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Why Is Lilly (LLY) Up 4.5% Since Last Earnings Report?
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A month has gone by since the last earnings report for Eli Lilly (LLY - Free Report) . Shares have added about 4.5% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Beats Q3 Earnings and Sales
Lilly reported third-quarter 2022 adjusted earnings per share (EPS) of $1.98, which beat the Zacks Consensus Estimate of $1.97. Earnings rose 12% year over year on the back of higher operating profits.
Acquired IPR&D and development milestone charges had 6 cents of negative impact in the third quarter of this year compared with 17 cents in the third quarter of 2021.
Revenues of $6.94 billion also beat the Zacks Consensus Estimate of $6.91 billion. Sales increased 2% year over year.
Lower realized prices, currency headwinds, lower sales of Alimta following generic entry, and lower sales of Olumiant for COVID-19 offset volume increase from key growth products like Trulicity, Taltz and Verzenio.
Excluding revenues from Alimta, Olumiant for the treatment of COVID-19 and COVID-19 antibodies, revenues grew 9% year over year, showing that the core business is doing well
Quarter in Detail
In the quarter, net realized prices decreased 7% while volumes rose 14%. The unfavorable impact of foreign exchange rates, primarily due to the weakening of the euro against the U.S. dollar, hurt sales by 4% in the quarter.
Key growth products (the ones launched in 2014) grew 19% (25% in constant currency), generated $4.6 billion in sales and made up nearly 70% of total revenues, excluding revenues from COVID-19 antibodies.
While U.S. revenues rose 11% to $4.42 billion, ex-U.S. revenues declined 9% to $2.52 billion.
Among the growth products, Trulicity generated revenues worth $1.85 billion, up 16% year over year, driven by increased demand worldwide, which offset the impact of lower realized prices in the United States as well as ex-U.S. markets and currency headwinds. Unfavorable segment mix and higher contracted rebates are hurting pricing in the United States. However, Trulicity sales missed the Zacks Consensus Estimate and our model estimate of $1.95 billion and $1.87 billion, respectively
Jardiance sales surged 47% to $573.3 million, driven by increased demand trends and favorable changes to estimates for rebates and discounts in the United States and increased demand outside the United States, partially offset by currency headwinds. The reported sales figure exceeded the Zacks Consensus Estimate and our estimate of $512 million and $522.9 million, respectively.
Taltz brought in sales of $679.9 million, up 15% year over year, driven by increased demand, which offset the impact of lower realized prices and currency headwinds.
Verzenio generated sales of $617.7 million in the reported quarter, up 84% year over year, on increased demand, driven by newly launched adjuvant indication, partially offset by lower realized prices due to updated 2022 NRDL price reductions in China and currency headwinds. Verzenio sales beat the Zacks Consensus Estimate of $604 million during the quarter.
Olumiant (baricitinib) generated sales of $182.9 million in the third quarter, down 55% on a year-over-year basis, on account of lower utilization of the medicine for COVID-19 treatment as the impact of the pandemic reduces.
Cyramza revenues of $232.1 million were down 8% year over year. Basaglar recorded revenues of $193 million, flat year over year.
Emgality generated revenues of $168.5 million in the quarter, up 20% year over year, as sales benefited from increased demand, which offset the impact of lower realized prices and currency headwinds.
Tyvyt revenues in China were $76.8 million, down 39% year over year on realized prices due to updated 2022 NRDL price reductions in China and increased competition. Lilly markets Tyvyt in partnership with Innovent.
Among the newer drugs, Retevmo generated sales of $40.5 million, compared with $45 million in the previous quarter.
New diabetes drug, Mounjaro, saw an impressive initial uptake, recording $187.3 million in revenues during the quarter, much higher than $16.0 million recorded in the previous quarter. While Mounjaro generated $97.3 million in product sales in the United States, Lilly recorded $86 million from the sale of the drug’s selling rights to a Japanese distributor. The reported sales figures exceeded our estimate of $75 million for the quarter. Lilly is working on improving manufacturing capacity for incretin to keep up with patient demand for Mounjaro. Mounjaro is an incretin-based medicine.
Among the established products, Forteo sales declined 12% to $177.1 million. Humulin sales dropped 17% to $238.2 million. Alimta sales declined 74% to $119.4 million due to the entry of multiple generic versions of the drug in the United States in the second quarter and continued generic competition in ex- U.S. markets. Humalog sales declined 29% to $447.0 million due to lower realized prices and currency headwinds.
