Lilly Posts 2nd-Quarter Loss Due to Legal Woes
Jul. 22–It will cost Eli Lilly and Co. a whopping $1.07 billion to defuse the threat of thousands of Zyprexa product liability claims, the drug maker said Thursday in announcing its second-quarter results.
That’s about $300 million more than the company disclosed last month when it agreed to a settlement with Zyprexa trial lawyers.
While the costly settlement is expected to defuse the looming threat of Zyprexa lawsuits, the write-off was big enough to more than wipe out Lilly’s second-quarter profit. The company posted a $252 million loss for the quarter.
Without the write-off, the Indianapolis drug maker would have earned $728 million in the latest quarter, a 7 percent jump from the year-ago adjusted profit of $682 million.
The write-off includes the $690 million negotiated settlement with Zyprexa trial lawyers that was announced last month, plus another $380 million to cover Zyprexa claims not included in the agreement. A few other product-litigation settlements, which Lilly didn’t disclose, also were paid under the write-off.
The proposed settlement covers more than 8,000 people who say the company failed to warn them that Zyprexa, used to treat schizophrenia and manic depression, can cause weight gain that’s linked to diabetes. Many have already sued, and a trial in the case was set to begin in five months in a New York federal court.
“I’m hopeful that they can straighten out Zyprexa,” said Robert Hazlett, an analyst with SunTrust Robinson Humphrey. “And, if that’s the case, then we should be looking at robust earnings growth for several years to follow.”
Lilly said it expects that insurance product-liability coverage will pay part of the $1 billion write-off.
“What is not known is exactly how much insurance payments will be,” said company spokesman Philip Belt.
In March, Lilly sued five of its insurers in Marion Circuit Court for failing to reimburse Lilly for expenses to defend against Zyprexa claims and for future litigation payments. That case is pending.
“There have been no payments from insurers up to this point,” Belt said.
The Indianapolis drug maker’s quarterly loss of $252 million, or 23 cents per share, compared with a year-ago profit of $657 million, or 60 cents per share.
Total sales grew 3 percent in the quarter, to $3.67 billion.
Sales of Zyprexa fell 10 percent to $1.1 billion from $1.21 billion a year ago, but Lilly said Zyprexa’s U.S. sales have recently stabilized.
Revenue from the attention-deficit-disorder treatment Strattera, which recently received a new warning about side effects, plunged 31 percent to $123.5 million.
Drugs that did well include the bone-strengthening drug Forteo, with a 56 percent jump in sales, and the pancreatic cancer compound Gemzar, with a 17 percent increase in sales.
Lilly and partner Icos Corp. also reported a 39 percent increase in sales, to $191 million, for the male impotence pill Cialis. In its second year on the U.S. market, Cialis has nearly paid off its development and other costs and “is on the cusp of profitability,” the companies said.
Animal health products also did well, with sales bumping up 12 percent in the quarter, to $201 million.
Lilly forecast third-quarter earnings per share of 70 to 72 cents, and full-year earnings per share of $1.90 to $1.96, or $2.80 to $2.86 without the Zyprexa charge.
On average, analysts estimate earnings per share of 71 cents for the third quarter and $2.82 for the full year.
“We continue to expect sales and earnings growth acceleration in the second half of the year,” led by newer products, Lilly President Sidney Taurel said in a statement.
Lilly’s stock price fell $1.01 a share Thursday, to $56.25.
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