Eli Lilly on Thursday reported a successful quarter driven by sales of its blockbuster obesity and diabetes drugs, allaying any lingering investor concerns concerning the stock. Second-quarter revenue rose 36% year-over-year to $11.3 billion, beating expectations of $9.92 billion, in response to LSEG estimates. Adjusted earnings per share (EPS) for the three months ended June 30 were $3.92, handily beating the $2.60 estimate, LSEG data showed. On an annualized basis, adjusted earnings per share rose 85.8%. Eli Lilly Why We Own It: Eli Lilly’s best-in-class drugs should enable above-industry growth for a few years to return. The portfolio is built around its GLP-1 franchise, which currently consists of Mounjaro for type 2 diabetes and Zepbound for obesity. The fast-growing drug class has the potential to treat other conditions resembling sleep apnea and reduce the chance of stroke. Lilly’s pipeline of Alzheimer’s treatments, including the recently approved Kisunla, adds to the stock’s long-term appeal. Competitors: Novo Nordisk, Biogen, Eisai, Merck and Pfizer Portfolio weight: 2.75% Last purchase: Feb. 7, 2023 Start: Oct. 8, 2021 Bottom line Investors were nervous once they read Eli Lilly’s report. The stock had fallen nearly 20% since its record close of $950.46 on July 15. The latest decline got here on Wednesday after a disappointing report from its fundamental rival within the GLP-1 drug market, Wegovy maker Novo Nordisk, raised concerns about pricing pressure. Now they will sleep a bit easier. Eli Lilly not only beat estimates on all major items — earnings and revenue for diabetes drug Mounjaro and weight-loss drug Zepbound — but in addition raised its full-year forecast for sales, earnings and gross profit. No wonder shares rose over 8%. “Eli Lilly was a real bullseye on every measure,” Jim Cramer said Thursday. The report left little doubt that Eli Lilly’s best days are ahead, driven by the expansion of GLP-1. Although the drug is primarily used to treat obesity, Lilly has released promising data in recent months showing that the drugs may also relieve sleep apnea and reduce the chance of heart failure. Zepbound posted quarterly sales of over $1 billion for the primary time within the April-June period, just seven months after it hit U.S. pharmacies. Despite those eye-popping sales, Lilly CEO David Ricks claimed the obesity market continues to be nascent. “I think we’re at the bottom of the first inning here. It’s really early” for Zepbound, Eli Lilly CEO David Ricks said in a CNBC interview Thursday. “We’re not really promoting it. We’re not launching the product in 40 countries where we have approvals, and we haven’t even done most of the medical evidence that there is.” A key reason Eli Lilly hasn’t aggressively promoted Zepbound within the U.S. or entered more international markets: Demand has far outstripped supply. But the excellent news is that Eli Lilly’s multibillion-dollar investment in expanding manufacturing capability is paying off. Last week, the Food and Drug Administration said all doses of Zepbound were now available after running short. The same is now true for Eli Lilly’s other blockbuster GLP-1, Mounjaro, which has also struggled with supply shortages. Mounjaro, which received U.S. approval for type 2 diabetes in May 2022, has a standard lively ingredient with Zepbound called tirzepatide. GLP-1s mimic a hormone within the gut to enhance blood sugar control and effectively suppress appetite, aiding weight reduction. Mounjaro and Zepbound are administered through injections. LLY YTD outpaces Eli Lilly’s year-to-date stock performance. Lilly executives offered encouraging thoughts on the company-specific issues hurting the stock currently: emerging competition within the GLP-1 space, which has been a priority in recent weeks following positive announcements from Roche and smaller biotech Viking Therapeutics, and pricing pressures that got here to the fore in Wednesday’s session following Novo Nordisk’s report. It’s too early to assume Lilly will lose its leadership position on this fast-growing market. The company has a major lead over everyone except co-market leader Novo Nordisk—on the conference call, executives said Lilly first released Phase 1 data for tirzepatide eight years ago. The Roche news that just scared Lilly investors? Both sets of knowledge got here from early Phase 1 trials. While Viking Therapeutics is further along, preparing to start a late-stage Phase 3 trial for its lead injectable obesity drug, it still has an extended solution to go before it reaches the market. Analysts at Leerink expect a 2028 launch. And then there’s the hurdle that trips up even a longtime, well-capitalized drugmaker like Eli Lilly: manufacturing capability. Lilly and Novo Nordisk have spent billions to ramp up production of injectable GLP-1s, which are not easy to fabricate and must meet the rigorous standards of regulators just like the FDA. This is a major advantage for the incumbent players. Eli Lilly also has next-generation GLP-1s in development that look like even stronger than the present lineup. Regarding