Eli Lilly & Company’s (LLY - Free Report) stock has outperformed the industry this year so far. Lilly’s shares have risen 33.7% compared with the industry’s increase of 6.8%. Here are some reasons for the same.
Impressive Pipeline Progress This Year: Lilly has been on a strong footing in terms of its pipeline this year so far with several positive late-stage data readouts. These include positive data from phase III studies on pipeline candidates, tanezumab in osteoarthritis (OA) pain, ultra-rapid lispro in type I and type II diabetes and flortaucipir, its tau imaging agent for Alzheimer’s disease.
A novel diabetes candidate in Lilly’s pipeline is tirzepatide, a dual GIP and GLP-1 receptor agonist (GIP/GLP-1 RA), which showed impressive blood sugar reductions and weight loss in type II diabetes patients in October. In addition, Lilly also presented encouraging data from late-stage label expansion studies on psoriatic arthritis drug, Taltz for another indication — ankylosing spondylitis, cancer drug, Cyramza, for the second-line treatment of liver cancer and type II diabetes drugs Trulicity for reducing cardiovascular risk and Jardiance for type I diabetes.
A key regulatory success for Lilly was FDA approval of Emgality/galcanezumab, a calcitonin gene-related peptide (CGRP) antibody for migraine prevention, which could emerge as a significant contributor to long-term growth.
Other important approvals this year were that of JAK inhibitor, Olumiant (baricitinib) in the United States and breast cancer drug Verzenio in first-line setting in the United States, Europe as well as Japan.
Talking about CGRP antibodies, Emgality will face intense competition from Amgen (AMGN - Free Report) /Novartis’ (NVS - Free Report) and Teva Pharmaceutical Industries Limited’s (TEVA - Free Report) newly launched CGRPs, Aimovig and Ajovy respectively. Both were launched in the United States this year.
Several key regulatory and pipeline events are expected in 2019, which will drive the stock further.
Strategic Deals: Lilly also announced several business development transactions, including a licensing agreement which Chugai Pharmaceuticals for an oral GLP-1 agonist; a licensing and research collaboration with Dicerna Pharmaceuticals, utilizing its RNAi technology platform and collaboration with NextCure Inc., focused on discovery and development of novel immuno-oncology cancer therapies. In addition, with the acquisition of California-based immuno-oncology biotech, ARMO Biosciences in June, Lilly added pancreatic cancer candidate, pegilodecakin, to its pipeline.
Spin-Off of Animal Health Unit: Lilly divested its Elanco animal health unit as an independent publicly traded company — Elanco Animal Health Incorporated — via an initial public offering (“IPO”) of a minority stake this year. Elanco Animal Health started trading with the ticker symbol ELAN on NYSE from Sep 20. Lilly owns 80.2% stake in the new company, which is expected to be divested through a “tax-efficient transaction” by 2019. We believe Lilly’s decision to separate Elanco, which had been underperforming was prudent.
Aggressive Cost-Cutting Initiatives: Lilly is also resorting to cost cutting and headcount reduction to drive the bottom line. The headcount reductions announced in September 2017 are expected to amass annualized savings of approximately $500 million, beginning 2018. Lilly plans to invest the savings in new drugs and overall growth of the company. Also, the company returned $1.6 billion to shareholders via dividend and share repurchases.
Lilly has its share of challenges, which include rising competitive pressure on its drugs this year, generic competition for several drugs including key drug, Cialis and rising pricing pressure on the diabetes franchise.
However, it looks like Lilly’s strong pipeline, consistent outperformance of new drugs, cost cuts and regular strategic deals will keep the stock afloat through the rest of the year and the next.
Lilly currently carries 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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