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Key Takeaways from Eli Lilly's (LLY) Q4 Earnings Report

Zacks Equity Research

Eli Lilly & Company’s LLY fourth-quarter and full-year 2018 results were mixed as it beat estimates for sales but missed the same for earnings.  While earnings of $1.33 per share rose 17% from the year-ago quarter, sales rose 5% backed by strong demand for its new drugs led by Trulicity, Taltz, Jardiance and Basaglar, which made up for lower sales of established products like Cialis and Forteo.

Other than the usual top and bottom-line numbers, Lilly’s CEO Dave Ricks also discussed Lilly’s outlook for 2019. He threw light on Lilly’s excellent pipeline progress in 2018 with internal and external innovation investments yielding multiple approvals, submissions, and positive phase III readouts, along with several significant first-in-class additions to the company’s late-stage pipeline

New Drugs to Drive Top-Line in 2019: Since 2014, Lilly has launched 10 medicines, the latest being its CGRP antibody for the preventive treatment of migraine, Emgality. Most of Lilly’s new drugs have been successful and are expected to account for 45% of Lilly’s pharmaceuticals sales in 2019, much higher than 34% in 2018. Meanwhile, most of these new drugsare also being evaluated for additional indications/label expansions.

At the Q4 conference call, management highlighted that in 2019, Lilly’s revenue should be driven by higher demand for its newer medicines including Trulicity, Jardiance, Taltz, Verzenio as well Emgality as some older drugs like erectile dysfunction medicine, Cialis face generic competition. Lilly lost exclusivity for Cialis in September 2018 and generic versions entered the market in the same month resulting in rapid erosion of sales.

Lilly expects U.S. regulatory action for its nasal glucagon for hypoglycemia and lasmiditan for acute migraine in 2019 as well as line extension approvals for several medicines, which could drive revenue growth in 2019. Loxo’s newly approved marketed drug Vitrakvi should also support the top line believes Lilly’s management. In January this year, Lilly announced a definitive deal to acquire small cancer biotech, Loxo Oncology, Inc. for $8 billion in cash.

Pipeline Successes in 2018: On the call, Dave Ricks also discussed the company’s significant pipeline progress in 2018 with several positive late-stage data readouts, multiple approvals and regulatory submissions. A key regulatory success for Lilly was the FDA approval of Emgality, which could emerge as a significant contributor to long-term growth. Other important approvals in 2018 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.

In fact, the pipeline successes were the key reason for the stock’s massive outperformance in the past year. Lilly’s shares have risen 55.1% compared with the industry’s increase of 5.2% in the said time frame.


New Collaboration and Loxo Acquisition Strengthens Portfolio: Lilly also added promising new pipeline assets in 2018 through business development deals. The pending acquisition of Loxo Oncology is expected to broaden the scope of Lilly's oncology portfolio into precision medicines. 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.

At the recently held prestigious J.P. Morgan Healthcare Conference, 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.

Headwinds Remain

Though new drugs should drive the top line in 2019, generic competition for several drugs including Cialis, rising pricing pressure in the United States and some international markets, currency headwinds and the impact of the failed Lartruvo study are expected to put pressure on the top line. We remind investors that in early 2019, Lilly announced that its drug Lartruvo, which had won conditional approval in 2016, failed to improve survival in patients with advanced soft tissue sarcoma in a late-stage confirmatory study, ANNOUNCE. With ANNOUNCE failing to confirm clinical benefit, Lilly stopped promoting Lartruvo.

In fact, the study failure and costs related to the pending acquisition of Loxo led Lilly management to lower the previously issued 2019 sales and earnings guidance. The earnings forecast was reduced from a range of $5.90 to $6.00 to $5.55 to $5.65 per share. Revenues are now expected to be between $25.1 billion and $25.6 billion in 2019, down from the prior expectation of $25.3 billion and $25.8 billion.

Importantly, all eyes will be on the performance of Emgality in 2019. It will face intense competition from other CGRP antibodies Amgen AMGN/Novartis’ NVS Aimovig and Teva Pharmaceutical's TEVA Ajovy. Both were launched in the United States in the latter half of 2018.

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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