Eli Lilly on Thursday reported a successful quarter driven by sales of its blockbuster obesity and diabetes drugs, allaying any lingering investor concerns about the stock. Second-quarter revenue rose 36% year-over-year to $11.3 billion, beating expectations of $9.92 billion, according to LSEG estimates. Adjusted earnings per share (EPS) for the three months ended June 30 were $3.92, handily beating the $2.60 estimate, LSEG data showed. On an annualized basis, adjusted earnings per share rose 85.8%. Eli Lilly Why We Own It: Eli Lilly’s best-in-class drugs should enable above-industry growth for many years to come. The portfolio is built around its GLP-1 franchise, which currently consists of Mounjaro for type 2 diabetes and Zepbound for obesity. The fast-growing drug class has the potential to treat other conditions such as sleep apnea and reduce the risk of stroke. Lilly’s pipeline of Alzheimer’s treatments, including the recently approved Kisunla, adds to the stock’s long-term appeal. Competitors: Novo Nordisk, Biogen, Eisai, Merck and Pfizer Portfolio weight: 2.75% Last purchase: Feb. 7, 2023 Start: Oct. 8, 2021 Bottom line Investors were nervous when they read Eli Lilly’s report. The stock had fallen nearly 20% since its record close of $950.46 on July 15. The latest decline came on Wednesday after a disappointing report from its main rival in the GLP-1 drug market, Wegovy maker Novo Nordisk, raised concerns about pricing pressure. Now they can sleep a little easier. Eli Lilly not only beat estimates on all major items — earnings and revenue for diabetes drug Mounjaro and weight-loss drug Zepbound — but also raised its full-year forecast for sales, earnings and gross profit. No wonder shares rose over 8%. “Eli Lilly was a real bullseye on every measure,” Jim Cramer said Thursday. The report left little doubt that Eli Lilly’s best days are ahead, driven by the growth of GLP-1. Although the drug is primarily used to treat obesity, Lilly has released promising data in recent months showing that the drugs can also relieve sleep apnea and reduce the risk of heart failure. Zepbound posted quarterly sales of over $1 billion for the first time in the April-June period, just seven months after it hit U.S. pharmacies. Despite those eye-popping sales, Lilly CEO David Ricks claimed the obesity market is still nascent. “I think we’re at the bottom of the first inning here. It’s really early” for Zepbound, Eli Lilly CEO David Ricks said in a CNBC interview Thursday. “We’re not really promoting it. We’re not launching the product in 40 countries where we have approvals, and we haven’t even done most of the medical evidence that there is.” A key reason Eli Lilly hasn’t aggressively promoted Zepbound in the U.S. or entered more international markets: Demand has far outstripped supply. But the good news is that Eli Lilly’s multibillion-dollar investment in expanding manufacturing capacity is paying off. Last week, the Food and Drug Administration said all doses of Zepbound were now available after running short. The same is now true for Eli Lilly’s other blockbuster GLP-1, Mounjaro, which has also struggled with supply shortages. Mounjaro, which received U.S. approval for type 2 diabetes in May 2022, has a common active ingredient with Zepbound called tirzepatide. GLP-1s mimic a hormone in the gut to improve blood sugar control and effectively suppress appetite, aiding weight loss. Mounjaro and Zepbound are administered through injections. LLY YTD outpaces Eli Lilly’s year-to-date stock performance. Lilly executives offered encouraging thoughts on the company-specific issues hurting the stock lately: emerging competition in the GLP-1 space, which has been a concern in recent weeks following positive announcements from Roche and smaller biotech Viking Therapeutics, and pricing pressures that came to the fore in Wednesday’s session following Novo Nordisk’s report. It’s too early to assume Lilly will lose its leadership position in this fast-growing market. The company has a significant lead over everyone except co-market leader Novo Nordisk—on the conference call, executives said Lilly first released Phase 1 data for tirzepatide eight years ago. The Roche news that just scared Lilly investors? Both sets of data came from early Phase 1 trials. While Viking Therapeutics is further along, preparing to begin a late-stage Phase 3 trial for its lead injectable obesity drug, it still has a long way to go before it reaches the market. Analysts at Leerink expect a 2028 launch. And then there’s the hurdle that trips up even an established, well-capitalized drugmaker like Eli Lilly: manufacturing capacity. Lilly and Novo Nordisk have spent billions to ramp up production of injectable GLP-1s, which aren’t easy to manufacture and must meet the rigorous standards of regulators like the FDA. This is a significant advantage for the incumbent players. Eli Lilly also has next-generation GLP-1s in development that appear to be even more potent than