Lilly & Co. (LLY) Q1 2011 Earnings Call April 18, 2011 9:00 am ET
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Eli Lilly & Co. Q1 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Vice President of Investor Relations, Mr. Phil Johnson. Please go ahead.
Phil Johnson
Good morning, and thanks for joining us for Eli Lilly and Co.'s first quarter 2011 earnings conference call. I'm Phil Johnson, Vice President of Investor Relations.
Joining me today are our Chief Financial officer, Derica Rice; our President of Lilly Research Laboratories, Dr. Jan Lundberg; our President of Elanco Animal Health, Jeff Simmons; and Ronika Pletcher; and Jill Thoren from Investor Relations.
Today's Q1 earnings call coincides with our annual shareholder meeting. As a result, our CEO, John Lechleiter is not available to participate in today's call.
During this conference call, we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to number of factors, including those listed on Slide 3 and those outlined in our latest Forms 10-K and 10-Q filed with the Securities and Exchange Commission. The information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions.
Since the Q4 earnings call in late January, we've continued to bolster our operations through business development, to leverage our marketed products and to advance our pipeline. We announced our offer to acquire the Animal Health business of Janssen Pharmaceutica from Johnson & Johnson. This business is primarily European-focused, targeting disease segments in companion animals and livestock, with special emphasis on swine and poultry. Upon deal closing, which is expected by mid-year, we would obtain a portfolio of roughly 50 marketed Animal Health products.
Here in the U.S., we began active promotion for Cymbalta for the management of chronic musculoskeletal pain and we launched Axiron, the first and only testosterone replacement therapy applied to the underarm. On the regulatory front, we submitted our response to the FDA's Complete Response Letter for the use of Erbitux in first-line head and neck cancer.
We received a Complete Response Letter from the FDA for florbetapir, our PET imaging agent being studied for the detection of beta-amyloid plaque. We are working closely with the FDA to address their questions on the reader training program to ensure reader accuracy and consistency of interpretations of beta-amyloid plaque images.
Late last week, we also received a Complete Response Letter from the FDA for liprotamase, a pancreatic enzyme replacement therapy, and we'll be working diligently to address the agency's questions.
In Europe, we submitted our application for the use of Alimta induction treatment followed by Alimta maintenance treatment in advanced nonsquamous, non-small cell lung cancer. And also in Europe, we recently received the CHMP recommendation for approval of Bydureon for the treatment of type 2 diabetes. Based on this recommendation, we anticipate receiving EC approval by late June.
On the clinical front, we disclosed positive top line results for the Phase II trial of the once-monthly formulation of exenatide. We plan to meet with the regulatory authorities to determine next steps for this program. We also disclosed top line results of the Phase III DURATION-6 trial comparing Bydureon to the highest approved dose of Victoza. Bydureon demonstrated a robust reduction on HbA1c from baseline. However, it did not meet the primary endpoint of noninferiority to Victoza 1.8 milligram in the reduction of HbA1c. Additional data from the trial is planned to be disclosed at a later date. And we began the first Phase III trial for our mGlu2/3 prodrug for schizophrenia.
Lastly, on the legal front, Lilly received a favorable ruling on the Cymbalta patent challenge. Wockhardt voluntarily consented to entry of judgment in favor of Lilly on all pending issues, which the judge so ordered. The judge asked the remaining parties to indicate if they intend to proceed to trial and all nine defendants failed to indicate that they intend to proceed. As a result, we remain of the view that there will be no generic duloxetine product coming to market until the Cymbalta patent expires. However, a trial date remained on the court's docket for June of this year. A meeting with the court, Lilly and the defendants will be held later this month to determine next steps in this litigation.
While not specific to Lilly, perhaps one of the most notable events since our last earnings call was the disaster in Japan caused by the March 11 earthquake and its aftermath. Because Japan is such a big part of our growth strategy, I'd like to provide you with some details. First and foremost, we were relieved that within hours we were able to account for the safety of all Lilly Japan employees. We're also proud of the support, both monetary and product donations that Lilly Japan, the Lilly Foundation and Eli Lilly & Co. have provided to help those affected by this strategy.