In the reported quarter, Lilly recorded $386.6 million of revenues from COVID-19 therapies, up 78% year over year. Its COVID-19 therapies are bamlanivimab, bamlanivimab/etesevimab cocktail medicine and bebtelovimab alone.
Gross Margin & Operating Income
Adjusted gross margin remained flat year over year at 79% as benefits from a favorable product mix and the favorable effects of foreign exchange rates were offset by lower realized prices and increased expenses due to inflation and logistics costs.
Operating income rose 6% year over year to $2.01 billion due to higher gross margin, partially offset by higher operating expenses.
Operating margin was 28.9% in the quarter, including a negative impact of approximately 90 basis points attributed to acquire in-process R&D and development milestone.
In the quarter, Lilly recognized acquired in-process research and development (IPR&D) and development milestone charges of $62.4 million compared with $177.6 million in the year-ago quarter.
Marketing, selling and administrative expenses increased 2% to support launch of Mounjaro. R&D expense increased 6% in the quarter due to higher costs for late-stage pipeline candidates which offset lower costs to develop COVID-19 therapies.
Adjusted effective tax rate was 10.7%, compared with 14.3% in the year-ago quarter.
2022 Guidance
Lilly lowered its guidance for revenues and earnings. The company now expects revenues to be between $28.5-$29.0 billion, down from the previous guidance range of $28.8-$29.3 billion to account for currency headwinds ($300 million).
Lilly’s full-year outlook for revenues includes an additional $300 million of headwind from foreign exchange rates for a total impact of roughly $1 billion of FX headwind for the full year.
Earnings per share are expected to be between $7.70 and $7.85, down from $7.90 and $8.05 previously. Lilly lowered its earnings per share guidance to reflect the impact of currency headwinds and a 6 cents per share negative impact of acquired IPR&D and development milestone charges recorded in the third quarter of 2022.
Acquired IPR&D and development milestone charges are expected to be approximately $670 million in 2022, up from the previously reiterated $610 million, reflecting total charges in the first nine months of the year. The guidance does not include any potential or pending impact from any deal in the rest of the year including the pending deal of Akouos.
The new guidance range indicates growth in the range of 4% to 6% (previously 7% to 9%).
The gross margin is expected to be approximately 78% (same as before) while the adjusted operating margin is expected to be around 29% (same as before).
Marketing, selling and administrative expenses are expected to be in the range of $6.4-$6.6 billion (same as before). Research and development expense is expected to be in the range of $7.1 billion to $7.3 billion (same as before). Adjusted tax rate is expected to be approximately 13% to 14%.
Adjusted other income (expense) for 2022 is expected to be an expense in the range of $100 million to $0 million.
Initial 2023 Outlook
Lilly expects the initial revenues from the next wave of potential launches to be modest in 2023. In 2023, the company will see the full-year impact of Alimta's patent expiry in the United States. Lilly expects a low single-digit headwind from foreign exchange rates in 2023. Lilly does not expect COVID-19 antibodies to be a major driver for long-term growth for Lilly.
Costs incurred in expanding manufacturing capacity, support the potential launch of multiple new products, inflation impact and higher employee costs are expected to slow down operating margin expansion in 2023.
Pipeline and Other Updates From Q3
In August, Lilly made available its COVID-19 medicines, bebtelovimab for purchase by states, hospitals and certain other providers through a sole distributor.
Regarding donanemab, the company said that it expects the readout from the phase III TRAILBLAZER-ALZ 2 study by mid-2023, which, if positive, will form the basis of its application for traditional regulatory approval. A BLA seeking accelerated approval of donanemab, based on data from the TRAILBLAZER-ALZ study, is already under review with the FDA, with a decision expected in early 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -6.6% due to these changes.
VGM Scores
Currently, Lilly has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lilly has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Lilly belongs to the Zacks Large Cap Pharmaceuticals industry. Another stock from the same industry, Merck (MRK - Free Report) , has gained 10.8% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Merck reported revenues of $14.96 billion in the last reported quarter, representing a year-over-year change of +13.7%. EPS of $1.85 for the same period compares with $1.75 a year ago.
Merck is expected to post earnings of $1.54 per share for the current quarter, representing a year-over-year change of -14.4%. Over the last 30 days, the Zacks Consensus Estimate has changed -1.7%.