pricing pressure on GLP-1s, Lilly management said the corporate expects stable quarter-to-quarter pricing in 2024. There was “nothing unusual” between the primary and second quarters, said interim CFO Gordon Brooks, adding that the forecast assumes this may proceed within the second half of the 12 months. We reiterate our Buy 1 rating on Eli Lilly, even though it is just not our style to purchase a stock during a one-day spike just like the one Lilly shares experienced on Thursday. Our price goal also stays at $1,000 per share. Forecast Eli Lilly now expects annual revenue within the range of $45.4 billion to $46.6 billion, representing a $3 billion increase on each the high and low ends. Wall Street had forecast 2024 revenue of $43 billion, in response to FactSet. The Indianapolis-based drugmaker now expects full-year adjusted earnings per share of between $16.10 and $16.60, up from a variety of $13.50 to $14. The consensus earnings per share estimate was $13.69, in response to FactSet. Meanwhile, the adjusted gross margin range was raised to 37% to 39%, up from a variety of 33% to 35%. On the availability front, Lilly executives reiterated that production of saleable GLP-1 doses within the second half of 2024 must be at the least 1.5 times year-on-year levels. Some analysts had wondered whether the increased revenue forecast might result in a change of their delivery targets, but that was not the case. Ricks told analysts on the conference call that 1.5x was “the floor” for second-half volume. He said the improved supply within the second quarter was as a consequence of overall performance across the complete manufacturing network, relatively than an enormous production increase at a single facility like Research Triangle Park in North Carolina. Still, Ricks said the RTP facility was on course. Quarterly Commentary As may be seen from the chart above, there’s not much to complain about within the quarter. Sure, selling expenses of $2.17 billion were above expectations, but that is spending to support drug launches. And based on EPS and margin performance, it clearly wasn’t an issue for the underside line. Gross margin of 82.03% and operating margin of 37.95% each beat estimates and were well above year-over-year. Not surprisingly, Eli Lilly’s U.S. sales rose a solid 41.7% year-over-year within the second quarter, accelerating from the 28.4% growth rate within the January-March period. But the corporate’s performance in Europe, though much smaller than its U.S. business, can be price highlighting. Sales rose 19.2% year-over-year, with Mounjaro the fundamental driver of growth in markets just like the U.K. and Germany. Outside the U.S., Lilly is launching Mounjaro with a delivery method called KwikPen that’s different from the auto-injection pens used domestically. This will facilitate supply and increase volumes. More progress on the KwikPen presentation may be seen in the approaching quarters. Overall, Mounjaro’s sales for the quarter were $3.09 billion, well above the $2.43 billion estimate, in response to FactSet. Zepbound’s sales of $1.24 billion also easily beat estimates of $927 million. Demand for each drugs stays strong, although interim CFO Brooks noted that second-quarter performance was partially impacted by inventory replenishment as supplies improved. Breast cancer drug Verzenio gets far less attention than GLP-1 drugs, nevertheless it stays an underappreciated growth driver for the corporate. Sales of $1.33 billion within the quarter hit an all-time high and rose 44% 12 months over 12 months. Sales of Trulicity – one other type 2 diabetes drug and the corporate’s top-selling drug last 12 months – continued to slip for quite a lot of reasons. Part of the rationale is patients switching to Mounjaro, but supply constraints are also an issue for the product. One drug that did not get much attention in any respect on Thursday’s earnings call was Kisunla, the recently approved drug to treat Alzheimer’s disease. It’s not expected to be an enormous contributor to sales this 12 months, although management noted that some patients have already began taking the drug. While we’re optimistic concerning the drug’s long-term advantages, analysts and investors are understandably more focused on Zepbound and Mounjaro immediately. (Jim Cramer’s Charitable Trust is long LLY. A full list of stocks may be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you may receive a trade alert before Jim makes a trade. Jim waits 45 minutes after a trade alert is distributed before buying or selling a stock in his charitable trust’s portfolio. If Jim has discussed a stock on TV, he waits 72 hours after the trade alert is issued before executing the trade. 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The drug tirzepatide, branded Mounjaro, from Eli Lilly & Co. was ordered from a pharmacy in Provo, Utah, USA, on Monday, November 27, 2023.
George Frey | Bloomberg |
Eli Lilly reported a powerful quarter on Thursday, boosted by sales of its hit obesity and diabetes drugs, allaying any lingering investor concerns concerning the stock.
