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Eli Lilly (LLY) Q4 Earnings Coming Up: What's in the Cards?

Zacks Equity Research

Eli Lilly and Company LLY will report fourth-quarter and full-year 2018 results on Feb 6, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 1.46%.

Lilly’s shares have risen 43.6% in the past year against the industry’s decline of 21.9%.

 

 

Lilly’s earnings performance has been pretty impressive. Its earnings beat expectations in each of the last four quarters, with the average positive surprise being 10.03%.

 

Eli Lilly and Company Price, Consensus and EPS Surprise

 

 

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

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

Factors to Consider

In the fourth quarter, the company expects earnings in the range of $1.33 - $1.38 per share. This represents a sequential decline from third-quarter levels due to U.S. generic competition for key drug Cialis in September, higher R&D costs in the fourth quarter, and launch costs for its newly launched CGRP antibody Emgality. Also, backing out the non-controlling interest portion of Elanco profits is expected to have 2 to 3 cents negative impact on earnings in the fourth quarter. Lilly divested its Elanco animal health unit as an independent publicly traded company - Elanco Animal Health Incorporated ELAN - via an initial public offering (IPO) of a minority stake in 2018.

Like the previous couple of quarters, strong uptake trends of new products like Trulicity, Taltz, Basaglar, Cyramza, Jardiance and Verzenio are likely to make up for the decline in sales of established products like Strattera, Cialis, Effient and others due to loss of exclusivity.

The Zacks Consensus Estimate for Trulicity, Basalgar, Taltz, Jardiance and Cyramza’s fourth-quarter revenues is $928 million, $208 million, $300 million, $191 million and $206 million, respectively.

Investors will be keen to know the sales numbers of new products like rheumatoid arthritis drug Olumiant (baricitinib) and advanced breast cancer treatment, Verzenio. Olumiant was launched in select European countries and in Japan in 2017 and in the United States, only for the lower dose, in June 2019. Verzenio was launched in the Unites States in the fourth quarter of 2017.

Verzenio, so far, has generated impressive sales. In February, Verzenio gained FDA approval in the first-line setting while the drug was approved in Europe and Japan in the third quarter. These line extensions could prove to be significant growth drivers for the drug in the fourth quarter. The Zacks Consensus Estimate for Verzenio fourth-quarter sales is $110 million.

Olumiant is doing well in Europe backed by launch uptake in new markets. However, in United States, sales have been unimpressive. We expect the trend to continue in the fourth quarter.

Investor focus will also be on management’s comments on the initial launch uptake of Emgality which gained FDA approval in September and could emerge as a significant contributor to long-term growth.

However, the loss of exclusivity in some countries for Cialis, Effient, Strattera, Zyprexa, Cymbalta and Evista will hurt volumes. In September, Teva Pharmaceuticals (TEVA) announced the launch of a generic version of Cialis, which is expected to result in rapid erosion of sales of the branded drug in the fourth quarter. The Zacks Consensus Estimate for fourth-quarter Cialis sales is $258 million.

Other older drugs like Forteo, Zyprexa and Erbitux might also record lower sales.

Earlier this month, Lilly announced that Lartruvo, which had won conditional approval two years back, failed to improve survival in patients with advanced soft tissue sarcoma in a late-stage confirmatory study, ANNOUNCE. Continued approval was contingent on verification of clinical benefit in a confirmatory study. With ANNOUNCE failing to confirm clinical benefit, Lilly said it will stop promoting Lartruvo while being in discussion with global regulators to determine the next steps for the drug. Though the negative update might not have any impact on fourth-quarter results, sales of the drug should decline sharply in 2019.

In early January, Lilly announced a definitive deal to acquire small cancer biotech, Loxo Oncology, Inc., for $8 billion in cash. In the quarter, Lilly also announced several collaboration deals including one with Aduro Biotech to develop cGAS-STING Pathway Inhibitors; with Hydra Biosciences for a pre-clinical pain candidate; Swiss biotech AC Immune to jointly develop Morphomer tau aggregation inhibitors and a cancer collaboration with small biotech, NextCure, Inc. Lilly management is expected to face numerous questions on its future plans for these acquisitions/collaborations.

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 0.00% as both the Zacks Consensus Estimate as well as the Most Accurate Estimate is pegged at $1.36. 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

Large pharma stocks that have both a positive ESP and a favorable Zacks Rank include:

Merck & Co., Inc. MRK has an Earnings ESP of +0.97% and a Zacks Rank of 3. The company is scheduled to report fourth-quarter earnings on Feb 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Novo Nordisk A/S NVO has an Earnings ESP of +0.89% and a Zacks Rank #3. The company is slated to release results on Feb 1.

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