Merck has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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Why Is Lilly (LLY) Up 4.5% Since Last Earnings Report?
A month has gone by since the last earnings report for Eli Lilly (LLY - Free Report) . Shares have added about 4.5% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Beats Q3 Earnings and Sales
Lilly reported third-quarter 2022 adjusted earnings per share (EPS) of $1.98, which beat the Zacks Consensus Estimate of $1.97. Earnings rose 12% year over year on the back of higher operating profits.
Acquired IPR&D and development milestone charges had 6 cents of negative impact in the third quarter of this year compared with 17 cents in the third quarter of 2021.
Revenues of $6.94 billion also beat the Zacks Consensus Estimate of $6.91 billion. Sales increased 2% year over year.
Lower realized prices, currency headwinds, lower sales of Alimta following generic entry, and lower sales of Olumiant for COVID-19 offset volume increase from key growth products like Trulicity, Taltz and Verzenio.
Excluding revenues from Alimta, Olumiant for the treatment of COVID-19 and COVID-19 antibodies, revenues grew 9% year over year, showing that the core business is doing well
Quarter in Detail
In the quarter, net realized prices decreased 7% while volumes rose 14%. The unfavorable impact of foreign exchange rates, primarily due to the weakening of the euro against the U.S. dollar, hurt sales by 4% in the quarter.
Key growth products (the ones launched in 2014) grew 19% (25% in constant currency), generated $4.6 billion in sales and made up nearly 70% of total revenues, excluding revenues from COVID-19 antibodies.
While U.S. revenues rose 11% to $4.42 billion, ex-U.S. revenues declined 9% to $2.52 billion.
Among the growth products, Trulicity generated revenues worth $1.85 billion, up 16% year over year, driven by increased demand worldwide, which offset the impact of lower realized prices in the United States as well as ex-U.S. markets and currency headwinds. Unfavorable segment mix and higher contracted rebates are hurting pricing in the United States. However, Trulicity sales missed the Zacks Consensus Estimate and our model estimate of $1.95 billion and $1.87 billion, respectively
Jardiance sales surged 47% to $573.3 million, driven by increased demand trends and favorable changes to estimates for rebates and discounts in the United States and increased demand outside the United States, partially offset by currency headwinds. The reported sales figure exceeded the Zacks Consensus Estimate and our estimate of $512 million and $522.9 million, respectively.
Taltz brought in sales of $679.9 million, up 15% year over year, driven by increased demand, which offset the impact of lower realized prices and currency headwinds.
Verzenio generated sales of $617.7 million in the reported quarter, up 84% year over year, on increased demand, driven by newly launched adjuvant indication, partially offset by lower realized prices due to updated 2022 NRDL price reductions in China and currency headwinds. Verzenio sales beat the Zacks Consensus Estimate of $604 million during the quarter.
Olumiant (baricitinib) generated sales of $182.9 million in the third quarter, down 55% on a year-over-year basis, on account of lower utilization of the medicine for COVID-19 treatment as the impact of the pandemic reduces.
Cyramza revenues of $232.1 million were down 8% year over year. Basaglar recorded revenues of $193 million, flat year over year.
Emgality generated revenues of $168.5 million in the quarter, up 20% year over year, as sales benefited from increased demand, which offset the impact of lower realized prices and currency headwinds.
Tyvyt revenues in China were $76.8 million, down 39% year over year on realized prices due to updated 2022 NRDL price reductions in China and increased competition. Lilly markets Tyvyt in partnership with Innovent.
Among the newer drugs, Retevmo generated sales of $40.5 million, compared with $45 million in the previous quarter.
New diabetes drug, Mounjaro, saw an impressive initial uptake, recording $187.3 million in revenues during the quarter, much higher than $16.0 million recorded in the previous quarter. While Mounjaro generated $97.3 million in product sales in the United States, Lilly recorded $86 million from the sale of the drug’s selling rights to a Japanese distributor. The reported sales figures exceeded our estimate of $75 million for the quarter. Lilly is working on improving manufacturing capacity for incretin to keep up with patient demand for Mounjaro. Mounjaro is an incretin-based medicine.
Among the established products, Forteo sales declined 12% to $177.1 million. Humulin sales dropped 17% to $238.2 million. Alimta sales declined 74% to $119.4 million due to the entry of multiple generic versions of the drug in the United States in the second quarter and continued generic competition in ex- U.S. markets. Humalog sales declined 29% to $447.0 million due to lower realized prices and currency headwinds.
