Lilly (LLY) Q3 Earnings & Revenues Lag Estimates, Stock Down

Eli Lilly & Company LLY reported third-quarter 2020 adjusted earnings per share of $1.54, which missed the Zacks Consensus Estimate of $1.76. However, earnings rose 4% year over year owing to higher other income and lower R&D expenses.

Revenues of $5.74 billion lagged the Zacks Consensus Estimate of $5.90 billion. However, sales increased 5% year over year as increase in volume overshadowed the impact of lower realized prices of its several drugs. While volumes rose 9%, lower realized prices bore a negative impact of 5% on sales.

Quarter in Detail

Key growth products (products launched since 2014) drove 9% of revenue growth and represented nearly 52% total revenues, down from 54% in the previous quarter. U.S. revenues climbed 3% to $3.16 billion while ex-U.S. revenues ascended 7% to $2.58 billion.

Among the established products, Forteo sales declined 28% to $266.9 million while Humalog sales inched up 1% to $656.9 million. Humulin sales decreased 5% to $305.9 million while Alimta sales were up 14% to $578 million.

Among the growth products, Trulicity generated revenues worth $1.11 billion, up 9% year over year, driven by higher volumes and buoyant demand, which offset the impact of lower realized prices. However, Trulicity sales fell below the Zacks Consensus Estimate of $1.28 billion.

Cyramza revenues of $252.7 million were up 5% year over year, primarily boosted by higher realized prices and solid demand in the United States while revenues in the ex-U.S. markets were relatively flat.

Jardiance sales rose 29% to $310.8 million on higher demand and volumes.

Basaglar recorded revenues of $248.2 million, down 6% year over year due to lower realized prices and weak demand caused by competitive pressure.

Taltz brought in sales worth $454.4 million, up 34% year over year as U.S. sales gained from sturdy demand and higher realized prices. Ex-U.S. sales were aided by expanded volume.

New rheumatoid arthritis drug Olumiant generated sales of $162 million in the quarter compared with $145 million sequentially, backed by increased demand in the international markets. Revenues outside the United States were $147.5 million compared with $131.8 million in the preceding quarter.

Verzenio generated sales of $234.4 million in the reported quarter, up 49% year over year, driven by robust volume.

Emgality generated revenues of $91.5 million in the quarter compared with $87.4 million in the earlier quarter.

Lilly’s newly-launched product Baqsimi, which is a glucagon nasal powder to treat severe hypoglycemia in diabetes patients, generated sales of $20.9 million in the period compared with $13.6 million in the previous quarter.

Retevmo (selpercatinib), approved for treating RET-altered lung and thyroid cancer in May, generated sales of $11.6 million in the third quarter.

Adjusted gross margin was 79.1% in the September quarter, down 50 basis points, primarily due to the unfavorable effect of foreign exchange rates and lower realized prices. Operating income declined 4% year over year to $1.51 billion due to higher marketing and R&D costs resulting from COVID-19 drug development efforts

2020 Guidance

Lilly maintained its 2020 adjusted earnings outlook in the range of $7.20-$7.40. The earnings view indicates year-over-year growth in the range of 19-23%.

Revenue guidance for 2020 was also retained in the range of $23.7-$24.2 billion. Gross margin is expected to be approximately 80%, which is also unchanged from the previous figure. Adjusted tax rate is expected to be approximately 14% (unchanged). Adjusted operating margin is expected to be 29% in 2020 (previously 31%).

However, marketing, selling and administrative expense guidance was tightened from a range of $6-$6.2 billion to $6-$6.1 billion, reflecting cost savings from travel and promotional activities. Research and development expense are now expected in the band of $5.8-$5.9 billion compared with the earlier range of $5.6-$5.9 billion.For the full year, research and development expenses related to COVID-19 are expected to be around $400 million.

Update on Coronavirus Research Efforts

Earlier this month, Lilly applied to the FDA for Emergency Use Authorization (EUA) of bamlanivimab (LY-CoV555) as a monotherapy for the treatment of higher-risk patients who were recently diagnosed with mild-to-moderate COVID-19.

