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Lilly (LLY) Beats on Q3 Earnings, Explores Sale of Elanco

Zacks Equity Research

Eli Lilly and Company LLY reported third-quarter 2017 adjusted earnings per share of $1.05, which beat the Zacks Consensus Estimate of $1.03 per share by 1.9%. Earnings rose 19% from the year-ago quarter backed by volume driven pharma sales growth and higher operating profits.

Revenues Beat

Quarterly revenues of $5.66 billion also beat the Zacks Consensus Estimate of $5.52 billion by 2.5%. Sales grew 9% year over year backed by strong performance of the new drugs as well as Lilly’s diabetes products. Lilly’s diabetes products recorded revenue growth of 39% worldwide.

Volumes rose 7% as a strong performance of new products like Trulicity, Taltz, Basaglar, Jardiance and Lartruvo offset decline in sales of established products like Zyprexa, Alimta, Cialis, Strattera and Effient. Higher realized prices for several drugs also contributed 2% to sales growth in the quarter.

Revenue in Detail

Pharmaceutical revenues rose 10% in the quarter backed by 14% volume growth of the new products.

While U.S. revenues grew 9% to $3.1 billion, ex-U.S. revenues rose 8% to $2.55 billion.

Established products that recorded growth during the quarter include Forteo (up 13% to $441.7 million) and Humalog (up 9% to $696.2 million). Sales of all other established products declined in the quarter.

Alimta sales declined 10% to $514.5 million, reflecting lower demand in the United States due to competitive pressure, mainly from immuno-oncology agents. Outside the United States., sales of Alimta were hurt by loss of exclusivity in several countries, increased competition and lower realized prices.

Zyprexa sales declined 6% to $140.6 million due to loss of exclusivity.

Humulin sales decreased 7% in the quarter to $300.5 million due to lower realized prices and unfavorable buying patterns in China.

Cialis sales declined 4% to $564.9 million hurt by lower demand in the United States as well as increased competition from generic sildenafil

Erbitux sales declined 11% to $163.5 million in the quarter. Strattera sales declined 31% to $137.1 million. Cymbalta sales declined 42% to $183.2 million. Effient sales declined 56% to $55.9 million in the quarter.

Among the new products, Trulicity generated revenues of $527.7 million, up 117% year over year, with U.S. revenues benefiting from growth in the GLP-1 market and market share gains.

Cyramza revenues were $196.0 million, up 23% year over year, backed by continued strong outside U.S. revenues and improved U.S. revenues. Cyramza’s ex-U.S. revenues benefited from strong volumes in Japan. U.S. revenues increased 4% driven by increased volume.

Jardiance sales (up 168% to $127.2 million) were driven by increased market share within the growing SGLT2 class.

Basaglar recorded revenues of $145.7 million compared with $86.6 million in the previous quarter backed by strong launch uptake. Basaglar - Lilly and partner Boehringer Ingelheim’s follow-on insulin to Sanofi’s SNY blockbuster drug, Lantus - was launched in the United States in mid-December 2016 where it generated revenues of $115.2 million in the quarter.

Taltz brought in sales of $151.3 million compared with $138.7 million in the previous quarter, reflecting strong launch uptake.

Lartruvo (olaratumab) generated revenues of $54.5 million in the third quarter of 2017 compared with $47.4 million in the previous quarter. Lartruvo was launched in the United States and the EU for soft tissue sarcoma in the fourth quarter of 2016.

Lilly and partner Incyte Corporation’s INCY rheumatoid arthritis (RA) drug Olumiant (baricitinib) has been launched in select European countries and in Japan. The drug generated sales of $16.2 million in the third quarter of 2017 compared with $4.8 million in the previous quarter backed by strong launch uptake in Germany.

However, in the United States, Lilly received a complete response letter (CRL) from the FDA for baricitinib in April for want of additional data. In August, Lilly and Incyte announced that they will re-submit the NDA for baricitinib much faster than previously expected. The NDA is expected to be re-submitted before the end of January next year.

Lilly's Elanco Animal Health segment sales rose 5% to $740.6 million due to inclusion of revenues from the acquisition of Boehringer Ingelheim Vetmedica's U.S. feline, canine and rabies (acquired in January 2017). However, worldwide competitive pressure continued to hurt sales in the segment.

Concurrent with the earnings release, Lilly said that it is exploring strategic alternatives for the Elanco Animal Health business including a sale, merger or creating a separate company through an initial public offer. A decision regarding the same is expected to be made no later than the middle of next year and Lilly may ultimately opt to retain the business.

Gross Margin Down but Operating Income Rises

Adjusted gross margin of 75.1% in the quarter decreased 130 basis points as manufacturing efficiencies were offset by negative product mix and the effect of foreign exchange rates on international inventories sold.

Operating income increased 18% to $1.38 billion. Total operating expenses, as a percent of revenues, declined 310 basis points in the quarter to 50.8%.

2017 Outlook Upped

Lilly raised its previously issued 2017 adjusted earnings and sales outlook for the second time this year. Adjusted earnings per share are now expected in the range of $4.15 to $4.25 compared with $4.10 to $4.20 expected previously. Revenues are expected in the range of $22.4 billion and $22.7 billion, up from $22.0–$22.5 billion expected previously.

Gross margin is expected to be approximately 76%, same as previously expected. Adjusted tax rate is still expected to be approximately 21% (previously approximately 22%).

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 compared with $5.0-$5.2 billion expected previously.

Our Take

Lilly’s third-quarter 2017 results were strong with the company beating estimates on both counts. The pharma giant also raised its sales and earnings outlook for the year. The increase in revenue guidance was supported by strong uptake trends of the new products and also, to some extent, due to the positive impact of Euro.

Shares were up 2.6% in pre-market trading. So far this year, Lilly’s share price has risen 18.5% compared with an increase of 20.2% for the industry.

Going forward, new products like Trulicity, Taltz, Basaglar, Cyramza, Jardiance and Lartruvo are expected to see higher revenues. Lilly also expects some established products like Trajenta, Forteo and Humalog to continue doing well. Lilly is also progressing well with its pipeline. Earlier this month, Lilly gained FDA approval for Verzenio (abemaciclib), a CDK 4/6 inhibitor for metastatic breast cancer. Since 2014, Lilly has launched nine medicines, including Verzenio and plans to launch eleven more by 2023.

However, Alimta will continue to be impacted by competition. Other headwinds include competition from immuno-oncology agents as well as loss of exclusivity for many drugs in emerging markets.

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

Biogen Inc. BIIB, which also reported third-quarter results today, beat estimates for both earnings and sales. However, its shares were down more than 2% in pre-market trading as sales of its multiple sclerosis drug Tecfidera declined sequentially in the quarter.

Eli Lilly and Company Price, Consensus and EPS Surprise


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

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