Lilly earnings powered by price hikes and layoffs

Eli Lilly's second-quarter earnings are up, but the company hasn't done it through rolling out new products or expanding its market. Bracing for the patent loss of top-seller Cymbalta, Lilly ($LLY) has implemented cost-cutting measures, slashed jobs and upped prices on the blockbuster antidepressant to do what drugmakers often do at the end of a patent's life: pump it for sales while they can.

Wednesday, the Indianapolis-based company reported earnings of $1.21 billion and 6% growth in worldwide revenue, topping Wall Street's expectations in both categories. Lilly also raised its EPS guidance for the year, taking it up to $4.05-$4.15 per share. The sales bump was thanks in no small part to Cymbalta. The drug's second-quarter sales reached nearly $1.5 billion, up 22% over the year-ago period. Profits for the drug won't be climbing much longer, however, as Cymbalta will face an onslaught of generic competition come December.

But Lilly has been here before. Its former best-seller, schizophrenia treatment Zyprexa, had 63% of its sales last year eaten by generic competition, and it ended 2012 having brought in just $360 million in the U.S., down from $2.17 billion in domestic revenue the year prior. So this time around, the company knows what to expect. In May, the pharma giant announced it would be shedding about 1,000 jobs, amounting to 40% of its U.S. sales force. And earlier in July, the company notified those left on the payroll--including execs--that it would be freezing their salaries, which it calculated would save about $400 million through 2016. Both moves were attributed to Cymbalta's upcoming loss of exclusivity.

The cost-cutting measures appear to be working, as the company trimmed 2% off its operating expenses for the quarter, Reuters reports. Analyst Mark Schoenebaum of ISI Group noted that it was lower expenses, not higher revenue, that was responsible for the brighter 2013 forecast. "Management appears to be showing prudent cost discipline in anticipation of the Cymbalta patent cliff," he wrote in a note.

Despite growing revenue for cancer drug Alimta and insulin drug Humalog, another upcoming patent cliff, this one for osteoporosis drug Evista in early 2014, means Lilly will have to rely on its pipeline for the rebound it needs. The company has faced late-stage failures for Alzheimer's disease and rheumatoid arthritis drugs, but it may fare better with its gamble on diabetes treatments. Lilly is riding on four new products in development, one of which could challenge Sanofi's ($SNY) Lantus. "Continued operating and financial discipline, along with a maturing pipeline of potential new medicines, gives me great confidence in the company's ability to meet the challenges we face from upcoming patent expirations and to resume growth after 2014," CEO John Lechleiter said in a statement.

- here's the earning release
- get more from Reuters
- see Bloomberg's take

Special Report: Cymbalta - Top 15 drug patent losses for 2013