Eli Lilly & Company (LLY - Free Report) is known for its drugs like Humalog, Alimta, Taltz, and many others.
Indianapolis, IN based Lilly boasts a wide range of products that serve a vast number of therapeutic areas. The company focuses primarily on central nervous system disorders, metabolic diseases, autoimmune diseases, cardiovascular diseases and cancer, which are all high-growth areas and represent significant commercial potential.
Here are five reasons to invest in the stock this year.
Good Rank and VGM Score: Lilly currently carries a Zacks Rank #1 (Strong Buy) and has a favorable VGM Score of B. Back-tested results show that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy) offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
Rising Share Price and Earnings Estimates: Lilly’s shares have outperformed the large-cap pharma industry in the past year. The stock has returned 35.8% in the said timeframe against the industry’s decrease of 2.5%. Lilly’s outperformance has been backed by decent quarterly results, positive news flow and regulatory updates.
Lilly’s earnings estimates have risen 2% for 2019 over the past 30 days.
Its earnings surpassed expectations in each of last four quarters, with the average positive surprise being 10.03%.
The company is expected to record earnings and sales growth of 6% and 4.4%, respectively in 2019.
Upbeat 2019 Outlook: In December, Eli Lilly provided better-than-expected financial outlook for 2019 at its investor meeting. Lilly expects revenues to be between $25.3 billion and $25.8 billion in 2019, indicating mid-single-digit growth. Revenue growth is expected to be driven by higher demand for its newer medicines including Trulicity, Jardiance, Taltz, Verzenio as well as newly launched migraine drug, Emgality as some older drugs like Cialis lose patent exclusivity. Earnings per share are expected to be in the range of $5.90 to $6.00 in 2019.
Lilly raised its long-term revenue growth expectations as well. The company now expects annual revenue growth of at least 6% during the 2015-2020 period, up from 5% expected previously. For its Pharmaceuticals unit, Lilly expects 7% growth over the same time period.
Pipeline Progress: Lilly was on a strong footing in terms of its pipeline in 2018 with several positive late-stage data readouts. These included positive data from phase III studies on pipeline candidates, tanezumab for osteoarthritis (OA) pain, ultra-rapid lispro for 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 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 the 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 in 2018.
Several key regulatory and pipeline events are expected in 2019, which will drive the stock further.
Loxo Buyout and Strategic Deals: In the beginning of 2019, Lilly announced a definitive deal to acquire small cancer biotech, Loxo Oncology, Inc., for $8 billion in cash. The deal will broaden Lilly’s cancer portfolio into targeted medicines by adding Loxo’s newly approved marketed drug Vitrakvi as well as three precision medicines to its pipeline for multiple tumor types. At the recently held prestigious J.P. Morgan Healthcare Conference, Lilly CEO David Ricks said that the company will continue to evaluate other potential deal targets to enhance its position in its core therapeutic areas like cancer, immunology and neuroscience.
In addition, with the acquisition of California-based immuno-oncology biotech, ARMO Biosciences in June 2018, Lilly added pancreatic cancer candidate, pegilodecakin, to its pipeline.
Lilly also announced several business development transactions in 2018, including a licensing agreement which Chugai Pharmaceuticals for an oral GLP-1 agonist and a licensing and research collaboration with Dicerna Pharmaceuticals, utilizing its RNAi technology platform. Important collaborations include one with NextCure Inc., to make novel immuno-oncology cancer therapies; Aduro Biotechto develop new immunotherapies for autoimmune and other inflammatory diseases; and with Swiss biotech AC Immune to jointly develop Morphomer tau aggregation inhibitors, which have the potential to treat Alzheimer's disease and other neurodegenerative diseases.
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 in mid-2018. 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.
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 2019.
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