Eli Lilly and Company (LLY Quick QuoteLLY - Free Report) issued a better-than-expected financial guidance for 2017, alleviating investor concern to a large extent. The company also re-affirmed the previously issued 2016 projection as well as its long-term expectations.

2017 Forecast Impresses

In 2017, top-line growth is expected to be in a mid-single-digit range, driven by higher volumes of newer drugs. On the other hand, bottom-line growth is anticipated in a double-digit range, backed by sales improvement and cost-reduction efforts.

Adjusted earnings per share are expected in the range of $4.05 to $4.15 on revenues of $21.8–$22.3 billion. The earnings guidance is above the Zacks Consensus Estimate of $3.99. Meanwhile, the Zacks Consensus Estimate for sales is pegged at $21.86 billion, near the low end of management’s guidance.

Investor optimism on the robust guidance was apparent from the 5.5% increase in the company’s stock price on Thursday. Note that Lilly’s stock has been going through a difficult phase since its announcement of unfavorable solanezumab data last month. On Nov 23, Lilly announced that its high-profile investigational Alzheimer’s disease drug, solanezumab, has failed to meet the primary endpoint in a late-stage study. As a result, Lilly decided to stop the development of the candidate. The stock even crashed to a 52-week low on the day. In the past one month, Lilly’s share price has declined 8.2%, which compares unfavorably with the 0.9% dip witnessed by the Zacks classified Large-Cap Pharma industry.

Marketing, selling and administrative expenses are expected in the range of $6.4–$6.6 billion, while research and development expenses are projected to be $4.9–$5.1 billion.

Despite the termination of the solanezumab program though, a number of positive regulatory updates were given by the company in the recent past, which in turn supported its bullish outlook. In early December, the FDA approved the company’s request to add the cardiovascular (CV) indication to its type II diabetes drug Jardiance’s label.With about 50% of deaths in type II diabetics resulting from CV disease, the latest data addition is expected to improve Jardiance’s sales substantially.

Meanwhile, in October, Lilly’s pipeline candidate, olaratumab received accelerated approval in the U.S. to be used in combination with doxorubicin for the treatment of soft tissue sarcoma. The drug will be sold under the trade name Lartruvo. The company is also anticipating an approval for its rheumatoid arthritis candidate, baricitinib, next year, which would bolster its top line.

Reaffirms 2016 Guidance

For 2016, Lilly expects revenues in the range of $20.8 billion to $21.2 billion and adjusted earnings per share of $3.50 to $3.60, same as previous expecations. Adjusted gross margin is expected to be 76.5%, slightly higher than 76% expected previously.

While the company still expects to spend $6.2–$6.4 billion on marketing, selling and administration; the research and development expenses guidance was revised to the range of $5.0–$5.2 billion from $4.9–$5.1 billion projected earlier.

Long-Term Targets in Place

Lilly has further reiterated its annual revenue growth target of at least 5% through 2020 on a constant-currency basis on the back of robust volumes. Gross margins are also expected to witness an expansion during this period. Lilly expects to achieve total operating expense efficiency of 50% or less of revenues by the end of 2018, consistent with its previous commentary.

Even though quite a few of Lilly’s drugs are facing generic competition, the company is still looking to resume annual dividend hikes. The company continues to expect launching 20 new products over the 10-year time frame between 2014 and 2023.

Launches Basaglar

In a separate press release, Lilly announced that Basaglar, a long-acting insulin developed in collaboration with German drugmaker Boehringer, was launched in the U.S. It is a follow-on insulin to Sanofi’s (SNY Quick QuoteSNY - Free Report) Lantus. Basaglar was approved by the FDA in Dec 2015 to control high blood sugar in adults and children with type 1 diabetes, and adults with type 2 diabetes. Basaglar is now available by prescription across the U.S.

Lilly’s diabetes franchise has been making it to the headlines lately. Earlier this week, the company announced FDA approval of an extended-release formulation of another type II diabetes prescription drug, Synjardy. Also, Lilly, in partnership with Express Scripts Holding Company , announced that it will offer insulin products at discounted prices, starting Jan 2017, to patients via Blink Health’s mobile and web platforms. Moreover, last week, the company announced FDA approval for a label update of Jardiance.

We remind investors that the diabetes market is pretty crowded given the presence of companies like Novo Nordisk A/S (NVO Quick QuoteNVO - Free Report) , Johnson & Johnson and Merck. These positive developments in the diabetes franchise may give Lilly a competitive advantage over other type II diabetes medicines.

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

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