From a business perspective, our Japanese affiliate headquarters and development center of excellence are located in Kobe, and we have a manufacturing plant in Seishin just outside of Kobe. These operations are approximately 500 miles southwest of the disaster zone. As a result, we had no damages or other issues at these sites.
In terms of product supply, we've encountered no issues getting manufacturing products into or out of Japan. And we have not had and do not anticipate having any issue with the supply of raw materials, intermediate or finished product from our Japanese suppliers. Prior to the earthquake, we had robust inventory levels throughout our supply chain for materials sourced from Japan.
In terms of domestic sales, we did receive what appeared to have been precautionary orders from customers totaling $30 million to $35 million in the quarter. We expect that this will wash out in future quarters.
Our thoughts are with the Japanese people in what will surely be a long and difficult recovery. We'll continue to provide them our support, and we'll continue to ensure that Lilly products reach the patients who need them.
Now at this background, Ronika will discuss our Q1 financial results and provide our pipeline update, and Derica will cover key events for the remainder of 2011 and our financial guidance for the year. Ronika?
Ronika Pletcher
Thanks, Phil. As we've done on our previous calls, we'll focus our comments on non-GAAP results, which we believe provide insights into our underlying trends in our business. This view excludes certain items such as restructuring charges, asset impairments and other special charges. I'll start on Slide 7 with a quick look at our Q1 income statement.
On a non-GAAP basis, you can see that we generated solid revenue growth of 6% this quarter. Excluding Gemzar outside of Japan and the effect of the U.S. health care reform, revenue would have grown 10%. Gross margin as a percentage of revenue increased slightly from 79.5% to 79.8%.
Operating expenses defined as a sum of R&D and SG&A grew 10% this quarter. Drivers for the increase included: higher administrative expenses, driven by the pharmaceutical manufacturers fee associated with the U.S. health care reform and higher litigation expenses; higher marketing and selling expenses driven by o U.S. investments primarily in the emerging markets; and higher R&D expense due primarily to increased late-stage clinical trials expenses.
In addition, both SG&A and R&D expenses increased due to the BI [Boehringer Ingelheim] alliance. Excluding the effect of U.S. health care reform and the BI alliance, operating expenses would have grown 7%. Other income and deductions was a net expense this year compared to net income last year. You may remember that we had substantial income in Q1 2010 related to the recovery of damages from generic olanzapine marketers in Germany and from gains on the sales of securities acquired in the ImClone acquisition.
Our tax rate was 20.9% this quarter, considerably lower than 27.3% from last year's Q1. Last year's Q1 rate included an $85.1 million charge related to the future taxation of the retiree drug subsidy and did not benefit from the R&D tax credit as it had left. This year, we did benefit from the R&D tax credit, as well as from the resolution of certain IRS tax matters.
At the bottom line, our non-GAAP EPS increased 5% to $1.24. As indicated, Lilly provided the 2011 guidance in January, we felt robust EPS growth in our business in Q1 excluding U.S. health care reform, the effect of the Gemzar patent exploration outside of Japan and investments related to the BI diabetes alliance. Excluding these items, EPS would have grown low double digits.
Slide 8 shows our reported income statement while Slide 9 provides reconciliation between reported and non-GAAP EPS. Additional details about our reported earnings are available in today's earnings press release.
Now let's look at how foreign exchange affected our Q1 revenue. As you can see on Slide 10, total revenue growth of 6% was driven by solid volume growth of 5% and foreign exchange contributing the remaining 1%. Price had no impact on the worldwide revenue growth. We continue to see strong volume growth from our three countercyclical growth engines: Japan, Elanco Animal Health and Emerging Markets.
Volume growth in Japan was 34% driven by recent launches of Cymbalta and FORTEO, as well as continued strong growth of Alimta, Zyprexa, Gemzar and Humalog. In addition, roughly 1/4 quarter of the Q1 volume growth was attributable to precautionary buying Phil mentioned earlier; Elanco Animal Health volume growth of 25% in Q1 driven by the increased demand for food animal products globally, as well as by the launch of Trifexis in the U.S. and the acquisition of certain European Animal Health assets from Pfizer.
