Lilly sales reel from Zyprexa loss, but Cymbalta offers aid

Eli Lilly ($LLY) wasn't alone in reporting a big decline in sales and a drop in profits this quarter. It's the only Big Pharma today, however, whose earnings didn't disappoint analysts. Thanks to unexpectedly strong growth for the antidepressant Cymbalta, profits fell less than expected--23% to $924 million.

That's faint praise, however; Lilly sales fell by 10%, to $5.6 billion. To put it in context with today's other reports, Lilly's decline was smaller than Bristol-Myers Squibb's ($BMY) 18% fall, but higher than GlaxoSmithKline's ($GSK) 2%.

The culprit: Zyprexa. Lilly's megablockbuster antipsychotic drug lost patent protection in October, and sales this quarter plummeted 73%, to $379.5 million. That dramatic drop was blamed for every negative in Lilly's Q2 report, from margin shrinkage to earnings per share pain.

As Bristol-Myers did with its big patent loss--Plavix--Lilly backed out Zyprexa sales for demonstration purposes. "If you take Zyprexa out of the equation, our underlying sales grew 8%," CEO John Lechleiter told Bloomberg.

The hero of underlying growth was Cymbalta, which saw sales increase by 22% to $1.22 billion. (Thanks to a recent exclusivity extension from FDA, the antidepressant can continue playing hero for six months longer next year.) Meanwhile, the bloodthinner Effient also chipped in, with 55% growth to $111 million in sales. And just as GlaxoSmithKline benefited from its consumer health business, Lilly found aid in animal health; its vet business grew by 32% to $512 million.

But it was Lilly's pledge to boost margins that really pleased analysts. The company predicted that margins would expand by 7% to 11%, ISI Group's Mark Schoenebaum wrote to investors today. "[T]he magnitude is impressive," Shoenebaum wrote, adding that it put Lilly more in line with its peers, margin-wise. "The key controversy remaining is: Can they really improve margins if the pipeline fails to deliver" Schoenebaum wrote. "So what if the revenue doesn't grow?"

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