Lilly diabetes drugs, price hikes fuel 6% sales boost

Last quarter, Eli Lilly managed to up its earnings through raising prices and slashing its workforce. This quarter, the Indianapolis pharma giant ($LLY) built on that strategy while adding some higher revenues from diabetes products into the mix. But at least some analysts are skeptical whether Lilly can hang its hat on its diabetes franchise going forward.

Wednesday, Lilly reported third-quarter earnings that fell 9% to $1.11 a share. But that profit topped analyst estimates, and the company can thank a worldwide sales increase of 6% for at least some of that. Diabetes drugs drove the jump, with Humulin sales leaping 22% in the U.S. and Humalog revenues increasing by 6% at home and 8% abroad.

Lilly also managed to reduce costs again for the quarter, shedding 4% of its operating expenses. Crippled by the patent cliff last year as best-seller Zyprexa fell to generic competition, the company has worked to chip away at losses by cutting down on spending. And with new top-seller Cymbalta about to follow suit, Lilly has once again found itself staring down the barrel of a gun. July company-wide salary freezes followed May layoffs totaling 40% of Lilly's sales force. In October, the company announced $5 billion worth of share buybacks to help pull shareholders through the difficulties still to come.

As far as making up for the sales hit from Zyprexa, Lilly is almost in the clear, according to Goldman Sachs analyst Jami Rubin. "Most of the year-over-year impact from the patent cliff will subside this quarter," she wrote in a note seen by Bloomberg. She also noted that large pharma companies aren't getting the credit they deserve for pipeline products. Assuming FDA approval, Lilly has four new diabetes drugs slated to hit the market in 2014 and 2015, Bloomberg reports.

Those could provide a needed boost for Lilly, whose stock has fallen more than 4% within the last year. Still, Rubin, for one, is not convinced Lilly can ride its diabetes franchise into the sunset, especially with rival drugs from fellow heavyweights Merck ($MRK), Pfizer ($PFE) and Johnson & Johnson ($JNJ) in the works. "Lilly has a clinical program heavy in diabetes where differentiation and reimbursement are likely to be challenging," she said.

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