Going forward, we expect Animal Health revenue growth to benefit from international launches of Comfortis. In addition, Elanco has a robust innovative pipeline and is poised to maintain double-digit growth in the coming years with launches expected in multiple products targeting high-value markets such as livestock immune enhancements, control of parasites in companion animals and pain control. We also built a substantial development capability in Animal Health vaccines, and as demonstrated by our recent offer to acquire Janssen's Animal Health business, we will continue to look externally for opportunities to drive growth in this business.
Finally, you'll see strong 14% volume growth from our Human Pharma [Human Pharmaceuticals] products in the rest of the world lines. Emerging market countries represented about 3/4 of the sales in Q1, and as a group also registered 14% volume growth. In terms of products, growth in emerging market countries was driven by Alimta, Cymbalta, Humalog and Humulin. In terms of geographies, we saw robust growth across the host of geographies in Asia, Latin America and of course, China.
Given the very small effect of foreign exchange on our results this quarter, we provided our summarized non-GAAP and reported income statements with and without the effect of foreign exchange in our supplementary slides.
Now before I turn the call over to Derica, let me provide a brief update on our pipeline. On Slide 11, you'll find a view of our portfolio of new molecular entities in clinical development as of April 11, inclusive of changes since our January 27 earnings call.
Our clinical stage portfolio now stands at 69 distinct NMEs including 31 compounds in Phase II and Phase III. Biotechnology will represent nearly half of our late-stage Phase II and Phase III assets in over 1/3 of our overall clinical portfolio. Advancing our pipeline remains our number one priority, as reflected by the arrows on Slide 11. Since our January update, we have began Phase III testing of mGlu2/3 for schizophrenia, bringing our total Phase III portfolio to nine NMEs. We continue to be on track to meet our goal of having 10 NMEs in Phase III by the end of the year. Other molecules that could begin Phase III in 2011 include our novel basal insulin analogs, our new insulin glargine product and our IL-17 antibody.
We also advanced two molecules into Phase II and two into Phase I. Finally, both tasisulam and IL-1ß antibodies continued earlier stage development after we terminated clinical trials in their lead indications, and we terminated one molecule in Phase I development.
With this current pipeline and our continued business development effort, our goal is still to launch on average two molecular entities per year beginning in 2013 providing a foundation for future growth. Derica?
Derica Rice
Thanks, Ronika. To set the stage for our financial guidance, let me briefly cover some of the key pipeline events for the remainder of the year. Having now received the CHMP recommendation for approval of Bydureon, we look forward to launching the product in Europe later this year. We have a number of other potential regulatory approvals this year including: linagliptin in the U.S., Europe and Japan; and here in the U.S., Cialis for DPH, Byetta in combination with basal insulin and Erbitux for first-line head and neck cancer.
Expected regulatory submissions include: our response to the FDA Complete Response Letter for Bydureon; sBLA for Erbitux in first-line metastatic colorectal cancer and for first-line, non-small cell lung cancer; Byetta in combination with basal insulin in Europe; and our response to the FDA Complete Response Letter for Amyvid.
Upcoming clinical trial data disclosures include initial results from the Phase III trial of Alimta induction treatment followed by Alimta maintenance treatment in advanced nonsquamous, non-small cell lung cancer at ASCO. At the EULAR meeting in London in May, we will present data on the two Phase II trials of our BAFF antibody and rheumatoid arthritis. And lastly, data from a study assessing the safety of Cialis when co-administered with alpha blockers will be presented in May at the American Association of Urology meeting in Washington.
Just late last month, data from the clinical trial evaluating tadalafil in men with ED and with signs and symptoms of BPH was presented at the European Association of Urology.
Finally, as mentioned earlier, Phase III trials could begin this year for our novel basal insulin analog and our new insulin glargine product and for our own anti-IL-17 antibody.
In terms of our 2011 financial guidance. As you've seen in our press release, we still expect 2011 non-GAAP earnings per share of between $4.15 and $4.30. Our 2011 reported EPS guidance range of $3.86 to $4.01 reflects a $0.23 IPR&D charge from the BI alliance and the $0.06 restructuring charge.
The business fundamentals underlying our guidance are essentially unchanged since our last update in January. However, a number of foreign currencies, in particular, the euro, have appreciated in recent months. As a result, we're updating our revenue growth and gross margin percent guidance. Assuming rates remain at current levels, we now expect 2011 revenue to grow in the low single digits. And we expect 2011 gross margin as a percent of revenue to decline by approximately 3 percentage point.
