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Lilly (LLY) Q1 Earnings Beat, Coronavirus May Mar Profits

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Eli Lilly & Company (LLY - Free Report) reported first-quarter 2020 adjusted earnings per share of $1.75, which comprehensively beat the Zacks Consensus Estimate of $1.55. Earnings rose 32% year over year as higher R&D costs were offset by higher revenues.

Quarter in Detail

Revenues of $5.86 billion beat the Zacks Consensus Estimate of $5.51 billion. Sales grew 15% year over year, backed by strong volume trends, which offset the impact of lower realized prices.

Lower realized prices had a negative impact of 6% on sales. Volumes rose 22%, gaining from strong underlying demand trends for key growth products, augmented by higher patient and supply chain purchasing as people stocked medicines amid coronavirus-led lockdown. The coronavirus-related stockpiling mainly of Lilly’s diabetes medicine, Trulicity and psoriasis medicine, Taltz increased Lilly’s worldwide revenues by approximately $250 million. Higher volumes of key growth products, namely Trulicity, Taltz, Jardiance, Basaglar, Emgality, and Verzenio compensated for lower sales of older products like Cialis and Forteo due to loss of exclusivity.

Key growth products (products launched since 2014) drove 19% of revenue growth and represented nearly 51% total revenues, up from 46% in the previous quarter. U.S. revenues rose 15% to $3.33 billion while ex-U.S. revenues rose 15% to $2.53 billion.

Among the established products, Forteo sales declined 13%to $272.4 million. Humalog sales dropped 5% to $695.8 million. Humulin sales rose 6% to $315.7million.Alimta sales rose 12% to $560.1 million.

Among the growth products, Trulicity generated revenues of $1.23 billion, up 40% year over year driven by higher volumes in the United States as well as ex-U.S. markets, which offset the impact of lower realized prices.

Cyramza revenues were $239.0 million, up 21% year over year driven by higher volumes in both U.S. and international markets.

Jardiance sales rose 31% to $267.5 million, driven by increased demand trends within the SGLT2 class of diabetes medicines in the United States and increased volume outside the United States.

Basaglar recorded revenues of $303.7 million, up 21% year over year driven by higher volumes in both U.S. and international markets.

Taltz brought in sales of $443.5 million, up 76% year over year as U.S. sales gained from higher demand and higher realized prices due to changes in estimates for rebates and discounts. Ex-U.S. sales were driven by increased volume, which offset the impact of lower realized prices.

New rheumatoid arthritis drug, Olumiant generated sales of $139.7 million in the quarter compared with $127.8 million in the previous quarter, backed by increased demand in international markets. Revenues outside the United States were $128.4 million compared with $114.9 million in the previous quarter. In the United States, Olumiant recorded sales of $11.3 million compared with $13.0 million in the previous quarter.

New advanced breast cancer treatment medicine, Verzenio generated sales of $188.0 million in the quarter, up from $179.1 million in the previous quarter driven by increased volume.

New CGRP antibody, Emgality generated revenues of $74.0 million in the quarter compared with $66.3 million in the previous quarter. In the United States, Emgality sales were $67.3 million compared with $63.1 million in the previous quarter. Ex U.S. sales were $6.7 million in the first quarter. Amgen’s (AMGN - Free Report) Aimovig and Teva’s (TEVA - Free Report) Ajovy were two other CGRP antibodies launched last year, which pose strong competition to Emgality.

Lilly’s newly launched product, Baqsimi, which is a glucagon nasal powder to treat severe hypoglycemia in diabetes patients, generated sales of $17.8 million in the quarter.

Adjusted gross margin was 80.3% in the quarter, up 10 basis points driven by favorable product mix and manufacturing efficiencies, which were offset by the impact of lower realized prices on revenues. Operating income rose 32% year over year to $1.76 billion.

2020 Guidance

Lilly upped the higher end of its 2020 adjusted earnings guidance from a range of $6.70-$6.80 per share to $6.70 - $6.90 due to lower other expenses. However, the 2020 revenue guidance was maintained in the range of $23.7 billion-$24.2 billion. Gross margin guidance was maintained at approximately 81%. Adjusted tax rate is expected to be approximately 15%. Adjusted operating margin is expected to be 31% in 2020 (maintained).

The other expense guidance was lowered from a range of 100 million-250 million to $0-150 million.

Marketing, selling and administrative expense guidance was maintained in the range of $6.2 to $6.4 billion. Research and development expense is still expected to be in the range of $5.6 billion to $5.9 billion.

Coronavirus Related Research Efforts

Last week, Lilly announced that the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health (NIH), will evaluate its rheumatoid arthritis drug, Olumiant (baricitinib), as a potential treatment for hospitalized patients diagnosed with COVID-19. The drug will be evaluated in one of the arms of NIAID's Adaptive COVID-19 Treatment study. The study will first begin this month in the United States and then expand to additional sites in Europe and Asia. Data from the studies are expected in two months’ time.

Alongside, Lilly announced that it will advance LY3127804, its monoclonal antibody that inhibits Angiopoietin 2 (Ang2), to phase II studies in pneumonia patients hospitalized with COVID-19 who are at a higher risk of progressing to acute respiratory distress syndrome. The phase II studies will begin later this month.

In March, Lilly signed a deal with private biotech, AbCellera to co-develop antibody therapies to treat and prevent COVID-19. To develop these therapies, the companies will select from more than 500 unique antibodies identified by AbCellera and isolated from the blood sample of a U.S. COVID-19 patient who recovered from the disease.

Last month, Lilly halted enrollment in most ongoing studies and said that it will delay new study starts in order to allow doctors and healthcare facilities to focus on efforts to combat COVID-19. Along with the earnings release, Lilly clarified that enrollment in ongoing studies and new clinical study starts will resume in the second half of the year,

Our Take

Lilly reported strong first-quarter results, beating estimates on both counts.

The stock was up slightly in pre-market trading. Lilly’s stock has risen 19.3% this year so far against a decrease of 3% for the industry.



However, despite the solid first-quarter results, the company maintained its full-year revenue guidance as it expects the coronavirus-related benefits seen in the first quarter to reverse over the course of 2020. In fact, Lilly expects reduction in new-to-brand prescription trends to be most significant in the second quarter in the United States and most European countries Importantly, Lilly’s chief financial officer, Josh Smiley, warned that the economic consequences of the pandemic are uncertain and could hurt its profits in the future quarters of 2020 and beyond. In fact, reduced non-COVID healthcare activities due to business disruptions and global economic challenges emanating from the pandemic may hurt its profits, going forward.

Nonetheless, Lilly still expects revenue growth to be driven by higher demand for its growth drugs including Trulicity, Taltz, Basaglar, Jardiance, Verzenio, Cyramza, Olumiant, Emgality, Baqsimi as well as potential revenues from new product launches. However, generic competition for several drugs, rising pricing pressure in the United States due to rebates and legislated increases in Medicare Part D cost sharing, and price cuts in some international markets like China, Japan and Europe are some top-line headwinds expected in 2020. In the United States, prices are still expected to decline in a low-single digit range.

Zacks Rank

Lilly currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Another top-ranked large biotech/drug company is Regeneron Pharmaceuticals (REGN - Free Report) , which has a Zacks Rank #1. Its stock has risen 48.6% this year so far while its earnings estimates for 2020 have risen from $27.13 to $27.29 in the past seven days.


Eli Lilly and Company Price, Consensus and EPS Surprise


Eli Lilly and Company Price, Consensus and EPS Surprise

Eli Lilly and Company price-consensus-eps-surprise-chart | Eli Lilly and Company Quote


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