Eli Lilly saw global revenue fall by 4% in the first quarter of 2012 after sales of its atypical antipsychotic drug Zyprexa decreased by more than half due to generic exposure.

Revenues totalled $5.6 billion as sales increased by 41% in China but flat lined in the US and decreased outside America by 9% after Zyprexa lost exclusivity in all major markets bar Japan.

John C. Lechleiter, Lilly’s Chairman, President and CEO, says the Q1 figures represent a “solid start” to the year and despite the Zyprexa losses “demonstrated strong underlying growth in other products and key regions”.

Lilly expects to lose in the region of more than $3bn in Zyprexa sales but still record revenue this year between $21.8bn and 22.8bn.

It hopes the reduction in revenue generated by Zyprexa will be offset by growth in other key brands such as Cymbalta, Humalog, Humulin and newer products including Effient and Axiron.

In the first three months of the year, Cymbalta generated sales of $1.1 billion, an increase of 23% on the same period in 2011. Alimta sales were up 5% to $606.8m, Humalog generated $590.3m and revenue for Cialis, Humulin, Forteo, Strattera and Effient also increased.

But it was the 56% loss of sales on Zyprexa which saw global revenue fall as the former blockbuster totalled $562.7m in Q1. Sales of Evista also dropped 4% to $256.2m in the quarter.

The Indianapolis-based company’s total operating expenses increased by 3% compared with the 2011 Q1 after it continued its R&D-based strategy.

“We strongly believe that our innovation-based strategy will enable Lilly to return to steady growth following a period of multiple patent expirations,” said John C. Lechleiter.

Global revenue increased 5% in 2011 at Eli Lilly to $24.2 billion after the company saw demand increase but net income fall 14% to $4.3bn.

Agreements to supply generic versions of Zyprexa and Gemzar helped reduce the impact after the two lost patent exclusivity and saw revenue in the US increase by one per cent to $12.9bn. Revenue outside the US increased 11% to $11bn.

Lilly says total revenue was reduced by approximately $410 million due to the impact of the US healthcare reforms and now predicts to lose billions of dollars in 2012 due to generic competition for Zyprexa.

In 2011, total operating expenses increased 8% and R&D expenses were up 3% to just over $5bn. Lilly also paid $316.4m in relation to severance costs after its restructuring.

Its operating income was down 15% to $5.5bn compared to 2010 after an increase in R&D charges as part of its diabetes collaboration with Boehringer Ingelheim, coupled with clinical trial costs, restructuring and lower gross margin per cent.

The loss of patent exclusivity on antipsychotic treatment Zyprexa saw global sales drop 8% to $4.6bn. Zyprexa lost its patent protection in the US in October, resulting in sales decreasing by 13%. Outside the US, where exclusivity was also lost in the majority of markets, sales fell 3% to $2.45bn. But in Japan, where its patent still stands, sales reached $540m.

Gemzar also suffered at the hands of generic competition for the first time as sales decreased by 61% to $452.1m. But the news was better for Alimta, Humalog, Cialis, Humulin, Evista, Forteo and Strattera, which all recorded improved sales in 2011.

Lilly also received royalties of $409.2 million from Erbitux, an increase of 6% on 2010; $422.7m from Byetta, a 2% loss compared with 2010; and $302.5m from sales of Effient.

But Lilly now anticipates that revenue will fall to between $21.8bn and $22.8bn next year after an expected decline of more than $3bn in Zyprexa sales due to its exposure to generic competition. It hopes the loss in revenue will be partially offset by growth in Cymbalta, Cialis, Humalog, Humulin and Forteo, as well as continued improvement in its newer products such as Effient, Axiron and Tradjenta.

Japan and Emerging Markets are expected to continue to post strong underlying growth. But overall revenue in these markets is also expected to be hit by pricing actions in Japan and the impact of patent expirations, including Zyprexa, in a number of countries in these regions.

Eli Lilly expects to lose $3bn in 2012 after its psychotic disorder drug Zyprexa lost its patent protection in a number of major markets.

But the company still expects to generate revenue of between $21.8bn and $22.8bn next year due to the growth of its key franchises and new products such as Effient, Axiron and Tradjenta.

John C. Lechleiter, Chairman, President and CEO, said 2012 is an “important year” for the company and revealed Lilly had been preparing for the loss of Zyprexa’s exclusivity to return to sustained growth in 2014.

Zyprexa’s exclusivity ended in most markets outside of Japan at the end of last year. Lilly hopes brands such as Cymbalta, Cialis, Humalog, Humulin and Forteo will offset the lost revenue generated by Zyprexa and has invested in its pipeline and brands with long standing exclusivity, and attempted to improve productivity levels to fund R&D and future growth.

“First and foremost, we are replenishing and advancing our pipeline,” said Mr Lechleiter. “We've successfully rebuilt our mid- to late-stage pipeline to position Lilly for growth post-2014, with 12 assets now in Phase III, exceeding our goal of 10 by the end of 2011. We continue to revamp our discovery efforts to ensure a more sustainable flow of innovation for the long-term.

“Second, we're investing to drive growth in the key brands that don't lose patent protection during this period and in our countercyclical growth engines that don't have the same cycle of patent expirations as our US and European pharmaceutical businesses. These include Japan, select emerging markets and our animal health business. Third, we continue to drive productivity gains across our business to fund the R&D necessary to fuel our future growth, recapitalise our physical assets and maintain our dividend at least at its current level.”

Within the company’s forecast it also anticipates that gross margin as a percentage of revenue will be approximately 77%; operating expenses will be essentially flat compared to 2011 as a result of ongoing productivity efforts; marketing, selling and administrative expenses are expected to be flat to declining; R&D expenses will be between $5bn and $5.3bn and operating cash flows of approximately $800m will fund capital expenditures, as well as the company’s business development activity and its dividends.

“We remain on track to meet or exceed the mid-term minimum financial performance outlined this past June,” said Derica Rice, Lilly Executive Vice President, Global Services and Chief Financial Officer. “From now through 2014, on an annual basis we still expect revenue to be at least $20 billion, net income to be at least $3 billion, and operating cash flow to be at least $4 billion.”