Also, we're now estimating that the 2011 effective tax rate will be approximately 21% on a non-GAAP basis and approximately 20% on a reported basis. Both of these rates reflected benefit from the resolution of certain IRS audit matters. In addition, the reported tax rate for the full year reflects the tax benefit of the in-process R&D charge associated with the BI alliance. All other elements of our line item guidance remain unchanged.
Now Slide 14 provides a reconciliation between reported and non-GAAP EPS for 2010 And the associated growth rate from these numbers to our revised 2011 guidance.
Now in summary, so far, 2011 is playing out as anticipated. We're making progress advancing our pipeline, and we're delivering solid financial results. With the initiation of Phase III trials for mGlu2/3 for schizophrenia, we now have nine molecules in Phase III development, putting us on track to meet our goal of having 10 molecules in Phase III development by the end of this year, with more coming behind. Along with continued business development, this pipeline serves as the foundation of our growth post years ZY.
During Q1, we also made progress on our productivity goals and are in tract to meet our 2011 headcount and expense containment goals. When we discussed our 2011 guidance in detail on the January call, I shared that we face a number of headwinds this year, as patent expirations will lower sales outside of Japan for first for Gemzar and later for Zyprexa. U.S. health care reform will exact a higher cost this year than it did in 2010, and we'll face some near-term dilution from our strategic diabetes alliance with Boehringer Ingelheim.
I also shared that we expect to see continued strong performance in the rest of our business. We did see the negative impact in Q1 of these items, and we delivered strong growth in the rest of our business as promised. Excluding these items, on a non-GAAP basis, we posted revenue growth of 10%, operating expense growth of 7% and low double-digit EPS growth. We saw robust revenue growth from our three countercyclical growth engines with Japan growing 41%, Elanco growing 28% and Emerging Markets growing 15%.
Moving forward, we will continue to focus on: delivering strong financial results, improving productivity to allow for appropriate investment in our patent-protected products and our pipeline, and on speeding the next generation of Lilly molecules to market to provide growth post Years YZ.
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Eli Lilly & Co. Q1 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Vice President of Investor Relations, Mr. Phil Johnson. Please go ahead.
Phil Johnson
Good morning, and thanks for joining us for Eli Lilly and Co.'s first quarter 2011 earnings conference call. I'm Phil Johnson, Vice President of Investor Relations.
Joining me today are our Chief Financial officer, Derica Rice; our President of Lilly Research Laboratories, Dr. Jan Lundberg; our President of Elanco Animal Health, Jeff Simmons; and Ronika Pletcher; and Jill Thoren from Investor Relations.
Today's Q1 earnings call coincides with our annual shareholder meeting. As a result, our CEO, John Lechleiter is not available to participate in today's call.
During this conference call, we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to number of factors, including those listed on Slide 3 and those outlined in our latest Forms 10-K and 10-Q filed with the Securities and Exchange Commission. The information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions.
Since the Q4 earnings call in late January, we've continued to bolster our operations through business development, to leverage our marketed products and to advance our pipeline. We announced our offer to acquire the Animal Health business of Janssen Pharmaceutica from Johnson & Johnson. This business is primarily European-focused, targeting disease segments in companion animals and livestock, with special emphasis on swine and poultry. Upon deal closing, which is expected by mid-year, we would obtain a portfolio of roughly 50 marketed Animal Health products.
Here in the U.S., we began active promotion for Cymbalta for the management of chronic musculoskeletal pain and we launched Axiron, the first and only testosterone replacement therapy applied to the underarm. On the regulatory front, we submitted our response to the FDA's Complete Response Letter for the use of Erbitux in first-line head and neck cancer.
We received a Complete Response Letter from the FDA for florbetapir, our PET imaging agent being studied for the detection of beta-amyloid plaque. We are working closely with the FDA to address their questions on the reader training program to ensure reader accuracy and consistency of interpretations of beta-amyloid plaque images.
Late last week, we also received a Complete Response Letter from the FDA for liprotamase, a pancreatic enzyme replacement therapy, and we'll be working diligently to address the agency's questions.
