Technology

Lilly (LLY) Up 4.7% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Eli Lilly (LLY). Shares have added about 4.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lilly due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Q3 Earnings Miss, COVID Drugs Drive Sales

Lilly reported third-quarter 2021 adjusted earnings per share of $1.94, which missed the Zacks Consensus Estimate of $1.98. Earnings however rose 38% year over year, driven by higher revenues and operating profits.

Revenues of $6.77 billion beat the Zacks Consensus Estimate of $6.56 billion. Sales increased 18% year over year.

Higher revenues from Lilly’s COVID-19 therapies benefited sales as the spread of Delta variant led to a sharp rise in infection rates in the quarter. In the quarter, Lilly recorded $423.5 million of revenues from COVID-19 antibodies and sales of Olumiant for the treatment of COVID-19. Also, sales of its newer medicines grew more than 35% in the quarter.
 
Excluding revenues from COVID therapies, sales rose 11% in the third quarter, driven by strong volume growth across key brands like Trulicity, Taltz, Verzenio and Jardiance.

Quarter in Detail

Net realized prices were flat in the quarter. Volumes rose 17%. Foreign exchange had a positive impact of 1% on revenue growth in the quarter.

Key growth products (the ones launched since 2014) drove 17% of revenue growth and represented nearly 58% of total revenues, excluding revenues from COVID-19 antibodies. U.S. revenues climbed 26% to $3.99 billion while ex-U.S. revenues increased 8% to $2.78 billion.

Among the growth products, Trulicity generated revenues worth $1.60 billion, up 45% year over year driven by higher demand and higher realized prices in the United States. The higher realized prices were due to a favorable segment mix, including lower utilization in the 340B program and modest list price increases, which were partially offset by increased rebates to maintain access. Ex-U.S. sales rose driven by increased volume, which offset the impact of lower realized prices.

Cyramza revenues of $253.4 million were flat year over year as decreased demand in the United States was offset by increased volume outside the U.S. market.

Jardiance sales rose 26% to $390.4 million, driven by increased demand trends within the SGLT2 class of diabetes medicines in the United States and increased volume outside the United States.

Basaglar recorded revenues of $192.8 million, down 22% year over year due to lower realized prices and weak demand caused by competitive pressure in the United States. Basaglar U.S. sales are expected to be to be hurt by price decline and loss of market share due to competitive pressure. Basaglar sales rose in international markets.

Taltz brought in sales of $593.1 million, up 33% year over year, as U.S. sales benefited from increased demand, which offset the impact of lower realized prices driven by increased rebates to gain broad commercial access and unfavorable segment mix. Ex-U.S. sales rose on increased volume, which offset the impact of lower realized prices.

Olumiant (baricitinib) generated sales of $406.9 million in the quarter, much higher than $208.4 million in the previous quarter, backed by increased use of the drug in the United States for treating COVID-19.

Verzenio generated sales of $335.5 million in the reported quarter, up 43% year over year, driven by increased demand, partially offset by lower realized prices.

Emgality generated revenues of $140.8 million in the quarter, up 53% year over year driven by increased demand and higher realized prices in the United States. Revenues also rose in the international market.

Tyvyt revenues in China were $125.6 million, up 49% year over year driven by increased demand. Lilly markets Tyvyt in partnership with Innovent.

Among the newer drugs, Retevmo generated sales of $33.6 million in the quarter compared with $25.7 million in the previous quarter. U.S. revenues were $29.2 million. Retevmo was launched in international markets in the second quarter and generated revenues of $4.4 million in the third quarter.

Among the established products, Forteo sales declined 25% to $200.9 million. Humalog sales were down 6% to $626.7 million. Humulin sales dropped 6% to $286.7 million. Alimta sales declined 21% to $457.0 million.

Lilly generated revenues of $217.1 million from its COVID-19 therapies, bamlanivimab and bamlanivimab/etesevimab cocktail medicine, in the quarter compared with $148.9 million in the previous quarter.

Gross Margin & Operating Income

Adjusted gross margin was 79% in the quarter, down 10 basis points as favorable products mix excluding COVID-19 therapies, and a favorable impact from foreign exchange rates on international inventory sold were more than offset by lower gross margin on COVID-19 therapies.

Operating income rose 37% year over year to $2.06 billion. Operating margin was 30.5% in the quarter, up 420 bps year over year due to by higher R&D costs.

Marketing, selling and administrative expenses rose 1%. R&D expense rose 17% in the quarter due to higher costs for late-stage pipeline candidates. R&D costs included expenses of $50 million to develop COVID-19 therapies.

Adjusted effective tax rate was 14.3%, lower than 15% in the year-ago quarter.

2021 Guidance

Lilly raised its previous sales and earnings forecast for 2021 due to additional expected revenues from its COVID-19 antibody medicines.

Lilly expects adjusted earnings per share in the range of $7.95 to $8.05 in 2021, up from the prior expectation of $7.80-$8.00, which indicates growth in the range of 17 (previously 15).

Revenues in 2021 are expected in the range of $27.2 billion-$27.6 billion, compared with $26.8 billion-$27.4 billion expected previously. U.S net prices are expected to decline in the range of low-to-mid single-digit in 2021.

Lilly expects revenues of $1.3 billion from COVID-19 therapies compared with the prior range of $1.0-$1.1 billion based on the existing U.S. government purchasing agreements for additional doses of etesevimab.

The gross margin is expected to be approximately 79% (maintained). The adjusted tax rate is expected to be approximately 13% (maintained). Adjusted operating margin is expected to be 30% (maintained).

Marketing, selling and administrative expense are expected to be in the range of $6.2 billion to $6.4 billion (maintained). Research and development expense is expected to be in the range of $6.9 billion to $7.1 billion (maintained).

Pipeline Update

Along with the earnings release, Lilly announced that it has submitted a new drug application (NDA) in the United States using a priority review voucher and a marketing authorization application in Europe seeking approval of tirzepatide for type II diabetes. Also, it has initiated a rolling submission seeking accelerated approval of donanemab for early Alzheimer's disease. The BLA submission is expected to be completed in the next few months with regulatory action from the FDA expected in the second half of 2022.

In October 2021, Lilly and partner Pfizer discontinued the development of tanezumab, which was being developed for osteoarthritis pain, following a receipt of a complete response letter from the FDA and a negative opinion adopted by the European Medicines Agency's Committee for Medicinal Products for Human Use on the tanezumab MAA.

Lilly announced plans to conduct TRAILBLAZER-ALZ 4, a phase III head-to-head study to compare donanemab to Biogen’s new Alzheimer drug, Aduhelm to assess the superiority of brain amyloid plaque clearance in early symptomatic Alzheimer's disease. Enrollment in the study is expected to begin in 2021.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 6.76% due to these changes.

VGM Scores

Currently, Lilly has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Lilly has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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