Highbridge Capital exits position in Eli Lilly

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Highbridge Capital Management and Eli Lilly

Highbridge Capital traded notable positions in the second quarter. It initiated new stakes in Valeant Pharmaceuticals (or VRX), International Business Machines (or IBM), PVH Corp. (PVH), and Tyson Foods Inc. (or TSN). During 2Q14, the fund also sold its shares in Celgene Corp. (CELG), FirstEnergy Corp. (FE), Advance Auto Parts Inc. (AAP), and Eli Lilly & Co. (LLY).

LLY

Highbridge Capital exited its position in Eli Lilly & Co. (LLY). Eli Lilly & Co. accounted for 0.47% of the fund’s first quarter portfolio.

Company overview

Eli Lilly & Co. is a drug manufacturing company. It discovers, develops, manufactures, and sells products in two business segments:

  1. human pharmaceutical products
  2. animal health products

Its human pharmaceutical products include endocrinology, neuroscience, oncology, and cardiovascular products. The animal health business operates through the Elanco division. It develops, manufactures, and markets products for food animals and companion animals.

In 2013, Eli Lilly’s revenue growth was driven by several products. The products include its cardiovascular product—Cialis, endocrinology products—Humalog, Trajenta, and Forteo, oncology product—Alimta, and animal health products.

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Recently, the company has been facing a revenue decrease due to the loss of U.S. patent exclusivity for its blockbuster drugs—Cymbalta, in December 2013, and Evista, in March 2014. Cymbalta is used to treat major depressive disorders, diabetic peripheral neuropathic pain, and generalized anxiety disorder. In the U.S., it’s used to treat chronic musculoskeletal pain. It’s also used to manage fibromyalgia. Evista is used to treat and prevent osteoporosis.

Revenue and earnings decline 

Although 2Q14 results beat estimates, Eli Lilly posted a 17% decline in revenue. The decline was driven by the impact of the U.S. patent expiration for Cymbalta and Evista. Net income and earnings per share (or EPS) decreased 39% to $733.5 million and $0.68, respectively—compared to 2Q13 net income of $1.206 billion and EPS of $1.11. However, the company saw volume gains for several other products such as Alimta and Humalog. Alimta is a treatment for various cancers. Humalog treats diabetes.

Acquisitions drove growth in animal health division

In 2Q14, increased volume mainly drove Eli Lilly’s worldwide animal health sales to $601.2 million. The sales increased 11% compared to 2Q13. U.S. animal health sales increased 3% to $331.8 million. It was driven by increased demand for food animal products.

In its earnings release, the company said that it’s in the process of completing the Novartis Animal Health acquisition by the end of 1Q15. It will help position Elanco to become the world’s second largest animal health company. The $5.4 billion acquisition was announced in April.

Eli Lilly also completed the Lohmann SE—Lohmann Animal Health—acquisition. It’s a privately held company. It’s headquartered in Cuxhaven, Germany. Lohmann Animal Health is a global leader in supplying poultry vaccines. It also markets a range of feed additives. The acquisition contributed four percentage points to the growth in worldwide animal health sales for 2Q14.

Full year EPS outlook revised

For the full year, Eli Lilly expects EPS on a reported basis to be between $2.67–$2.75. This was revised from an earlier outlook of $2.70–$2.78. The company anticipates 2014 revenue to be between $19.4–$20 billion.

Growth outlook

Although patent expiration impacted sales, the company said it expects growth from a portfolio of other current products—including Humalog, Trajenta, Cialis, Forteo, and Alimta. It also expects growth from the animal health business and new product launches.

The company said it launched Cyramza in the U.S. as a single-agent treatment for patients with advanced or metastatic gastric cancer or gastroesophageal junction (or GEJ) adenocarcinoma.

In July, it also announced a co-discovery and co-development collaboration with Immunocore Limited to research and potentially develop novel T cell-based cancer therapies.

Strong revenue growth is also expected in China.

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