In Europe, we submitted our application for the use of Alimta induction treatment followed by Alimta maintenance treatment in advanced nonsquamous, non-small cell lung cancer. And also in Europe, we recently received the CHMP recommendation for approval of Bydureon for the treatment of type 2 diabetes. Based on this recommendation, we anticipate receiving EC approval by late June.
On the clinical front, we disclosed positive top line results for the Phase II trial of the once-monthly formulation of exenatide. We plan to meet with the regulatory authorities to determine next steps for this program. We also disclosed top line results of the Phase III DURATION-6 trial comparing Bydureon to the highest approved dose of Victoza. Bydureon demonstrated a robust reduction on HbA1c from baseline. However, it did not meet the primary endpoint of noninferiority to Victoza 1.8 milligram in the reduction of HbA1c. Additional data from the trial is planned to be disclosed at a later date. And we began the first Phase III trial for our mGlu2/3 prodrug for schizophrenia.
Lastly, on the legal front, Lilly received a favorable ruling on the Cymbalta patent challenge. Wockhardt voluntarily consented to entry of judgment in favor of Lilly on all pending issues, which the judge so ordered. The judge asked the remaining parties to indicate if they intend to proceed to trial and all nine defendants failed to indicate that they intend to proceed. As a result, we remain of the view that there will be no generic duloxetine product coming to market until the Cymbalta patent expires. However, a trial date remained on the court's docket for June of this year. A meeting with the court, Lilly and the defendants will be held later this month to determine next steps in this litigation.
While not specific to Lilly, perhaps one of the most notable events since our last earnings call was the disaster in Japan caused by the March 11 earthquake and its aftermath. Because Japan is such a big part of our growth strategy, I'd like to provide you with some details. First and foremost, we were relieved that within hours we were able to account for the safety of all Lilly Japan employees. We're also proud of the support, both monetary and product donations that Lilly Japan, the Lilly Foundation and Eli Lilly & Co. have provided to help those affected by this strategy.
From a business perspective, our Japanese affiliate headquarters and development center of excellence are located in Kobe, and we have a manufacturing plant in Seishin just outside of Kobe. These operations are approximately 500 miles southwest of the disaster zone. As a result, we had no damages or other issues at these sites.
In terms of product supply, we've encountered no issues getting manufacturing products into or out of Japan. And we have not had and do not anticipate having any issue with the supply of raw materials, intermediate or finished product from our Japanese suppliers. Prior to the earthquake, we had robust inventory levels throughout our supply chain for materials sourced from Japan.
In terms of domestic sales, we did receive what appeared to have been precautionary orders from customers totaling $30 million to $35 million in the quarter. We expect that this will wash out in future quarters.
Our thoughts are with the Japanese people in what will surely be a long and difficult recovery. We'll continue to provide them our support, and we'll continue to ensure that Lilly products reach the patients who need them.
Now at this background, Ronika will discuss our Q1 financial results and provide our pipeline update, and Derica will cover key events for the remainder of 2011 and our financial guidance for the year. Ronika?
Ronika Pletcher
Thanks, Phil. As we've done on our previous calls, we'll focus our comments on non-GAAP results, which we believe provide insights into our underlying trends in our business. This view excludes certain items such as restructuring charges, asset impairments and other special charges. I'll start on Slide 7 with a quick look at our Q1 income statement.
On a non-GAAP basis, you can see that we generated solid revenue growth of 6% this quarter. Excluding Gemzar outside of Japan and the effect of the U.S. health care reform, revenue would have grown 10%. Gross margin as a percentage of revenue increased slightly from 79.5% to 79.8%.
Operating expenses defined as a sum of R&D and SG&A grew 10% this quarter. Drivers for the increase included: higher administrative expenses, driven by the pharmaceutical manufacturers fee associated with the U.S. health care reform and higher litigation expenses; higher marketing and selling expenses driven by o U.S. investments primarily in the emerging markets; and higher R&D expense due primarily to increased late-stage clinical trials expenses.
In addition, both SG&A and R&D expenses increased due to the BI [Boehringer Ingelheim] alliance. Excluding the effect of U.S. health care reform and the BI alliance, operating expenses would have grown 7%. Other income and deductions was a net expense this year compared to net income last year. You may remember that we had substantial income in Q1 2010 related to the recovery of damages from generic olanzapine marketers in Germany and from gains on the sales of securities acquired in the ImClone acquisition.