the current lineup. Regarding pricing pressure on GLP-1s, Lilly management said the company expects stable quarter-to-quarter pricing in 2024. There was “nothing unusual” between the first and second quarters, said interim CFO Gordon Brooks, adding that the forecast assumes this will continue in the second half of the year. We reiterate our Buy 1 rating on Eli Lilly, although it is not our style to buy a stock during a one-day spike like the one Lilly shares experienced on Thursday. Our price target also remains at $1,000 per share. Forecast Eli Lilly now expects annual revenue in the range of $45.4 billion to $46.6 billion, representing a $3 billion increase on both the low and high ends. Wall Street had forecast 2024 revenue of $43 billion, according to FactSet. The Indianapolis-based drugmaker now expects full-year adjusted earnings per share of between $16.10 and $16.60, up from a range of $13.50 to $14. The consensus earnings per share estimate was $13.69, according to FactSet. Meanwhile, the adjusted gross margin range was raised to 37% to 39%, up from a range of 33% to 35%. On the supply front, Lilly executives reiterated that production of saleable GLP-1 doses in the second half of 2024 should be at least 1.5 times year-on-year levels. Some analysts had wondered whether the increased revenue forecast might lead to a change in their delivery targets, but that was not the case. Ricks told analysts on the conference call that 1.5x was “the floor” for second-half volume. He said the improved supply in the second quarter was due to overall performance across the entire manufacturing network, rather than a big production increase at a single facility like Research Triangle Park in North Carolina. Still, Ricks said the RTP facility was on track. Quarterly Commentary As can be seen from the chart above, there’s not much to complain about in the quarter. Sure, selling expenses of $2.17 billion were above expectations, but that’s spending to support drug launches. And based on EPS and margin performance, it clearly wasn’t a problem for the bottom line. Gross margin of 82.03% and operating margin of 37.95% both beat estimates and were well above year-over-year. Not surprisingly, Eli Lilly’s U.S. sales rose a solid 41.7% year-over-year in the second quarter, accelerating from the 28.4% growth rate in the January-March period. But the company’s performance in Europe, even though much smaller than its U.S. business, is also worth highlighting. Sales rose 19.2% year-over-year, with Mounjaro the main driver of growth in markets like the U.K. and Germany. Outside the U.S., Lilly is launching Mounjaro with a delivery method called KwikPen that is different from the auto-injection pens used domestically. This will facilitate supply and increase volumes. More progress on the KwikPen presentation can be seen in the coming quarters. Overall, Mounjaro’s sales for the quarter were $3.09 billion, well above the $2.43 billion estimate, according to FactSet. Zepbound’s sales of $1.24 billion also easily beat estimates of $927 million. Demand for both drugs remains strong, although interim CFO Brooks noted that second-quarter performance was partially impacted by inventory replenishment as supplies improved. Breast cancer drug Verzenio gets far less attention than GLP-1 drugs, but it remains an underappreciated growth driver for the company. Sales of $1.33 billion in the quarter hit an all-time high and rose 44% year over year. Sales of Trulicity – another type 2 diabetes drug and the company’s top-selling drug last year – continued to slide for a variety of reasons. Part of the reason is patients switching to Mounjaro, but supply constraints are also a problem for the product. One drug that didn’t get much attention at all on Thursday’s earnings call was Kisunla, the recently approved drug to treat Alzheimer’s disease. It’s not expected to be a big contributor to sales this year, although management noted that some patients have already started taking the drug. While we’re optimistic about the drug’s long-term benefits, analysts and investors are understandably more focused on Zepbound and Mounjaro right now. (Jim Cramer’s Charitable Trust is long LLY. A full list of stocks can be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable trust’s portfolio. If Jim has discussed a stock on TV, he waits 72 hours after the trade alert is issued before executing the trade. THE INFORMATION REGARDING INVESTING CLUB DESCRIBED ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR OBLIGATION IS CREATED OR RESULTS FROM THE RECEIPT OF INFORMATION RELATED TO INVESTING CLUB. NO PARTICULAR RESULT OR PROFIT IS GUARANTEED.
The drug tirzepatide, branded Mounjaro, from Eli Lilly & Co. was ordered from a pharmacy in Provo, Utah, USA, on Monday, November 27, 2023.
George Frey | Bloomberg |
Eli Lilly reported a strong quarter on Thursday, boosted by sales of its successful obesity and diabetes drugs, allaying any lingering investor concerns about the stock.
