Eli Lilly & Co. at J.P. Morgan: 5 Things Investors Will Want to Know

Scientist holding beaker in front of face

One year ago, Dave Ricks made his first appearance at the annual J.P. Morgan Healthcare Conference as CEO of Eli Lilly & Co. (NYSE: LLY) . Lilly was coming off of a dismal stock performance in 2016, with shares falling close to 13%.

Ricks spoke for the second time at the J.P. Morgan conference on Tuesday night. This time, his presentation came on the heels of Lilly stock generating a gain of nearly 15% in 2017 -- below what the S&P 500 index delivered, but a huge improvement from the prior year. What was Ricks' message about Lilly's future? Here are five things investors will want to know.

1. Confident in 2020 guidance

Back in July 2016 (prior to Dave Ricks taking the helm), Lilly announced that it would achieve an average of 5% annual revenue growth through 2020. The drugmaker also stated its goal of generating operating margin of at least 30% in 2020. Ricks said the company remains confident in that guidance.

He noted that Lilly is "well on track" for making the revenue growth target. The company's revenue increased over 6% year over year in 2016. Lilly should report revenue growth in 2017 of at least 6% as well.

Ricks stated that Lilly has been able to hit its revenue growth target so far thanks to "the new product story" the company has. He especially singled out diabetes drug Trulicity and autoimmune disease drug Taltz, both of which have exceeded expectations.

As for the 30% operating margin target, Ricks said that "there are a lot of ways to get there." Currently, Lilly's operating margin stands at 21%. However, he expressed confidence that the company would be able to achieve its goal, citing opportunities for improvement in manufacturing, sales and marketing, and research and development. Ricks added that the 30% operating margin goal is a minimum and that Lilly "could do better."

2. Ready for competition in diabetes

Diabetes is Lilly's largest business, with four blockbuster diabetes products in the lineup. However, a challenger to Lilly's enormously successful Trulicity is now on the market. Novo Nordisk (NYSE: NVO) won FDA approval for Ozempic (semaglutide) in December 2017. Ricks stated that Lilly "is ready for the competition and will take that on."

Novo Nordisk could have the second-biggest new drug of 2018 with Ozempic. Market research firm EvaluatePharma projects the drug will generate annual sales of over $2.7 billion by 2022. The Danish drugmaker's late-stage study used in its regulatory filing compared Ozempic head-to-head against Trulicity. Results showed that patients taking Novo's drug experienced better reductions in blood sugar and double the weight loss versus patients taking Trulicity.

Ricks, though, said that there is "always pressure in the market, competitively." He added that Lilly is accustomed to the pressure after 95 years in business. What about the potential for big price cuts? Ricks stated he doesn't expect anything "dramatic."

3. Next chapter of growth

While diabetes is the big story for Lilly right now, it's not where the company's greatest growth is likely to come from in the future. Ricks stated that the "next chapter of growth" for Lilly will be in treating pain.

He highlighted three late-stage candidates in the pipeline with significant potential: galcanezumab, lasmiditan, and tanezumab. Lilly expects an FDA decision on approval for galcanezumab in treating migraine in adults later this year. Lasmiditan is another promising migraine treatment. Lilly anticipates submitting the drug for approval in the second half of this year.

Perhaps the most important asset to watch, though, according to Ricks, is tanezumab. Lilly partnered with Pfizer (NYSE: PFE) on development of the drug. Ricks noted that tanezumab has the potential to reduce the need for opioids, which gives it a significant market opportunity if approved. The drug is currently being evaluated for treating osteoarthritis, chronic low back pain, and cancer pain. Lilly and Pfizer expect to announce late-stage results later this year.

4. It's time to look at selling or spinning off Elanco

For a long time, Lilly said its animal health unit Elanco was a core part of its business. While rivals like Pfizer successfully spun off its animal health business into a stand-alone entity, Zoetis , Lilly opted to hang on to Elanco. However, in October, Lilly announced it was exploring a potential sale or spin-off of Elanco.

When asked about this decision, Dave Ricks responded, "It's time." He said that for a while, Elanco needed Lilly because it was small. However, the animal health business has grown through the years. When Lilly lost patent exclusivity for several key drugs, Ricks acknowledged that "Lilly needed Elanco." However, he said that's not the case anymore. Ricks stated that it "makes sense" to now explore possible strategic alternatives for the business. A decision is expected by mid-2018.

5. Upping its game in external innovation

Ricks identified replenishing the pipeline as one of Lilly's top priorities. And he said that one important step for the company in delivering on that priority was by "upping our game in external innovation."

He noted that five of Lilly's past nine launches stemmed from partnerships. Most of those were with big pharma companies and were done during later clinical stages. Ricks said Lilly's goal is to have one-third of its pipeline in each clinical phase from external sources. Most of the activity, he added, would likely be in immunology and oncology.

Will Lilly make a huge deal like some others in the industry? Probably not. Ricks said the company wouldn't make an acquisition "just for synergies." He stated that Lilly is more interested in achieving growth through deals involving clinical-stage companies and assets.

Of course, Lilly started off 2017 with a bang by its acquisition of CoLucid , which allowed it to pick up promising pain drug, lasmiditan. With corporate tax reform in the U.S. giving big companies more financial flexibility, Lilly just might make another move in early 2018. If so, it will give Dave Ricks plenty more to talk about at the J.P. Morgan conference next year.

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Keith Speights owns shares of JPMorgan Chase and Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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