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Can Eli Lilly (LLY) Keep the Earnings Streak Alive in Q2?

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Eli Lilly and Company (LLY - Free Report) will report second-quarter 2018 results on Jul 24, before market open. Last quarter, the company delivered a positive earnings surprise of 18.6%.

Lilly’s shares have risen 6.6% this year so far while the industry recorded a decrease of 0.7%.



Lilly’s earnings performance has been pretty impressive with earnings beating expectations in each of the last four quarters, bringing the average positive surprise to 8.20%.


Eli Lilly and Company Price and EPS Surprise


Eli Lilly and Company Price and EPS Surprise | Eli Lilly and Company Quote

Let’s see how things are shaping up for this quarter.

Factors to Consider

Like the previous couple of quarters, strong uptake trends of new products like Trulicity, Taltz, Basaglar, Cyramza, Jardiance and Lartruvo should make up for the decline in sales of established products like Zyprexa, Alimta, Cialis, Strattera and Effient.

While Trulicity sales are being driven by growth in the GLP-1 market and market share gains, Jardiance sales should continue to be driven by increased market share within the growing SGLT2 class. The Zacks Consensus Estimate for Trulicity second-quarter revenues is $730 million.

Continued strong uptake outside the United States will continue to drive sales of Cyramza. In the quarter, Taltz was approved to treat genital psoriasis, which should add to the drug’s sales in Q2.

Meanwhile, the loss of exclusivity in some countries for Effient, Strattera, Zyprexa, Cymbalta, Evista and Axiron will continue to hurt volumes. Also, competitive pressure and loss of exclusivity in certain countries are hurting Alimta sales – a trend expected to continue in the second quarter. The Zacks Consensus Estimate for Alimta sales in the second quarter is pegged at $529 million.

Lower demand will continue to hurt sales of Cialis. The Zacks Consensus Estimate for Cialis sales in the second quarter is pegged at $505 million.

Another new drug, Olumiant (baricitinib) was launched in select European countries and in Japan in 2017 and generated sales of $32.2 million in the first quarter supported by a strong launch uptake in Germany. Sales are expected to be higher in the second quarter.  The drug was approved in the United States, but only for the lower dose, in June. Lilly should discuss the commercialization plans for Olumiant in the U.S. market on the second-quarter call. Lilly has developed Olumaint in partnership with Incyte Corporation (INCY - Free Report)

Advanced breast cancer treatment, Verzenio, launched in the Unites States in the fourth quarter of 2017, generated sales of $29.7 million in the first quarter of 2018. In February, Verzenio gained FDA approval and was launched in the first-line setting for metastatic breast cancer based on MONARCH 3 data - which may bring in some additional sales in Q2.

Some older products like Humulin and Forteo are likely to do well. Last quarter, Forteo sales declined due to decreased volume from unfavorable wholesale and retail buying patterns in the United States. It is to be seen if Forteo sales trends improve this time around

Elanco Animal Health sales have been hurt by lower demand for food animal products due to market access pressure. The negative trend should continue in the second quarter. However, on the first-quarter call, management had said that after being slightly negative in the first half, Animal Health revenues are expected to improve in the second half of 2018 supported by product launches. An update on this guidance is expected on the second-quarter call. The Zacks Consensus Estimate for sales in the Animal Health segment is $793 million.

Lilly is exploring strategic alternatives for this business including a sale, merger or creating a separate company through an initial public offer. A decision regarding the same is expected to be announced in July on the conference call.

Earnings Whispers

Our proven model does not conclusively show that Lilly will beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Earnings ESP: Its Earnings ESP is -0.58% as the Zacks Consensus Estimate for earnings is $1.31 per share while the Most Accurate Estimate is pegged lower at $1.30. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Lilly’s Zacks Rank #2 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some large drug/biotech stocks that have the right combination of elements to beat on earnings this time around:

Amgen, Inc. (AMGN - Free Report) with an Earnings ESP of +0.91% and a Zacks Rank #3. The company is scheduled to release results on Jul 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

AbbVie, Inc. (ABBV - Free Report) has an Earnings ESP of +0.11% and a Zacks Rank #3. The company is slated to release results on Jul 27.

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