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How Hard Will Coronavirus Hit Lilly's (LLY) Q2 Earnings?

Eli Lilly & Company LLY will report second-quarter 2020 results Jul 30, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 12.90%.

The large drugmaker’s performance has been pretty impressive, with earnings beat in each of the trailing four quarters. The company delivered a four-quarter earnings surprise of 8.24%, on average.

Eli Lilly and Company Price and EPS Surprise

Eli Lilly and Company Price and EPS Surprise

 

 

 

 

 

 

 

 

Eli Lilly and Company price-eps-surprise | Eli Lilly and Company Quote

Lilly’s stock has risen 21.4% this year so far against a decrease of 0.1% for the industry.

 

Factors to Consider

Sales in the second quarter are likely to have been boosted by underlying demand trends for key growth products like Trulicity, Taltz, Jardiance, Basaglar, Emgality, and Verzenio. However, the coronavirus-related stockpiling benefits, which increased sales of medicines like diabetes medicine, Trulicity and psoriasis medicine, Taltz in the first quarter are expected to have reversed in the second quarter.

Reduction in new prescription trends (as fewer patients visit a doctor) in the United States and Europe is expected to have hurt the top line in the second quarter. Meanwhile, headwinds from destocking (as supply chains normalize from the first quarter’s demand surge) and potential changes in segment mix in the United States (due to rising unemployment) are expected to have impacted the top line in the to-be-reported quarter.

Sales of older products like Cialis and Forteo are expected to have been hurt by loss of exclusivity.

Moreover, generic competition for several drugs, rising pricing pressure in the United States due to rebates and legislated increases in Medicare Part D cost sharing, price reductions from increased utilization of patient affordability programs, and price cuts in some international markets like China, Japan and Europe are expected to have negatively impacted the top line in the second quarter of 2020.

Importantly, investors will focus on whether Lilly provides an updated business outlook for 2020 taking into account the impact of coronavirus.

In the soon-to-be reported quarter, Lilly gained FDA approvals for Tauvid (flortaucipir), a diagnostic agent to image tau neurofibrillary tangles in the brain for use in patients being evaluated for Alzheimer's disease; Lyumjev, its ultra-rapid-acting lispro to improve glycemic control in adults with type I and type II diabetes, and Retevmo (selpercatinib) for RET-altered lung and thyroid cancer. Management is expected to update on commercialization plans for the new products on the conference call.

Key Recent Developments

Last month, Lilly announced that the first patient has been dosed in a phase III study to evaluate its JAK inhibitor, Olumiant (baricitinib) as a potential treatment for hospitalized patients diagnosed with COVID-19. Olumiant is presently approved for the treatment of moderately to severely active rheumatoid arthritis (RA). The study will complement an already ongoing study of Olumiant with Gilead’s GILD remdesivir being conducted by the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health (NIH) for hospitalized patients with COVID-19 infections.

Meanwhile, separate phase I studies have been initiated on Lilly’s antibody therapy candidates in collaboration with private biotech, AbCellera and China-based Junshi Biosciences.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Lilly this time around. The combination of a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate of $1.55 per share and the Zacks Consensus Estimate of $1.58, is -1.90%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Lilly has a Zacks Rank #3.

Stocks to Consider

Here are some large drug/biotech stocks that have the right combination of elements to beat on earnings this time around:

Incyte INCY with an Earnings ESP of +4.62% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pfizer PFE has an Earnings ESP of +7.03% and a Zacks Rank #3.

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