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Can Lilly (LLY) Deliver a Beat in Coronavirus-Hit Q1 Earnings?

Zacks Equity Research

We expect Eli Lilly & Company LLY to beat expectations when it reports first-quarter 2020 results on Apr 23, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 13.82%.

The large drugmaker’s performance has been pretty impressive, with earnings beat in each of the trailing four quarters. The company has a four-quarter positive earnings surprise of 5.21%, on average.

 

Eli Lilly and Company Price and EPS Surprise

 

Eli Lilly and Company Price and EPS Surprise

 

 

 

 

 

 

 

 

Eli Lilly and Company price-eps-surprise | Eli Lilly and Company Quote

Lilly’s stock has risen 20.1% this year so far against a decrease of 1.3% for the industry.

 

 

Factors to Consider

Like the previous few quarters, strong demand for Trulicity, Taltz, Jardiance, Basaglar, Olumiant and Verzenio as well as new migraine drug, Emgality is likely to have driven sales in the first quarter, making up for the decline in sales of established products like Cialis due to loss of exclusivity.

However, rising pricing pressure in the United States due to rebates and legislated increases in Medicare Part D cost sharing, price cuts in some international market and currency headwinds are expected to have negatively impacted the top line in the first quarter of 2020.

Importantly, lower realized prices in the United States due to the abovementioned factors hurt sales of key drugs Trulicity and Taltz in the past two quarters. Prices were lower mainly in the United States due to higher contracted rebates, changes in segment mix and increased coverage gap funding requirements in Medicare Part D. The trend is likely to have continued in the first quarter.

Investors will be keen to know the sales numbers of Lilly’s newly launched products, glucagon nasal powder, Baqsimi and oral tablets to treat acute migraine, Reyvow (lasmiditan). Both medicines were approved last year. Also, Lilly should give sales numbers of Qbrexza, which was added to Lilly’s portfolio from this year’s acquisition of Dermira.

Importantly, on the first-quarter earnings call, investors will also focus on whether Lilly provides an updated business outlook for 2020 to include the impact of coronavirus. Supply chain disruptions, caused by the outbreak, are likely to hurt drug/biotech companies’ first-half earnings.

Meanwhile, with half of the world under a lockdown in the latter part of the quarter, completion of clinical studies is likely to have been delayed, which may postpone drug approvals and their launch. Last month, Lilly announced that it is halting enrollment in most ongoing studies and will delay new study starts in order to allow doctors and healthcare facilities to focus on efforts to combat the coronavirus disease, COVID-19.

Lilly’s laboratories have diverted resources to conduct diagnostic testing for COVID-19 patients and have been researching potential treatments for the disease.

Key Recent Developments

Last week, Lilly announced that the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health (NIH), will evaluate its rheumatoid arthritis  drug, Olumiant (baricitinib), as a potential treatment for hospitalized patients diagnosed with COVID-19. The drug will be evaluated in one of the arms of NIAID's Adaptive COVID-19 Treatment study. study will first begin this month in the United States and then expand to additional sites in Europe and Asia. Data from the studies are expected in two months’ time.

Alongside, Lilly announced that it will advance LY3127804, its monoclonal antibody that inhibits Angiopoietin 2 (Ang2), to phase II studies in pneumonia patients hospitalized with COVID-19 who are at a higher risk of progressing to acute respiratory distress syndrome. The phase II studies will begin later this month.

In March, Lilly signed a deal with private biotech, AbCellera to co-develop antibody therapies to treat and prevent COVID-19. To develop these therapies, the companies will select from more than 500 unique antibodies identified by AbCellera and isolated from the blood sample of a U.S. COVID-19 patient who recovered from the disease. The companies will equally share initial development costs for the antibody products after which Lilly will take care of further development, manufacturing and distribution.

Earnings Whispers

Our proven model predicts an earnings beat for Lilly in the soon-to-be-reported quarter because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for a likely positive surprise.

Earnings ESP: Lilly’s Earnings ESP is +1.67% as the Zacks Consensus Estimate of $1.55 is lower than the Most Accurate Estimate of $1.57. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Lilly has a Zacks Rank #2.

Other Stocks to Consider

Here are some large drug stocks that also have the right combination of elements to beat on earnings this time around:

AbbVie ABBV with an Earnings ESP of +1.64% and a Zacks Rank #3. The company is scheduled to release results on May 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Glaxo GSK has an Earnings ESP of +1.94% and a Zacks Rank #3. The company is scheduled to release results on Apr 29.

Novartis NVS has an Earnings ESP of +1.47% and a Zacks Rank #3. The company is scheduled to release results on Apr 28.

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