Eli Lilly & Company 's LLY stock has risen 15% since it announced second-quarter earnings on Jul 24.
Lilly beat estimates for both earnings and sales in the second quarter and also raised its outlook for 2018 for the second time this year. While Lilly's earnings per share rose 35% year over year, sales increased 9%. Pharmaceutical revenues rose 10% in the quarter driven by strong demand for its new drugs and favorable currency movement, which made up for lower sales of established products like Strattera, Cialis and Forteo. Lilly's new products like Trulicity, Taltz, Basaglar, Cyramza, Jardiance and Lartruvo are driving sales growth at the drug giant.
Along with the earnings release, Lilly also said the strategic review of its Elanco Animal Health unit is now complete. It has been decided that it will establish Elanco as an independent publicly traded company via an initial public offering (IPO) and subsequent separation.
Lilly said it will pursue an IPO of its minority stake of less than 20% in the separated Elanco unit. This IPO process is expected to be concluded by the second half of this year. Lilly's remaining ownership in Elanco is expected to be divested through a "tax-efficient transaction" probably by next year. Lilly had been exploring strategic alternatives for this business including a sale, merger or creating a separate company through an initial public offer (IPO). We believe Lilly's decision to separate Elanco, which has underperformed lately, is prudent and drove the stock price higher.
In fact, Lilly's stock has outperformed the industry this year so far. Lilly's shares have risen 21.1% compared with the industry 's increase of 2.5%.
Other than solid quarterly results, Lilly is also on a strong footing in terms of its pipeline with several positive late-stage data readouts. These include positive top-line data from phase III studies on pain candidate tanezumab and type I diabetes candidate empagliflozin, phase III label expansion studies evaluating psoriatic arthritis drug Taltz for another indication - ankylosing spondylitis - and cancer drug, Cyramza, for the second-line treatment of liver cancer.
Important regulatory approvals included FDA approval of JAK inhibitor, Olumiant (baricitinib), breast cancer drug Verzenio in the first-line setting and Taltz for genital psoriasis. Several key regulatory and pipeline events are expected in the second half including a potential approval of Emgality/galcanezumab, its calcitonin gene-related peptide (CGRP) antibody for migraine prevention. Talking about CGRP antibodies, Amgen AMGN and partner Novartis' NVS Aimvog/erenumab was launched in May while Teva Pharmaceutical Industries Limited's TEVA fremanezumab is under review in the United States with a decision expected in September.
Lilly also added promising new assets through business development deals including pancreatic cancer candidate, pegilodecakin, which was added after the acquisition of California-based immuno-oncology biotech, ARMO Biosciences in June.
Lilly has its share of challenges, which include rising competitive pressure on its drugs this year, generic competition for Strattera, Effient and Axiron and rising pricing pressure in the diabetes franchise. Also, key erectile dysfunction drug, Cialis will face generic competition this year, which will hurt sales.
However, it looks like Lilly's strong pipeline, consistent outperformance of new drugs, cost cuts and regular strategic deals will keep the stock afloat in the second half.
Lilly currently carries a Zacks Rank #2 (Buy).You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
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