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Lilly (LLY) Q2 Earnings Top Estimates, Sales Lag, Stock Down

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Eli Lilly & Company (LLY - Free Report) reported second-quarter 2020 adjusted earnings per share of $1.89, which comprehensively beat the Zacks Consensus Estimate of $1.58. Earnings rose 26% year over year boosted by higher other income and lower SG&A costs.

Revenues of $5.5 billion missed the Zacks Consensus Estimate of $5.62 billion. Sales decreased 2% year over year as volume increases were offset by the impact of lower realized prices of several of its drugs. Lower realized prices had a negative impact of 7% on sales. Volumes rose 6%.

Reduction in new prescription trends (as fewer patients visit a doctor) hurt the top line in the second quarter by approximately $250 million Meanwhile, coronavirus-related stockpiling benefits, which increased sales of medicines like diabetes medicine, Trulicity and psoriasis medicine, Taltz in the first quarter reversed in the second quarter and hurt total revenues by another $250 million.

Quarter in Detail

Key growth products (products launched since 2014) drove 9% of revenue growth and represented nearly 54% total revenues, up from 51% in the previous quarter. U.S. revenues declined 3% to $3.15 billion while ex-U.S. revenues declined 1% to $2.36 billion.

Among the established products, Forteo sales declined 30% to $252.7 million. Humalog sales dropped 18% to $555.1 million. Humulin sales declined 3% to $313.6 million. Alimta sales declined 7% to $539.1 million.

Among the growth products, Trulicity generated revenues of $1.23 billion, up 20% year over year driven by higher volumes, which offset the impact of lower realized prices.

Cyramza revenues were $256.7 million, up 6% year over year primarily driven by higher realized prices and increased demand in the United States and higher volumes in ex-U.S. markets.

Jardiance sales rose 13% to $262.0 million driven by higher demand and volumes.

Basaglar recorded revenues of $290.4 million, flat year over year as higher sales in ex-U.S. market offset the impact of lower U.S. revenues.

Taltz brought in sales of $395.2 million, up 12% year over year as U.S. sales gained from higher demand, which offset the impact of lower realized prices. Ex-U.S. sales were driven by increased volume, which offset the impact of lower realized prices.

New rheumatoid arthritis drug, Olumiant generated sales of $145.0 million in the quarter compared with $139.7 million in the previous quarter, backed by increased demand in international markets. Revenues outside the United States were $131.8 million compared with $128.4 million in the previous quarter.

Verzenio generated sales of $208.6 million in the quarter, up 56% driven by increased volume.

Emgality generated revenues of $87.4 million in the quarter compared with $74.0 million in the previous quarter. Amgen’s (AMGN - Free Report) Aimovig and Teva’s Ajovy were two other CGRP antibodies launched in 2018, which pose strong competition to Emgality.

Lilly’s newly launchedproduct, Baqsimi, which is a glucagon nasal powder to treat severe hypoglycemia in diabetes patients, generated sales of $13.6 million in the quarter compared with $17.8 million in the previous quarter.

Retevmo (selpercatinib), approved for treating RET-altered lung and thyroid cancer in May, generated sales of 6.3 million in the second quarter

Adjusted gross margin was 79.6% in the quarter, down 140 basis points, primarily due to the impact of lower realized prices on revenue. Operating income declined 2% year over year to $1.54 billion due to lower revenues, which offset the benefit from lower SG&A costs.

2020 Guidance

Lilly upped its 2020 adjusted earnings guidance from a range of $6.70-$6.90 to $7.20-$7.40. The revised earnings guidance indicates year-over-year growth in the range of 19% to 23%.

However, the 2020 revenue guidance was maintained in the range of $23.7 billion-$24.2 billion.Gross margin is expected to be approximately 80% (previously approximately 81%). Adjusted tax rate is expected to be approximately 14% (previously 15%). Adjusted operating margin is expected to be 31% in 2020 (maintained).

Marketing, selling and administrative expense guidance was lowered from a range of $6.2 to $6.4 billion to $6.0 to $6.2 billion, reflecting cost savings from travel and promotional activities. Research and development expense is still expected to be in the range of $5.6 billion to $5.9 billion.

Coronavirus Related Research Efforts

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 - Free Report) 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.

Lilly is developing an antibody therapy candidate, LYCoV555 in collaboration with AbCellera. The company has completed dosing of a phase I study and has initiated a phase II study on the candidate. Lilly also has a separate collaboration with China-based Junshi Biosciences to co-develop therapeutic antibodies for COVID-19. The companies have completed dosing in a phase I study on LY-CoV016, the lead antibody from the collaboration.

Our Take

Lilly reported mixed second-quarter results, beating estimates for earnings while missing the same for sales. The coronavirus pandemic decreased new patient starts for some of Lilly's medicines, which hurt its total revenues and pushed its shares down 2.2% in pre-market trading. Lilly’s stock has risen 23.1% this year so far compared with an increase of 1.1% for the industry.



The company raised its earnings expectations for the year due to expectations for higher other income and lower SG&A costs while keeping its sales guidance intact.

Nonetheless, Lilly expects improvement in new prescription volume trends for its key products in the second half of 2020, which it expects will cross pre-pandemic levels by the fourth quarter. It still expects revenue growth to be driven by higher demand for its growth drugs including Trulicity, Taltz, Basaglar, Jardiance, Verzenio, Cyramza, Olumiant, Emgality, Baqsimi as well as potential revenues from new 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 top-line headwinds expected in 2020. In the United States, prices are now expected to decline in a mid-single digit range versus prior expectation of low-single digit range.

Overall, Lilly had a very fruitful quarter as far as its pipeline development is concerned. In the second quarter, Lilly gained FDA approvals for three new medicines — 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. It also announced positive data for several important phase III studies including one on Verzenio in early stage breast cancer indication.

Zacks Rank

Lilly currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked large cap stock is Roche (RHHBY - Free Report) , carrying a Zacks Rank #2 (Buy). Its earnings estimates have risen from $2.60 per share to $2.63 per share for 2020 and from $2.77 per share to $2.81 for 2021 per share over the past 60 days. The stock has gained 10.1% this year so far.

Eli Lilly and Company Price, Consensus and EPS Surprise

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