In the reported quarter, Lilly recorded $386.6 million of revenues from COVID-19 therapies, up 78% year over year. Its COVID-19 therapies are bamlanivimab, bamlanivimab/etesevimab cocktail medicine and bebtelovimab alone.
Gross Margin & Operating Income
Adjusted gross margin remained flat year over year at 79% as benefits from a favorable product mix and the favorable effects of foreign exchange rates were offset by lower realized prices and increased expenses due to inflation and logistics costs.
Operating income rose 6% year over year to $2.01 billion due to higher gross margin, partially offset by higher operating expenses.
Operating margin was 28.9% in the quarter, including a negative impact of approximately 90 basis points attributed to acquire in-process R&D and development milestone.
In the quarter, Lilly recognized acquired in-process research and development (IPR&D) and development milestone charges of $62.4 million compared with $177.6 million in the year-ago quarter.
Marketing, selling and administrative expenses increased 2% to support launch of Mounjaro. R&D expense increased 6% in the quarter due to higher costs for late-stage pipeline candidates which offset lower costs to develop COVID-19 therapies.
Adjusted effective tax rate was 10.7%, compared with 14.3% in the year-ago quarter.
2022 Guidance
Lilly lowered its guidance for revenues and earnings. The company now expects revenues to be between $28.5-$29.0 billion, down from the previous guidance range of $28.8-$29.3 billion to account for currency headwinds ($300 million).
Lilly’s full-year outlook for revenues includes an additional $300 million of headwind from foreign exchange rates for a total impact of roughly $1 billion of FX headwind for the full year.
Earnings per share are expected to be between $7.70 and $7.85, down from $7.90 and $8.05 previously. Lilly lowered its earnings per share guidance to reflect the impact of currency headwinds and a 6 cents per share negative impact of acquired IPR&D and development milestone charges recorded in the third quarter of 2022.
Acquired IPR&D and development milestone charges are expected to be approximately $670 million in 2022, up from the previously reiterated $610 million, reflecting total charges in the first nine months of the year. The guidance does not include any potential or pending impact from any deal in the rest of the year including the pending deal of Akouos.
The new guidance range indicates growth in the range of 4% to 6% (previously 7% to 9%).
The gross margin is expected to be approximately 78% (same as before) while the adjusted operating margin is expected to be around 29% (same as before).
Marketing, selling and administrative expenses are expected to be in the range of $6.4-$6.6 billion (same as before). Research and development expense is expected to be in the range of $7.1 billion to $7.3 billion (same as before). Adjusted tax rate is expected to be approximately 13% to 14%.
Adjusted other income (expense) for 2022 is expected to be an expense in the range of $100 million to $0 million.
Initial 2023 Outlook
Lilly expects the initial revenues from the next wave of potential launches to be modest in 2023. In 2023, the company will see the full-year impact of Alimta's patent expiry in the United States. Lilly expects a low single-digit headwind from foreign exchange rates in 2023. Lilly does not expect COVID-19 antibodies to be a major driver for long-term growth for Lilly.
Costs incurred in expanding manufacturing capacity, support the potential launch of multiple new products, inflation impact and higher employee costs are expected to slow down operating margin expansion in 2023.
Pipeline and Other Updates From Q3
In August, Lilly made available its COVID-19 medicines, bebtelovimab for purchase by states, hospitals and certain other providers through a sole distributor.
Regarding donanemab, the company said that it expects the readout from the phase III TRAILBLAZER-ALZ 2 study by mid-2023, which, if positive, will form the basis of its application for traditional regulatory approval. A BLA seeking accelerated approval of donanemab, based on data from the TRAILBLAZER-ALZ study, is already under review with the FDA, with a decision expected in early 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -6.6% due to these changes.
VGM Scores
Currently, Lilly has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lilly has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Lilly belongs to the Zacks Large Cap Pharmaceuticals industry. Another stock from the same industry, Merck (MRK - Free Report) , has gained 10.8% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Merck reported revenues of $14.96 billion in the last reported quarter, representing a year-over-year change of +13.7%. EPS of $1.85 for the same period compares with $1.75 a year ago.
Merck is expected to post earnings of $1.54 per share for the current quarter, representing a year-over-year change of -14.4%. Over the last 30 days, the Zacks Consensus Estimate has changed -1.7%.
Merck has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.