4 percent, an increase of 0.5 percentage points compared with the second quarter of 2016.
The increase in gross margin percent was primarily due to higher realized prices and manufacturing efficiencies, partially offset by negative product mix and higher expenses to support new pharmaceutical products.
Operating expenses in the second quarter of 2017, defined as the sum of research and development, and marketing, selling and administrative expenses, remained flat at $2.958 billion.
Research and development expenses decreased 6 percent, to $1.251 billion, or 21.5 percent of revenue.
This decrease was driven primarily by a $100.0 million charge in the second quarter of 2016, related to a development milestone for lanabecestat, 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 increased 5 percent, to $1.707 billion, due to increased expenses related to new pharmaceutical products, partially offset by decreased expenses related to late life-cycle products.
Operating expenses were 50.8 percent of revenue in the second quarter of 2017, a reduction of 3.9 percentage points compared with the second quarter of 2016, as a result of higher revenue and flat operating expenses.
In the second quarter of 2017, the company recognized asset impairment, restructuring and other special charges of $50.0 million.
The charges are primarily associated with integration costs and asset impairments related to the acquisition and integration of Novartis Animal Health.
In the second quarter of 2016, the company recognized asset impairment, restructuring and other special charges of $58.0 million, composed of integration costs, severance costs and asset impairments related to the acquisition and integration of Novartis Animal Health.
Operating income in the second quarter of 2017 was $1.264 billion, an increase of $341.1 million compared with the second quarter of 2016, primarily driven by higher gross margin.
Other income (expense) was expense of $3.9 million in the second quarter of 2017, compared with income of $21.2 million in the second quarter of 2016.
The effective tax rate was 20.0 percent in the second quarter of 2017, compared with 20.8 percent in the second quarter of 2016.
In the second quarter of 2017, net income increased 35 percent, to $1.008 billion, and earnings per share increased 34 percent, to $0.95, compared with $747.7 million and $0.71, respectively, in the second quarter of 2016.
The increases in net income and earnings per share were primarily driven by higher operating income. ■