We note that bamlanivimab is also being tested in combination studies in the National Institutes of Health-led ACTIV-2 and ACTIV-3 studies of ambulatory and hospitalized COVID-19 patients. However, earlier in the day, it was announced that no additional COVID-19 patient in the ACTIV-3 study evaluating hospitalized COVID-19 patients received Lilly’s monoclonal antibody candidate bamlanivimab (previously LYCoV555). The study was paused earlier this month following potential safety concerns raised by the independent data safety monitoring board. The study was terminated as updated data from the same showed that bamlanivimab was unlikely to help hospitalized COVID-19 patients recover from the advanced stage of the disease.

Per management, all other studies on bamlanivimab are ongoing. These include NIH-led ACTIV-2 study, which is testing recently-diagnosed mild-to-moderate COVID-19 patients, Lilly’s phase II BLAZE-1 study evaluating bamlanivimab as a monotherapy and in combination with etesevimab (LY-CoV016), which is examining the recently diagnosed COVID-19 patients in the ambulatory (non-hospitalized) setting and the phase III BLAZE-2 study of bamlanivimab for the prevention (prophylaxis) of COVID-19 in residents and staff at long-term care facilities.Lilly is also conducting a phase III study to evaluate its JAK inhibitor Olumiant (baricitinib) as a potential treatment of hospitalized patients diagnosed with COVID-19. Another study evaluating a combination of Olumiant and Gilead’s GILD remdesivir is being conducted by the National Institute of Allergy and Infectious Diseases (NIAID), part of the NIH, for hospitalized patients with COVID-19 infections.

In September, Lilly announced that the study met the primary endpoint by showing that Olumiant plus remdesivir led to a reduction in time to recovery in comparison to remdesivir.Supported by this data, the companies filed an initial request to the FDA for an EUA of the same.

Our Take

Lilly failed to impress investors with its third-quarter results as it missed on both earnings and sales. This underperformance could be attributed to slowdown in sales of its key drug Trulicity. The company reaffirmed its earnings and sales expectations for the year. Shares were down 4.3% in pre-market trading due to weaker-than-expected earnings results as well as NIH’s decision to discontinue the ACTIV-3 study.  Per management, new prescription trends have been improving through a combination of Telehealth and in-person visits,

Lilly’s stock has risen 7.8% this year so far against its industry’s decrease of 3.1%.

The company continues to see improvement in new prescription volume trends for its key products for the remainder of 2020, which it expects will cross pre-pandemic levels by the fourth quarter. It still projects revenue growth to be driven by higher demand for its growth drugs including Trulicity, Taltz, Jardiance, Verzenio, Cyramza, Olumiant, Emgality, Baqsimi as well as potential revenues from product launches. However, 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 some of the top-line headwinds anticipated in 2020.

Lilly experienced a mixed quarter as far as its pipeline development is concerned. A notable pipeline candidate in Lily’s portfolio for pain management is tanezumab. It is being developed in a late-stage study for osteoarthritis pain and is currently under review in the United States and Europe for the given indication. It is also being evaluated in a phase III study for treating cancer pain. Lilly is jointly developing tanezumab in collaboration with Pfizer PFE.

The FDA notified both companies that it plans to hold an Advisory Committee meeting to discuss the biologics license application (BLA) for tanezumab, which is now expected to be filed in March 2021. Thus, the BLA for tanezumab is now extended beyond the current action date of December 2020.

Meanwhile, the FDA approved two additional doses of once-weekly Trulicity (3 mg and 4.5 mg), thereby expanding the drug label.

Eli Lilly and Company Price, Consensus and EPS Surprise

Eli Lilly and Company Price, Consensus and EPS Surprise

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

Zacks Rank & Key Pick

Lilly currently carries a Zacks Rank #4 (Sell).

A better-ranked stock in the biotech/drug sector is Horizon Therapeutics Public Limited Company HZNP, presently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Horizon’s earnings estimates have been revised 2.8% upward for 2020 and 4.9% for 2021 over the past 60 days. The stock has skyrocketed 113.5% year to date.

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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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