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Lilly beats forecast, cuts costs before Cymbalta fades

By Ransdell Pierson

(Reuters) - Eli Lilly and Co reported higher-than-expected quarterly earnings on Wednesday as it slashed costs ahead of generic competition later this year for its biggest product, antidepressant Cymbalta, and raised its 2013 profit view on plans for more streamlining.

Shares of Lilly rose almost 3 percent as investors viewed the cost containment for research, marketing and other expenses in the second half of this year as an important move.

"Management appears to be showing prudent cost discipline in anticipation of the Cymbalta patent cliff," ISI Group analyst Mark Schoenebaum said in a research note. The company cut 2 percent from its operating expenses in the second quarter.

Global sales of Cymbalta soared 22 percent in the second quarter to $1.5 billion, after having jumped 19 percent in the prior quarter. Sales of the pill are expected to plunge after it loses U.S. patent protection in December.

Lilly raised its 2013 earnings forecast to between $4.05 and $4.15 per share, excluding special items, from its earlier outlook of $3.82 to $3.97. It earned $3.39 per share last year.

The new 2013 profit forecast would represent growth of 19.5 to 22.5 percent from last year, when earnings sank on generic competition for another big product: Lilly's Zyprexa schizophrenia treatment.

Lilly said on Wednesday that it earned $1.21 billion, or $1.11 per share, in the second quarter. That compared with $924 million, or 83 cents per share, a year earlier.

Excluding costs of closing a distribution center in Germany and other special items, Lilly earned $1.16 per share. Analysts on average had forecast $1.00, according to Thomson Reuters I/B/E/S.

Revenue rose 6 percent to $5.93 billion, topping Wall Street expectations of $5.82 billion.

Lilly's 2013 profit upturn will be short-lived, however. Investors expect earnings to take a tumble of perhaps 25 percent in 2014, as generic versions of Cymbalta and osteoporosis drug Evista flood the market.

Sales of Evista rose 5 percent to $279 million. Sales of impotence treatment Cialis jumped 13 percent to $529 million.

With recent setbacks for Lilly's experimental treatments for cancer and Alzheimer's disease as well as the impending generic competition, investors remain cautious on the company. Its shares have risen 6.1 percent this year, lagging a 17 percent advance for the Arca Pharmaceutical Index of large U.S. and European drugmakers.

Lilly has expressed confidence that it would begin rebounding in 2015, helped by promising medicines in clinical trials. These include ramucirumab, for stomach and breast cancer, and treatments for diabetes.

Company officials, in a conference call with analysts on Wednesday, also cited high hopes for a new type of cholesterol drug that works by blocking a protein called PCSK9, saying early-stage trials suggest it could be the "best in class" among drugs being developed by a partnership of Regeneron Pharmaceuticals Inc and Sanofi SA, Amgen Inc and others.

"Going forward, we see the Lilly story focused on the company's late-stage pipeline" of experimental drugs, said JP Morgan analyst Chris Schott, who singled out ramucirumab trials in treating breast cancer.

Sales from Lilly's Elanco animal health products rose 6 percent to $544 million in the quarter. The company predicted Elanco's sales growth will continue to outpace competitors, and said Lilly is aggressively hunting for new deals to bolster the animal-health line of products.

Lilly shares were up 2.6 percent at $52.34 in midday trading on the New York Stock Exchange, off an earlier high at $52.68.

(Reporting by Ransdell Pierson in New York; editing by Lisa Von Ahn and Matthew Lewis)

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