Our tax rate was 20.9% this quarter, considerably lower than 27.3% from last year's Q1. Last year's Q1 rate included an $85.1 million charge related to the future taxation of the retiree drug subsidy and did not benefit from the R&D tax credit as it had left. This year, we did benefit from the R&D tax credit, as well as from the resolution of certain IRS tax matters.
At the bottom line, our non-GAAP EPS increased 5% to $1.24. As indicated, Lilly provided the 2011 guidance in January, we felt robust EPS growth in our business in Q1 excluding U.S. health care reform, the effect of the Gemzar patent exploration outside of Japan and investments related to the BI diabetes alliance. Excluding these items, EPS would have grown low double digits.
Slide 8 shows our reported income statement while Slide 9 provides reconciliation between reported and non-GAAP EPS. Additional details about our reported earnings are available in today's earnings press release.
Now let's look at how foreign exchange affected our Q1 revenue. As you can see on Slide 10, total revenue growth of 6% was driven by solid volume growth of 5% and foreign exchange contributing the remaining 1%. Price had no impact on the worldwide revenue growth. We continue to see strong volume growth from our three countercyclical growth engines: Japan, Elanco Animal Health and Emerging Markets.
Volume growth in Japan was 34% driven by recent launches of Cymbalta and FORTEO, as well as continued strong growth of Alimta, Zyprexa, Gemzar and Humalog. In addition, roughly 1/4 quarter of the Q1 volume growth was attributable to precautionary buying Phil mentioned earlier; Elanco Animal Health volume growth of 25% in Q1 driven by the increased demand for food animal products globally, as well as by the launch of Trifexis in the U.S. and the acquisition of certain European Animal Health assets from Pfizer.
Going forward, we expect Animal Health revenue growth to benefit from international launches of Comfortis. In addition, Elanco has a robust innovative pipeline and is poised to maintain double-digit growth in the coming years with launches expected in multiple products targeting high-value markets such as livestock immune enhancements, control of parasites in companion animals and pain control. We also built a substantial development capability in Animal Health vaccines, and as demonstrated by our recent offer to acquire Janssen's Animal Health business, we will continue to look externally for opportunities to drive growth in this business.
Finally, you'll see strong 14% volume growth from our Human Pharma [Human Pharmaceuticals] products in the rest of the world lines. Emerging market countries represented about 3/4 of the sales in Q1, and as a group also registered 14% volume growth. In terms of products, growth in emerging market countries was driven by Alimta, Cymbalta, Humalog and Humulin. In terms of geographies, we saw robust growth across the host of geographies in Asia, Latin America and of course, China.
Given the very small effect of foreign exchange on our results this quarter, we provided our summarized non-GAAP and reported income statements with and without the effect of foreign exchange in our supplementary slides.
Now before I turn the call over to Derica, let me provide a brief update on our pipeline. On Slide 11, you'll find a view of our portfolio of new molecular entities in clinical development as of April 11, inclusive of changes since our January 27 earnings call.
Our clinical stage portfolio now stands at 69 distinct NMEs including 31 compounds in Phase II and Phase III. Biotechnology will represent nearly half of our late-stage Phase II and Phase III assets in over 1/3 of our overall clinical portfolio. Advancing our pipeline remains our number one priority, as reflected by the arrows on Slide 11. Since our January update, we have began Phase III testing of mGlu2/3 for schizophrenia, bringing our total Phase III portfolio to nine NMEs. We continue to be on track to meet our goal of having 10 NMEs in Phase III by the end of the year. Other molecules that could begin Phase III in 2011 include our novel basal insulin analogs, our new insulin glargine product and our IL-17 antibody.
We also advanced two molecules into Phase II and two into Phase I. Finally, both tasisulam and IL-1ß antibodies continued earlier stage development after we terminated clinical trials in their lead indications, and we terminated one molecule in Phase I development.
With this current pipeline and our continued business development effort, our goal is still to launch on average two molecular entities per year beginning in 2013 providing a foundation for future growth. Derica?
