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Eli Lilly (LLY) Q1 Earnings Miss, COVID-19 Drug Demand Low

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Eli Lilly & Company LLY reported first-quarter 2021 adjusted earnings per share of $1.87, which missed the Zacks Consensus Estimate of $2.12. Earnings however rose 16% year over year.

Revenues of $6.81 billion also missed the Zacks Consensus Estimate of $6.89 billion. Nevertheless, sales increased 16% year over year as volume increases and currency tailwinds offset the impact of lower realized prices of several of its drugs.

Inventory patterns had a negative impact on revenue growth in the first quarter of 2021 as significant COVID-19-related stocking had benefited sales by roughly $250 million in the year-ago quarter. The unfavourable comparison mainly hurt sales of Lilly’s diabetes medicines, mainly Trulicity. Meanwhile, lower expected revenues from Lilly’s COVID-19 antibody sales due to lower demand hurt sales in the quarter.

Quarter in Detail

Lower realized prices had a negative impact of 4% on sales. Volumes rose 17%. Foreign exchange had a positive impact of 3% on revenue growth in the quarter.

Key growth products (products launched since 2014) drove 8% of revenue growth and represented nearly 52% total revenues, excluding revenues from COVID-19 antibodies. U.S. revenues climbed 18% to $3.94 billion while ex-U.S. revenues increased 13% to $2.86 billion.

Among the growth products, Trulicity generated revenues worth $1.45 billion, up 18% year over year driven by higher volumes, which offset decline in prices.

Cyramza revenues of $240.5 million were up 1% year over year, as lower realized prices and decreased demand in the United States were partially offset by higher volumes in the ex-U.S. markets.

Jardiance sales rose 17% to $312.0 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 $246.6 million, down 19% year over year due to lower realized prices and weak demand caused by competitive pressure in the United States. Basaglar sales also declined in international markets.

Taltz brought in sales of $403.2 million, down 9% year over year as U.S. sales were hurt by lower realized prices. Ex-U.S. sales rose driven by increased volume.

Olumiant generated sales of $193.8 million in the quarter, up 39% year over year backed by increased volume in international markets. Lilly markets Olumiant in partnership with Incyte INCY

Verzenio generated sales of $269.0 million in the reported quarter, up 43% year over year, driven by increased demand and to some extent, higher realized prices.

Emgality generated revenues of $119.5 million in the quarter, up 61% year over year.

Among the newer drugs, Retevmo, launched last year, generated sales of $16.8 million in the quarter compared with $18.7 million in the previous quarter.

Among the established products, Forteo sales declined 27% to $198.5 million and Humalog sales declined 11% to $617.0 million. Humulin sales rose 2% to $321.7 million while Alimta sales were flat at $559.0 million.

Lilly generated revenues of $810.1 million from its COVID-19 therapies, bamlanivimab and its combination medicines in the quarter, less than $871.2 million recorded in the previous quarter. Bamlanivimab was granted Emergency Use Authorization (EUA) by the FDA in November 2020 while a combination of bamlanivimab (700 mg) and etesevimab (1400 mg) was approved in February. However, Lilly has requested the FDA to revoke the EUA to bamlanivimab as a monotherapy as it will now focus only on supplying bamlanivimab and etesevimab together. Lilly believes that the cocktail medicine can neutralize more of the emerging COVID-19 variants in the United State.

In January, Lilly announced a deal with Vir Biotech VIR and Glaxo GSK to expand its ongoing BLAZE-4 study to evaluate bamlanivimab (700mg) with Vir Biotech/Glaxo’s investigational COVID-19 antibody, VIR-7831 (500mg) in low-risk patients with mild-to-moderate COVID-19. Toward March end, the companies announced positive top-line data from the expanded phase II study — BLAZE-4 — evaluating a cocktail of these two antibodies in low-risk adult patients with mild-to-moderate COVID-19. The cocktail therapy achieved a 70% relative reduction in persistently high viral load after seven days of treatment compared to placebo. 

Adjusted gross margin was 75.4% in the quarter, down 490 basis points. Operating income rose 6% year over year to $1.87 billion.

2021 Guidance Narrowed

Lilly narrowed its financial guidance for 2021. Lilly expects adjusted earnings in the range of $7.80-$8.00 per share in 2021 compared with the prior expectation of $7.75-$8.40. The Zacks Consensus Estimate for earnings is $8.19 per share.

Revenues in 2021 are expected in the range of $26.6 billion-$27.6 billion, compared with $26.5 billion-$28.0 billion expected previously. The Zacks Consensus Estimate for sales is $27.45 billion.

Lilly expects revenues in the range of $1.0-$1.5 billion from COVID-19 therapies compared with the prior range of $1-$2 billion

Gross margin is expected to be approximately 79% (maintained). Adjusted tax rate is expected to be approximately 13% (previously 15%). Adjusted operating margin is expected to be 31% (previously 32%) in 2021.

Marketing, selling and administrative expense are expected to be in the range of $6.2 billion to $6.4 billion (maintained). Research and development expense is expected to be in the range of $6.9 billion to $7.1 billion, higher than $6.5 billion to $6.7 billion previously. R&D costs include investment of approximately $400 million to $500 million in developing COVID-19 therapies.

Our Take

Lilly’s first-quarter results were disastrous as it missed estimates for both earnings and sales. Lilly also narrowed its previously issued earnings and sales forecast for 2021 due to lower-than-expected demand for its COVID-19 antibody medicines and higher R&D costs.The stock was down around 4% in pre-market trading in response.

Lilly’s stock has risen 10.8% this year so far compared with an increase of 3.1% for the industry.

 

 

Nonetheless, Lilly expects its revenue growth to be driven by higher demand for key products including Trulicity, Taltz, Verzenio, Jardiance, Olumiant, Cyramza, Emgality and Retevmo.

However, generic competition for several drugs, rising pricing pressure in the United States due to increased rebates and legislated increases in Medicare Part D cost sharing and price declines in some international markets like China, Japan and Europe will continue to remain top-line headwinds in 2021. In the United States, prices are expected to decline in a low-to-mid-single digit range.

Lilly also made significant pipeline progress in the quarter, announcing positive data from studies on mirikizumab in ulcerative colitis, donanemab in Alzheimer's, tirzepatide in diabetes, and baricitinib in alopecia areata.

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

Eli Lilly and Company Price, Consensus and EPS Surprise

Eli Lilly and Company Price, Consensus and EPS Surprise
Eli Lilly and Company Price, Consensus and EPS Surprise

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