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Lilly Issues Guidance for 2018, New Drugs to Drive Top Line

Zacks Equity Research

Eli Lilly and Company LLY issued financial guidance for 2018, which was in line with market expectations. The company also re-affirmed the previously issued 2017 projection as well as its long-term expectations.

Shares were up more than 1% in Wednesday. So far this year, Lilly’s share price has risen 19.5% compared with an increase of 17.7% for the industry.

2018 Forecast

In 2018, adjusted earnings per share are expected to be between $4.60 and $4.70, representing growth in the range of low double digit. Revenues are expected to be between $23.0 billion and $23.5 billion, representing growth of about 3% at the mid-point of 2017 and 2018 ranges. Foreign exchange impact is expected to benefit revenues by about 90 basis points. The Zacks Consensus Estimate for sales and earnings is pegged at $23.07 billion and $4.66 per share, respectively.

Lilly’s new products like Trulicity, Taltz, Basaglar, Cyramza, Jardiance, Verzenio and Lartruvo have been driving revenues and the trend is expected to continue in 2018. Strong uptake trends of Lilly’s new drugs have been instrumental in leading the company to increase its 2017 sales outlook twice this year.  

However, competitive pressure on Lilly’s drugs is expected to rise next year. Novo Nordisk’s NVO Ozempic/semaglutide, which received FDA approval this month, can pose strong competition to Lilly’s key new growth driver, Trulicity on launch. Meanwhile, Sanofi’s SNY Admelog, the biosimilar version of Lilly’s blockbuster rapid-acting insulin Humalog, which also received FDA approval this month, can hurt sales of Lilly’s branded drug on launch. As it is, the company is facing loss of exclusivity on a number of its products in various markets while pricing headwinds are hurting sales of its older diabetes products.

As far as its pipeline is concerned, in 2018, the company expects regulatory action on its rheumatoid arthritiscandidate, Olumiant/baricitiniband migraine preventioncandidate galcanezumab. While a new drug application (NDA) for galcanezumab already under review in the United States, a NDA for Olumiant is expected to be re-submitted in January. We remind investors that in April this year, Lilly received a complete response letter (CRL) from the FDA for Olumiant. The FDA required additional clinical data, which will delay the approval of the drug. Olumiant was approved in the EU in February. The company also expects label expansions for its newly launched breast cancer drug, Verzenio.

Marketing, selling and administrative expenses are expected in the range of $6.1–$6.4 billion, while research and development expenses are projected to be $5.0–$5.2 billion. Adjusted gross margin is expected to be approximately 75%. Adjusted tax rate is expected to be approximately 21.5%.

Importantly, the company mentioned that the guidance assumes no major healthcare reform in the United States and continuation of current US corporate tax system.

2017 Guidance Reaffirmed

Lilly maintained its previously issued 2017 adjusted earnings and sales outlook for 2017. Adjusted earnings per share are expected in the range of $4.15 to $4.25. Revenues are expected in the range of $22.4 billion and $22.7 billion. Gross margin is expected to be approximately 76%. Adjusted tax rate is expected to be approximately 21%.

Marketing, selling and administrative expenses are still expected in the range of $6.4–$6.6 billion, while research and development expenses are projected to be $5.1-$5.2 billion.

Long-Term Targets in Place

Lilly further reiterated its annual revenue growth target of at least 5% through 2020 on a constant-currency basis backed by robust volumes. Additionally, the company expects operating margin (excluding currency impact on international inventories sold) to be at least 30%, as a percentage of revenues, in 2020.

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

A better-ranked stock in the biotech/genetics sector is Emergent BioSolutions Inc. EBS with a Zacks Rank #1 (Strong Buy).

Emergent BioSolutions’ earnings estimates have moved up by 11.5% for 2018 over the last 7 days. Share price of the company has risen 40.3% year to date.

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