Derica Rice
Thanks, Ronika. To set the stage for our financial guidance, let me briefly cover some of the key pipeline events for the remainder of the year. Having now received the CHMP recommendation for approval of Bydureon, we look forward to launching the product in Europe later this year. We have a number of other potential regulatory approvals this year including: linagliptin in the U.S., Europe and Japan; and here in the U.S., Cialis for DPH, Byetta in combination with basal insulin and Erbitux for first-line head and neck cancer.
Expected regulatory submissions include: our response to the FDA Complete Response Letter for Bydureon; sBLA for Erbitux in first-line metastatic colorectal cancer and for first-line, non-small cell lung cancer; Byetta in combination with basal insulin in Europe; and our response to the FDA Complete Response Letter for Amyvid.
Upcoming clinical trial data disclosures include initial results from the Phase III trial of Alimta induction treatment followed by Alimta maintenance treatment in advanced nonsquamous, non-small cell lung cancer at ASCO. At the EULAR meeting in London in May, we will present data on the two Phase II trials of our BAFF antibody and rheumatoid arthritis. And lastly, data from a study assessing the safety of Cialis when co-administered with alpha blockers will be presented in May at the American Association of Urology meeting in Washington.
Just late last month, data from the clinical trial evaluating tadalafil in men with ED and with signs and symptoms of BPH was presented at the European Association of Urology.
Finally, as mentioned earlier, Phase III trials could begin this year for our novel basal insulin analog and our new insulin glargine product and for our own anti-IL-17 antibody.
In terms of our 2011 financial guidance. As you've seen in our press release, we still expect 2011 non-GAAP earnings per share of between $4.15 and $4.30. Our 2011 reported EPS guidance range of $3.86 to $4.01 reflects a $0.23 IPR&D charge from the BI alliance and the $0.06 restructuring charge.
The business fundamentals underlying our guidance are essentially unchanged since our last update in January. However, a number of foreign currencies, in particular, the euro, have appreciated in recent months. As a result, we're updating our revenue growth and gross margin percent guidance. Assuming rates remain at current levels, we now expect 2011 revenue to grow in the low single digits. And we expect 2011 gross margin as a percent of revenue to decline by approximately 3 percentage point.
Also, we're now estimating that the 2011 effective tax rate will be approximately 21% on a non-GAAP basis and approximately 20% on a reported basis. Both of these rates reflected benefit from the resolution of certain IRS audit matters. In addition, the reported tax rate for the full year reflects the tax benefit of the in-process R&D charge associated with the BI alliance. All other elements of our line item guidance remain unchanged.
Now Slide 14 provides a reconciliation between reported and non-GAAP EPS for 2010 And the associated growth rate from these numbers to our revised 2011 guidance.
Now in summary, so far, 2011 is playing out as anticipated. We're making progress advancing our pipeline, and we're delivering solid financial results. With the initiation of Phase III trials for mGlu2/3 for schizophrenia, we now have nine molecules in Phase III development, putting us on track to meet our goal of having 10 molecules in Phase III development by the end of this year, with more coming behind. Along with continued business development, this pipeline serves as the foundation of our growth post years ZY.
During Q1, we also made progress on our productivity goals and are in tract to meet our 2011 headcount and expense containment goals. When we discussed our 2011 guidance in detail on the January call, I shared that we face a number of headwinds this year, as patent expirations will lower sales outside of Japan for first for Gemzar and later for Zyprexa. U.S. health care reform will exact a higher cost this year than it did in 2010, and we'll face some near-term dilution from our strategic diabetes alliance with Boehringer Ingelheim.
I also shared that we expect to see continued strong performance in the rest of our business. We did see the negative impact in Q1 of these items, and we delivered strong growth in the rest of our business as promised. Excluding these items, on a non-GAAP basis, we posted revenue growth of 10%, operating expense growth of 7% and low double-digit EPS growth. We saw robust revenue growth from our three countercyclical growth engines with Japan growing 41%, Elanco growing 28% and Emerging Markets growing 15%.
Moving forward, we will continue to focus on: delivering strong financial results, improving productivity to allow for appropriate investment in our patent-protected products and our pipeline, and on speeding the next generation of Lilly molecules to market to provide growth post Years YZ.